ISLAMABAD: The government has decided to enhance share of private sector credit for small and medium enterprises (SMEs) from the current meagre 7.5 per cent to 17pc until 2023, said Minister for Economic Affairs Hammad Azhar on Tuesday.

The announcement came from the minister during a two-day event titled ‘Pakistan Innovating Finance Forum’, organised by the Asian Development Bank and Karandaaz.

The minister castigated the previous governments for ignoring this vital sector which has 30pc contribution to GDP and comprised 90pc of all enterprises.

The SME sector provides 80pc of non-agricultural jobs, he highlighted.

The government hopes SME sector development will lead to creation of more jobs, promoting economic activities, and reducing poverty in the country.

As part of the target, Mr Azhar said, substantial increase in credit line will mean that financial outreach will increase to 700 SMEs by 2023 from the existing 200.

Sharing regional examples, the minister said that in Bangladesh this figure is very high as 25pc of the total private sector credit and in Turkey it is 29pc.

However, contrary to this, Mr Azhar said the figure has gone down from 16pc to 7.5pc in the past 11 years, referring to the period of the past two successive governments of PML-N and PPP. “Now, we have decided to jack up this figure to 17pc,” the minister said, adding his government recognises this challenge of limited financing to the SME sector.

The minister also spelled out details of achieving this target. He said the government has already launched various programme including Kamyab Jawan Scheme which offers loans under different heads on subsidised rates.

The minister said the government had engaged Small and Medium Enterprises Development Authority (Smeda) to form a new policy for the sector which would address challenges faced by the sector.

The government, he said, is also working on various proposals to reinvigorate Smeda to play its role in further boosting the SME sector in Pakistan.

Mr Azhar said Prime Minister Imran Khan himself was having meetings with his economic team regularly in which SME sector was on top of the agenda.

He further added that the China Pakistan Economic Corridor (CPEC) would also have significant impact on the SME sector.

The minister pointed out that Pakistan had lost 26 places in ease of doing business ranking between 2013 to 2018. “In the first year of Pakistan Tehreek-i-Insaaf government, the ease of doing business index improved significantly—28 places in ranking of World Bank’s ease of doing business,” he said.

“This is indeed a great achievement”, he said.

Addressing the forum, Federal Board of Revenue (FBR) Chairman Shabbar Zaidi said the main reason behind small share of financial credit to the SME sector was due to a large portion of this sector being undocumented and reluctant to come under the taxation system.

“There are 3.1 million industrial and commercial consumers are in Pakistan. Technically all should have been in the tax system. Only 43,000 consumers are registered in the sales tax which is SMEs,” he said.

There is a trust deficit between the SMEs and the regulators, he noted while pointing out the reason behind SMEs’ decision to remain informal and undocumented. “The SMEs have a fear of harassment from the regulators. We have to resolve these issues,” the FBR chairman said.

This mindset that ‘if I am an SME then I must not be under tax net’ has to change, he added.

He pointed out that past tax policies discouraged SMEs in manufacturing sector to come under the tax system while adding the FBR is working on policy to reverse past policies.

He said Pakistan is going into reform under the World Bank project and one of the first indicator is the simplification of the tax laws.

Deputy Governor State Bank of Pakistan Jameel Ahmed said the central bank is committed to promote SME sector as developing this sector was key to creation of more jobs, promoting economic activities, and reducing poverty in the country.

Published in Dawn, November 27th, 2019