SBP wants provinces involved in development: Infrastructure projects
By Mohiuddin Aazim
KARACHI, July 20: The State Bank Governor, Dr Ishrat Husain told a platform of policymakers here on Wednesday that the central bank wants active involvement of provincial governments in the development of infrastructure projects.
He said this while presiding over a meeting of the National Credit Consultative Council or NCCC held here at the SBP head offices. The NCCC reviewed the credit plan for the current fiscal year which envisages Rs330 billion bank credit for the private sector and Rs120 billion credit for the federal and provincial governments. The plan has been drawn keeping in view the economic growth target of seven per cent and inflation target of eight per cent. The SBP board of directors will approve it at a meeting in Quetta on Thursday. The central bank is due to release its monetary policy for July-December 2005 the same day.
Sources privy to the NCCC meeting told Dawn that representatives of the private sector pointed that lack of interest of provincial governments delayed infrastructure projects that are badly needed for sustainable economic growth.
They said the SBP chief appreciated this point and informed them that the central bank did realise that infrastructure projects should be developed under private public partnership and that the provincial governments should play a more active role in this scheme. He also asked the representative of banks present at the meeting to develop products for financing infrastructure projects on long term spanning 10-15 years.
A senior official of the Planning Commission present at the meeting said the Commission had taken note of the fact that part of the budgetary allocations for development projects remains unutilized in provinces. He said the PC keeps reminding provincial governments to ensure full utilization of such allocations.
High Interest Rates: Sources privy to the meeting said that the private sector representatives also raised the issue of rising interest rates. They pointed out that the mark-up on export finance has risen to a level where it has started hurting exporters in particular and other businesses in general. Besides, a fast-paced increase in the overall interest rates is also creating problems for the trade and industry.
Inflation: The SBP chief told them that the central bank had tightened interest rates to rein in inflation adding that had it not done so inflation would have risen much faster and hurt businesses more seriously. Dr Husain did not mince words in saying that the trade and industry somehow make adjustments against increase in inflation and often pass it on to the end-consumers. But it is the common man who suffers most. He said the government had raised the mark-up on national saving schemes to provide relief to people in fixed income groups. Inflation during the last fiscal year rose by around 9.3 per cent as the economy showed 8.4 per cent growth. A year earlier when the economic growth was 6.4pc, inflation had moved up by about 4.6 per cent.
Dr. Husain informed the NCCC that inflation shot up not only because of higher economic growth but also due to a dramatic rise in world oil prices necessitating tightening of interest rates. Independent economists say that a delayed and less-than-desired tightening of the monetary policy by the SBP and the government’s failure to check business malpractices such as hoarding and cartel making that led to food price inflation were also responsible for fuelling overall inflation.
The SBP chief said that once the inflation fell to the desired level, the central bank would keep interest rates stable, and pointed out that inflation has, in fact, started falling. What the SBP governor told the NCCC was also reinforced by the SBP move to keep the cut-off on treasury bills unchanged at an auction held the same day. The central bank kept the cut-off yields on three-month, six-month and one-year T-bills unchanged on Wednesday as data showed that year-on-year inflation in June 2005 fell to 8.74 per cent from 9.84 per cent in May.
But the sources privy to the NCCC meeting quoted Dr. Husain as saying that the central bank was, however, ready to make timely upward adjustments in the interest rates if inflation started rising again.
Freight forwarding: Representatives of the private sector raised the issue of unilateral increases in the services charges of shipping lines and freight forwarders. They demanded that the SBP should lay down some regulatory framework to ensure fair-play. The SBP chief told the NCCC that the central bank was in the process of doing this and that he realized that large unilateral increases in the cost of shipping and freight forwarding could hurt exports growth.
Farm to Market Access: Participants of the meeting said that the representatives of the private sector also pointed out that lack of transportation facilities from farm-to-market was impeding growth of agricultural sector despite a record increase in agricultural credit disbursement. They said this was also impeding growth of agro-based and other small industries thereby threatening their potential to create exportable surpluses. The representatives of banks present at the meeting said they were willing to finance production or purchase of modes of better transportation between farm to market and the Small and Medium Enterprises Development Authority or SMEDA should come up with specific plans.
Last Meeting: The NCCC meeting on Wednesday was the last one for Dr. Ishrat Husain in his capacity as SBP governor as he is retiring in December after serving two tenures of three years each.
