SBP developing strategy for settlement of loans

Karachi—Lending a strong supporting hand to the SMEs, microfinance and agriculture sectors which are badly damaged by the flash flood the write-offs of existing loans are under consideration where prospects of recovery are slim.

In this respect, the State Bank has constituted committees in the areas of SMEs, Microfinance & Agriculture and General Relief activities to develop a strategy for the settlement of existing loans and provision of fresh credit in the affected areas.

Explaining the remedial steps Shahid Kardar, Governor State Bank of Pakistan gas said that the State Bank generally discourages such interventions as they create market and price distortions, promote mis-allocation of scarce credit resources and have monetary implications. However, keeping in view the special circumstances, decision makers may wish to consider a combination of such activities for a limited period, say two years, for flood affected areas, with the cost to be borne by the Federal Government.

The Central bank in consultation with the Federal Government and donors is also deliberating on deferral of Loan Repayment for 2 years – Restructuring/Rescheduling of overdue loans and reduced Mark up for 2 years provided the interest differential between mark up charged and KIBOR (for banks) or Average Market Rate (for MFBs) is borne by the GOP for the period.Other recommendations of the committees including exemption from additional provisioning requirements for one year, rovisioning of fresh credit at subsidized rate through the SBP refinance window for 2 years at 8 percent per annum with a bank spread of 3%, Credit guarantee schemes on a 30% first loss sharing basis with funding support of GOP & multilateral agencies, besides expanding the scope of existing Microfinance Credit Guarantee Facility (MCGF) to raise the additional borrowing requirements of Rs 3 billion for fresh lending in affected areas by Microfinance Banks (MFBs) with the funding support of GOP and multilateral agencies.

Speaking at a Roundtable Discussion on ‘Damage Assessment of Floods and Implications for the Financial Sector’Shahid H. Kardar said that the recent floods – the biggest natural calamity in the country’s history – provide an opportunity for the banking industry to increase financial inclusion, diversify its products on sustainable basis and play its due role in rebuilding the national economy.

Flood-hit farmers: Govt asked to offer cheap loans

ISLAMABAD: The National Assembly Standing Committee on Food and Agriculture has suggested to the government to disburse the $900 million World Bank loan to the flood-hit farmers at one per cent interest rate and declare the entire cropping zone as ‘calamity area’.
 

The committee which met here on Thursday also demanded the government to draw a relief policy for the flood-affected areas and recommended that long-term loans granted by all commercial banks and Zarai Taraqqiati Bank Ltd (ZTBL) should be waived.

It also asked the government to pay Rs56 billion to the ZTBL which were waived in the past. The committee asked the ZTBL to dispose of the claims of farmers affected by the flood on priority basis.

The meeting chaired by Javed Iqbal Warraich asked the ministry of food and agriculture to issue notification for declaration of calamity area in view of cropping zone, disease zone and crop susceptibility. The ministry should also devise the crop insurance policy.

The committee asked the ZTBL to issue loans on war-footing to rehabilitate agricultural land damaged by floods. At the same time, the ministry of food and agriculture should develop a comprehensive working plan for detailed survey of flood-hit areas, including a water policy for irrigation purposes.

With regard to establishing model villages, the Standing Committee suggested to re-name the scheme. It decided to visit such a village in Sargodha district.

The committee recommended that the ZTBL should reorganise and improve its credit scheme, and introduce innovation and modern technology of tractors, tube-wells, to farmers through private sector.

With regard to insurance policy, the committee recommended that the ZTBL should devise a clear loan policy for individual small farmers. In this regard, a full working plan should be prepared by the ministry of food and agriculture in collaboration with the ministry of finance, FBR and insurance companies.

The committee asserted that ZTBL should come up with efficient ways to revolutionise agricultural lending. The bank should devise strategies for lending to small and marginalised farmers. It should also ensure lending to farmers in livestock, dairy and fisheries and for development purposes including farmers in livestock and dairy fisheries.[DAWN]

IMF agrees to release installment

ISLAMABAD: The International Monetary Fund (IMF) has agreed to release the next instalment of $1.2 billion of the Standby Arrangement Programme. The decision followed assurances over the implementation of reformed General Sales Tax (GST) from October 1.

However, a final decision on the release of the loan tranche will be taken later by the IMF Board.

