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The State Bank of Pakistan's report for the first quarter of the fiscal year 2003-04 (Q1-FY-04) was released at about the end of the second quarter of the year. The purpose of this write-up is to discuss a few aspects of the report.
Agricultural credit: The report states that the loans provided by banks in the agriculture sector have risen from Rs10.148 billion at end of the first quarter of the fiscal 2002-03 (Q 1 FY 03) to Rs14.321 billion at the end of Q1-FY-04 depicting an increase of 41.1 per cent. The details are given in the Table below:
It will be seen from the above table that loan disbursements by the Zarai Taraqiati Bank (ZBTL) reduced from Rs5,649 million (in Q 1 FY 03) to Rs5,038 million (in Q 1 FY 04) depicting a decline of 10.8 per cent while there has been 14.1 per cent increase in the overall lending (Q 1 FY 04 over Q 1 FY 03) which has become possible because the commercial banks increased their lending from Rs4,500 million (in Q1 FY 03) to Rs9,284 million (in Q1 FY 04) i.e. an increase of 106.3 per cent.
The position of loan recoveries on the part of ZBTL is also unsatisfactory. The quantum of its recoveries fell from Rs3.218 million (Q 1 FY 03 ) to Rs3,014 million (Q 1 FY 04) e.g a decline of 6.3 per cent. How to interpret this? Assumption of office by the political government? The performance of the commercial banks/PPCB has been far more better as their recoveries rose from Rs3,371 million (Q 1 FY 03) to Rs 5,080 million in (Q 1 FY 04), a hefty increase of over 50 per cent.
The reasons assigned for negative disbursements by the ZTBL on page 22 of the report are: (i) The incentive of 3 per cent which is available to the borrower who repay the instalment in time, could not attract the borrowers. In fact, the effective rate for clean borrowers has been reduced from 14 per cent p.a. to 11 per cent p.a. since January 2003; (ii) the policy measures of ZTBL of linking the credit disbursement with the recovery at each branch level led to the shortage of loanable funds as non-performing loans (NPLs) have increased and (iii) many of the earlier ZTBL clients prefer the better service standards offered by the commercial banks. One can hardly draw any conclusion from argument No (i).
The argument No (ii) is reflective of the poor performance of the economic managers viz-a-viz the recovery of the defaulted loans albeit their claims of heavy recovery of Rs 124 billion ( out of June 1999 stock) by middle of 2003 ( Refer to Governor, SBP address at the Institute of Bankers on the 26th July,2003).
The argument No.(iii) speaks very adversely about the bank itself as also the regulators. When the name of the Bank was changed from Agricultural Development Bank of Pakistan (ADBP) to ZTBL, public was of the opinion that it has been done after restructuring the bank and making it more efficient and service-oriented. Alas, it proved to be the change of the name only.
The current monetary policy of the SBP has all along been anti-poor. It is also reflected in the banks' lending rates for rural sector borrowers which are 11 per cent p.a. while the corporate sector/ businessmen are getting loans these days at 7-8 per cent p.a.
Credit expansion: It has been mentioned on page 10 of the report that there has been an expansion of credit of the order of Rs23.1 billion during Q1 FY 04 against the debt retirement of Rs26.8 billion during Q1 FY 03 which has been termed as unusual rise. On page 65, however, net credit expansion has been put at Rs0.8 billion only while the amount of debt retirement in the corresponding period of the previous fiscal has been put at Rs35.5 billion. The reason for the difference between the two sets of figures is not explained.
Apart from the above, if we keep in view the disbursement of Rs14.322 billion in the agricultural sector in Q1,a very small amount (total disbursement being Rs23.1 billion) seems to have been made available by the banks to the industrial/commercial sectors.
The report states that the policy of the banks in providing personal loans has created demand in the market, increasing growth in the manufacturing sector. But the report also admits that the sectors benefiting from improved access to consumer finance continued to dominate the overall outcome. This is true but this is also correct that this finance is being used for purchase of of imported/smuggled goods with which markets are flooded. Here a pertinent question is whether it is prudent to bring growth in manufacturing by creating artificial demand thorough bank loans to consumers.
Non-performing loans: The amount of non-performing loans (NPLs) has increased by Rs3 billion during Q1 FY 04 from Rs227.7 billion on the 30th June, 2003 to Rs230.7 billion as at 30th September, 2003. This is, however, not the whole story. The above figures do not include the amount of NPLs of the development finanance institutions (DFIs) viz Rs22.031 billion as of 30th September, 2003. This will raise the quantum as at the end of the Q1 FY 04 to Rs252.731 billion. The picture is still incomplete as the figures of the NPLs of the Investment Corporation of Pakistan (ICP), National Investment Trust (NIT) and the Bankers' Equity Ltd (BEL) are not included in the above data of the DFIs and the same is also not separately available.
