Lately it was getting rather boring writing on the economy, which is the reason why there are already four episodes of Economic Satire out there - nothing new is happening, the same old policies in new clothing, basically been there done that is the mantra in economics today. On a separate note, wonder if Fatman will ever get an Oscar.
And before everybody get their knickers in a twist, nothing new happening does not in any manner suggest support for or opposition against the incumbents. Well yes there are a lot of ratios to cheer about, but at the same time there are a lot of indicators to be depressed about. Undoubtedly, the previous chaps made a mess of the economy, but so did the Johnnies before them, and so will the incumbents when the time comes to say good bye- that is just meant to be. Nonetheless the current team, with the help of bushels of luck, apparently have made the economy look beautiful, but that has happened before as well- and let me be very clear - never say yes to an interview with Stephen Sackur on hard or soft talk. If you ever have this undying urge to give an interview on television, call Kamran Khan.
So when I sat down to browse the State Bank of Pakistan Annual Report 2019-20, The State of the Pakistan Economy- I really did not have great expectations'- and yes browse, there was a time I used to consume this particular report, now it's more browsing and skipping pages en masse. Albeit I must give credit for an excellent defense of a negative growth after 68 years!
The Annual report, as expected, was chock-full of boring facts, and I have been accused of only dealing in fact free statements- albeit the champions of hard core economics keep forgetting that the theory of the invisible hand is not based on any facts- and neither is the infinity gauntlet for that matter. And there is not much difference between the two!
So the plan was to start with the next Episode of the very popular Economic Satire series- but the Chapter on "Understanding Low Private Credit Penetration in Pakistan; Contextualizing Recant Policy Reforms" caught the eye- on a separate note they seriously need to work on the art of giving concise and precise titles.
The section started well- but then economic theory always makes sense on a standalone basis, and when it has nothing to do with the real world. Admittedly efficient financial systems are supposed to channel savings into capital investment, and whilst not too sure about project with higher marginal products, more illiquid but profitable projects, diversified investment and technical innovation, but willing to go with that.
Unfortunately, however, if the section initially piqued interest by the time it got to the way forward- 26 fact laden pages later- one was already dreaming up Episode V. Okay, one appreciates that facts are boring, and that facts are facts (as someone once articulated eloquently) - but they must also understand - if you stick to precise and concise, you get more traction.
And it wasn't that the report did not touch upon some of the issues- the indicator of a developed banking sector is a high proportion of bank credit to private sector as percent of GDP, hence our banks are under developed. Also our banks failed at playing intermediary role in terms of resource allocation and mobilization. That our banks cater to the financing needs of just a handful of firms and entrepreneurs. And that leaving allocation of banking asset to market forces was not a good idea, since no one invested in priority sector and central bank in substance withdrew from a policy of directing credit- so everybody started gambling with other people's money to make a quick buck! And since zero risk government paper was easily available to invest in why would bankers diversify and expand lending portfolio- playing golf made more sense.
Okay fine, the report is not as explicit, but that is the basic drift here and there-what the report does not capture very well is that the banks, or bankers, simply don't want to do banking beyond risk free government debt and key big clients- and they don't have too!
And let me assure you irrespective of whatever laws that the Government might bring in, or whatever schemes the Leadership may announce, the Banks will never give loans to the little guy- trust me I tried. Faced with a cash flow situation very recently, with ample assets in hand and evidence of future cash flows to pay off the mortgage in less than a year, approached one of the top 4 Banks- and let it be known was also friends with some senior management bankers. Ever hear the joke about the banker with a stone eye? Trust me it is not a joke! I drew the line at providing a marriage certificate for my late grandparents!
Let me put it in a nutshell.
Banks don't want to lend to the little guy at all- and this mindset has by and large been encouraged. In very rare cases when a banker does feel magnanimous and charitable, the little guy fails at providing him with evidence of profitability, not that he cannot, but if he does, then for sure the taxman will hound him into beggary. Assuming the one in a billion case where the banker is magnanimous, the little guy has an exemption from tax, the loan will still not be approved - because the only collateral, property, is in dispute in courts for the last 3 decades.
The economy will never grow without the little guy- and the little guy will never win under these circumstances- credit or no private credit.
(The writer is a chartered accountant based in Islamabad. Email: [email protected]. The views expressed in this article are personal. The views are not necessarily those of the newspaper)
Copyright Business Recorder, 2020
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