KARACHI, March 31: State Bank Governor Dr Shamshad Akhtar said on Friday that Pakistan’s trade-to-GDP ratio during last five years has increased from 25 per cent to well over 30 per cent but it should improve further to match with other countries of the region.
Talking to newsmen after delivering her key-note address at the investment conference held on the sidelines of the Expo 2006, the Governor said that this was a good sign as the openness of the economy reflected global integration.
Dr Akhtar said that since the current ratio pertained to the fiscal 2005, therefore, it should witness a big jump in next fiscal (2006-07) but even then the country would have to keep it improving to maintain pace with the level of regional countries.
The Governor in her key-note address categorically said that the export refinance rates would not be brought down and would remain linked with the market rates as the country could not afford to subsidize its exports and face countervailing duties from the importing countries.
She further said that there was no reason that the industry could not perform under high interest rates as there had been a rise in interest rates globally. Therefore, it was necessary to follow a tight monetary policy to bring down inflation.
The SBP Governor said that the real interest rates had been marginalized at nine per cent which was a positive sign as the rate had come down to around eight per cent.
However, Dr Akhtar said that the schedule banks would have to show maturity by raising deposit rates so that their clients, who are presently having negative return, could benefit.
She agreed that the foreign exchange reserves, which had been hovering around $11.3 to $11.5 billion, could now increase to $12 to $13 billion on higher exports and might even go up to $14 billion in coming years.
Undoubtedly, the Governor said that the trade deficit was presently very high but one has to look at the positive factors such as higher imports of capital goods along with raw material which were necessary to increase the industrial capacity ultimately, improving the quality of “our products and increasing our exports”. Another factor for higher deficit was rising POL prices, she added.
Secondly, she said, that country’s micro economic indicators were strong and had the ability to digest such a huge trade deficit. It also had the capacity to finance this big gap in external trade.
“As long as the country has the capacity to support six months imports there was no reason to get alarmed,” she added.
However, the SBP chief said that there was greater need to increase per unit price of our products in the world market and that could not be done in isolation and by exporters alone.
She said that the government had to provide proper infrastructure to the industry, such as electricity, water and other reliable services to improve competitiveness of country’s products in the world market. Similarly, she said that the industry should also improve on soft side of the infrastructure, such as quality and good packaging of products and only then higher price per unit could be fetched in the world market.
The governor stressed upon the need for higher flow of foreign direct investment (FDI) so that the current growth rate could be maintained and assured the foreign guests that the government, on its part, would maintain consistency in its economic and investment policies.
“Of course, I would not expect you to come to Pakistan and work as philanthropists but to make profits, and for this the country ensures the highest rate of return in the entire region,” she asserted. “We need FDI in order to sustain our current high growth rate of 8.4 per cent and you need good profit margin, therefore, it is a natural combination of interests for both the sides, Dr Akhtar added.
