Oct 8 - 14, 20

Consumer finance activities are driven by robust future earnings of general public as well as policies of the financial institutions. People are willing to buy many items on credit, enjoy their use and make payments in easy installments, including the interest. It is true that interest rate matters but consumer finance is mainly driven by payment ability of the borrowers. People plan their payments and are also willing to assume a liability when they are confident about the rise in their income in the future.

Over the last five years unemployment has been on the rise due to electricity and gas load shedding, evident from poor capacity utilization of industrial units. Many of the workers, who are not the victim of retrenchment are suffering from reduced income and declining purchasing power due to high inflation rate. The government claims that the rate of inflation is on the decline in the country, reportedly running in single digit. The central bank has also been able to cut discount rate and further easing is expected. However, the point of concern is that people are not ready to commit future payments, as they are not confident about future inflows.

Contrary to the claims prices of everything is on the rise, from meat/beef to eggs, from pulses to fruits and vegetable and from milk to bread. Purchasing power is also eroding due to sky rocketing utility tariffs. The brunt of rampant pilferage is borne by those who still bother to pay their utility bills. Experts say that payment of billions of rupees subsidy is a myth because the difference is being borne by the consumers and not the government.

In the recent past prices of POL products were raised with regular intervals but there seems no relation between the local POL prices and international prices of crude oil. The orthodox planners still say that hike in POL prices pushes up price of everything from cost of generation to transportation and from eatables to consumer durables. However, the point is not understood by the policy planners.

One may like to put the entire blame on ruling parties (PPP, MQM and ANP). But PML-N should also be held responsible because it rules the largest province, Punjab where 65% of total population of the country resides. Ironically, PML-N holds ruling coalition responsible for all the malaise but never admits that it is also part of ruling junta and also responsible for the miseries faced by the masses.

It is also being said that PPP contested election on its decades own slogan of Roti, Kapra aur Makan. However, it has hardly given anything to the masses but virtually snatched whatever they had. PPP claims of distributing billions of rupees under Benazir Income Support Program. However, experts say, "The program has made hundreds and thousands of people baggers and deprived them of the self respect." They also say "People don't want stipend but jobs."

Some experts also say that all the talk about high interest rate is humbug because only a negligible percentage of population borrows from the banks. The main beneficiaries are politicians, government, state owned enterprises and corporate clients. Bulk of the population is still dependent on the informal sector for meeting its financial requirements. Though, the central bank has laid down an elaborate 'financial inclusion plan' banks are still not ready to lend without collaterals. This automatically disqualifies millions because they don't have 'clean title' of the property that can be used as collateral.

Experts also say that most of the trade associations talk about high interest rate but hardly share the data about the share of financial cost in the total cost of the product. Reference is often made of the companies where bulk of the income is eaten up by the financial cost. However, detailed analysts of the annual accounts of some of the listed companies clearly shows that they have borrowed the money in the name of public limited companies but invested in other listed companies or lent to associate private limited companies.

High financial cost also erodes income of utilities, particularly oil and gas marketing companies, refineries and even independent power plants. Since they are not being paid in full and receivables are mounting, they have two recourses available, close down the operation or borrow to remain operational. This can be best understood if one looks at the balance sheets of KESC, SSGC, PSO, OGDC and refineries. In case of KESC, its payables are far less than the receivables. It owes nearly Rs30 billion to SSGC alone. As a result SSGC is forced to borrow from the financial institutions and keep on rising tariff to take care of its financial expenses.

In the past loans were extended to some industries at concessional rates but over the last two decades, the practice has been discontinued in the name of no more lending to local industries due to the pressure of IMF and other multilateral lenders. However, this is half truth because multilateral financial institutions insist that the government should bear the burden of subsidy and should not be subsidized by some other groups.

The developed countries pay billions of dollars subsidy every year to keep the strategic as well as the weaker segments of the society immune from movement of crude oil and commodity prices. Though, the rulers never admit but the fact is that pressure on Pakistan to stop payment of subsidies is due to lavish spending by the elected representatives, mounting budget deficit and spending on non-developmental projects.

The World Bank and Asian Development Bank are still ready to extend financial assistance for those projects, which they deem important for Pakistan. However, some critics have an objection that these institutions take back a substantial percentage of funds by appointing their favorite consultants and insisting on buying of plant and machinery from their approved suppliers.