KARACHI: Businessmen have criticized the State Bank of Pakistan (SBP) for reducing only 1% in the benchmark interest rate on Friday despite clear messages from all segments, especially trade and industry, for considerable cuts.
In a statement, President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) Mian Anjum Nisar expressed serious objections to a slight reduction in interest rates.
“Given the current deteriorating economic situation, all central banks are supporting their economy by significantly cutting interest rates along with stimulus packages,” he said. “The current decision is not based on forward-looking inflation.”
He underlined that the chamber agreed with the conditions of the external account detailed in the monetary policy statement in which the current account deficit (CAD) was expected to remain under control like in April.
However, in May and June, imports will be even lower than $ 3 billion per month due to fewer orders placed by importers due to falling demand under the lock of the whole world. Nisar said that because the SBP expects the external situation to be managed, there is sufficient information available on the inflation front to estimate a much lower level than the 7-9% expected next year by the central bank.
On the other hand, President of the Karachi Chamber of Commerce and Industry (KCCI), Agha Shahab Ahmed said, a cut of 100 basis points was still inadequate given the corona virus crisis. He stressed that interest rates must be cut to 4% in one go.
“A large cut in interest rates will provide a much-needed boost to economic revival,” he said. “It is very important to keep the economic wheel rolling to avoid an economic crisis that will have long-term negative implications.”
He stressed that businesses must continue their operations, which are crucial for generating income for national finance ministers and maintaining stable foreign exchange reserves through exports.
He believes that this will in turn help the government fulfill its financial obligations and enable it to keep the economy afloat. The situation is dire but damage can be minimized through business-friendly policies and incentives.
KARACHI: The State Bank of Pakistan (SBP), through the National Financial Literacy Program for Youth (NFLP-Y), has joined hands with Rozee.pk to provide free financial education to Pakistani youth through an interesting and interactive game called ‘PomPak – Learning to Produce’ .
According to a statement released Saturday, SBP detailed that PomPak delivered its lessons in English and Urdu through a story-based game format designed to help understand and apply the principles of financial literacy.
The purpose of this initiative is to help equip young people with financial education.
“In just a few hours, users can master the important things in saving, budgeting, borrowing, and banking among many other topics,” the statement said. “This game can be played on Android or iOS-based smartphones.”
As distance learning has increased significantly, Pakistani youth can take advantage of free time and get much-needed financial literacy through this game, which will help them understand financial problems, the statement added.
People who complete the course will be given a joint financial literacy certificate issued by the National Institute of Banking and Finance (NIBAF), a subsidiary of the SBP and the National Financial Literacy Program for Youth (NFLP-Y).
The National Financial Literacy Program for Youth (NFLP-Y) aims to provide important financial education for Pakistani youth and children in school to strengthen their money management skills and understand financial problems.
Inflows from banks on T-billing and PIB surged to an all-time high of Rs9.8 trillion
According to the NCCPL, banks and development financial institutions (DFI) have withdrawn more than Rs8.72 billion from PSX since July 2019. PHOTO: FILE
KARACHI: The government needs to review its policies to reduce dependence on expensive domestic commercial loans and partially meet shortages in annual budget financing through creating an enabling environment for savings and investment by people in the country.
A poor balance in such a policy – which is preferable to commercial entities and exploitative of individual investors in different savings schemes – has led to a surge in government loans from commercial banks.
Total bank investment – mostly in government debt securities (T-bills / PIBs) which is a way of government loans from commercial banks – surged to an all-time high of Rs9.79 trillion on 30 April 2020, which the State Bank of Pakistan (SBP) reported on Friday.
“On the other hand, the domestic saving rate has fallen to 4.6% of current GDP compared with 18.4% in 2002,” Economist Shahid Hasan Siddiqui said when speaking with The Express Tribune.
In addition, advanced banks – loans to the private sector – were slightly reduced to Rs8.22 trillion in April after touching a record high of Rs8.26 trillion in March, the central bank said.
“It was until 2008 that bank advances stood 30-40% higher than investments (in government debt securities). Now the situation has reversed, “Siddiqui said.
He said the bank’s determination to make the maximum investment in risk-free government debt securities rather than doing the original job of providing affordable loans to the private sector and individuals had caused disruption.
Banks usually offer loans to companies and individuals only when the government reduces loans from banks. However, the condition of the International Monetary Fund (IMF) under the latest $ 6 billion loan program to Islamabad that the government will not make more loans from the central bank in effect from July 1, 2019 convinced him to bridge the financing gap through commercial loans, he said. the word.
“Banks don’t do this (investing in government paper and avoiding the private sector) around the world,” said Siddiqui, who has served in Western banks.
