By Sajid Chaudhry
Governor State Bank of Pakistan, Salim Raza, hinted further depreciation of the rupee by Rs 2 to Rs 3 against US dollar after burden of financing furnace oil import would be shifted on the interbank market.
However, he hoped this would only be a short-lived depreciation and rupee would come back to Rs 79 to Rs 80 per dollar.
In his first interaction with Parliamentarians at Senate Standing Committee on Finance that met in the chair of Senator Ahmed Ali, the governor said that foreign exchange reserves of the country at present are $10.6 billion with $7.3 billion with SBP and $3.3 billion in bank deposits. He said that foreign exchange reserves with State Bank of Pakistan would be increased to $10 billion and overall reserves to over $13 billion by June 30, 2009.
He proposed that National Saving Schemes (NSS) apart from schemes for widows and pensioners, should be converted in to tradable bonds and said that this would help the government develop government bond market with good risk free interest for the investors. “These bonds would be reliable source of government financing as well as beneficial for the investors.”
He advocated the policy of lower interest rate and weak exchange rate and said that this would help revive the economy. He showed his agreement with Senator Haroon Akhter Khan who was of the view that core inflation is not coming down as the government is not reducing POL prices on the one hand and is increasing gas and power tariff on the other. Haroon Akhter was of the view that aggregate demand in the economy has come down to a level where monetary stance should be changed and interest rates should be brought down.
Governor SBP assured that the banks should not be afraid of lending to private sector and said that SBP would relax its regulations and would provide regulatory space for banks to lend to the private sector. He said that at present profit rates of the banks are on the higher side and these rates are not sustainable. He said that due to allowing benefit of 30 percent of FSV of pledged stocks and properties, there would be Rs 400 billion available liquidity with the banks.
To a question, Governor said that the liberalisation, de-regulation and privatisation policies of the Shaukat Aziz government were good but his fiscal policy was faulty, which made local industry in competitive and encouraged imports. This policy of last government also resulted in to shifting of capital from productive sectors like manufacturing to non-productive sector like real estate. Raza said that the present capital market is for trading and not a source of raising capital for industry. “I would like to develop stock market as a source of capital raising for the industry,” he added.
While terming fiscal year 2008-09 and 2009-10 most difficult years for the Pakistan’s economy, the governor in his presentation on state of economy said that due to the economic slowdown in developed economies Pakistan’s exports, remittances, and external financing might be affected. He said that Pakistan was expecting 10 percent decline in textile exports due to the economic slowdown in developed countries; however, demand for low cost textile products have increased and importers are placing orders with countries including Pakistan having low price of these products. “Due to this Pakistan’s textile exports would decline by only 5 percent against the earlier projection of 10 percent,” he added. Daily Times, 29-Jan-09