‘Domestic loans are not just funding development’

Nine experts discuss Pakistan’s economic growth at Lahore School of Economics.


Rahib Raza May 06, 2011

LAHORE:


“The main objective of the State Bank of Pakistan (SBP) monetary policy was bringing price stability, which is mainly affected by the borrowing from the Central Bank. We tried to put a limit on the borrowing but it was never implemented. That’s the reason inflation could not be controlled,” SBP Director Hamza Malik said on Thursday.


Malik was speaking at the second day of 7th Annual Conference on Management of the Pakistan Economy held at the Lahore School of Economics (LSE).

The second day was divided into two sessions where nine experts made presentations and talked about Pakistan’s economic growth, macro economic management, monetary policy, capital markets, governance issues and financial sector reforms.

The first session was opened by Mathew McCartney of the School of Oriental and African Sciences, University of London. He discussed issues of crisis, growth and dependency. He said that the GDP growth in Pakistan was typically argued to be dependent on external factors such as trade and financial flows. “The disappointment with Pakistan’s growth should turn attention towards domestic policy and governance reform and not towards fatalism about the world economy.” Dr Eatzaz Ahmad, the LSE Faculty of Social Sciences dean, presented a quantitive analysis of Pakistan’s internal and external debt. He said that the government of Pakistan had not felt much pressure to use domestically borrowed funds on development activity despite the fact that the volume of domestic debt was almost equal to the volume of foreign debt. He criticised the salary increase in the public sector and said that it contributed to inflation as spending grew.

Dr Athar M Maqsood from the National University of Science and Technology and Wasim Shahid Malik from the Quaid-e-Azam University discussed aspects in designing monetary policy.

Hassan Mohsin of the Pakistan Institute of Development Economics talked about the impact of monetary policy on banks, lending and deposits. Mohsin, who examined the effect of the SBP’s interest rate had on commercial banks’ lending and deposit rates, said, “The effect is highest for nationalised banks, followed by private banks and then foreign banks.”

The second session called Capital Markets and Governance Issues was based on research conducted by LSE professors Ayesha Afzal, Mehreen Mahmud, Nawazish Mirza and Hamna Ahmad.

Afzal’s research examined market discipline using data of banks listed at the Karachi Stock Exchange from 2004 to 2009.

She said that stakeholders should be compensated for investment risks, otherwise they would simply withdraw their investments and penalise the banks, making banks suffer significantly.

Mahmud’s research concluded that mutual funds could play an important role in capital market development. She proposed to channel savings towards investments in the capital market.

Ahmad presented a comparison of South Asian countries on financing constraints and gave a statistical report on the share of industry in Pakistan’s economy. She also discussed the external and internal factors affecting industrial growth in Pakistan.

Azam Amjad Chaudhry, the LSE Economics Department dean, said that industrial growth in Pakistan was directly proportional to the number of families and the family size. “Say if an industrialist has three sons, the firm will have more changes of expansion and growth. This is a common trend for small scale industries. It is justified, but they should have other options to consider too,” he said.

Today is the last days of the conference.

Published in The Express Tribune, May 6th, 2011.

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