The All Pakistan Business Forum (APBF) has urged the central bank to review its policies to facilitate private sector, as the credit offtake in fiscal year 2018-19 has fallen to Rs 607.5 billion against Rs 618.2 billion of last year on the back of high key policy rates, which was raised from 6.5 percent to13.25 percent in just one year.
Moreover, the government borrowing from the State Bank of Pakistan also increased by record highs during the period, increasing inflationary pressures on the economy, said APBF President Syed Maaz Mahmood here today. He said the private sector has found no space to borrow from financial institutions, as banks prefer to park their money in risk-free government securities in huge sums. He said that banking money's flow has now directed towards the government papers, which will definitely hit the economic growth adversely, affecting the investment landscape of the country too.
He was of the view that the government's shift for borrowing from the central bank to commercial banks will likely result in banks making profits. However, this would hurt overall economic growth. The State Bank of Pakistan's latest data shows the government borrowed Rs 1.37 trillion in just one month of the new fiscal year of 2019-20 against net debt retirement of over Rs 20 billion during the same period last fiscal year, he added.
Maaz Mahmood said that a low volume of private sector credit offtake means lower domestic investment, hindering business activity and economic growth and promoting unemployment in the country. The trend is alarming and a criteria of bad financial management of the country, as all the monetary aggregates tell us a sad story of the failure of the authorities, he said. The offtake at the beginning of last financial year was much higher than the preceding year but disappointing economic situation along with the higher rates discouraged the private sector from borrowing additional funds during the later months. The central bank had justified massive rate hikes throughout the fiscal year citing rising inflationary pressures, he said.
With weaknesses in private capital inflows continue to persist, the central bank should cut policy rates to spur growth, as cut would infuse confidence in the business community and propel economy. The industry is expecting the cut in interest rate, which could help boost private sector growth. He also complained that lending to private sector by the commercial banks during the current fiscal year has not picked up pace, he maintained.
APBF President also 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. With slowing down GDP growth and the interest rate going up, demand for private-sector credit will further remain low this year.
Prospects for economic growth coming down to somewhere between 3.5 percent and 4.2 percent are high against the last fiscal year's revised growth estimate of 5.22 percent, he said.
Maaz Mahmood said the output of large-scale manufacturing remains negative and the agriculture performance is far below the level of last year. Components of the services sector, such as transport, communications and domestic trade, are already taking a hit because of the slowing manufacturing and agricultural activities. He suggested the government to keep its net borrowing from commercial banks low to help banks meet the private-sector credit target of Rs 1 trillion.
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