LAHORE, May 10: The State Bank Governor Dr Ishrat Hussain on Tuesday said the hiking interest rates would lower the demand for bank credit by the private sector but would not affect industrial production and economic growth.
Talking to the reporters before the inauguration of a two-day, central bank-sponsored conference on SME financing, he said “huge investment in industry was in pipeline” as the private sector had imported machinery to the tune of $13-14 billion in the last five years.
“We are passing through a gestation period. In the next couple of years new factories would be established and the existing ones expanded. This would result in increase in industrial production, and exports,” he said.
Dr Hussain said interest rates would be marked down as soon as inflation was controlled. He said the monetary policy was used by the central bank to reduce expectations of inflation.
He also sought to dispel the impression that industrialists in the last couple of years had “misused” a large portion of export refinance and made investment in the real estate sector. “I don’t say some have misused this facility, and invested in real estate. But only 10-15 per cent of about Rs25 billion of export refinance had been misused. The real estate prices had gone up owing to the investments made from remittances sent by overseas Pakistanis.”
Later speaking at the inaugural session of the conference, the governor said the SMEs expansion boosted employment because they were labour intensive. He said Pakistan’s SME sector contributed 30 per cent to the country’s GDP, provided 90 per cent jobs along with agriculture, accounted for 35 per cent of the value added in manufacturing, and generated 25 per cent or $2.5 billion of manufacturing sector export earnings.
He said it was owing to this fact that the government had identified this sector as one of the leading sectors along with agriculture and construction that would spearhead its efforts towards generating employment and alleviate poverty within the framework of the Poverty Reduction Strategy Paper.
The governor said the biggest problem facing the SME sector was the non-availability of adequate financing facilities. He said this problem was not exclusive to Pakistan’s SME sector, but was found to be a primary constraint to their growth in several other countries.
He said the central bank would not force the banks to undertake lending operations which were not profitable. But, he said, lending to the SMEs, if developed on modern lines, would remain a profitable option for banks and could guarantee earnings for them at a rate higher than the lending to the corporate clients. He said different stakeholders — the central and provincial governments, banks, leasing companies, SME Bank, the central bank, etc — would have to work together for removing the constraints in the way of SME financing and their growth.
The governor also gave a detailed overview of the policy measures taken by the central bank to improve the regulatory environment and removing irritants in the way of bank financing to the SMEs. He said the central bank had formulated different regulations for the SME financing and now banks were in a better position to disburse loans to the small and medium enterprises.