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Pakistan State Bank Spots System’s Flaws

by Babar Ayaz
***Corporate, public and government sectors use household savings to finance operations
ONCE again the State Bank" of Pakistan's annual report boldly pinpointed the structural defects of the country’s economy and suggested far-reaching reforms. This, in spite of unwarranted meddling of the Ministry of Finance which seemingly has delayed its publication.
And once again the policymakers will sacrifice it at the altar of short-term gains and political opportunism. At least this has been the practice in the past.
The fact the newly inducted government Is going at a whirlwind speed on its programme of denationalisation and privatisation alone is not enough to prove that they would be able to undertake the less popular reform package as suggested by the State Bank, the institution which monitors the economy with whatever autonomy left with It.
To duck the major reforms recommended by the State Bank of Pakistan economists, the government has also a better excuse that they could not help but rely on heavy borrowing because the external input line got choked and the oil bill went up substantially. Since the last many years the SBP report has been la mentlng over low national and domestic saving rates. It suggested various changes In the existing policies to raise their level, but without any desirable results.
Though the level of saving* and Investments improved during 1989-90 over the preceding year, "their level as percentage of ONP i* roughly the same as tn 1987-88 and considerably tower tlian it was in 1988-87." The major contributor to national savings is the household sector which provides 92.9 per cent of the total.
The share of both the private savings and household savings." the SBP report admits, "has broadly shown a rising trend indicating that the share of p'ublic savings and corporate savings has been declining."
The SBP observes quite boldly: "It is paradoxical that the share of corporate saving in the national savings should be so small despite the fact that over the years the corporate sector has had the privilege of making use of all sorts of facilities and incentives.
"Similarly, although the public sector has been expanding investment, its savings are meagre compared with the scale of Investment In the public sector. Both the corporate and public sectors and the government have used the household savings to finance thetr operations."
While the share of corporate and public sectors was lowest at 8 per cent, their contribution in employment generation is tow and so does their share In exports and growth in the manufacturing sector.
The new government is also pampering the same class. All policies are directed to help the big money grow. But there is little emphasis on Incentives to the small-scale Industry which has sustained growth in spite of little support from the government and the banks
What is required us the SBP report* suggested is "greater emphasis on small scale Industry and shift of balance In favour of labour intensive areas of production in large-scale industry."
To boost the national savings it is important to correct the distortions In the rate of return, which will become more glaring now as the tnfia tlon has crossed the one digit mark and is said to be around 15 per cent.
Such a high rate of inflation would turn almost all banking sector savings rates Into negative rates, which might affect the household savings adversely. It is all the more necessary to address this problem immediately as even, according to the SBP. the "prospects of foreign assistance in the near future are clouded" and the government is forced to talk about "self-reliance."
This self-reliance affects the groaning tower classes in Pakistan where, according to the SBP report, some people five "on about US 91 per person per day." or actually have a lower standard of living.
— Depthnews Asia.