INTERVIEW WITH MR SHAMIM A. FIRPO, SENIOR VICE PRESIDENT KCCI
Oct 8 - 14, 2012
PAGE: YOUR VIEWS ON INTEREST RATE AND LENDING BY BANKS TO THE PRIVATE SECTOR:
SHAMIM FIRPO: Economy is showing no signs of recovery despite recent cut in policy rate by the State Bank. Reduction in the interest rates has not motivated commercial banks to start lending to the private sector as they still prefer to advance loans to the government. The cost of credit is still considered high in business community. Other reasons behind frustration in the private sector include energy shortages, political uncertainty, inflation and deteriorating security conditions. Banks seem unwilling to focus on the private sector which calls for out of the box solutions like a new plan to support private sector for expansion, capacity building, modernization and up-gradation to capture export markets. The industrialists who want to expand or upgrade their units find it difficult due to unbearable cost of credit; an issue which must be realised at the highest level. There are many sectors which despite resources haven't invested in up-gradation or expansion since years. Government can also consider easing borrowing rules for industry to spur growth. Pakistan needs new measures to support private sector, boost foreign and domestic investment and upgrade the country's infrastructure which is hurting annual economic growth.
Sharply slowing economy with growth slumped to its weakest calls for revolutionary steps otherwise inflation, wide fiscal and current account deficits, weakening exports, and flight of capital will continue to contribute towards downturn.
PAGE: HOW WOULD YOU COMMENT ON GOVERNMENT'S BORROWING FROM THE BANKING SECTOR INCLUDING THE STATE BANK?
SHAMIM FIRPO: The government has planned to borrow some Rs 1.2 trillion from banking sector during the second quarter (October-December) of current fiscal year, ie, 2012-13 (FY13) to fulfil its financial requirements. This borrowing will help government meet its rising fiscal deficit, which is already on higher side despite all efforts to contain it. Shortfall in revenue, slow foreign inflows and decline in foreign direct investment are some of the reasons for rising government borrowing. The State Bank of Pakistan (SBP) has already restricted the government borrowing through amendment to the SBP Act. According to the SBP (Amendment) Act (2012), the government borrowing from the SBP is required to be repaid at the end of each quarter and the existing stocks to be retired within eight years starting from this fiscal year. While, in case of not observing these provisions, the Act also stipulates that the federal government will submit a statement to the Parliament giving a detailed justification. Therefore, raising expenditures and less than target revenue collection has compelled the Federal Government to borrow from scheduled banks instead of SBP. The government intends to borrow Rs 1.125 trillion from scheduled banks through sale of Market Treasury Bills of 3-Month, 6-Month & 12-Month in second quarter of FY13. Auction of MTBs will be held fortnightly and 6 auctions have been planned by the government during October-December period of current fiscal year. The Federal Government borrowing has come down to Rs20.7 billion as compared to Rs128.9 billion during the same period last year. Another reason might be the shift in the government's borrowing from the banking system, especially the State Bank to the National Savings Scheme (NSS), which appeared an affordable mode of borrowing for the government given the weak prospects of foreign inflows. However, despite some retirement of the SBP debt by the government, its reliance on commercial banks to fund the budget deficit remained higher. The government borrowed Rs243.9 billion from the scheduled banks as of August 17 from Rs126 billion last year. The SBP data revealed that total government borrowing from the banking channels declined to Rs33.7 billion from July 1 to August 17 as compared to Rs127 billion in the corresponding period last year. The Federal Government retired Rs223.2 billion debt owed to the State Bank during the period under review against the borrowing of Rs2.9 billion last year, while the provincial governments retired Rs21.3 billion against the borrowing of Rs24.4 billion in the same period last year. According to the data, private sector retired Rs31.3 billion to the banks during the period under review as compared to Rs84 billion in the same period last year. The CSF reimbursements would provide breathing space to the federal government, improving the position of the external sector, the country's dwindling foreign exchange reserves and the current account. They also advised the government to use CSF payments for the retirement of the SBP debt, which is growing significantly and widening the fiscal gap for the government. There is a short-term decline in the government borrowing. It is likely to pick up momentum again following the government's fiscal expansionary policy, owing to the election year. The size of the fiscal deficit may increase to between seven and 7.5 percent of GDP by the end of this fiscal year due to a likely increase in government expenditure and investment in development projects. Given the challenges, financing the budget deficit will be most challenging for the government this year as it will continue to make the circular debt payments to the power sector and release funds for the social safety nets programmes at faster pace. Apart from CSF, the decline in the government borrowing is a reflection of earning non-tax revenues from the public sector enterprises, including the State Bank of Pakistan. The banking system, including the State Bank of Pakistan and the commercial banks, are expected to lend more than Rs700 billion to the federal government for the budgetary support in the upcoming financial year, starting on July 1st, 2012 as against the government estimates of Rs484 billion. The bank borrowing was budgeted at Rs304 billion for the fiscal year 2011-12, however, it was revised to Rs940 billion in FY12. The raise in borrowings will put liquidity pressures on the banking sector as well as the State Bank, resulting in higher inflation and interest rate in FY13. The government public spending will see a record hefty increase in FY13 because of election year, edging the size of the government's borrowing up to a significant level. Almost 80 percent of funds seem to be utilized in the first six months of FY13; however, in the absence of external inflows, there would be a significant financing stress on the government in the second half of the next fiscal year. This could have brought negative effects on the macroeconomic indicators, especially capital and money markets, resulting into higher inflation and interest rate. Reliance on bank and non-bank borrowing will keep interest rate high with no major growth expected in the private sector credit off take. The government is budgeting Rs142 billion in external funding in terms of project aid and grants to pay for investment spending, this will be a tough ask given the strained relations with the US administration.
