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Sir, ever since you took over as the Governor SBP on December 2,
1999, we have seen a major restructuring of the State Bank of
Pakistan, reforms of the banking sector and an economy on the
rebound? Are you satisfied with the progress made so far?
I am satisfied and at the same time dissatisfied because
although we have achieved a lot of goals, there are still many
other goals that have yet to be accomplished. We have definitely
come a long way since 1999 when it comes to financial sector
reforms. And yet this sector is still not catering to the credit
requirements of the agricultural sector, SMEs and the middle
class, all of which constitute the backbone of the economy. So
while we have made lots of strides, we hope that this journey
will continue in the future too.
What are some of the factors that have helped in attaining an
impressive growth rate of the economy?
There are, in my view, several important factors that attribute
to this impressive growth rate of the economy. One of them, of
course, is that there has been a continuity and consistency in
the economic policies for the last 5 years to ensure that the
investors and the entrepreneurs make business decisions with
confidence that these policies will not undergo major shifts.
That is extremely important for any investor interested in
putting his money into this country.
Secondly, there is a level playing field for every investor and
every businessman. There are no SROs being issued to favour one
group or the other and I think this has given rise to the
healthy competition among the business community and many
investors. Third, we have been carrying out structural reforms
such as the privatization of the financial sector and many other
institutions which we had been losing money and also taking
steps to bring about massive economic stability like reduction
in fiscal deficit, reduction in foreign debt and reduction in
losses of public sector corporations. So you can see it’s a
combination of several factors that have led to an impressive
growth rate.
Sir, what have been the economic and social implications of
increase in the country’s foreign exchange reserves?
One economic implication is that Pakistan has been able to
manage its exchange rate without resorting to international
financial institutions. We are now in a position to stand on our
own feet and are autonomous in our decision-making. The social
implication is that when you have a country in which 33% of our
population lives below the poverty line, one question that is
repeatedly asked is: what is the significance of $12 to 13
billion in reserves as far as the poor people are concerned?
Those who question us must realize that the reserves are not for
spending purposes but are actually an insurance policy for the
future. Let me give you a simple example: when we had reserves
below $ 1 billion and if there was a oil price shock then
whereby the price would have shot up from $25 a barrel to $50 a
barrel, the rupee would have hit Rs. 80, 90 or even 100 to the
dollar simply because we could not have sustained that kind of
situation. However, today we have seen that although the oil
prices have gone up to $58, the exchange rate has remained
stable at around Rs. 59.50. Secondly, we used to look for even $
100 million of loan to bring in machinery into our country.
However, during the last 5 years, $15 million worth of machinery
has been imported out of our resources without us resorting to
taking loans from anywhere. And that is laying the foundation of
the future investment and growth in this country.
Sir, your tenure has witnessed macroeconomic stability and a
stable economic growth. But don’t you think, the benefits of
growth are restricted to only a small minority of the population
and are not shared widely?
I think this is a misunderstanding, almost a cliché because
previously, there was a widespread disapproval that we are in a
state of default. So when the default was averted, the critics
said that the government is caught in the stranglehold of IMF
and following its dictates and there is no increase in the
growth rate. Now the growth rate is on the rise and people have
started saying that this growth rate is only for the privileged
few and it doesn’t not have a trickle down effect. Now in any
economy, what does growth means? Growth means that the income of
an average citizen has risen as compared to the previous income
in the real terms after adjusting for inflation. It is true that
the top 20% of the household get 50% of the total income and the
bottom 20% of the household get merely 7%. So to that extent it
is true that the ratio is tilted towards high income bracket
household but then this category of household is also saving
some of its income and investing too. And when they invest,
employment is generated and people are lifted out of the
poverty.
It’s important to note that during the last three years, the
growth rate has been on an upward spiral and if the trend
continues, employment opportunities will expand and poverty will
reduce. Yet we are highly impatient and want results overnight.
Actually it will take quite a few years of sustained economic
growth before we see a reduction in poverty.
In its third quarterly report for FY05, SBP says administrative
as well as monetary and fiscal policy measures are required to
control inflation. Would you kindly elaborate on this point?
It is true that along with fiscal and monetary measures,
administrative measures are also required to control inflation.
