KARACHI: Banking, currency and property businesses are not worried over the impact of upcoming federal budget although they believe that investment would remain focused on a few sectors.
However, banking experts said the government borrowing from commercial banks may decline sharply in the next fiscal year since it has not yet negotiated any new agreement with the IMF.
“If there is no new agreement with the IMF, the government could easily expand its fiscal deficit and spend more on development,” said a banker requesting anonymity.
In the wake of low inflation, the government can easily spend large money on development.
Banks fear that the government may start borrowing from the State Bank of Pakistan (SBP) sparing bank liquidity for the private sector to spur economic activities.
Banks have invested over Rs6 trillion in government papers till the end of June 2016.
Due to an agreement with the IMF, the government had to cut development funds each year to meet the minimum level of fiscal deficit. Collectively, in the last three years, the government slashed development funds worth Rs800 billion.
This money could have brought a real change, had these funds been used for development. Scheduled banks’ large liquidity flow towards the government drastically damaged both the economy as well as the banking in the country, experts said.
Bankers said in the absence of an agreement with the IMF, the government may borrow from SBP and ask the banks to use their liquidity for lending to the private sector. This would not only increase risk, but may cut profits already falling because of record low interest rate.
Property dealers were satisfied with rising land prices in Karachi and other main cities of the country. They said property is the only sector which has been absorbing huge private liquidity.
“Economy is growing only because of growth in the property and construction,” said Nishat Ahmed, a property dealer doing business in Defence area.
Property dealers were sure that if government would not use banking money, it would come in the property sector use. They said even if some taxes are levied in this sector, property business would continue to flourish.
“Taxes on the property may be enhanced in the next budget. The prices will increase, but it will not reduce demand as it is the only good opportunity for investors while shortage of houses across the country has been increasing each year,” said Ashraf Hameed, Director, Value Housing.
He said that overseas Pakistanis are also making investment in this sector and a number of business tycoons have joined this lucrative sector to make money.
They said property prices in Karachi, Islamabad, Lahore, Peshawar, Quetta and all other important places are going up, attracting both the black money as well as legal money being generated by overseas Pakistanis.
Currency dealers said if the government withdraws Federal Excise Duty of 16 per cent in the next budget, the exchange rate would not be affected whatever other measures are taken in the budget for FY17.
Published in Dawn, May 31st, 2016
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