EDITORIAL: Federal information minister Shibli Faraz has stated that the government is taking every possible step to mitigate hurdles facing the construction industry - an objective premised on the established fact that construction industry can jump-start a country's growth as it impacts positively on more than 40 sub-sectors while providing skilled and unskilled job opportunities to hundreds of thousands. In this initiative, the government has incorporated Prime Minister Imran Khan's pledge to provide housing for the poor and vulnerable requiring special incentives and/or subsidies. A Naya Pakistan Housing Authority has been set up for the purpose, the inclusion of the word naya (new) reminiscent of Pakistan Tehrik-i-Insaaf's slogan, envisages one-window operation, subsidised credit availability of 5 percent for a 5 marla house and 7 percent for a 10 marla house (incidentally the discount rate at present is 7 percent) and the direction by the State Bank of Pakistan to commercial privately-owned banks, as well as the few state-owned banks, to keep aside 330 billion rupees for 18 months for this purpose. And as per the Prime Minister, an amnesty scheme, the second during the PTI's 22 months in power, which would not require a builder/developer to reveal his source of income, would be available till the end of this calendar year.
The key question is whether these measures are likely to prove effective? First off, this is not the first time that banks have been issued directives to dedicate a part of their loan portfolio to a specific sector, nor is it the first time that an administration has focused on providing housing to the poor. However, one lesson learned from the past is that while such directives were issued by the central bank yet their implementation on the ground was poor because subsidised credit was hijacked by the rich and the influential - a hijacking in which banks were complicit because they were naturally hesitant to extend credit to those with little or no collateral or credit history. A better lesson learned would have been to look at the models in Western countries where dedicated mortgage companies were set up focused on providing credit for house purchase.
It is not clear whether the government will accept the offer to construct these low-cost houses from a foreign-owned company, reports earlier this year sourced to the Prime Minister, indicated interest by Turkish and Chinese companies; however, it is relevant to note that the government may park this inflow under the coveted foreign direct investment yet it would imply a larger outflow in the medium term which in effect would raise our foreign exchange liability. It may be recalled that a Turkish company was engaged to construct Shahbaz Sharif's Aashiana Housing Scheme for the poor under public-private partnership, which is currently under investigation by NAB.
Secondly, the PTI government has, for the second time in less than year, insisted that the 'no questions asked' policy will be the very last on offer with the scheme expiring on 31 December 2020; however, would this imply that the Federal Board of Revenue (FBR) would not query or track the source of the funds at a later date? Pakistan is under caution by the Financial Action Task Force (FATF) that until and unless it takes time-bound specified mitigating measures with respect to money laundering it would face sanctions and; under the ongoing International Monetary Fund programme there is provision to monitor implementation of the FATF conditions. True that the coronavirus and its serious negative implications on the people in general and the poor in particular have given this government a reprieve in terms of extending the date of the time-bound actions yet it is unlikely that the FBR would not ask questions as to the source of funds.
Irrespective of the Prime Minister's good intentions and notwithstanding a subsidy of 30 billion rupees budgeted for the current year, the scheme would require a robust and continuing monitoring process to remove implementation barriers to ensure its success so that this scheme may have the desired impact on the economy and the lives of people.
Copyright Business Recorder, 2020
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