Mr. Tanvir Ahmad Sheikh, the President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), appreciated the decision of the newly appointed Governor State Bank of Pakistan for allowing a grace period of one year in repayment of the Long Term Financing Facility (LTFF) scheme. Mr. Tanvir Ahmad Sheikh had suggested that an across the board moratorium of two years on the recovery of Long Term loans from industry should be declared immediately.
On Thursday 22nd January a delegation from FPCCI led by Mr. Tanvir Ahmad Sheikh, President met the Governor SBP to discuss the FPCCI's Proposals and recommendations to uplift the economy in relation with the up coming monetary policy.
Mr. Tanvir Ahmad Sheikh mentioned that the Industrial Sector is passing through an extremely difficult time, and the sever crises may further deteriorate the unemployment, poverty and inflation in the country which may lead the further worsening of political disturbance and the law & order conditions. The unprecedented load shedding causing 1/3 fall in production has seriously hampered the cash flows.
The extremely high rate of interest compared to the rates when the loans were obtained, the world wide recession, stock market turmoil, political tension on eastern borders and drastic deterioration on western fronts have jointly hampered the industry and business sector in Pakistan. If prudent steps are not taken, the industrial crises may collapse the entire economy and un-repairable losses may be occurred. In this context the recovery of loans and interest from the industry will make the crises more severe.
Mr. Tanvir Ahmad Sheikh further added that we have noted that SBP has been using tight monetary policy to control inflation since last year but inflation has been rising continuously. In Pakistan , the nature of inflation is not demand pushed inflation, which can be controlled through tight monetary policy. It is supply side phenomena. The SBP has increased 200 basis points in discount rate since last year. The discount rate was 9.5 percent at the end of July 2007 and rate of inflation was 7.8 percent.
It was raised by 50 basis points on 31 July 2007 (10 percent), on 1st February, 2008 SBP further raised 50 basis points to 10.5 percent while the inflation had also increased by one percent and reached to 8.8 percent and lastly on 12th November, 2008 SBP raised discount rate by 200 basis points and rate of inflation was 24.6 percent. He also said that high banking spread is the crucial indicator in the banking system, which is hampering the industry.
He also pointed out that R&D supports for the textile industry was approved in the budget 2007-08 but outstanding R&D allowances are accrued upto 30-06-08. Similarly markup rebate on long term financing to Spinning Mills was also approved upto 30-06-2008. However, the rebates were not paid since 1st January 2008.