Caretaker Minister for Finance, Revenue and Economic Affairs, Dr Shamshad Akhtar on Friday termed the successful conclusion of the first review of the International Monetary Fund (IMF) loan programme, “a proud moment”.
“For us, it is a proud moment as a team to have this [IMF review] concluded,” said the interim finance minister while addressing the inauguration of National Credit Guarantee Company Limited (NCGCL).
“I heard that last night, all the Executive Directors [of the IMF] were full of praise and paid tribute to the way the first review of the IMF programme has been concluded effectively,” she added.
Macroeconomic conditions ‘have generally improved, but outlook remains challenging’, says IMF
The remarks come after the Executive Board of the IMF on Thursday completed the first review of Pakistan’s economic reform programme supported by the IMF’s SBA. The Board’s decision allows for an immediate disbursement of SDR 528 million (around $700 million), bringing total disbursements under the arrangement to SDR 1.422 billion (about $1.9 billion).
Pakistan’s 9-month SBA was approved by the Executive Board on July 12, 2023, in the amount of SDR 2.250 billion (about $3 billion at the time of approval).
Meanwhile, addressing the event, Dr Akhtar termed the launch of NCGCL, which is a joint venture between the Ministry of Finance and Karandaaz, another proud moment.
She said that NCGCL, Pakistan’s first specialized credit guarantee company for SMEs, “would have the power to catalyze the transformation of the SME landscape in the country”.
This would be achieved by “developing the architecture of mitigation mechanism,” she said. NCGCL will work with financial institutions to ensure the availability of credit in the market, said Akhtar.
The caretaker minister highlighted the market challenges faced by the SME sector in the country including skewed and inefficient allocation of finances, information asymmetry, systemic market risks, and the concentration of SMEs in the informal sector.
“Credit to the private sector has grown from Rs7.9 trillion to almost Rs11.67 trillion for September 2020 to September 2023,” she said. “However, it has declined as a percentage of the total bank assets from 33% to 27% over the same period,” she said.
Dr Akhtar noted that the country’s financial system ends up servicing fiscal demand or large corporate “leaving a tremendous investment gap for other priority sectors, such as SMEs and agriculture.”
“We have to acknowledge that private sector credit allocation to SMEs is only around 5.2%, a decline from 7.7% in the last five years in Pakistan,” she said.
“It is significantly lower as compared to countries in South Asia, which has an average of over 17%. Undoubtedly, they do better on exports and competitiveness,” she said.
“If Pakistan delivers the South Asian average of 17.1%, it would offer about 9% impetus to the total GDP.”
Dr Akhtar highlighted that the SME sector in Pakistan accounts for 90% of the formally registered businesses, which contributes to around 40% of the GDP.
She said that the inadequate investment in the SME sector “has hindered Pakistan’s sustainable growth and development.”
Representatives from the British High Commission, SECP, State Bank of Pakistan (SBP) and Ministry of Finance participated in the event.
Comments