The Multan Chamber of Commerce and Industry (MCCI) has expressed serious reservations over State Bank of Pakistan's (SBP) monetary policy announced on Saturday and said that the mark-up rate was kept unchanged against expectations of a 50 basis points reduction.
President of MCCI Shahid Naseem Khokhar said in a statement on that SBP continues to operate a "tight monetary policy" despite the clear evidence that such policy stifles investment and trade activities in Pakistan and has previously hampered growth of manufacturing in Pakistan.
Although manufacturing sector growth has begun to recover this year, it is still lower than FY07 and FY08 levels due to lower bank credit to the private sector, which is Rs 112.90 billion as compared to Rs 369.85 billion in FY08. Pakistani banks will face the spectre of rising non-performing loans (NPLs) in the current calendar year, as higher lending rates and a weak economy continue to give a double blow to borrowers' payment capacity.
He said that an interest rate of 14 percent is one of the highest in the world - compared to India at 6.25 percent, China at 5.56 percent, Thailand at 1.5 percent and South Korea at 2.25 percent. Moreover, the banking spread in Pakistan is 7.6 percent, which is the highest in the world, and this makes it impossible for industry to survive and compete in the international market.
Khokhar said that last year Pakistan experienced catastrophic floods, which had serious implications for the macroeconomic stability and growth prospects. It is expected that the floods will reduce economic growth rate by 2 to 3 percent. "In this scenario, when private sector investment is needed in the country, SBP is using a tight monetary policy to compensate for the government's borrowing for financing its current expenditures," he said.
"Moreover, our non-performing loans are 9.1 percent of total gross loans, which is higher compared with other Asian countries, ie India 2.3 percent, China 2.4 percent, Malaysia 4.8 percent and Thailand 5.7 percent, which should be minimised for attaining sustainable growth."
He also indicated that SBP justifies the higher interest rate in Pakistan because of the higher inflation in Pakistan. "In Pakistan, the nature of inflation is not demand-pull, which can be controlled through a tight monetary policy. It is a supply side phenomenon, whereby the major cause of rising prices is an increase in the prices of industrial inputs and shortage of essential items of daily necessity. All of these are price-inelastic products and monetary policy cannot control their prices," he added.
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