November 5, 2003	Wednesday	Ramazan 9, 1424

KARACHI, Nov 4: The State Bank of Pakistan will place $3.2 billion out of over $11 billion foreign exchange reserves at the disposal of international fund managers for productive investment from whom it has already received bids, SBP Governor Dr Ishrat Hussain disclosed in a press briefing on Tuesday.

“It will be done in an utmost transparent manner,” the governor assured reporters who were called for a post-annual report briefing. The State Bank released on Monday the first volume of annual report for 2002-03. The SBP governor announced that second volume giving details of financial performance of the central bank would be released in about a week time.

He said the income to be generated from the $3.2 billion investment by the international fund managers would be put in the budget and would be spent on development and poverty alleviation.

In reply to a question, the SBP governor said that no country in the world retained its foreign exchange reserves with itself and so is the case with Pakistan. “We place our foreign exchange reserves at various places in Asia, Europe and other areas,” he said and pointed out that this position changed every day and it was very difficult to provide a day-to-day account of foreign exchange placement.

He made it clear that poverty in Pakistan could not be eliminated in one or two years. “But we can make a dent in poverty if we manage to show sustainable economic growth at the rate of six per cent every year,” he said.

Poverty, he acknowledged, was a serious problem in Pakistan that had aggravated in the last 15 years and now “every third Pakistani is living below the poverty line.” He recalled that poverty ratio in Pakistan was hardly 18 and 19 per cent about 15 years ago when Pakistan maintained an annual economic growth rate of 6 per cent.

But in the 1990s the economic growth came down to four per cent and 4.5 per cent and hence the problem of growing poverty in the country.

Dr Ishrat did not agree that the State Bank focussed only on growth and not on distributary factor. “We stress on broad base growth,” he pointed out and said the services sector played a key role in generating employment. He particularly mentioned wholesale and retail trade, personal service, transport and other allied fields.

Agriculture is the other area that can help alleviate poverty and provide employment opportunities.

“There is no magic wand to remove poverty from Pakistan,” he pointed out, adding that investments in health, education, farm-to-market roads and other areas of social sectors are the ways to get rid of poverty.

“But this investment in social sectors has to be effective and productive,” he stressed and asserted that pro-poor investment for development on a sustainable basis was the only answer to the problem.

For the private sector Dr Ishrat’s suggestion is to invest in small scale labour intensive industries where jobs are created at low cost. He said that oil and gas sectors were attracting investment but these were highly capital and skill intensive.

He drew the attention of reporters towards the export structure in which garments, knitwear, bedwear, man-made fabrics, towels and other value added textile products are fetching more foreign exchange than yarn and cloth. He said about a few years ago Pakistan was the supplier of yarn which was now being used in domestic industries. The textile sectors earning more foreign exchange are the small and labour intensive units.

The State Bank governor disagreed with a questioner who pointed out that delay in sugarcane crushing by the millers and delay in wheat sowing could reverse growth in the agricultural sector. He said that there was no such problem in Punjab and NWFP, and in Sindh wheat was grown by rotation in cotton and sugarcane fields.

Answering a question, Dr Ishrat conceded that the State Bank report lacked data on financing of small and medium enterprises and informed the reporters that the bank was collecting data and next report might provide information about SMEs.

He said the State Bank issued monetary review after every six months and next report on monetary policy would be issued in January. He said that money growth during the current fiscal year would be less than last year. Remittances are expected to be $3.6 billion and a billion dollars will be used for adjustment of the IMF and World Bank loans.

He avoided to give a direct answer to a question as to why the State Bank report did not take into account the impact of dumping of Chinese goods in Pakistani market on the national industry. China, he said, had now assumed the role of a global factory that had swarmed markets of many countries, including the US. “It is a unique phenomenon that supply goods from high spectrum top low spectrum end,” the SBP governor said.

The only solution is to get yourselves plug in the Chinese production system. Korea, Thailand and Malaysia are doing this and now India is also on the same path. Pakistan should also do this.