PAGE: COULD YOU COMMENT ON CURRENCY DEVALUATION AND INFLATION IN PAKISTAN?
SHAMIM FIRPO: Devaluation is also one of the consequences of inflation. Due to double digit inflation with some relaxation now Pakistan has been caught in the vicious circle of devaluation(devaluation inflation loss of competitiveness again devaluation). As a result of inflation real money balances decline and we need more money to exchange the same quantity of goods and services. This puts pressure on the printing press to print more and more currency notes to meet the requirement. This is the extra cost attached to inflation.
PAGE: YOUR VIEWS ON PRIVATE SECTOR?
SHAMIM FIRPO: The low level of private sector investment in Pakistan in future is expected owing to increasing circular debt, power sector issues, unsatisfactory law and order situation and Moody's recent lowest credit rating of Pakistan. Our country lacks a proper investment regime and a comprehensive framework of investment, at present, which is often discouraging to the private investors as well. Increasing circular debt, power sector issues, unsatisfactory law and order conditions and Moody's recent lowest credit rating of Pakistan shall be the reasons in low level investment of private sector.
PAGE: WHAT MUST BE DONE TO IMPROVE THE PERFORMANCE OF PRIVATE SECTOR?
SHAMIM FIRPO: We need to develop necessary institutional frameworks; improved infrastructure, especially in the energy sector; and high-quality education and health care delivery mechanisms. Private sector must lead in improving technological readiness in the manufacturing and services sectors; investing more resources in research and development; and adopting international standards of corporate management and sophisticated business practices for greater efficiency and higher competitiveness.
(SITTING) SENIOR VICE PRESIDENT, KARACHI CHAMBER OF
COMMERCE & INDUSTRY 2012-2013
MEMBER MANAGING COMMITTEE
KARACHI CHAMBER OF COMMERCE & INDUSTRIES, KARACHI 2007 To 2012
LABOR & SOCIAL WELFARE SUB COMMITTEE K.C.C.I 2007 To Date
PUBLIC SECTOR UTILITIES, POWER AND GAS K.C.C.I 2008 To Date
DEHLI CO-OPERATIVE HOUSING SOCIETY LTD. KARACHI. 2000 To Date
VICE PRESIDENT :
KARACHI CO-OPERATIVE HOUSING SOCIETIES UNION LTD. 2005 To Date
DIRECTOR & SENIOR VICE PRESIDENT :
UNION CO-OPERATIVE CLUB LTD. KARACHI. 2007 To Date
KARACHI FIRPO LIONS CLUB 2007 To Date
SOCIETIES RESIDENT ASSOCIATION. 2006 To Date
COMMUNITY POLICING SYSTEM, KARACHI. 2001 To Date
ARTS COUNCIL OF PAKISTAN, KARACHI. Since 2001
JAMIAT PUNJABI SAUDAGRAN-E-DEHLI (Regd). KARACHI. 1988 To 2007
HOUSING BOARD, J.P.S.D, KARACHI 2004 To 2007
CITIZENS POLICE LIAISON COMMITTEE 1993 To 1997
It all began in 1964, when I stepped into the world of food business with the name of "Firpo Restaurant" serving into this dynamic & tempting field. The "Firpo" brand was well accepted by the people of Karachi. Then, the company decided to diversify to penetrate into trading and started with the name of "Sohail Enterprises" in 1974. The core philosophy of the management was to provide "QUALITY PRODUCTS WITH BETTER SERVICES.
Since its inception the "Firpo" has always focused on consumer satisfaction with the motto of "Only The Best is Good Enough". The group has always emphasized on the importance of "High Quality" throughout more than 45 years history, ensuring that consumers / buyers return to dynamic brands of Firpo again and again. Over the period, the company took cognized steps in research and manufacturing side also. Today the Firpo has developed and marked a wide range of products and turned into Firpo Group of Companies, enjoying delivering services and manufacturing in multi coloured fields like;
1. Importers, Exports & Manufacturers of Auto Lamps & Auto Parts
2. Importers and specialized in Miniatures Lamps
3. Importers of general merchandisers
4. Specialized in Bridal and Party dresses
5. Deals in optical frames and Contact Lenses
6. Manufacturers and Assemblers of Auto Parts
7. Deals in Web Hosting, Domain Registration & Software Development
8. Building Construction &
9. Farm House