LENDING TO PRIVATE SECTOR - A PRIMARY FUNCTION OF BANKS

INTERVIEW WITH MR KHALID TAWAB, FORMER VP FPCCI

KHALIL AHMED
(feedback@pgeconomist.com)

July 16 - 22, 20
12

PAGE: TELL ME SOMETHING ABOUT YOURSELF AND YOUR BUSINESS PLEASE?

KHALID TAWAB: I am Chairman of the Tawab Group, with interests in steel, paper and financial products. I am also presently functioning as the Honorary Consul General for of the Republic of Mozambique in Karachi. I most recently served as Vice President of the Federation of Pakistan Chambers of Commerce and Industry, an organization encompassing over 40 chambers of commerce and 90 nationwide associations.

PAGE : YOUR VIEWS ON LENDING BY BANKS TO THE PRIVATE SECTOR:

KHALID TAWAB: I feel that the lending by banks to the private sector constitutes one of the primary forms of support to industry, especially in the times that our country is facing today, when businessmen are reluctant to invest their own money for this purpose. Having said that, I firmly believe that in current circumstances wherein the Government is itself borrowing huge amount from the financial system to sustain its expenditures, the private sector is left with little after fulfilling the needs of the Government.

PAGE : HOW WOULD YOU COMMENT ON THE GOVERNMENT'S BORROWING FROM THE BANKING SECTOR, INCLUDING THE CENTRAL BANK?

KHALID TAWAB: According to most recent statistics, the Federal Government's borrowing for budgetary support has risen to Rs.1.058 trillion, swelling by 58% during the current fiscal year. This may be attributed to rising current expenditure, billions of rupees subsidies being paid on commodities and slow foreign inflows. Clearly, this leaves the private sector with little funds to borrow.

The Government has not indicated how it intends to meet the budget deficit of 4.7% of GDP with much clarity. Rs. 484 billion have already been announced in the budget as the target bank borrowing in the Budget for 2012-13. This will deplete our reserves on one hand and on the other hand reduce the availability of industrial credit.

PAGE : COULD YOU COMMENT ON CURRENCY DEVALUATION AND INFLATION IN PAKISTAN?

KHALID TAWAB: Devaluation causes a contraction in economic activity and the consequent fall in income tax receipts raises the burden of government expenditure and foreign debt. At the same time, it fuels inflation, as imported raw materials, which several of our industries rely on, become more expensive. Some people think that devaluation helps to make our exports more competitive. It may be kept in mind that devaluation may temporarily boost exports only if the demand of exported goods in foreign countries for our exports is extremely responsive to a decrease in price, which is not always true.

PAGE : YOUR VIEWS ON THE FUTURE OF THE BANKING SECTOR IN PAKISTAN:

KHALID TAWAB: I think the future of the banking sector is bright in Pakistan. This sector experienced unprecedented progress in the first half of the previous decade, when it was deregulated substantially. Since then, growth has stalled. However, it is good to note that despite this slowdown, various Islamic banks have made inroads into this sector in past three to four years. This has partly been fueled by the good performance of Islamic banks during the financial crisis which was a major setback to the traditional models of banking in the Western world. I believe that herein lies the future of Pakistani banking; a move towards safer, more solid banking models dictated by the more secure tools developed by Islamic finance.

PAGE : WHAT MUST BE DONE TO IMPROVE THE PERFORMANCE OF THE PRIVATE SECTOR?

KHALID TAWAB: I believe the most urgent action that needs to be taken is to alleviate the conditions of the energy infrastructure, which to me, is the biggest problem confronting our industry, and the reason why large number of industrialists are wrapping up and moving abroad, according to some media reports.

Load shedding in the country has played havoc with the industrial sector, as textile, plastic, steel and other units have suffered heavily. The textile sector plays a dominant role in the national economy, and due to this energy crisis, the textile sector has lost its buyers to Bangladesh, India and Vietnam. Hence, the government should make a comprehensive plan for overcoming the problem otherwise besides the trade deficit; unemployment and inflation are also likely to shoot-up. In short-term measures, the government should talk to IPPs and evolve a strategy for rapid power production while in long term planning; it should focus on making dams and adding thermal, coal and nuclear energy. The protection of domestic consumer hinges upon smooth running of the industry and if the industry of the country is facing closure threat, Pakistan would not be able to achieve a respectable growth rate.