ICCI for 150 basis point cut in policy rate to trigger private sector growth

  • March 20, 2015
Islamabad Chamber of Commerce and Industry has stressed upon the State Bank of Pakistan to make 150 basis point cut in policy rate in the monetary policy scheduled to be announced on Saturday to bring it at 7 percent in order to promote new investment and trigger private sector growth. 
Muzzamil Hussain Sabri, President, Islamabad Chamber of Commerce and Industry said that the trend of tight monetary policy in Pakistan has mostly created problems for the country as it enhanced the cost of credit for private sector and stalled the growth of economy. 
Giving some facts, he said between 2007 and 2014, banks funding to public sector went up from Rs.1 trillion to Rs.5 trillion showing an increase of over 400 percent while lending to the private sector during the same period grew just from Rs.2.1 trillion to Rs.3 trillion which shows that banks have deviated from their important role of supporting private sector in full utilization of productive resources.
He said bank credit to private sector in 2011 at 121.49 percent of GDP in China, 106.40 in Malaysia, 104.22 percent in Singapore, 47.15 percent in India, 43.17 percent in Turkey, 26.71 percent in Sri Lanka, but it was just 18.05 percent in Pakistan which proves that private sector in Pakistan normally faced great difficulties in availing easy credit facility as compared to regional countries. He said the tight monetary policy in our country has been the main factor for crowding out private sector from low cost credit facility. 
Muzzamil Sabri said this state of affairs needed urgent reversal and emphasized that banks should focus on their core function of channelizing savings to investment in order to contribute more effectively for expansion of private sector and fostering better economic growth.
He said though SBP had made a good move by reducing the discount rate in the last monetary policy, but it was not enough to provide a breathing space to trade and industry. He urged that government should make a notable cut of at least 150 basis points in the discount rate in upcoming monetary policy that would inject fresh blood in the private sector. He was of the view that the reduced discount rate would jumpstart the economy as it would make available credit facility for the private sector at affordable cost, attract more new investment and give a strong boost to business activities and promote exports.