Ateeq Ur Rehman, a trade analyst and a banking advisor to Karachi Chamber of Commerce and Industry (KCCI) has said that current policy rate of 5.75 percent is four decades-low. He proposed that an increase in the rates by 0.25 basic points will be a welcoming decision.
"A slight increase in basis point will be quite helpful in order to avoid reflections of huge borrowed money on economy for liquidity and increasing fiscal gap," he urged. Rehman said that it had become difficult to review on upcoming monetary policy owing to biggest economic issues faced by the country because exports and remittances were declining, imports were rising, current account deficit was increasing, savings and domestic investments were low, FDI was falling, unemployment remained relatively high, impact of the borrowed money was growing and required debt servicing, poor cotton growth, etc.
He said that the government remained unable to find ways to boost exports that could reduce the trade gap. "Pakistan is facing serious challenges, SMEs are still lack access to finance despite economic significance.
SMEs still remain unable to receive their due share from financial institutions as SME finance portfolio and capacity to finance is missing from banks," he said, adding that banks were putting 90% of their investment in government papers and government borrowing, which clearly indicated drastic reduction in parking their liquidity therefore dearth in SME financing was expanding.
KCCI's banking advisor further said that banks needed to diversify their portfolios and should be less-risk-averse when lending to SMEs under low interest rate. "Owing to lower rate of interest there is a decline in bank deposits and banking transactions have slowed down and somewhat disrupted cash cycle, too, thus the business confidence is not going through the roof," he observed.