Investment: The textile is the largest industry of the country. It has been propagated in the press for quite some time that the industry has spent $2-3 billion on the import of modern and sophisticated machinery for balancing and modernization for meeting the challenges posed by the Word Trade Organization (WTO) from the beginning of the next calendar year. The nominal amount of the machinery has not been made available in the report under review.
However, what can be deduced from the graphic Table (figure 2.16) the machinery import figures are as follows: Q1 FY02-$120 million/ Q2 FY 02- $115 million/Q3 FY 02- $ 75 million/ Q4 FY 02-95 million/ Q1 FY 03- $110 million/ Q2 FY 03- $135 million/ Q3 FY 03- $130 million/ Q4 FY 03- $150 million and Q1 FY 04- $120 million. This aggregates $ 1050 million. It appears that whatever was propagated in the press was not accurate.
Fiscal developments: One aspect of the anti-poor policies of the government is the replacement of 10 per cent import duty on the oil seeds import by 20 per cent general sales tax (GST). [please see footnote No 22 on page 31 of the report].
The fiscal deficit during Q1 FY 04 was Rs40.9 billion which almost remained at the level of Q1 FY 03 viz 41 billion. This deficit was financed through:
(a) external sources Rs4.9 billion
(b) domestic non-bank borrowings Rs 24.1 billion
(c) bank borrowings Rs9.9 billion and
(d) privatization proceeds Rs 2 billion [Table 3.3]. It will be recalled that the government had assured the nation that privatization proceeds will be utilized exclusively for repayment of the debt and a legislation on the subject was also enacted. The Government has gone back over its commitments in this respect.
Tax collections: Table 3.4 of the report puts the direct tax collections at Rs 25.6 billion while its break-up in Table 3.5 puts it at Rs 27.4 billion. How the break-up can exceed the original figure can best be explained by the concerned authorities.
It has been asserted on page 39 of the report that collections through voluntary returns nearly doubled relative to Q1 03. However, Table 3.5 indicates reduction in the direct tax collections through voluntary payments from Rs 7.4 billion (Q1 FY03) to Rs 5.2 billion (Q1 FY 04). CBR should address this discrepancy.
The collections on utilities show a divergent trend in-as-much- as receipts from natural gas increased by 6.3 per cent while on electricity, collection has reduced from Rs 2,691 million (Q1 FY03) to Rs1,342 million (Q1FY 04)- a reduction of over 50 per cent. Why? Obviously, the utilities are in the public sector and they make payment to the government only after realizing the same from the consumers and hence neither the adjustment of advance payments is involved nor one can expect that electricity consumption has so sharply reduced. The reasons given by the CBR for short collection of the Sales tax are not cogent at all. The CBR should apprise the public of the real reasons.
On page 41 of the report, it has been asserted that "finally, the declining interest rates over the last 2 years has been a major drag on the withholding taxes on securities. However, in Q1FY04, the increased volume of fixed income investment by commercial banks (and other financial institutions) appear to have offset the impact of low interest rate Another contribution could be through down-ward revision in the exemption limit for the levy of withholding tax on profits of NSS (particularly the inflows in the NSS schemes had risen sharply in prior periods). That the reduction in the limit for the levy of withholding tax could reduce the collections is a very queer argument put forward by the SBP because this decision will raise [and not curtail] the amounts of collections. By the way what prompted the SBP to put up such a faulty argument when the ground reality is that the collection on this account increased from Rs 973 million (Q1 FY03) to Rs1,304 million (Q1 FY 04) -[ Table 3.6].
| Agricultural loans (figures in million Rs) | |||||||||
| Disbursements | Q 1 FY-03 | Q 1 FY-04 | |||||||
| Zarai Taraqiati Bank | 5,649 | 5,038 | |||||||
| Commercial banks* | 3,722 | 7,416 | |||||||
| New private commercial banks | 149 | 620 | |||||||
| New private commercial banks | 149 | 620 | |||||||
| PPCB @ | 629 | 1,248 | |||||||
| Total | 10,149** | 14,322** | |||||||
| Recovery Zarai | |||||||||
| Taraqiati Bank | 3,218 | 3,014 | |||||||
| Commercial banks* | 2,785 | 4,327 | |||||||
| New private commercial banks | 56 | 179 | |||||||
| PPCB @ | 530 | 574 | |||||||
| Total | 6,589** | 8,094** | |||||||
| * include Allied Bank of Pakistan Ltd., Habib Bank Ltd., * Muslim Commercial Bank Ltd., National Bank of Pakistan * and United Bank Ltd. ** There are minor totalling mistakes * in SBP report which have since been corrected in the Table. * @ Punjab Provincial Co-operative Bank | |||||||||
