Enabling entrepreneurship

The sentiment is highly admirable. The government wants to get the country’s banking sector to actually do their jobs and provide capital to employment-generating small businesses run by young entrepreneurs. Hardly anything else could be better for the economy. The proposed actions, however, are somewhat dubious in their merits. The government has set a target of lending Rs125 billion in subsidised, long-term loans to small businesses throughout the country. We appreciate the idea but are sceptical that the goals outlined are achievable, given the structural constraints within the current state of the financial system.

For starters, the reason the government needs to undertake such a drastic intervention into providing credit to businesses is that the banks have simply stopped lending to the private sector. But the reason that the banks have stopped doing so has little to do with their own risk profiles and more with the government’s own voracious appetite for borrowed cash. Simply put, the government borrows so much money so fast that there is nothing left for anyone else. Indeed, the government’s rate of borrowing is actually faster than the rate of growth in deposits at all banks in Pakistan combined, meaning that outstanding loans to non-government entities of all types are actually falling.

Pakistan is a young country and its entrepreneurs need capital and an enabling infrastructure to grow. We are glad that the Nawaz Administration seems more cognisant of this fact than its predecessor. But we are disappointed that they seem to be focusing on the symptoms of the problem, rather than the disease itself. There is no question that the government needs to do more to ensure that early-stage businesses are able to access long-term credit. But the best way to achieve that is not to subsidise the loans, but for the government to stop borrowing so much money. Let the banks’ hunger for stable returns be fulfilled by enabling the ambitions of young entrepreneurs rather than by government bonds.

Published in The Express Tribune, September 27^th,  2013.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.