The Governor, State Bank, Dr Shamshad Akhtar, and Adviser to Prime Minister Dr Salman Shah and Finance and Economic Affairs Adviser Dr Ishfaq Ahmed were warned that the current inflation rate, the budget and trade deficit could lead to an economic crisis in the country.
The Senate Standing Committee on Finance, Revenue and Economic Affairs, which met on Saturday, observed that trade deficit, which stood at $6.6 billion, could go up to $10 billion by the end of the fiscal year whereas current account deficit, now at $4.4 billion, threatened further burden of indirect taxes.
The committee also expressed resentment over the hike in prices of petroleum products, edibles and cement and levy of indirect taxes, and demanded of the government to give a people-friendly budget for 2006-07.
The Senate Standing Committee, which met here in the Parliament House under chairmanship of Ahmed Ali, was attended by State Bank Governor Dr Shamshad Akhtar, Senators Muhammad Amin Dadabhoy, Haroon Khan, Nisar A Memon, Khurshid Ahmed, Safdar Abbasi, Muhammad Ishaq Dar, and Muhammd Anwar Bhinder. Advisor to Prime Minister Salman Shah, Finance and Economic Affairs Advisor Ishfaq Ahmed and a senior official of the State Bank of Pakistan also attended the meeting.
Ishaq Dar said the government policies had only benefited the multinational companies and the banks which were "making huge profit by literally sucking the blood of the poor".
Addressing the SBP Governor he said: "Don't let these banks further rob the poor," and added that the central bank should also protect the rights of people along with the interests of the banks. "A cartel of people in the form of bankers, backed and supported by the government, flourishes day and night because of huge money it charges from the account holders but offers little on their savings," he added.
Dar warned the State Bank not to go devalue the currency to enhance exports as that would entail huge economic cost. According to reduction of Re 1 against dollar it would cost the government Rs 34 billion, he said.
Safdar Abbasi said that three major issues--budget deficit, trade deficit and inflation--were distorting the economy. Due to these, the government was resorting to more indirect taxes, he added.
He also referred to a report of CBR, which showed that out of Rs 700 billion target revenue collection, Rs 500 billion were collected through indirect taxes and, out of remaining Rs 200 billion, only Rs 100 billion from the business affluent people.
The Chairman also criticised government policies and observed that the central bank had taken unnecessary advantage of its autonomy. "It is the result of the autonomy to the State Bank of Pakistan that it does not bother about court decision," he said.
He held that the bank had failed to effectively handle the remittances that flowed to Pakistan following the September 11 incident. The low return on deposit by banks left these remitters with no other option but to invest in property and other sectors. As a result, he said, the prices of almost everything shot up. It was unfortunate that property prices in some areas were almost equal to that of UK.
Dr Shamshad said she agreed on majority of the issues raised by the committee members, whereas the Advisors failed to convince the members of the committee on any of the issues.
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