TWO documents, which record the performance of the economy, are the economic survey issued by the finance ministry and the annual report of State Bank of Pakistan.

Economic Survey released each year on the eve of a next years’ budget is based on 9-month data of the current financial year and does not provide full picture of the economy. It is also generally believed to have a bias in favour of the sitting government.

As against this, the SBP’s annual report, issued much after the expiry of the financial year and based on full year economic data, paints a more realistic picture of the economy.

In 1997, it was decided to prepare quarterly reports about the economy for submission to the Parliament so as to keep the elected representatives posted about the economic development trends.Earlier, in early 1970s, it was decided to make credit allocation and its supervision on regional basis.

However, this could not be done due to non-availability of banking data on regional basis, and more importantly, data on the GDP estimates on provincial basis were to be provided by the planning commission.

Region-wise banking data with all its micro details is now available but the needful has not been done so far. Thus, the economic analysis carried out in the SBP quarterly and annual reports, being on national basis, is largely silent about credit starvation of far-off rural areas in almost all the provinces.

Currently, there is a divide between the government narrative and opinion of independent economists about performance of our economy. The government claims to have moved from consolidation to growth during a time span of around two and a half years whereas almost all the independent analysts talk about worsening of the main fundamentals of the economy: decline in agricultural/industrial growth, falling exports, high dependence on internal and external borrowings, falling tax to GDP ratio and declining investment.

At this critical moment, findings of the latest SBP annual report, despite their overt optimism, seem more tilted in favour of independent economists than the government perspective. For example, Chapter 1- Economic Outlook- describes inflation, fiscal balance and current account balance as positive macroeconomic indicators.

However, this sunny optimism gradually fades away after reading the subsequent chapters which tell that these achievements were largely brought by exogenous factors like unprecedented fall in oil prices, substantially higher remittances and increased flow of funds from international donors.

The SBP did not hesitate to mention serious bottlenecks of our economy (1) low tax to GDP ratio, (2) lower private investment despite a sharp reduction in interest rates and an increase in public investments and (3) the absence of an export-oriented growth strategy or a rational import-substitution focus which did not show any improvement during two and a half years of the current government.

The SBP is thus right to point out that in the presence of these weaknesses in the economy; macroeconomic policies cannot make any meaningful impact.

The SBP did not critically assess its own performance as central bank of the country. Generally, an efficient banking system is supposed to (1) ensure a better rate of return to its depositors, (2) provide banking service at reasonable cost and (3) channel available credit to priority sectors of the economy. Rate of return offered to depositors/savers is very low.

Banks are providing very costly service to their users particularly under branch-less banking. Generally cost of service comes down after automation. But, it has gone up substantially in case of Pakistani banks. There are complaints of credit starvation from far-off rural areas in almost all the provinces.

It is being alleged that due to the absence of regional dimensions in the process of credit planning, rural bank branches are mobilising savings from their locations for onward investing in a few urban areas. The SBP report is silent about these issues because it has precious very little to say in this regard.

Two dangerous trends are taking strong roots in the working of banks. Commercial banks are moving away from fund-based financial products as they are more interested in non-fund based products like selling third party products.

At the same time borrowers including corporate sector are drifting away from banks despite historically low lending rates. As a result, private sector credit ratio to GDP fell from 27pc in 2008 to 13pc in 2015- the lowest in the region.

Commercial banks are not worried about this situation because they are earning huge profits. Although there is a special section in the current SBP’s annual report about low credit off-take, it lacks focus and commitment to reverse this trend.

It would be a major policy shift if the SBP asks the planning commission to provide estimates of GDP on provincial basis and then stars allocation and supervision of credit on regional basis to fulfill its decades- long commitment.

The writer is President, Institute of Banking and Business Learning-IBBL.

munir9511@outlook.com

Published in Dawn, Business & Finance weekly, January 18th, 2016