State Bank of Pakistan (SCP) claimed that its policy initiatives and support measures are estimated to have provided a stimulus of around Rs. 1.6 trillion in economy, which is equivalent to 3.9 percent of GDP.
According to the SBP’s Annual Report FY20, the successful implementation of deep-rooted fiscal and monetary structural reforms in the first half of the fiscal year facilitated rolling out of unprecedented policy support measures to combat the COVID-19 shock.
Besides lowering the borrowing cost through aggressive monetary easing, SBP introduced targeted schemes to support employment, health sector and investments in new/existing projects to stimulate the economy.
These included, the introduction of new refinance schemes to prevent businesses from laying off workers (the Rozgar Scheme), encouragement of investment activities through Temporary Economic Refinance Facility (TERF) and providing support to eligible hospitals (Refinance Facility for Combating COVID-19), in addition to enhancing the scope and coverage of the existing concessional refinance schemes.
The host measures include a reduction in Capital Conservation Buffer, launching of a comprehensive package to facilitate the borrowers in restructuring or deferment of the principal amount of their loans, decrease in the debt burden ratio for consumer finance and relaxation of the margin requirement for exposure against shares of listed companies.
SBP advised banks to waive charges on online fund transfer services to limit the physical contact of customers at branches, promote the use of Alternate Delivery Channels (ADCs) e.g. ATMs, online banking, phone banking, ensure availability of 24/7 ADC-related customer support, enable digital collection of all challans and invoice-based payments such as education fee, offer loan repayments facility through digital channels, among other measures.
In FY20, despite the pandemic, the country’s external accounts improved markedly due to effective monetary and exchange rate policies along with fiscal consolidation. Another notable factor is the successful transition of the exchange rate system to a flexible market-based system which helped tame the current account deficit while the average annual inflation in FY20 on the basis of the new-base was 10.7 percent, slightly below SBP’s projection of 11-12 percent at the start of the year.
SBP’s FX reserves also registered strong growth during FY20 with an annual increase of USD 4.8 billion whereas remittances increased to a record high at $23.12 billion, despite the unprecedented global dislocation caused by the COVID-19 pandemic.
To enhance financial inclusion in these unprecedented times, SBP took several steps: 800 new branch licenses were issued to commercial banks/ microfinance banks during FY20; 23 percent of the licenses were issued for branches in rural, underserved and unbanked areas; and special focus remained on the priority areas of Balochistan, Khyber Pakhtunkhwa, AJK and Gilgit Baltistan for which 164 new branches were approved during FY20.
Growth in the key indicators of Branchless Banking was also encouraging, which will help pave the way for the adoption of digital channels and the use of banking services in the country. The Islamic Banking Industry also witnessed significant growth during FY20. The assets and deposits of the Islamic Banking Industry grew by 21.4 percent and 22 percent respectively, which is an encouraging sign for financial inclusion.
Similarly, Microfinance Banks’ assets base crossed Rs. 400 billion from Rs. 350 billion recorded in the previous corresponding period.
SBP took various regulatory measures to promote digital payments during the COVID-19 pandemic including strengthening the legal and oversight framework of payment systems, digital onboarding of merchants, facilitation regarding paper-based clearing operations, standardization of QR Codes, improving payments card acceptance in Pakistan, enhancing cyber resilience and improving the Large Value Payment and Settlement System.
Furthermore, during FY20, Prime Minister’s Kamyab Jawan Youth Entrepreneurship Scheme (PMKJ-YES) was launched to enable youth to avail affordable financing for starting up a new business or strengthening their existing business. The scheme will also promote entrepreneurship and reduce unemployment in the country.
With a view to promote long-term finance, SBP also issued instructions for targets of financing for banks to extend mortgage loans and financing for developers and builders to promote housing and construction activities in the country, as envisioned by the Government of Pakistan (GoP). Banks would be required to increase their housing and construction of building loan portfolios to at least 5 percent of their private sector credit by the end of December 2021.