Monday, December 13, 2010

Kardar `Worried' Pakistan Rate Increases May Hurt Investment

Pakistan’s inflation-fueling government borrowing is forcing the central bank to raise interest rates, “crowding out” investment and undermining economic growth, Governor Shahid Kardar said.
“I am worried about the growth aspect, what is going to happen to the private sector,” Kardar, 58, said in Karachi yesterday in his first interview since taking charge in September. “We need 8 percent to 10 percent growth just to absorb the annual increase in the labor force.”
The last time Pakistan’s economy grew at more than 8 percent pace was in 2005, and a failure to generate jobs for the two million people entering the nation’s labor force each year makes the country a recruiting ground for Taliban militants, analysts said. Kardar said narrowing the budget deficit will help ease borrowing costs.
“It’s absolutely critical that we get back to a fast growth path,” said Nasim Beg, who manages the equivalent of $170 million in stocks and bonds as chief executive at Arif Habib Investments Ltd. in Karachi. “If we don’t, we are headed for serious unrest. No one in the world would like to see us immerse into financial chaos.”
The State Bank of Pakistan on Nov. 29 raised its benchmark discount rate for the third time since late July, by a half point to 14 percent. Consumer prices jumped 15.5 percent in November from a year earlier, the highest rate among 17 Asian economies tracked by Bloomberg.
‘Tighter’ Policy
“Some might even argue monetary policy should have been tighter,” said Kardar, who studied politics, philosophy and economics at Oxford. “The stance has been what it is because of these private-sector concerns.”
He said a young labor force is “is a dividend, but a worrying dividend if it’s not catered for.”
Hundreds of civilians and security officials have died in retaliatory bomb and gunfire attacks since Pakistan’s army began an offensive Oct. 17 against Taliban guerrillas in the tribal region of South Waziristan, near the border with Afghanistan. President Barack Obama has called Afghanistan and Pakistan the “epicenter of violent extremism practiced by al-Qaeda.”
Pakistan’s $167 billion economy is lagging behind as emerging markets from neighboring India to China help lead the global economic rebound from the deepest postwar recession. Growth is forecast by the government at 2.5 percent in the year through June, compared with a 9.1 percent estimate for the current fiscal year in India.

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