Former finance minister, Dr Salman Shah, has said that this year Pakistan's GDP growth is expected to be less than 2 percent, lowest in 10 years, as irrationally high interest rates and tight monetary policy of the State Bank of Pakistan was holding back the growth.
He expressed these views at a discussion on economic decline and remedial measures, organised by Lahore Economic Journalists Association (Leja) here on Saturday. Later oath taking ceremony of newly elected Leja members was also held on this occasion. Salman said that the sensitive price index (SPI) had been on constant decline since October last year and hence there was no justification for the State Bank to keep discount rate at 15 percent, "which is slowing the economic growth".
He observed that in the backdrop of current inflation scenario, the Kibor should not be more than 2 percent, and the discount rate of the State Bank of Pakistan should be between 9 percent and 9.5 percent. "After accounting for three to five percent banking margins, the industry should get credit at 13 to 14 percent mark-up rate. Even this interest rate is high, but the productive sector would be able to grow. Unfortunately, the current interest rate has marginalised the manufacturing sector and no industry could grow when credit is available at 20 percent" he added.
He said that Pakistan's economy had been moving comfortably up to the middle of 2007-08 fiscal year, and the economic managers of previous regime knew that high oil prices would put pressure on foreign exchange reserves. "Hence, in order to meet the challenge, we had handed over a roadmap to the new government last year, in which it was suggested to offload small percentage of public sector companies, like National Bank, Kapco, etc in the London Stock Exchange in April 2009. At that time the stock market was at its peak of 15,800 points and the share prices of these companies were very high. Through such a step, the government would have obtained between $4 billion and $5 billion from these transactions," he said.
However, he regretted that the new government scrapped the idea of offloading these shares in the global market, without giving due consideration, or making any backup of generating cash flow. "Under these circumstances, oil price hike tapped a major chunk of foreign exchange reserves, which forced the government to know the doors of the International Monetary Fund (IMF) to boost its foreign exchange reserves, which had come to alarming level," he said.
He pointed out that even the IMF financial assistance could not put brakes on the deterioration of Pakistan's economy, as the present government's ill-conceived policies had stagnated the growth and consequently closure of industries was drying up government revenue.
The former finance minister was of the view that the option of offloading stocks was no longer feasible, as the stock market has lost $45 billion under this government. "Also, the rupee, that remained stable from 2002 to June 2008, had lost 29 percent of it value. These factors painted a bad picture for investors and hence lost confidence in the Pakistan's markets," he added.
In his opinion, journey of recovery from the prevailing situation was very hard, painful and long. He said he saw revival of industries not possible without promotion of domestic consumerism. "Exports are, of course, important and their success depends on competitiveness, which could only be achieved if the local industries attained economies of scale through promotion of domestic consumerism," he added.
According to him, more that 54 percent of Pakistan's population is under the age of 25. Every year about 4 million of them join workforce and Pakistan needs to grow at 9 to 10 percent annually in order to create jobs for them.
Shah stressed for uniformity and consistent economic policy and should reflect consensus of all political parties on the pattern of foreign policy where all parties, including the opposition, follow the same line. He said that the engineering, electronics and construction industries "are the sectors which can generate the required employment and economic activities".