He said the government was required to implement banking regulations that demanded banks to share profits with depositors.
“Bank profits in Pakistan have jumped to more than Rs250 billion today compared to Rs7 billion in 2000. However, their share of profits with depositors (for example through savings accounts) remains low,” he said.
“The rate of return on savings accounts was reduced to 6% yesterday (Friday) compared to 11.25% in February after the central bank cut its benchmark interest rate to 8% compared to 13.25% in February.”
“Banks do not need to link the rate of return on a savings account with the SBP benchmark interest rate. Banking spreads – the difference between a higher loan rate and a lower rate of return on a savings account – was at a large 5.37% in February. “We used to work at half the percentage point spread in the West,” he said.
He urged the government to reduce spreads by 1.5-2% immediately through the benefits of higher banking margins on lending to bank depositors.
The bank collects large fees from borrowers and pays very little to depositors in Pakistan. This has gradually damaged the savings culture over a period of time in the country.
“The massive decline in the level of domestic savings is one of several reasons why the government must increase its dependence on expensive commercial loans,” he said. The decline in the rate of return on savings schemes over a period of time has made people reluctant to save through investment in various schemes, including savings accounts in commercial banks and national savings schemes, he said.
According to the National Clearing Company of Pakistan Limited (NCCPL), banks and financial development institutions (DFI) have withdrawn more than Rs8.72 billion from the Pakistan Stock Exchange (PSX) since July 2019 when the government returned to commercial banks to borrow budgets.
Siddiqui said the decline in tax revenue collection, exports and increased spending, especially in the time of coronavirus pandemic testing, had caused the government to make higher commercial loans.
He said the government currently added new Rs12,900 billion to total foreign and local debt and obligations in the first two years of the regulation. “This (Rs12,900 billion) is the total volume of foreign and local debt and obligations in the first 64 years of the country’s independence,” he said.
Meanwhile, banking deposits fell 4.36% to Rs14.47 trillion in April compared to a record high of Rs15.13 trillion in March, the SBP reported.
The decline was seen after people chose to keep money in their hands and panic about buying important items to avoid an undesirable situation under lockdown imposed at the end of March to contain Covid-19 in Pakistan, Siddiqui said.
ISLAMABAD – Prime Minister Imran Khan said Saturday the government is taking various policy initiatives including incentives for business, the Ehsaas Cash Program, and work for daily wage earners under the Ten Billion Tree Program to balance the impact of the corona virus in the country.
In a series of tweets, the Prime Minister said that government policy aims to strike a balance between protecting people through targeted locking and protecting the vulnerable and the needy.
“Ehsaas Emergency Cash Program is ongoing. Today, the State Bank of Pakistan (SBP) has announced incentives for business. We are trying to offer business incentives, “said the Prime Minister.
Imran Khan said the Ehsaas Emergency Cash Program was ongoing and the SBP offered business incentives with tax returns and opened the construction sector while keeping the agriculture sector open. The Prime Minister said the SBP initiative for business during COVID19 would help keep the business going and prevent massive unemployment.
“With tax returns & opening the construction sector while keeping the agricultural sector open. The SBP initiative for businesses during COVID19 will help keep the business afloat & prevent massive unemployment, “he added.
In addition, the Prime Minister said that the government also employs a number of daily bets in the Ten Billion Tree Campaign to have a positive impact on life and the planet simultaneously. “Every initiative counts in the COVID19 period,” he stressed.
On Friday the SBP announced a Refinancing Scheme for Wage and Salary Payments to Workers and Employees of Business Issues to support the work of workers in facing the economic challenges posed by the spread of COVID-19.
According to the SBP press release issued in Karachi, the core purpose of this temporary financing scheme is to provide incentives for businesses not to lay off their workers during the COVID-19 Pandemic. It said the scheme would be available to all businesses in Pakistan through banks and would cover all types of employees including fixed wages, contracts, daily and outsourcing workers.
This scheme will provide funding for wages and salary costs for three months from April to June 2020 for businesses that have not laid off their employees for these three months. “Mark-up on loans under this scheme will reach 5pc. Borrowers included in the list of active taxpayers will be able to obtain loans with a lower mark-up rate of 4pc. This scheme has been designed to give preference to smaller businesses, “read the SBP press release.
It was further said that businesses with three-month wages and salary fees of up to Rs200 million would be able to utilize the full amount of their costs in financing while those with three-month wages and salary costs greater than Rs500 million would be able to utilize up to 50 pc of their costs. Businesses in the medium category will be able to utilize up to 75 percent of their three month salary and wages.