The Fund has also agreed to relax some of the economic targets previously set for fiscal 2010-11, according to a senior member of the Pakistani delegation. This includes a further reduction in the tax collection target from Rs1,604 billion earlier proposed by the Federal Board of Revenue, according to sources.

The IMF delegation expressed reservations about the expected failure to achieve the economic targets for the July-September quarter set during the last meeting between the two sides.

The failure to implement reformed GST, eliminate subsidies on electricity and limit government borrowing from the central bank were the issues raised by the IMF during the discussions.

The IMF added that the next instalment shall be contingent upon the fulfilment of economic targets agreed upon during the meeting.

In response, the Pakistani delegation explained that the delay in the implementation of reformed GST was due to the failure of negotiations between Islamabad and the provinces regarding the collection and distribution of GST on services.

However, they informed the IMF that reconciliation between the provinces and the federal government was likely soon.

The Pakistani delegation also provided a schedule for the elimination of subsidies on electricity and outlined a plan of action to meet the shortage of electricity and other economic challenges, sources said.

The IMF was apprised that economic targets will be revised downwards after estimates of flood losses are made available. They outlined the damages caused by massive flooding to the infrastructure and economy and offered a conservative estimate of $5 billion in losses. The delegation predicted that the agriculture sector will suffer the most in the aftermath of the floods and hence GDP growth will be stunted. The balance of payments will worsen as the trade deficit widens following increased imports of foodstuff and agricultural inputs.

As a result, the IMF has agreed to relax the conditions for the next instalment, but subsequently stressed the realisation of reformed GST schedule from October 1.

According to sources, the delegation will also attempt to obtain additional emergency funding of around $2 to $3 billion for the reconstruction of areas affected by the floods.

Published in The Express Tribune, August 27th, 2010.

Incentives for flood-hit farmers

The government has decided on a number of incentives for farmers to enable them to recover the losses caused by floods and grow essential crops to meet the country’s food requirements.

The incentives were discussed at a high-level meeting presided over by President Asif Ali Zardari at the Presidency on Tuesday.

Fears were expressed at the meeting that the country might experience a food crisis in near future because of widespread damage to crops from the floods.

The meeting was informed that over one million people in Khyber Pakhtunkhwa and Gilgit-Baltistan had received no relief goods so far because the authorities concerned had failed to reach the areas, a source said.

These families are stranded on mountains and in far-flung areas where rescue and relief teams have no access.

Presidential spokesman Farhatullah Babar said the meeting had decided to encourage farmers to sow canola in flood-affected areas early next month and help them with seed and other inputs and land preparation to make optimal utilisation of land before the Rabi wheat season in November this year.

The meeting also decided to increase the purchase price of canola from Rs1,600 to Rs1,800 per 40kg.

The Solvent Plant Association has already given an assurance to purchase the crop at Rs1,800 per 40kg. Canola cultivation will not only relieve pressure on foreign exchange needed for import of edible oil but also improve fertility of the soil, the meeting was informed.

The meeting was attended by, among others, Shah Mehmood Qureshi, Nazar Mohammad Gondal, Mir Humayun Aziz Kurd, Rana M. Farooq Saeed Khan, M. Salman Faruqui and Zaka Ashraf.

The meeting was informed that the canola crop would be followed by cotton. The president advised the government to provide free supply of seed to canola growers and help them to start early next month which is the right time to sow canola.

He asked the Ministry of Food & Agriculture to assess agricultural losses, including the loss of stored seeds and other agricultural items, and suggest measures to compensate the losses during the Kharif crop with the coming Rabi crop.

The meeting agreed that farmers in the affected areas should be provided maximum help in procurement of seed and other required items for their crops.



Mr Zardari asked the president of ZTBL to work out a scheme of providing financial assistance to farmers in affected areas to enable them to grow their crops and compensate their losses.

The Pakistan Agriculture Research Council was asked to carry out a study on the impact of climatic changes in the wake of the unprecedented floods.

Agencies add: Mr Zardari said that Pakistan could take years to recover from the floods. The president expressed concern that militants would try to exploit the chaotic situation in the country.

“I see always such organisations and such people taking advantage of the human crisis,” he said in an interview published in Britain’s Independent newspaper on Tuesday.

“It is again a challenge to not let them take advantage of this human crisis.”
[DAWN]