Finance minister stresses need for liquidity in banking sector

Updated October 21, 2018


In this file photo customers stand in a queue to withdraw cash from an ATM. Currently Pakistan’s cash to deposit to ratio is at 37 per cent compared to Bangladesh’s 16pc.
In this file photo customers stand in a queue to withdraw cash from an ATM. Currently Pakistan’s cash to deposit to ratio is at 37 per cent compared to Bangladesh’s 16pc.

KARACHI: Federal Minister for Finance, Revenue and Economic Affairs Asad Umar has said there is an urgent need to enhance banks’ deposits to boost their lending capacity to the private sector for achieving higher economic growth rate.

Speaking at the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Saturday, the minister stressed upon the banking sector to to increase its cash-to-deposit ratio to enhance liquidity in the economy.

The minister said up to 37 per cent of the banking transactions are in cash which reduce the financial industry’s lending ability. This needs to be brought down to 25pc, saying in Bangladesh the cash-to-deposit ratio is at 16pc, he observed.

He said the government plans to finance mega project of building five million housing units with the help of additional liquidity in the market by brining the cash transactions to 25pc of the deposits which will create liquidity of up to Rs2 trillion.

The minister said that previous government in order to show low fiscal deficit used different tactics and even took Rs40 billion of Workers Welfare Fund, Export Development Fund and also used refunds belong to exporters.

Umar said the government will evolve a new system which will automatically pay outstanding refunds to exporters. One of the participants at the meeting told the minister that 37pc of the refund payments are yet to be paid by the government.

Responding to issues raised by FPCCI President Ghazanfar Bilour and Senior Vice President Syed Mazhar Ali Nasir, the finance minister said Prime Minister Imran Khan has already directed to plug loopholes in law which results in Hawala and Hundi. He said a new law has already been framed and will be presented in the parliament for legislation to fix the issues.

Referring to the menace of smuggling, the minister said that Federal Board of Revenue had sought a separate border force but the task is already being carried out by security forces.

Talking on import substitution, the minister said the largest chunk of oil import bill comes from petroleum, oil and lubricant items and the only way to remedy this was to make huge investments in oil exploration across the country.

He said that keeping in view the limited resources; the government has decided to focus on exports. And for this, gas prices for all the small provinces, Sindh, Balochistan and KPK were unchanged whereas prices for Punjab export oriented industry were reduced.

The minister responding to a demand raised by FPCCI president said Gas Infrastructure Development Cess could not be abolished because it was implemented under a law but suggested that it could be settled through negotiation.

While discussing the real-estate sector, he said the sector’s problems are not tax related but are mainly driven from the property valuation. He added that the sector has become a safe haven for individuals with black money and ill gotten wealth.

However, he said that the Prime Minister Imran Khan has setup Tax Reform Committee to review entire taxation system and has been asked to submit its report within 30 days. He asked the government would also welcome suggestions from the business community.

He added the government is keen to extend finance access to Small and Medium Enterprises for job creation by increasing exports and stressing the importance agriculture and IT sector.

The previous government, he said, heavily resorted on bank borrowing and took around Rs1,200bn from State Bank of Pakistan. Therefore, there is an urgent need to create financing space for real sectors of the economy because economic stability is necessary for country’s security, he added.

Published in Dawn, October 21st , 2018