Two digit bad, one digit good


Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) while reacting to the unchanged policy rate of the SBP at 12 per cent, has pleaded the central bank to save industry by bringing discount rate to single digit reducing it by 250 to 300 basis points.
The chairman of PAAPAM and the Business Forum of Punjab, addressing the executive committee meeting here at PAAPAM office held to discuss the tight monetary policy of the SBP, said that it is now clear that high discount rate is no more sustainable and is causing a great harm to economy and would continue to do so unless a realistic approach is adopted.
He said that the State Bank of Pakistan should understand that its continued tighter stance is inflicting a very heavy loss on the nation as the economy has already paid a very high price because of high interest rate. He said that in any country where the economy is facing a recession, the interest rates are brought down to stimulate growth, whereas in Pakistan it is the other way round. In the last two years interest rates in Europe and the United States have been brought down close to Zero to save the economies from collapse. This is the time that interest rates should be brought down to single digit to spur growth, he added.
He urged the banks to play an effective role for growth of Small and Medium Enterprises as its share in business establishments in Pakistan is as high as 98 per cent employing over 78 per cent of the non-agricultural manpower in the country.
The chairman of the PAAPAM and BFP observed that share of SME financing in the total lending portfolio of banks had fallen from 16 per cent in Dec 2007 to 7 per cent by 2011.
Expressing his dissatisfaction over decline of SME financing by banks, he said it was Rs437 billion in Dec 2007 which dropped to Rs268 billion in 2011.
On this occasion, the vice chairman of the PAAPAM Munir k. Bana, invited the attention of governor State Bank of Pakistan to the lack of interest of commercial banks in financing SME sector due to their involvement in financing the state-run institutions where they feel comfortable.
He pointed out that commercial banks are supposed to finance the private sector as their first option and then finance the semi government institutions and lastly the government when there is excess liquidity.
“On the contrary it is strange that most of the banks are resorting to finance the state run institutions as a first option and financing the private sector as a second priority,” he said.
He said that SME FD Circular No.17 of November 2, 2009 and SME FD Circular No.14 of September 4, 2009 should be enforced for SME development. Current SME is classified with assets under Rs 100 million which with existing inflationary trends and high rupee depreciation is a very low bench mark. This may be enhanced to Rs 250 million while the scheme should be extended for SME’s up to 2018, he demanded.
He observed that SBP currently allows 90 days deferred payment for export contract proceeds. This should be enhanced to 180 days, as current limit is too short and causes problems for the exporters, he added.