What do the Finance Minister of Pakistan Ishaq Dar and the White Rabbit from Alice in the Wonderland have in common? They both love to talk a lot and since they are in such a hurry, they both often miss out on key details.
It appears that back-to-back rate cuts have started bearing fruits for the private sector. The central banks third quarterly report on the state of economy speaks volumes about this optimistic development.
Since June 2012, the weighted average lending rate saw a reduction of 267 basis points to 10.5 percent, owing to cuts in the discount rate - and this is where the private sector lending takes flight.
Thanks to their double-digit growth over past many years, remittance inflows from the Kingdom of Saudi Arabia (KSA) have been commanding dominant share in Pakistan’s overall remittances. According to latest data released by the State Bank of Pakistan, overseas Pakistanis remitted $12.76 billion back home in eleven months ending May 2013, out of which $3.75 billion (nearly 30 percent) were received from the desert kingdom.
With banks’ earnings already battered by incessant rate cuts and spread attritions, the Federal Budget FY14 has offered little in the form of a helpline to the aggrieved sector.
Financing a fiscal deficit of the anticipated 8.8 percent is a daunting task, and the government’s objective of bringing it down by 2.5 percentage points would seem too optimistic without relying on significant amount of additional financing.
Deposits held by Islamic banks in Pakistan have witnessed an impressive growth spurt in recent years. However, with the rapidly accelerating Islamic banking market, there comes a flush of surplus liquidity which harshly puts the brakes on the enthusiastic deposit mobilization drives of Islamic banks.
Just like the first two quarterly reports for the outgoing fiscal, the central banks latest report on The State of Pakistan Economy comes a little too late. Much of the newsworthiness of the report has been castrated, since the Economic Survey FY13 and FY14 budget has already announced some the key year-end numbers such GDP growth and its breakup and the fiscal deficit.
