KARACHI: Federation of Pakistan Chambers of Commerce and Industry President Daroo Khan Achakzai on Wednesday showed serious concerns over the declining private sector credit —down by Rs4.1 billion in the first four months of current fiscal year.
“The declining demand of private sector credit is due to high cost of borrowing and slow economic activity which will subsequently affect economic growth and unemployment,” he deplored.
While commenting on the monetary policy, he said the State Bank of Pakistan (SBP) continuously adopted contractionary monetary policy and kept the interest rate at 13.25 per cent while on the other side the government had reduced profit rates on the National Savings Schemes.
The declining profit rates on deposits and high borrowing costs benefited the banks in term of high spread.
He further added that savings were the backbone of investment as higher savings lead to higher investment and higher growth in an economy provided that the other macroeconomic variables are conducive and a developed financial system exists in the economy.
He underlined the need of declining of policy rate which is very high compared to regional economies such as India at 5.15pc, China 4.35pc Sri Lanka 8pc, Malaysia 3pc, Thailand 1.25pc, Indonesia 6.5pc etc.
He stated that the SBP has kept the interest rates high due to inflationary outlook while in Pakistan; the inflation is cost-push that cannot be controlled through contractionary monetary policy.
He urged the central bank to decline the policy rate in order to increase the demand of private sector credit which will ultimately help in new industrialisation and increase in economic growth rate.
He appreciated government’s efforts to eliminate the current account deficit and zero borrowing from central bank which indicates availability of credit for new investment.
As business environment continues to improve there is a need of promotion of new investment in real sector and SMEs which will help create economic stability and development, he said.
Published in Dawn, November 28th, 2019