Aug 03 - 09, 2009

Irrespective of the fact that who authored the gory drama of 9/11, it is vivid that it opened the doors of endless social, economic, and even political sufferings for many countries especially the Muslim world including Pakistan where people continue to suffer socially, economically and politically in post-911 age.

People of this country witnessed the hair-raising incidents of suicide bombings, which have so far claimed thousands of innocent lives besides causing severe losses to the economy. It was primarily due to acute economic recession that spurred unemployment, thereby giving rise to precarious law and order situation as well as street crime in urban centers of the country.

The irresponsible political forces and other social groups also added fuel to the fire by giving strike calls adding to the sufferings of the masses who mostly find hard to make both ends meet.

In fact, the canvas of sufferings is quite broader than generally conceived as the disturbed law and order has far-reaching consequences on different fronts besides socio, economic and political fronts. Politically, people of this country had to suffer the irreparable loss when the most popular and national leader Benazir Bhutto was assassinated.

Despite all these sufferings at a massive scale, it becomes more painful to see that the Western and Indian leaders continue to distort the image of this country by stigmatizing Pakistan as the haven for the extremists. Hillary Clinton US Secretary of State during her recent visit to India observed that US officials firmly believe that al-Qaeda leaders who planned and carried out the terrorist attacks of Sept. 11, 2001, are hiding in Pakistan near its border with Afghanistan. Such whimsical observation would do no good to the humanity but might add to the sufferings of the people living in this part of the world.

Such observations adversely affect image and the economy of Pakistan. The foreign media encouraged baseless remarks unleashing anti-Pakistan feelings aimed at distorting the image of the country.

Consequently, many countries time and again issued advices to their people not to travel to Pakistan without realizing the fact that it's a homeland of over 160 million people paying the price for war on terror. The bleak picture painted by foreign media about this country has a paralyzing effect on its economy and exports, flow of foreign investment.

Besides stalling the flow of foreign investment on one hand the bad law & order situation also spoils the conducive environment for investment visibly reflected in the declining demand for credit from the private sector which also is compounding current economic slowdown.

Since the investors prefer to sit on fence without taking any risk of investment, the banking system has arrived at a point where it has plenty of liquidity and is looking for the borrowers from the private sector especially for the investors.

At present, the commercial banks have a record level of liquidity, which calls for enhancing volume of lending by the commercial banking system.

It is interesting to note that problem is not with the banks in fact the borrowers are losing their interest due to declining demand both in the exports as well as domestic market besides high rate of interest and high cost of financing is adding risk of defaults.

The SBP Governor has however asked the commercial banks to increase lending to the private sector in order to provide necessary stimulus to the economy.

Presiding over a meeting of the Private Sector Credit Advisory Council (PSCAC), Governor SBP Salim Raza urged the banks to take a 'liberal view' of the economy and play a role of a catalyst in the economic growth of the country. "Liquidity in the banking system has never been as high as it is today," he said and added increased credit disbursement by banks will provide a stimulus to the economy.

SBP Governor acknowledged that due to the current global and domestic economic conditions, the banks have become conservative and their terms of loans have become stringent. But, he said the growth in non-performing loans (NPLs) of banks has slowed in the last quarter of 2008-09 fiscal years (FY09), which is a good omen.

He informed the meeting that overall private sector credit (PSC) after recording the growth of 16.5 percent during FY08 registered an increase of only 0.7 percent during FY09, mainly due to slowdown in economic activity coupled with the global recession and rising NPLs etc.

Raza explained that PSC during July- December 2008 grew by 7 percent and constituted 62 percent of total domestic credit. However, since December private sector credit has witnessed a sharp fall, with an accumulative negative growth of 6 percent during Dec-June FY09. "This behavior is mainly due to slowing economic activity, rising NPLs, partial settlement of power sector debt etc.," he added.

Similarly, he pointed out that due to global recession country's exports were affected and on a cumulative basis (July-May FY09) it declined by $202 million, thus reducing the demand for credit. In addition to this, commodity prices reached a peak in July 2008 and fell significantly thereafter, thus dampening the demand pressures in the economy and hence the need for import related credit utilization, he added.

He disclosed that loans for working capital exhibited a decline of 7.6 percent during FY09 mainly in the textile, manufacturing, commerce and trade sectors while fixed investment financing increased by 26.4 percent mainly for investment in manufacturing, electricity, gas & water and transport, storage & communication sectors. On cumulative basis, credit for export finance has registered a disbursement of Rs 15.4 billion as compared to Rs 19 billion last year, he added.

Governor pointed out that agricultural credit disbursement has shown a rising trend as it increased by Rs21.4 billion or 10 percent during FY09. Similarly, infrastructure finance also grew by 43 percent mainly due to capital investment in power generation and telecommunication sectors.

Dr Ikhtiar Baig, Advisor to the Federal Government on Textiles, made a presentation on behalf of FPCCI on the overall PSC scenario and made several recommendations to increase credit disbursement to businesses and export-oriented industries.

He also acknowledged SBP's supportive role towards industry, particularly the textile sector. He thanked the SBP Governor for providing one year moratorium to LTF loans and allowing a waiver of export refinance till Dec. 31, 2009 to the exporters whose export proceeds were overdue.

Representatives of banks informed that there is an issue of demand and that commercial banks are willing to provide credit to the private sector. They highlighted efforts taken by banks to restructure loans of their clients and to revive those units, which are not able to pay off dues.


The total liquid foreign reserves held by the country stood at $ 11,766.8 million on 25th July, 2009.The break-up of the foreign reserves position is as under: -

i) Foreign reserves held by the State Bank of Pakistan:

$8,346.9 million

ii) Net foreign reserves held by banks (other than SBP):

$3,419.9 million

iii) Total liquid foreign reserves:

$11,766.8 million