The Federal Minister for Finance and Revenue, Muhammad Aurangzeb, emphasized the importance of private sector involvement in providing housing finance in Pakistan during his speech at the International Affordable, Green & Resilient Housing Conference on December 4, 2024. He stated that the government would not revert to directed lending, a policy that he acknowledged had created distortions in the housing market. Instead, the government is focusing on creating incentivization mechanisms to encourage banks and microfinance institutions to take the lead in financing affordable housing.
The Minister’s remarks reflect a shift toward a market-driven approach to housing finance, with the aim of making it more accessible to the public. “We will not go back to directed lending, which was the wrong thing to do,” Aurangzeb said, highlighting the long-term negative implications of such a policy. He emphasized that the government’s role would be to create frameworks that enable the financial sector to play a larger role in financing the housing sector.
Pakistan’s housing sector faces two significant challenges: rapid population growth and climate change. The country’s population is growing at an alarming rate of 2.5 percent annually, which has far-reaching implications for social development. The Minister pointed out that issues like child stunting, poverty, poor educational outcomes, and the number of girls out of school are directly tied to the country’s housing and infrastructure challenges. Addressing these problems, according to the government, requires a multi-faceted approach, with affordable housing being a crucial part of the solution.
The devastating floods of 2022 also highlighted the need for resilient housing that can withstand the impacts of climate change. The Minister noted that the Sindh government had already taken proactive steps toward promoting resilient housing by discouraging the construction of homes on water banks. This initiative aims to ensure that new developments are not only affordable but also able to endure extreme weather conditions, safeguarding the investment in the long term.
In an effort to bridge the housing finance gap, the government plans to establish a regulatory authority that will facilitate the availability of housing finance. This authority will help create a more structured environment for housing finance and will work to eliminate barriers that banks and microfinance institutions face when providing loans for housing projects. The government is also planning to introduce foreclosure laws to further encourage banks to lend to the housing sector, as these measures would reduce risks for financial institutions.
On the economic front, the Minister shared positive updates regarding Pakistan’s fiscal and economic health. He revealed that the country had made notable progress in reversing its twin deficits on the fiscal and current account sides. Key economic indicators show improvements, such as foreign exchange reserves rising to cover 2.5 months of imports, up from just two weeks previously. With this positive trend, Pakistan is expected to achieve three months of import cover by the end of the fiscal year, a level considered satisfactory by international standards. Inflation, too, has been brought under control, with the rate falling to 4.9 percent in November, a 78-month low. The policy rate is also expected to decrease further, while the benchmark Karachi Interbank Offered Rate (KIBOR) has already dropped.
The government’s vision for sustainable and inclusive growth positions the housing sector as a critical pillar of economic development. With the right financial tools in place, such as incentivized bank-led financing and a robust regulatory framework, Pakistan aims to address the challenges of rapid population growth and climate change while fostering greater economic stability and development.