“In such a situation where the government is a desperate borrower the high-ups of domestic banks will happily provide funds to the government with 100 percent guarantee to get back the loan amount,” the official said. The banks had started giving cold shoulder to the government, which is evident from the thin participation in the last T-bill auction. “There was no other option before the SBP but to jack up the discount rate to lure the banks to provide financing to the government throughout the financial year 2010/11,” said the official. This rate would continue to rise in case of further slippages on fiscal side in months ahead.To bridge the financing gap of fiscal deficit, the government possessed option of getting investment into National Saving Schemes (NSS) and the government can generate Rs270 to 300 billion through this venue, the official said.

“Usually, the textile mills operate 365 days a year, but due to the rationing system they would be deprived of gas for at least 70 days a year, causing a loss of billions of rupees to the mill-owners, said Ejaz Gohar, Chairman, All Pakistan Textile Mills Association (Punjab Zone).

Munir criticised the existing banking policy for concentrating on profits instead of facilitating industrialisation. “Banks are not providing finance to industries, especially the Small & Medium Enterprises, but to the easy earning sources.” The high interest rate regime in the country forced many industries out of business and turned several into sick units, he added. “Government should revise interest rate regime downward to make industrialisation viable,” he added.

The manufacturing sector registered a 4.17 per cent growth by the end of last fiscal year compared to a contraction of 8.2 per cent in FY08-09. This came about despite a number of severe constraints faced by the economy, such as power outages, high discount rate and inflation... The other point of concern is the decrease in share of manufacturing in new fixed investment. It declined sharply from 22.0 per cent in 2005 to 16.2 per cent in 2010. The contributory factors were deteriorating law and order situation, inflation, high discount rate and government borrowing crowding out private sector... In case any such message is conveyed to the market on June 30th by either increasing the discount rate or keeping it unchanged, it would negatively impact the prospects of investment in the manufacturing sector. FDI during last fiscal year stood around $2.0 billion, slightly higher than the previous year but most of it was invested in sectors other than manufacturing.

The electricity tariff has been increased by more than 70 per cent since March 2009, translating into over Rs200 billion, the federal government has taken over Rs301 billion debt and parked it in the newly-created Power Holding Company Limited for recovery from tax payers and paid about Rs71 billion to Pepco. A senior government official said the financial gap stood at Rs179.4 billion on June 30. According to Pepco, the major reason for the increase in circular debt is the non-payment of electricity bills by the Karachi Electric Supply Company and provincial governments, particularly of Sindh and Khyber Pakhtunkhwa.