LAHORE, May 16: State Bank of Pakistan Governor Dr Ishrat Husain on Monday said it was not difficult for the country to manage the projected trade deficit of $6.5 billion owing to an increased inflow of foreign direct investment (FDI), which may go up to $1.3 billion, and remittances, which are expected to exceed $4 billion, during the current year.
Replying to questions from newsmen at the opening of a two-day annual meeting of the Asian Clearing Union (ACU) here, he said if required another $1 billion could be transferred from the current account to cover the trade deficit this year. He, however, believed that the projected trade deficit did not reflect the true picture. “The SBP quarterly report would be made public within one week and that would give the correct assessment about the trade deficit this year.”
The central bank governor said people “should not worry about the trade deficit because it had resulted from increasing imports of plants and machinery and not due to consumption”. He said the increasing imports of machinery meant that investment was catching up in the country.
He said the country had seen investment growing at 22 per cent last year. He said the “private sector had borrowed Rs350 billion last year, which would stand at Rs700 billion in two years.” He said out of Rs350 billion borrowed by the private sector it was estimated that 54 per cent had been lent to the manufacturing sector, 23 per cent to SME sector and 14 per cent to the farm sector. “About 10 per cent of the total private sector credit had been used for consumer financing,” the SBP governor added, seeking to dispel the impression that a major chunk of credit had shifted to consumer financing.
He said the SME and agriculture sectors were “main” pillars of the Pakistan economy. He added the agriculture credit would touch Rs100 billion this year. He said about 70 per cent of agriculture credit was being advanced to small farmers as the SBP policy focuses the farmers with land holding of 12.5 acre or less.
Similarly, he said, the SME sector’s needs for financing would also be taken care of in future. The SMEs were more interested in Islamic banking rather than conventional banking, he said, adding the Islamic banking could also get boost through the SME sector.
Earlier, he told the ACU meeting that the ACU must revisit its charter, examine its relevance and find ways to expand the intra-regional trade and economic cooperation in multilateral context.
He noted that “even though the intra-regional trade had grown, the operations through the ACU were limited. “Our efforts to expand its membership have not as yet succeeded. However, I may add here that the ACU hasn’t experienced a default. Although there’ve been persistent debtors in the ACU system, their negative net balances have not been large. There’s not been structural creditor problem in the ACU.”
The ACU meeting is being participated in by the central bank governors/deputy governors of Bangladesh, Bhutan, India, Iran, Myanmar, Nepal and Pakistan. The deputy governor of the central bank of Afghanistan and the deputy managing director of Maldives Monetary Authority also attended the meeting as observers.
The ACU Annual Report 2004, which highlights the member countries’ economic performance, the volume of intra-ACU trade, and efforts towards enlargement of the ACU membership as well as expansion of the role of the ACU was presented and adopted by the meeting.
Nepal Rastra Bank Governor Bijaya Nath Bhattarai was elected as chairman and Governor of the Bangladesh Bank Dr Salehuddin Ahmed as vice chairman of the ACU for the year 2006. The meeting also decided to set up a technical committee that will look into the commonly faced problems by the member countries and put forward its recommendations in the next annual meeting of the ACU. The committee which will have representations from all the ACU members will make recommendations on the future role of the ACU.
