Islamabad, December 4, 2024 – Finance Minister Muhammad Aurangzeb reiterated the government’s commitment to modernizing the housing sector without returning to directed lending, a practice he described as harmful due to its long-term economic distortions. Speaking at the International Affordable, Green & Resilient Housing Conference, the minister emphasized the need for creating mechanisms that incentivize the private sector, particularly banks and microfinance institutions, to take the lead in providing accessible housing finance.
“We will not go back to directed lending, which was the wrong approach as it creates distortions and carries implications for the medium-term economy,” said Minister Aurangzeb. Instead, the government will focus on incentivizing private sector participation, allowing financial institutions to take a more active role in financing the housing sector. This shift aims to simplify access to housing finance for the public and foster long-term sustainability.
The minister acknowledged that the country’s housing sector is closely intertwined with two major challenges: rapid population growth and the impacts of climate change. Pakistan’s population is growing at an alarming rate of 2.5 percent annually, which is contributing to a range of social issues such as child stunting, poverty, poor educational outcomes, and the alarming number of girls out of school. The minister stressed that addressing the housing gap could play a key role in tackling these broader societal problems.
Furthermore, the devastating floods in 2022 underscored the need for resilient housing that can withstand the effects of climate change. Minister Aurangzeb noted that the Sindh government had taken initial steps to promote resilient housing, such as discouraging construction near water banks, which is critical for building sustainable communities.
To bridge the housing finance gap, the government is planning to establish a regulatory authority aimed at facilitating financing in the sector. Additionally, the introduction of foreclosure laws is expected to encourage banks to offer more financing options for housing development, further stimulating the sector.
In discussing Pakistan’s broader economic performance, the minister highlighted significant strides towards sustainable and inclusive growth. Over the past 14 months, the country has reversed twin fiscal and current account deficits. Positive indicators include rising foreign exchange reserves, which now cover 2.5 months of imports, up from just two weeks. If this trend continues, reserves are projected to cover three months of imports by the end of the fiscal year, meeting international benchmarks.
Moreover, inflation has been curbed, with the rate dropping to 4.9% in November, the lowest in 78 months. With further reductions in the policy rate and a decrease in the benchmark KIBOR, the government is optimistic about continued economic stability.
