In its recent statement, the Pakistan Textile Council (PTC) addressed the Temporary Economic Refinance Facility (TERF) provided by the State Bank of Pakistan (SBP).
A Key Component of Pakistan’s Covid Package
The PTC emphasized that TERF was launched as part of the Covid package in April-May 2020, with a sunset date set for March 2021. The PTC highlighted that during these unprecedented times, Pakistan, like the rest of the world, took steps to support its manufacturing and social sectors. The TERF package played a crucial role in enhancing Pakistan’s productive industrial capacity, generating more employment opportunities, and pushing the economic frontier forward.
Achievements and Objectives of TERF
The PTC’s statement outlined that the Monetary Policy Committee (MPC) of the SBP had reduced the policy rate by 100 basis points to 8 percent during its meeting on May 15, 2020. This decision followed a cumulative reduction of 525 basis points in the preceding two months. In an effort to counter the contracting impact of reduced economic activity, the rate was further lowered to 7 percent on June 25, 2020.
The PTC emphasized that TERF, along with other initiatives launched by the SBP, aimed to stabilize economic activity and consumer confidence in the face of the Covid crisis. TERF, specifically, was designed to provide financing for machinery, stimulating additional investments in building and ancillary facilities. Notably, TERF loans were priced at a maximum of 7 percent, aligning with the reduced policy rate in June 2020.
The PTC highlighted the significant advantages of TERF, which led to a surge in capital investments throughout Pakistan. The resulting benefits are expected to accrue in the coming years, with increased exports attributed, in part, to the newer, more productive, and energy-efficient investments facilitated by TERF. The textile sector, among others, made investments across its value chain, resulting in improved product quality, enhanced capacity, and higher export volumes.
The statement concluded by underscoring the broader issue of the non-availability of long-term funding at competitive rates for exporters. While TERF addressed this concern effectively, it was a one-off initiative. Pakistan needs to focus on addressing the development of capital markets to ensure the availability of long-term capital at competitive rates, enabling sustained investment and international competitiveness.
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