BANKS TO SUFFER MORE THAN INDUSTRY
July 20 - 26, 2009
The alarming rise in defaults of bank loans primarily due to high interest rates as well as depressed economic slowdown need immediate corrective measures including an effective cut in discount rates of the bank at least by 300bps to make it viable for the borrowers to make repayments to banks.
Engr. Abdul Jabbar, Chairman SITE Association of Industry said while speaking at a get-together with media on the possible implication of rising number of NPL of the banking sector, and other issues related to economic slowdown.
He said actually it is not the industry to suffer on the back of exorbitant rise in cost of financing but the banking system itself may suffer more than the industries due to accumulated infected portfolios. He demanded of the government for "Industrial autonomy" to keep on the wheel of industry in the motion. In fact, industry or the economy cannot be seen in isolation and should not be de-linked from politics.
Rauf Siddiqi, Provincial Minister for Industry, Zubair Motiwala, Advisor to Chief Minister Sindh on Industries and Investment also addressed the gathering.
While referring to the notion of industrial autonomy, he said the government of Sindh or private sector has been barred to establish a powerhouse of more than 50MW. For operation in Karachi permission from Islamabad is mandatory, which is an uphill task.
The federal government should give freedom to the provincial governments to enable them to set up power stations of higher capacity.
Such barriers have to be removed to induce a feeling of independence at least in essential areas. He cited an example that while one eating pizza in Karachi, he pays sales tax to the federal government. At least some of the revenues generated in the provinces should be allowed to the provinces for the cause of development and for the good of the province and its people. As a matter of fact, the revenue generated from provinces should be given due right to the provinces to utilize these funds for provincial uplift of the economy.
SITE Chairman strongly recommended that in the next monetary policy review the State Bank should consider reduction in policy rates at least by 300bps so that the alarming situation of defaults due to high interest rates could save a large number of manufacturing units from collapse. It is because of the high interest rates that the private sector credit dropped by Rs130 billion in the last financial year, which is feared to further drop if the situation is not rectified, he asserted.
Engineer Jabbar sounded a note of warning that if the interest rate was not lowered then the worst sufferer would be the banking system itself rather than the industries.
IMPACT ON AUTOMOBILE
Meanwhile the higher interest rates coupled with rupee devaluation, inflationary pressures and the dried up auto financing by the banking system are affecting purchasing power and the poor law and order situation has made 2009 a tough financial year for automobile sector.
The removal of 5 percent excise duty, which is passed on to the customers, has however helped the industry to gain slight increase in sales volume in the month of June 2009. It may be noted that June-09 sales numbers improved by 10% MoM to 8,302 units, primarily driven by price cuts, post FED withdrawal (4-5% on average) and seasonal factor.
The industry circles however feel that the worst is over in terms of unit sales and expect the momentum to help Auto Industry in achieving 4% unit sales growth during FY10E.
It will take yet another year before striking the double-digit sales growth (14% in FY11E) as income levels are yet to catch up to the level where people may have disposable income to spend on discretionary items like cars. It may be noted that banks still are conservative in providing auto financing primarily due to increasing volume of non-performing loans, a key factor behind strong industry performance in FY02-07 period.
LAW & ORDER
The only way out for controlling law & order situation is the close coordination between all political forces irrespective to their affiliation with the government or the opposition, otherwise all efforts in this respect would mean a mere fire fighting.
This remarkable observation was made by Rauf Siddiqi, the frontal leader of Muttahida Qaumi Movement and Provincial Minister for Trade and Industry while distributing 30 motor bikes donated by SITE Association with an objective to facilitate the police force for effective performance against the crime and controlling law and order in the city.
Rauf Siddiqi who usually speaks with a passion to improve the image of the country, also expressed his wishes for the people at the helm of affairs to take decisions in the interest of the people and the country.
He sounded a note of warning that land grabbing would not be tolerated in the industrial estate of Karachi and would be dealt with iron hand irrespective to the status of the lawbreakers.
Zubair Motiwala, Advisor to Chief Minister Sindh on Investment disclosed a number of projects especially with foreign collaboration in the field of education, and industrial zones like Japan Special Economic Zone and China Special Economic Zones for which the foreign investors have committed investment in billions of dollars in the fields of aqua culture, agriculture, dairy and cattle farming, besides coal mining for which an Australian firm would be investing over $6 billion in five years.
When materialized these projects would change the economy of the city and would be valuable addition to the national economy.
In the education city being developed at a massive scale spread over 9000 acres investment commitments from investors of international repute like Agha Khan Foundation, Hamdard Foundation, Baqai University, ZABIST University and other leading universities have already made.
Besides these development projects, Zubair disclosed that the Government of Sindh has initiated a unique idea of introducing a new concept of "Viability Fund" for that purpose seed money of $30 million has been earmarked. This fund would help the small and medium enterprises with a focus to enable them to perform and produce results and whenever they are confronted any financial losses viability fund would support them to make up their losses enabling them continue to remain in business.
When his attention was invited towards the IMF conditionalities, which are contradictory to this viability concept on the back of high cost of financial, high price of electricity, gas and petroleum products, which are apparently against the concept of viability, he agreed and disclosed that he has asked the government to let them explain the IMF about the difficulties faced by the industries in the face of high interest rates and exorbitant energy prices in the country.
PAKISTAN'S LIQUID FOREIGN RESERVES POSITION
The total liquid foreign reserves held by the country stood at $ 12,239.0 million on 11th July, 2009. The break-up of the foreign reserves position is as under: -