But of far more importance is the medium- and long-term infrastructure project financing that may dry up amid the unrelenting protests against the government.
After all, doubts about the government’s future increase the level of risk in the economy, which bodes ill for future infrastructure project financing by private-sector banks and development financial institutions (DFIs).
“Macro-economic instability affects every business. Political uncertainty disturbs business activities and leads to an increase in the cost of funds,” economist Kaiser Bengali told The Express Tribune while commenting on the impact of the ongoing sit-ins in Islamabad on the future infrastructure project financing.
Infrastructure project financing had started to gather some pace after the last general election. According to the latest Infrastructure Finance Review prepared by the State Bank of Pakistan (SBP), infrastructure disbursements in the first quarter of 2014 amounted to Rs18.3 billion, up a massive 216% from the preceding quarter.
In the January-March period, nine new projects came online. One of these new projects was in the telecom sector while power generation and petroleum sectors added four new projects each in the first three months of 2014.
Almost two-thirds of the 360 infrastructure projects are currently being financed by private-sector banks followed by DFIs (59), public-sector banks (57), foreign banks (four) and Islamic banks (six), data compiled by the SBP shows.
At the end of March, the total amount outstanding against infrastructure finance was Rs254.6 billion, 0.2% down from the end of December 2013. The share of private-sector banks in the total outstanding infrastructure finance was as high as 74% at the end of the first quarter of 2014.
As for the amount sanctioned for infrastructure projects, it reached Rs505.9 billion at the end of March after increasing 0.6% on a quarter-on-quarter basis. The private sector’s share in the amount sanctioned for infrastructure projects was 78% at the end of the first quarter of 2014.
Non-performing loans (NPLs) within infrastructure financing amounted to Rs20 billion after undergoing a healthy decline of 7.3% on a quarter-on-quarter basis during the January-March period.
The share of private-sector banks in total NPLs was 60% followed by public-sector banks (25%) and DFIs (15%). Foreign banks and Islamic banks did not report any NPLs.
According to Bengali, tax revenues are expected to take a dip in the short term at least because of the political unrest in Islamabad.
“The Lahore-Peshawar corridor is most important after Karachi, but business activities there have seen disturbance of late,” he said, noting that a drop in tax revenues will have direct consequences on the economy and future infrastructure development.
Originally published on www.tribune.com.pk