Pakistan less affected by global crisis: SBP chief

[Naveed Yaseen]

KARACHI (May 15 2009): Governor State Bank of Pakistan (SBP) Salim Raza said Pakistan has been less affected by the current global crisis as the country's banks are well capitalised and their assets and liabilities are squarely domestically based.

Compared with other Asian economies, which heavily rely on exports to developed world, Pakistan is less affected because of its limited exports and low exposure in the international financial markets.

While addressing, as a chief guest at the Management Association of Pakistan's (MAP) 26th Annual Corporate Excellence Awards Ceremony held at a local hotel on Thursday, the SBP Governor said, "With inflation coming under control, and with a huge domestic market, we could very usefully produce more for domestic economy, and take the opportunity to develop domestic commerce and domestic brands."

Governor State Bank of Pakistan said the current global economic crisis may result in slowdown in globalisation and added that the most painful consequences of this would be felt by the emerging markets and the developing world. He further said the emerging economies are suffering from loss of export markets and withdrawal of foreign direct investment as capital is retained and repatriated.

"The slowdown and reversal could be long, and would, by itself, slow or even reverse the movement out of poverty, and limit the middle class expansion we were seeing," he added. SBP Governor said that the current financial crisis has overwhelmed the whole global story since the early 1980's wherein deregulation, liberalisation, privatisation resulted in financial globalisation which was achieved not only by growth but also through cost effective, innovative and efficient supply chains.

The governor advocated economic managers should devise strategies to retain the positive effects of globalisation that transformed the world and to ensure a balance in the economic management to allay the fears of emerging markets that current global crisis may result in state control of capital; trade protectionism and restrictions on immigration.

He said that globalisation has achieved a cut in global production costs as manufacturing shifted to cheaper overseas bases, prominently China and also other Asian countries. This kept costs down, dampened inflationary pressures for the US consumer, and the fact that the Balance of Payments surpluses generated by exports would be reinvested in the US kept the dollar strong, and supplied liquidity that kept interest rates low.

He said the US financial sector debt grew from 22 percent in 1997 to 117 percent in 2008 and to 230 percent in the UK, while US household sector debt grew from 66 percent of GDP in 1981 to 100 percent in 2008. The US in the 2000s was absorbing 70 percent of the world's savings.

"In the US we had over-borrowed consumers, financial institutions and the Government, while private markets are largely to blame, excess leverage was significantly made possible by the US Fed keeping interest rates low, and ignoring the consequent of real asset inflation," he said adding that anyhow, the bubble burst and the consequences are before us.

"So we have now, according to the IMF, about 4 trillion dollar of debt to be written off banks balance sheets, vast amounts of money are going in to salvage banks, and interest rates are the lowest in history, but the consumer is building up his balance sheet, and banks are not lending," he said.

SBP Governor said the monetary policy in the developed world will not work under these conditions, and the whole weight lies on fiscal policy. Fiscal policy is exclusively directed by the Government and the cost of bailouts is likely to mean higher taxes now and in the future. "Without heavy Government intervention now, everywhere in the major economies the economy and the markets cannot revive," he added.

Earlier, addressing the ceremony, Waqar A Malik, president MAP said the "Corporate Excellence Awards" are one of the most coveted corporate tributes in Pakistan, akin to the Oscars of the country's corporate world. These are intended to promote excellence in all forms of management in the corporate sector of Pakistan.

Later, the overall best managed company awards were given to Pakistan Tobacco Company, Siemens Pakistan Engineering Company Limited, in the category of Business & Industrial while IGI Insurance Company in Financial category.

The other companies related to the two categories' sub-divided sectors, like Chemical & Allied Sector, Automobile & Allied Sector, Food & Allied Sector, Fuel & Energy Sector, Engineering & Allied Sector, Miscellaneous Sector, Non-Listed Companies Sector, Non-Profit Social Services Sector, Commercial Banking Sector, Investment Banks & securities Sector, Leasing & Modarabas Sector and Insurance Sector were also distributed awards and certificates.

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