AVN 67.75 Decreased By ▼ -0.73 (-1.07%)
BAFL 30.82 Decreased By ▼ -0.18 (-0.58%)
BOP 4.84 Decreased By ▼ -0.07 (-1.43%)
CNERGY 3.75 No Change ▼ 0.00 (0%)
DFML 14.05 Decreased By ▼ -0.18 (-1.26%)
DGKC 41.04 Decreased By ▼ -0.60 (-1.44%)
EPCL 47.21 Increased By ▲ 1.84 (4.06%)
FCCL 11.58 Decreased By ▼ -0.13 (-1.11%)
FFL 5.11 Increased By ▲ 0.01 (0.2%)
FLYNG 5.95 Increased By ▲ 0.10 (1.71%)
GGL 11.17 Increased By ▲ 0.76 (7.3%)
HUBC 67.68 Decreased By ▼ -0.82 (-1.2%)
HUMNL 5.71 Decreased By ▼ -0.04 (-0.7%)
KAPCO 28.03 Decreased By ▼ -0.19 (-0.67%)
KEL 2.28 Increased By ▲ 0.02 (0.88%)
LOTCHEM 26.25 Increased By ▲ 1.15 (4.58%)
MLCF 21.58 No Change ▼ 0.00 (0%)
NETSOL 86.53 Decreased By ▼ -1.82 (-2.06%)
OGDC 99.78 Increased By ▲ 0.48 (0.48%)
PAEL 11.08 Decreased By ▼ -0.03 (-0.27%)
PIBTL 4.23 No Change ▼ 0.00 (0%)
PPL 80.05 Decreased By ▼ -2.40 (-2.91%)
PRL 13.26 Decreased By ▼ -0.08 (-0.6%)
SILK 0.90 No Change ▼ 0.00 (0%)
SNGP 43.75 Decreased By ▼ -0.63 (-1.42%)
TELE 6.08 Decreased By ▼ -0.10 (-1.62%)
TPLP 15.88 Increased By ▲ 0.07 (0.44%)
TRG 121.33 Increased By ▲ 1.58 (1.32%)
UNITY 14.04 Decreased By ▼ -0.06 (-0.43%)
WTL 1.31 Increased By ▲ 0.05 (3.97%)
BR100 4,181 Increased By 9.7 (0.23%)
BR30 15,270 Increased By 16.5 (0.11%)
KSE100 41,723 Increased By 200.6 (0.48%)
KSE30 15,746 Increased By 83 (0.53%)
Follow us

EDITORIAL: The PTI administration has earmarked 1.6 trillion rupees over the next three years under the Kamyab Pakistan Programme (KPP) envisaging credit to small and medium enterprises (SMEs), poor farmers and house loans at zero interest rate with the express objective of supporting productivity and ownership at the grassroots level. Specifically, the government has already disbursed around 30 billion rupees to SMEs, a policy thrust supported by previous administrations, albeit unsuccessfully.

While the government may well argue that after the recent completion of the National Socio Economic Registry (NSER), a structural benchmark under the ongoing International Monetary Fund (IMF) programme designed to ensure objectivity in identifying beneficiaries and for transparency in implementing interventions, disbursement will be streamlined and targeted yet the programme raised several red flags that were highlighted in the IMF’s sixth staff review uploaded on its website this month: (i) KPP and the ration (food subsidy) programme launched by the Prime Minister on Monday is to be accommodated “through adjusters of up to 0.6 percent of Gross Domestic Product each”, which together with the authorities remaining “committed to relying on market sources (external borrowing and the domestic banking system) to finance the budget whilst seeking to lengthen maturities to reduce roll over risks” bode ill for inflation prompting the report to add that there is a need to apply “the mechanism for periodic inflation updates of all BISP cash transfers;” (ii) the loans will be backed by a 50 percent government guarantee (pari passu); (iii) fiscal baseline includes 25 billion rupees under subsidies for KPP for fiscal year 2022 to cover the subsidy interest rate component and guarantee provisions in government debt. The estimated cost of the food subsidy (120 billion rupees in 2022) will be shared between the federal and the provincial governments though it is unclear whether this programme maybe limited to those provinces where the PTI is in power; and (iv) the report adds that “staff urged the authorities to unwind these measures out of concerns for financial stability” — a comment referring to amendments in capital adequacy regulations to lower the applicable risk weight to 100 percent (from 200 percent) on banks and development financial institution investments in real estate trusts.

The government claims that KPP will enhance productivity with beneficiaries from the grassroots up and thereby propel the growth rate.

Research, however, indicates that Pakistan’s case is not similar to Vietnam’s and other middle income countries’ where the SME sector provides critical inputs to the large-scale manufacturing (LSM) sector.

In this country there is little if any linkage between the SME and the LSM sectors with the latter relying mainly on importing key inputs. Thus until and unless this linkage is established cheap credit to SMEs will not bear fruit — it did not when the Nawaz Sharif government launched a similar scheme and it is unlikely to be successful today.

Furthermore, cheap credit to SMEs would only be possible and bear significant results if most of the SMEs make the transition from the informal to the formal sector.

This would be very difficult as long as the plethora of laws relating to industrial relations, social security, Standing Orders, etc., etc.; are not suitably amended to allow the SMEs to venture into the formal sector as it is not possible for them to bear the cost of compliance under these laws.

Therefore, before embarking on a costly policy decision it is critical to undertake research which must include all the stakeholders. Pakistani administrations with the best intentions in the world have time and again announced and then proceeded to implement extremely costly policies without first undertaking research.

This was the case when the Nawaz Sharif government launched its energy policy focused on increased generation rather than sitting down with experts to determine existing lacunae in the system, including the extremely limited vacation capacity of the transmission network and distinguishing between the desired inputs (coal plants must be set up in the vicinity of where the coal is available to minimise its impact on environmental degradation).

Another example is the security policy announced by the incumbent government that fails to take account of the ground realities and is a treatise based on general academic principles rather than fitting our unique situation.

Research analysts have also warned the government that irrespective of the rise in cheap credit to SMEs, its proactive wooing of foreign investors to set up plants in our economic zones — investors who would prefer to continue their existing linkages with SMEs in their home country — this policy is doomed to failure until and unless their linkages with LSM sectors are established. There is, therefore, a need for the government to base policies on empirical studies carried out in this country rather than on international research which may not reflect the ground realities in Pakistan today.

Copyright Business Recorder, 2022


Comments are closed.

Small and medium enterprises

Rupee up 1.08%, settles at 273.33 against US dollar

OGRA calls for action against hoarders of petrol, diesel in Punjab

KSE-100 increases 0.48% owing to hopes of breakthrough in talks with IMF

ECP should announce election schedule for KP, Punjab: President Alvi

More survivors found as Turkiye-Syria quake toll tops 11,200

Pak Suzuki announces plant shutdown yet again due to inventory shortage

MCB’s profit up 10% in 2022, forex income jumps 149%

PM Shehbaz forms committee to make Special Technology Zones Authority functional

Islamabad court approves Sheikh Rashid's transitory remand in Murree case

Pakistan navy to host 50 nations in maritime exercises from Feb 10