KARACHI: International Finance Corporation (IFC), part of the World Bank Group that invests in the private sector in emerging markets, is going to double its portfolio in Pakistan over the next three years.

Speaking at a summit on infrastructure financing on Tuesday, IFC Pakistan Principal Country Officer Naz Khan said the local portfolio of the largest global development institution consists of $1.3 billion in more than 40 companies. Its investments consist mostly of infrastructure-related companies in both debt and equity forms.

The World Economic Forum’s Global Competitiveness Index ranks Pakistan 110 out of 141 countries in terms of the quality of its overall infrastructure, including transport and utilities, road connectivity, electricity access, electricity supply quality and reliability of water supply.

Ms Khan said IFC is “very keen” to invest in domestic infrastructure. However, she warned that no amount of money from either donors or the public kitty will be adequate to finance the required infrastructure.

“The macro environment needs to be conducive,” she said, adding that long-term investors should at least be able to foresee an upward trajectory.

Pakistan ranks 122 out of 160 countries on the World Bank’s Logistics Performance Index. It ranks 121 on the infrastructure sub-indicator, which quantifies the state of the trade- and transport-related infrastructure.

Speaking on the occasion, the Bank of Punjab CEO Zafar Masud said the asset-liability mismatch in the banking sector is a major reason for inadequate infrastructure financing, which is long-term by definition.

Of roughly Rs23 trillion in deposits, the maturity of merely 1.2 per cent goes beyond five years, he said. In other words, banks find it difficult to deploy short-term liquidity as long-term financing.

The requirement for infrastructure financing is Rs5tr a year, he said while referring to an analysis conducted by his bank staff. The figure is “mammoth” given that the actual total funding in the last five years was merely Rs8tr.

“Banks have not done enough. I don’t think they’ll be able to do enough going into the future either, until there’s a real shakeup in the framework,” he said while demanding that incentives be redefined for public-private partnership, taxation and capital relief to the banks.

Pakistan Stock Exchange CEO Farrukh Khan said capital markets are “open and ready” to provide infrastructure developers with long-term debt financing provided issues like taxation are resolved. He blamed commercial banks for their “voracious appetite” for investing in both government and corporate bonds and then holding on to them — a phenomenon that has resulted in an illiquid secondary market for debt instruments.

“Capital markets and the banking sector have too long been working in silos,” he said while urging infrastructure developers to raise long-term debt through the capital markets instead of banks.

InfraZamin Ltd CEO Maheen Rehman said infrastructure spending should be 10pc of GDP on an annual basis even though the actual spending is “less than 2pc”.

Published in Dawn, March 15th, 2023

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