The banks, according to a press release, will not charge loan processing fees, credit limit fees or prepayment penalties for loans under this scheme. A grace period of six months will be allowed for the borrower while payment of the principal amount will be made in two years. The bank will provide a weekly report to the SBP about the scheme taking and in particular the reasons for rejecting funding requests under this scheme.
Then, speaking with a private TV channel, SBP Governor Dr. Reza Baqir at night said that cutting interest rates by 225 basis points was the second big reduction in the world. The SBP Governor hopes that this action will reduce the level of recession, arguing that the government’s priority is to start the development process and show stability in the labor market. The governor said that current statistics for inflation indicate that prices will fall. later on.
Claiming a price drop in the past few months, he said that the central bank decides about reducing interest rates based on inflation. He said that the capital was flying out of all emerging markets.
ISLAMABAD: Prime Minister Imran Khan’s desire that he stated a year ago to reduce public debt by half would remain unfulfilled because his government had added nearly Rs6 trillion to the debt burden in just one year, according to a recent report from the State Bank of Pakistan (SBP).
Central government debt rose 21.3% to Rs33.4 trillion at the end of February compared with the same month last year, according to statistics released by the central bank on Tuesday.
In February last year, PM Imran vowed that he would reduce public debt to Rs20 trillion before leaving office. But policy directives over the past year suggest that by the time the Tehreek-e-Insaf (PTI) government of Pakistan leaves office in 2023, the level of debt will almost double.
The government has successively added Rs24.2 trillion to public debt in 71 years, which is shown by the Ministry of Finance’s projections to jump to at least Rs47 trillion in the five years of the PTI government.
When Imran Khan became prime minister, central government debt approached Rs24.2 trillion and around Rs9.2 trillion had been added so far, excluding obligations. Central government debt, which reached 27.5 trillion in February last year, surged to 33.4 trillion in February this year, according to the SBP bulletin.
In absolute terms, there was an increase of Rs5.9 trillion or 21.3% in central government debt at the end of February.
This situation is likely to worsen due to increased government obligations after Covid-19 and the expected sharp decline in tax and non-tax revenue. PM Imran has brought four chairmen of the Federal Revenue Board (FBR) in the past 20 months but the income shortage has widened.
Last week, the prime minister again attacked political compromise and allowed wealthy builders and developers to invest their black money in the realty sector instead of getting them to work. Previously, he reached a compromise with traders who contributed to the further erosion of the tax base.
The government also did not have the political will to impose provisions for stating the number of Computerized National Identity Cards (CNIC) for the purchase of goods valued at Rs 50,000.
The Pakistani Rupee again began to shed its value against the US dollar and closed at Rs167.9 on Tuesday, which will have an impact on the level of debt for March and April. Central government debt increased 5.2% to Rs33.4 trillion in the eight months to the end of February in the current fiscal year, an additional Rs1.64 trillion, according to the SBP.
General government debt, including guarantees and loans from the International Monetary Fund (IMF), rose to 88% of gross domestic product (GDP) at the end of the previous fiscal year, according to the IMF.
In the current fiscal year, the IMF has revised upward its projections for public debt and liabilities to 84.7% of GDP or Rs37.6 trillion, a report showed.
But this projection is likely to be further revised due to the implications of the coronavirus for the economy and government revenue.
Central government debt consists of long-term and short-term domestic debt and foreign debt.
The SBP report shows that the central government’s total domestic debt increased from Rs 20.7 trillion in June last year to Rs 22.7 trillion in February, a net additional of Rs 1.4 trillion or 6.5%. The large increase in federal government debt is due to long-term debt, which swelled from Rs15.2 trillion to Rs16.9 trillion. There was an increase of Rs1, 7 trillion or 10.8% in long-term debt.
This is because the government’s decision to change short-term loans from the central bank into long-term debt.
Short-term domestic debt decreased from Rs5.5 trillion in June 2019 to Rs5.3 trillion in February this year. There was a reduction of Rs200 billion in short-term debt.
Federal government debt, obtained through the sale of Market Treasury Bills (MTBs) to commercial banks, once again began to rise after remaining in a downward trajectory. MTB-based debt increased from Rs4.9 trillion to just over Rp5 trillion. The central government’s external debt increased from Rs11 trillion in June to Rs11.23 trillion in February.
The external debt of the central government did not increase rapidly because of the IMF’s obligations and hot foreign money in the books of the central bank. This foreign debt is expected to surge again due to currency devaluation.
Hot foreign money has also begun to flow gradually because foreign investors have so far attracted $ 2.2 billion, mainly British investors, from a total of $ 3.4 billion in inflows.
Published in The Express Tribune, April 8th, 2020.