KARACHI, June 18: Finance Minister Shaukat Aziz said on Tuesday that lowering the banks’ lending rates to a single digit, narrowing down of the spread and cutting down on the intermediation cost in the banks are some of the objectives he is pursuing actively.

He expressed the confidence of achieving all these objectives in the way, the government has been able to effectively handle the country’s debt issue, which was considered insurmountable only a few years ago.

The minister was inaugurating a one day conference on ‘Pakistan: Financial Sector Assessment 1990-2000’ at the Institute of Pakistan Bankers (IPB) on Tuesday morning in which a large number of bankers, financial analysts, stock brokers, business professionals and other stakeholders participated.

“In South Asia we stand ahead of many countries when it comes to reforms in the financial sector,” he claimed while pointing out that Pakistan’s financial sector in last decade has transformed from an inward looking, narrow based and government controlled system to an outward looking, broad based and market driven system.

These reforms paid the country good dividends he said while reminding the audience of the financial turbulence in many East Asian countries during 1996-97 currency crisis from which Pakistan came out virtually unhurt.

He said that reformation of the financial system has proved to be problematic in many Latin American, Asian and Middle Eastern countries, whereas it was not so in Pakistan.

However, the minister was not happy with the current lending rate of the banks, the spread level and high intermediation cost in the banks which need to be addressed in the second generation of financial reforms.

“We need to promote transparency, upgrade skills and develop quality risk management, analytical expertise and liability management,” he urged while pointing out that many banks in Pakistan have failed because there was no adequate skill for liability management.

Shaukat Aziz said that transformation from a government administered to a market driven financial system is not easy and many countries have paid a pretty good price for this but not so in Pakistan.

“It needs special expertise for the regulators to develop market driven safety valves,” he remarked while drawing a parallel with the government administered financial system with built-in safety valves.

The minister spoke of the measures taken in the budget for the financial sector, which includes a reduction of three per cent in the income tax after an 8 per cent cut in tax rate last year.

He called the introduction of new self assessment scheme incorporated in the new Income Tax law based on accounting as ‘revolutionary’ in which the role of the Income Tax Officer has literally been eliminated.

All tax payers whether individuals, banks, insurance companies and other enterprises will have to maintain proper accounting system with high quality book keeping and full disclosure of the transactions.

He said the steps taken to stabilize the macroeconomic indicators of the economy has developed so much capacity that the country absorbed one shock after the other in last 12 months.

“September 11, 2001 was a big event for us,” he said while stating there was no run on the banks’ deposits and no run on the small foreign exchange reserves,” he claimed while asserting that it was no small achievement for Pakistan.

He offered a hypothetical scenario if dollar exchange value might have touched Rs70 immediately after September 11. “Imagine how much would have the oil cost to us in import and what would have been its implication in the inflation in the domestic market,” he said.

“Our adversaries wanted us to bleed economically,” he made an oblique reference to more than six months stand-off with India while trying to say that the worst is over.

He frankly admitted that budget deficit in the outgoing fiscal has touched 7 per cent of the GDP because of the years long accumulation of losses of public sector enterprises like the KESC which have been addressed. “These are only yesterday’s problems,” he said.

Earlier the Governor, State Bank of Pakistan, Dr Ishrat Hussain said that it was wrong to suggest that lending rates have any relationship with the demand for lending. In last year, he said the lending rate was 14 to 15 per cent and the volume of loans was Rs95 billion. But this year, the lending rate has come down to an average of 12 per cent but the demand is also too low.

He said that mere reforms in the financial sector is not enough but there has to be a cultural change and change in mindset. “We have done a great deal in accomplishment of financial reforms but we need to do a lot more,” he told the participants.

“We in financial sector have to keep up with the fast changing world,” he pointed out and said that financial sector was just an enabler and facilitator for the real sector. “It is for the participants to decide whether financial sector is lagging behind or the real sector.”

Earlier, Shakil Faruqi convener of the conference gave opening remarks and Dr Riaz Riazuddin made a brief presentation of the salient features of the report he has prepared with the help of his colleagues in the research department of the State Bank of Pakistan.

In the subsequent session, the participants broke into nine working groups with each group focussing on separate issue of the financial sector. The issues discussed in the group meetings were fragmentation of financial system, monetary management, the system of credit, cost and pricing structure of banking system, the burden of non-performing loans on the banking system, governance and regulation, financial market development, foreign exchange markets and the non-bank financial systems.