Since its ouster, the PTI regime has come under fire on a myriad of issues where the government and its policies have been vehemently criticized. The Temporary Economic Refinance Facility (TERF) is one casualty. Mass media in its naivety is criticizing it, but it seems, just for the sake of it. When TERF was offered, times were extraordinary, and the world was going through an unprecedented crisis. The response by the Pakistan government in terms of having smart lockdowns and providing targeted concessional financing schemes by the central bank were well recognized by the world.
In the past 15 years, the investment in long term manufacturing in Pakistan, without sovereign guarantees, is almost none. Barring TERF, which is an exception, Rs 436 billion worth of loans are being disbursed. These have not gone in the pocket of riches, as being portrayed by some. These are issued against opening of L/Cs for importing plant and machinery in manufacturing concerns. As a rule of thumb, for a project where Rs1 billion worth of plant and machinery are being imported, another Rs1 billion is being spent on other investment including civil work and other expenses. This means around Rs900 billion investment is being made in long term manufacturing projects due to TERF.
These are invested in productive assets. Not in the real estate or in buying expensive electric vehicles. Some may say that the money meant to be spent in long-term projects is being used for consumption, as industrialist attained cheap loans. That is naïve. The fact of the matter is that there was no investment in manufacturing since Musharraf time, barring in IPPs with sovereign cover. There would have been none had there been no TERF.
TERF investment was timed perfectly in hindsight. At that time, the world was slowing down. There was no demand for plant and machinery. Since Pakistan offered TERF, businesses accepted it, and bought plants and machinery. They got delivery in record time, and at a decent price. Today, there is a huge backlog and prices have skyrocketed.
But popular journalists are throwing dirt on it. Some are quoting former finance minister on issuing Rs90 billion loans to one person (or one group). First, the number is not nearly that high. It is actually Rs30 billion. Secondly, the group has invested in cement, auto, chemicals and other sectors that will create new jobs and open export opportunities.
TERF has already boosted exports. This will boost further. Around 50 percent of investment is being made in textile. Those attaining the financing would work on marginal cost to get benefit of fixed cost that has already incurred. This year is going to be tough. Once it’s over, textile exports would be around Rs22-24 billion, thanks to investment being made in TERF. TERF is also being utilized in other industries, which are made for domestic market. If the domestic market does not deliver, firms may think of exporting.
The point is sooner or later, the benefit of TERF will start appearing. And it’s better to appreciate the good things being done and to internalize that wealth creation and industrialization is good, and people become rich in the process. There is nothing wrong in it.
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