Monetary measures are very simple. You increase the interest
rates so that the demand for private sector credit is reduced.
The administrative measures involve importing those goods, which
are in short supply and if there is cartelization or hoarding,
then action can be taken against those involved. We do not want
to abdicate ourselves from our responsibility of managing the
monetary policy but we think that the monetary policy has two be
combined with the measures that increase the supply of goods and
services in the economy.
Sir, you have said several times in your statements that micro
crediting can lead to an increase in employment opportunities
that can pave way for alleviating poverty. Micro credit has
worked in Bangladesh. Can it work here in Pakistan?
Well, it’s working already. Our first micro-finance bank,
Khushhali Bank has been operating for quite some time now and we
have given licenses to two such Karachi-based banks. The number
of beneficiaries have already reached about half a million
families and they are earning livelihood which they couldn’t
before and they are repaying the loan at 20% to 22% interest
without any difficulty at all. The recovery rate is quite high
but because we are a new comer having started out only 3 to 4
years back while Bangladesh has been doing it successfully for
the last twenty years. So it will sometime before results of
micro-credit becomes obvious.
SBP has always attempted to ensure that the rupee rate remains
at a point that does not lead to negative effects on imports and
exports. Yet, despite SBP efforts, utility rates increase and
petroleum prices go up. Moreover, manufacturing costs go up,
purchasing power of the middle class is affected and eventually
economy suffers. Sir, is there a way out of this quagmire?
I think it is a slightly exaggerated notion that the purchasing
power of the middle class is affected. Only the fixed income
groups such as the widows and the pensioners who are greatly
affected due to inflation. On the other hand, if, for example a
pan wala is selling his pan for Rs. 1, and after inflation the
price of pan is adjusted to Rs. 1.25, the price is may be
adjusted although his income is not affected. By the same token,
petroleum prices are not controlled by Pakistan since it is an
international phenomenon. When the petroleum prices go up,
transport prices go up. It is a phenomena not just peculiar to
Pakistan but to all oil importing countries. Now that we are
working on finding oil and gas reserves, we hope that the
dependence on imported petroleum products will decline.
Sir, what are the steps SBP has taken so far to strengthen the
human resource base of the overall banking system?
I think this is a very important question. The SBP acts as a
role model for a transparent, merit-based professional HR
management system. Every year, we recruit around 50 young men
and women from across the country through a highly competitive
screening process, who are then sent to National Institute for
Banking and Finance for training. Moreover, we also send our
recruits abroad for training. I am proud to say that now we have
the best cadre of central bankers. In fact, all other banks are
doing the same. Instead of recruiting people on sifarish, big
banks as well as small ones have instituted a merit-based system
thus ensuring that people with no sifarish are inducted into the
banking field. That to me is a great source of satisfaction.
The SBP has also embarked on the strengthening of the technology
base of the banking industry. What are some of the salient
features of the measures SBP has taken in this regard?
Well, in 1999, we hardly had a PC in this institution. Now, walk
into any of our floors and you will find that everyone has a
workstation. We are now trying to get a record of computerized
files and once the digital archiving is in place, we will all be
working electronically. More importantly our ability to get real
time information and data has also improved. Before we had
access to stale, outdated reports because it took time to get a
manual compilation of reports. Now we are going for data
warehousing system. I can now sit on my PC and look at all
critical information about each bank and take action where there
are warning signals. This improves the capacity of the Central
Bank to take corrective actions if there are problems. We also
have a Credit Information Bureau, which provides real time data.
So before any bank can approve a loan, the bank can find out if
the applicant is a defaulter or not. If he is a defaulter, the
bank can either reject the loan application or it may give the
loan on certain conditions. Such a system is extremely important
and is a direct outcome of improvement in the technological base
of SBP.
What strengths should marketing professionals willing to join
SBP possess?
Those who have aptitude for research, particularly research on
consumer and business confidence survey will be most welcome to
join SBP.
Lastly, sir, how optimistic are you about the economic future of
our country?
I am extremely optimistic since I find Pakistan full of
potential that has not been utilized properly. If there is a
continuity and a sense of direction in our approach, Pakistan is
definitely going to have a great future ahead. I am also
confident that in 2007 when a new government takes over, it will
follow a similar path.
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