Businessmen against lending to govt
Last Updated on Tuesday, 30 November 2010 12:04
Written by Administrator
Tuesday, 30 November 2010 10:23
KARACHI: Industrialists and traders have urged the central bank to avoid lending to the government above the set limit because excessive borrowing by the government was said to be the cause of high inflation.
The industries are taking the brunt of higher discount rate regime in the country, said Zikarya Usman, vice president of Federation of Pakistan Chambers of Commerce & Industry (FPCCI). He added that the State Bank of Pakistan (SBP) had itself identified the government s excessive borrowing as the primary cause of inflation, so it should reduce lending to the government instead of raising the discount rate. He also demanded that the bank discontinue its practice of issuing monetary policy statements every two months and announce its stance once a year only. The raising of interest rates at such short intervals is making country s exports uncompetitive. The increase in rate was also increasing the cost of industrial production, he said. He said that small and medium enterprises (SME) were the most affected sector of the rate hike. SMEs that have obtained financing are at the highest risk of business closure. If businesses are closed, even the smaller ones, the non-performing loans of the banks will surge. He said that the SBP was preparing monetary policy without studying the nature of inflation in Pakistan that was not demand pull inflation , which could be controlled through tight monetary policy. M Saeed Shafiq, president of Karachi Chamber of Commerce and Industry (KCCI), said that the central bank had failed to control inflation in the country by increasing discount rate. Therefore, it should stop its inflation controlling monetary policy and should devise a growth-inducing policy instead. If the government does not design growth-inducing policies, the situation will worsen. Anjum Nisar, former president of KCCI, demanded that the central bank announce its monetary policy in advance for the next six-month period. The short-term policy review with continuous increase in discount rate has resulted in higher rate of unemployment in the country, he said. He termed Monday s increase in discount rate by 50 basis points to 14 percent the last nail in the industry coffin. S M Muneer, former president of FPCCI, said in a statement that the discount rate hike would have a bad impact on the overall economy and particularly on large scale manufacturing (LSM). He said that the government should not consider the proposals of bureaucracy and foreign donors that were usually against the interest of the country. The government has to take measures to improve the supply of goods and improve our inventory management , he said. In the name of reducing inflation, the State Bank s policy measures have been generating more inflation. As a consequence of these steps, inflation will not decrease but it will increase further, he added.
Courtesy : The News