‘APBF backs SBP pol­icy rate cut’

Pakistan Observer - - ECONOMY WATCH -

SALIM AHMED LA­HORE—With weak­nesses in pri­vate cap­i­tal in­flows con­tinue to per­sist, the All Pak­istan Busi­ness Fo­rum (APBF) Pres­i­dent Ibrahim Qureshi Mon­day sup­ported the Cen­tral Bank’s de­ci­sion to cut pol­icy rates by 0.25 % to spur growth, say­ing the de­ci­sion would in­fuse con­fi­dence in the busi­ness com­mu­nity and pro­pel econ­omy which was hostage to the past pol­icy of aus­ter­ity. “The busi­ness­men wel­comed the SBP’s de­ci­sion of cut­ting in­ter­est rate by an­other 25 ba­sis points to 5.75%, as the rate cut would help boost pri­vate sec­tor growth.” How­ever, he com­plained that lend­ing to pri­vate sec­tor by the com­mer­cial banks dur­ing the last 10 months of cur­rent fis­cal year has not picked up pace.

Qureshi said the State Bank gov­er­nor de­served ap­pre­ci­a­tion for bring­ing down the in­ter­est rate to 5.75%. He also called for steps to fight en­ergy cri­sis, se­cu­rity chal­lenges and po­lit­i­cal in­sta­bil­ity to make in­ter­est rate cut mean­ing­ful and re­sult-ori­ented. Ibrahim Qureshi said that the de­ci­sion re­flects co­or­di­na­tion among im­por­tant in­sti­tu­tions but re­duc­tion in in­ter­est rate will not serve the pur­pose un­less the pace of re­forms is in­creased. He called for sup­port­ing large scale man­u­fac­tur­ing and credit to the pri­vate sec­tor which is slid­ing, stop­ping flight of cap­i­tal, im­prov­ing tax ma­chin­ery and curb­ing spec­u­la­tion of dif­fer­ent sec­tors.

Some eight years back in 2007, banks were pro­vid­ing 67 per cent credit to pri­vate sec­tor which has fallen to just 37 per cent by 2014, he said. He added as per mone­tary pol­icy state­ment Jan­uary, banks pro­vided to­tal credit of Rs 224.5 bil­lion to pri­vate sec­tor dur­ing the first half of cur­rent fi­nan­cial year as com­pared to Rs 325.8 bil­lion dur­ing the same pe­riod of last year which again shows banks’ de­clin­ing sup­port­ing role to pri­vate sec­tor. The APBF pres­i­dent said that the cut in pol­icy rate is un­ex­pected, which seems to be a pop­ulist de­ci­sion be­fore the bud­get as the head­line CPI in­fla­tion sus­tained its ris­ing trend for the seventh con­sec­u­tive month and on an­nual ba­sis rose to 4.2 per­cent in April 2016 from the low of 1.3 per­cent in Septem­ber 2015.

In ad­di­tion to the sea­sonal im­pact of per­ish­able food items and ser­vices, this in­crease owes to fur­ther wan­ing of the base ef­fect and sec­ond round im­pact of de­cline in oil prices. Sim­i­larly, core in­fla­tion mea­sures have broadly fol­lowed a ris­ing trend in this fis­cal year in­di­cat­ing buildup of un­der­ly­ing in­fla­tion­ary ten­den­cies. De­spite these trends and de­vel­op­ments, go­ing into next fis­cal year in­fla­tion is likely to at­tain a higher plateau. Ibrahim Qureshi sug­gested the govern­ment to ob­serve re­straint while get­ting loans from com­mer­cial banks and im­prove gov­er­nance to en­sure 5.5 per­cent growth tar­get which has not been achieved so far. It is un­for­tu­nate that out of 200 po­ten­tial tax­pay­ers only one sub­mits re­turn which forces govern­ment to im­pose in­di­rect taxes hurt­ing vul­ner­a­ble and seek for­eign as­sis­tance to bal­ance the bud­get.

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