It would be wrong to assume that all the activity is purely election based. ILLUSTRATION: JAMAL KHURSHID
Banks traditionally have been content to live off the return on government treasuries and on their spreads. The SBP, left with no choice, started on a steady programme of reducing returns on government treasuries and finally resorted to the killing blow — setting an upper limit on banking spreads.
The impact seems to already be visible. New loans to the manufacturing sector topped Rs136 billion during the first eight months of the fiscal year ending June 30, 2013, up 61 per cent compared with the same period in the previous year. This is a blip, since the trend over the past four years has been stagnant at best, but that does not mean that it cannot be the start of a trend.
This also has to be seen in the context that this is an election year and economic activity always picks up in an election year. Therefore, it must also be taken into context that while loans to the industrial sector jumped 61 per cent, machinery imports only rose by nine per cent.
It is not unusual for high-interest, short-to-medium-term loans to pick up pace in election season because a lot of industrialists make campaign donations to the political party of their choice, or one that they feel will come into power and then hopefully make policies that cater to their or their sector’s needs. This is always the case when elections are around the corner.
But this is all just part of the picture. It would be wrong to assume that all the activity is purely election based. The signs of a turnaround are there.
Published in The Express Tribune, April 13th, 2013.
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Dear Editor,
The problem with those in power to manage the economy in Pakistan is that they take up a so-called reform strategy that is quite similar to what one see (in other countries) during the election year--expenditure made in populist notions and non-prioritized schemes; be that the investment in road infrastructure in Punjab, the size and scope of the BISP programme, the level of non-targeted energy and fertilizer subsidies, the SRO culture (a reflection of an elitist economy), the burden of inflation tax in the shape of government financing of deficits through borrowing from primary sources mostly (through SBP's direct level of lending or its liquidity injections into commercial banks for keeping the lifeline alive for deficit financing). Hence, election year economics is a five year writ-large phenomena for the government mainly, and the hard reforms for improving institutional quality (and especially with regard to energy and domestic resource mobilization sectors), which is the backbone of macroeconomic stabilization and economic growth.
Companies Ordinance 1984, prohibits any political contribution made by any company. Auditors should be vigilant in identifying the usage of the bank loans obtained by the companies in order to identify any potential political contribution which could be in non compliance of the said ordinance.