LAHORE: The industry has urged the State Bank of Pakistan to review its policies and facilitate the private sector particularly the poultry industry because credit off take has sharply dropped by 77 percent to Rs117.384 billion in the first half of the fiscal year 2019-20, as higher interest rates and economic slowdown dampened business appetite for bank loans.
Pakistan Poultry Association former chairman and ex-president of Lahore Chamber of Commerce and Industry (LCCI) Abdul Basit said the cost of production has flown upward, reaching the highest level of last 10 years owing to huge depreciation of Rupee against dollar, record high markup rate and continued hike in power and gas tariffs, leading to slowdown in economic growth. The State Bank of Pakistan’s (SBP) data showed that credit to private sector stood at Rs503.628 billion in the corresponding period of last fiscal year.
He demanded a considerable reduction in the key policy rate, taking it into single digit, with a view to providing the private sector access to low-cost borrowing.
He recalled that in the last monetary policy, the SBP kept the interest rate unchanged at 13.25%, causing hardships for the business community, particularly the poultry industry consisting of mostly the small and medium enterprises (SMEs), in accessing finance.
He was of the view that the cost of doing business and the cost of production had shot up to uncompetitive levels as the borrowing cost was huge and capital financing had become more expensive.
He said that the outgoing year has proved to be the worst year for poultry industry, breaking record of last 30 years’ losses mainly due to unprecedented escalation in cost of production.
Abdul Basit said that poultry sector is unable to pass on ever soaring cost of production to the consumers. Rather the industry survives by enhancing its efficiency through technology advancement.
Pakistan Poultry Association former chairman observed that the businesses are not willing to obtain fresh funds from banks due to higher cost of borrowings. Interest rate stands at decade-high of 13.25 percent amid stubborn inflation. Muted demand and flagging economic activities weighed down on private sector’s uptake for working capital to extend or establish businesses.
He said the SBP should step up its efforts to get credit flowing at a faster pace and spur growth that slowed at 3.3 percent last fiscal and is expected to taper further to 2.4 to 3 percent in the current fiscal year.
“The demand for the private sector credit is to remain subdued unless the SBP eases policy rate and economic growth gets momentum,” he said.
The SBP’s data showed that conventional banking branches extended Rs55.452 billion loans to private businesses between July and December 2019 compared with Rs377.869 billion in the corresponding period a year earlier.
Corporate sector’s borrowing from Islamic banks dropped to Rs14.154 billion during the period under review from Rs77.086 billion a year earlier.
Moreover, the government’s borrowing from the SBP has also increased considerably during the period, adding to inflationary pressures on the economy.
Abdul Basit was of the view that the private sector had nothing to borrow from financial institutions because banks preferred to park their money in risk-free government securities. “The flow of banking money is now going towards government papers, which will definitely hit economic growth and affect the investment landscape in the country,” he expressed concern.
LCCI former president was of the opinion that the government’s shift from borrowing from the central bank to commercial banks would likely result in huge profits for the banks but that would hurt the overall economic growth.
As weakness in private capital inflows continues to persist, the central bank should cut the policy rate to spur growth,” he demanded. The reduction will instill confidence in the business community and propel the economy.