Federal Minister for Finance Muhammad Aurangzeb announced on Wednesday that the government will not return to directed lending for the housing sector, emphasizing the need for incentivized mechanisms to promote bank-led financing.
Speaking at the International Affordable, Green & Resilient Housing Conference, the minister highlighted the importance of creating sustainable housing finance solutions accessible to the public.
“We will not go back to directed lending, which was the wrong thing to do. It creates distortions and has medium-term implications,” the minister stated. Instead, the government will focus on incentivizing banks and microfinance institutions to take the lead in providing housing finance, making it easier for people to access affordable housing.
The minister identified two major challenges facing Pakistan’s housing sector: rapid population growth and climate change. With the population growing at an alarming rate of 2.5 percent, he warned of far-reaching consequences, including child stunting, poverty, poor learning outcomes, and a significant number of girls being out of school. Housing, he said, plays a critical role in addressing these issues by providing affordable and resilient solutions.
He also pointed to the devastating 2022 floods as a wake-up call for the need to build climate-resilient housing. The Sindh government, he noted, has already taken steps to discourage the construction of houses on water banks to mitigate future risks.
To address the housing finance gap, the government plans to establish a regulatory authority to facilitate housing finance. Additionally, the introduction of foreclosure laws is being considered to encourage banks to lend to the housing sector, providing a more secure framework for financial institutions.
The minister highlighted Pakistan’s recent economic progress, describing housing as a critical pillar of the country’s sustainable and inclusive growth strategy. Over the past 14 months, Pakistan has made significant strides in reversing fiscal and current account deficits, with key economic indicators showing improvement.
Foreign exchange reserves have increased to cover 2.5 months of imports, up from just two weeks previously. The government expects to achieve three months of import cover by the end of the fiscal year, meeting international standards. Inflation has dropped to a 78-month low of 4.9 percent in November, with further reductions expected. The policy rate is anticipated to decrease, while the benchmark KIBOR has already fallen.
