Pakistan’s GDP growth lowest in 10 years

[LahoreEstate]

Sunday, March 01, 2009
By Mansoor Ahmad

LAHORE

PAKISTAN’s GDP growth this year will be less than two per cent and it is the lowest in the past one decade as the growth has been strangulated by the irrationally high interest rates and tight monetary policy of the State Bank of Pakistan.

Former Finance Minister Salman Shah stated this while speaking at a discussion on economic decline and remedial measures.

The discussion was organised by the Lahore Economic Journalists Association. Elaborating his point, Salman Shah said sensitive price index had been on constant decline since October 2008 and there was no justification in keeping the central bank policy rate at 15 per cent.

Dr Shah claimed that based on current inflation scenario the Karachi Over Night Bank rates should not be more than two per cent and the policy rate of the State Bank of Pakistan should be 9-9.5 per cent.

He said that after accounting for three to five per cent banking margins the industry would get credit at 13-14 per cent.

He said even this interest was high but the productive sector would be able to grow.

He said the current high interest rates had marginalised the manufacturing sector of the country.

“No industry could grow if it gets credit at 20 per cent” he added. He said more that 54 per cent of Pakistani population was under the age of 25. Every year about 4 million of them join the adult workforce. He said Pakistan needed to grow at 9-10 per cent to absorb about 4 million youth that join the workforce every year.

The former finance minister said that economy was moving comfortably till the middle of 2007-08 fiscal year.

He said the economic managers of the previous regime knew that the high oil prices would put pressure on foreign exchange reserves and the plan was to offload small percentage of public sector companies like National Banks, KAPCO etc in the London Stock Exchange in April 2009.

He said at that time the stock market was at its peak of 15,800 points and the share prices of these companies were very high.

He said the government would have obtained $4-5 billion from these transactions. He regretted that the new government scrapped the program of off loading these shares in the global market without going in to the pros and cons of its decision.

He said oil price -hike consumed most of the foreign exchange reserves and government had to go with a begging bowl to the International Monetary Fund.

He said that the rot had not stopped even after International Monetary Fund deal because the government had stagnated growth and the revenue sources were drying up due to closure of industries.

He said the option to off load stocks was not feasible as the market had lost $45 billion since the assumption of power by this government.

He said the rupee that remained stable from 2002 till June 2008 had lost 29 per cent in value that had scared the investors. He said revival journey would now be hard, long and painful.

He said revival of industries would not be possible without promoting domestic consumerism.

He said exports were important but the competitiveness would come after local industries attained economies of scale through promotion of domestic consumerism.

http://www.thenews.com.pk/daily_detail.asp?id=165139