State Bank of Pakistan Governor Shahid H Kardar inaugurated a session on economic management at the seventh annual conference organised by the Lahore School of Economics (LSE) on Wednesday. The theme of this year’s conference is Financial Sector Development and Management. Kardar said fiscal deficit had become a structural issue as the terms of trade had shifted in favour of sectors which were either not paying tax or were poorly taxed and fell under the provincial administrative domain.
He said in addition to energy shortage, the price of credit had been the major bane of the private sector. He also said since September 2010, the government had been only borrowing from the commercial banking sector that had led to the crowding out of the private sector credit. Therefore the availability of finance for the private sector had become a critical issue in addition to the recent energy shortage. He said the profitability of the banking sector had doubled in the last year, adding that 95 percent of the pre-tax profits were being generated by the top five banks that accounts for 51 percent of the total banking assets. He said growth in advances to the private sector had decreased to two to three percent over the past few years.
Lahore School of Economics Rector Dr Shaid Amjad Chaudhry said the macroeconomic situation was stabilising and foundations had been laid for a steady growth. He said the agriculture sector had grown remarkably and the cooperate sector profits had increased in the last year. He said an increased reliance on the foreign exchange market mechanism meant that the adjustments in the foreign exchange would help adjust the exchange rate automatically.
He said the energy shortage remained a critical issue adding that reforming the power generation management and distribution systems needed to be focused on. He also said tax reforms were needed to balance the fiscal accounts. He said with the 18th Amendment and devolution of the taxation powers to the provinces would help promote economic growth and ensure interprovincial income equality.
Pakistan Institute of Development Economics Vice-Chancellor Dr Rashid Amjad, Centre for Research in Economics and Business (CREB) Director Naved Hamid were also present.
