May 18, 2006	Thursday	Rabi-us-Sani 19, 1427

KARACHI, May 17: State Bank Governor Dr Shamshad Akhtar has said that the expected trade deficit of $9 to 10 billion will not pose problem as the country’s foreign exchange reserves position is comfortable.

She said this during her visit to the office of SITE Association of Industry, according to a press release of the association. She said that in the short-run Pakistan had non-debt creating inflows of about $8 billion a year in the shape of remittances, privatisation proceeds, FDI and sovereign bonds. However, in the long-run the trade deficit will have to be effectively managed, she said.

The governor ruled out any currency devaluation to stimulate exports. She said that the SBP had empirical evidence to show that the depreciation of currency in the past had not been instrumental in raising exports. It only raised cost of production and the cost of living and fuelled inflation. She said: We have a free float and the market determines the currency rate.”

On high mark up rates Dr Akhtar stated that as inflation rate was over eight per cent, the real interest rate and not the nominal rates, should be taken into account. She ruled out any reduction in export re-finance rates and said: “The government can not subsidise loans any more as the re-finance scheme in the past has been mis-used and subsidised funds have been channelled in speculative activities”.

For variations in the set of statistics, the governor said that the methodology of collecting statistics of different organisations were different. The SBP collects data from actual Exchange receipts, whereas the FBS gets the data from Customs.

Ameen Bandukda, chairman SITE Association, in his address earlier, said that Inflation was the biggest problem facing the people this fiscal year. This has increased the cost of doing business.

Bandukda said that the SBP governor was on record to have said at the Asia Finance Conference that low domestic interest rates last year had proved to be the real determinant of the GDP growth. “Ever since, the mark up rates have been linked to the KIBOR we have seen a sharp jump in the borrowing rates. The banks are making huge profits and no benefit is being passed on to the people or the businessman, he said and added: “If mark up rate has to be linked to KIBOR, then both borrowing as well as deposit rates should also be linked to KIBOR.

The SITE chairman further said that the established industrialists and large companies had no problem in securing loans. It was the small and medium (SME) sector, which had to run from pillar to post. It is the SME sector, which actually drove the economy in the developed countries, hence easy financing should be available to them.