KARACHI: Pakistan Stock Exchange (PSX) Chairperson Dr Shamshad Akhtar urged the government on Friday to do away with refinance schemes in order to promote capital markets.

The federal government provides industrialists with subsidised loans through the State Bank of Pakistan (SBP), which help them grow their production and export earnings. However, refinance schemes also turn away growing businesses from the capital markets — the traditional avenue for raising funds by selling shares and debt instruments to the general public.

Dr Akhtar, who previously served as SBP governor, said such schemes create a distortion in the economy and deter companies from getting listed on the stock exchange.

Currently, the SBP is offering multiple schemes for export financing, long-term financing, SME financing, renewable energy financing, storage of agricultural produce financing, modernisation of SMEs financing and home financing.

Tarin acknowledges subsidised loans create distortions

“The government needs to scale down these schemes,” she said while addressing a ceremony to mark the beginning of trading in Pak Agro Packaging Ltd, the first small and medium enterprise (SME) that’s been listed on the Growth Enterprise Market (GEM) board of the PSX.

The SBP aggressively promoted its refinance schemes in the immediate aftermath of Covid-19 to minimise the pandemic’s economic impact. For example, approved financing under the Temporary Economic Refinance Facility — aimed at promoting new investment and expansion and/or Balancing, Modernisation and Replacement — amounted to Rs436 billion at the end of its maturity on March 31.

Similarly, subsidised loans approved for hospitals amounted to Rs17.8bn at the end of June 30. “I understand that the country needed some cushion during Covid-19. But such schemes distort the financial flows to the capital markets,” she said.

Responding to Dr Akhtar’s comments, Adviser to the Prime Minister on Finance and Revenue Shaukat Tarin acknowledged refinance schemes indeed create market distortions. However, he said all developing economies encourage such policies to enhance their industrial output and export earnings.

“Our competitors are also incentivising their exporters. We have to match their incentives,” he said, noting that the government may “rationalise” these schemes going forward. “But we won’t do it in a knee-jerk fashion.”

Speaking on the occasion, PSX Managing Director Farrukh H. Khan said investors face a “tax-driven distortion” in the returns of different asset classes, which is hindering the efficient allocation of resources.

He said the number of stock market investors is now increasing after flat-lining for five years. “So far in this fiscal year, we’ve had four main-board listings and two GEM listings,” he said while demanding that the government should restore the tax credit for the newly listed entities.

Published in Dawn, November 27th, 2021