Prime minister loan scheme Evaluation

A discussion based review

Submitted To: Sir. Irfan-Ullah Submitted by: Adnan Rashid

M.Phil-I (finance) University of Lahore (Sargodha campus)

Introduction: This assignment is made solely on the Pakistani economy, which I write with intent to see the effect of loan introduced by the current government of the PML N. As we all know that this topic is of immense controversial discussion, and now a days became hottest topic for discussion at the coffee table for the journalists, academicians and the economists. However, in this assignment, I tried my level best to provide the complete logic that stands behind my answers regarding this matter. Views about loan: First of all, let me define the origin of this scheme of loan started by the prime minister of Pakistan. This story starts in the start of 2013, when the election campaign for the election starts by the current government along with other parties after the completion of tenure by the recent government. In this campaign, the head and president of renowned Pakistani political party, Mian Nawaz Sharif promised youth to provide them loan under the name of Qarz e hasna. Basically, the purpose at that time is only to win the hearts of the people by showing their offer, just like other parties doing in their campaign. After the campaign, election commenced, and new government is formed by the PML N government, now it is a time to repay and fulfill all the promises with the people that are made with them during the election campaign. So this is the truth behind the story of the loan scheme that ends with the announcement of youth policy for people of Pakistan. The aim of the government behind the loan: Current government of Pakistan is aiming to made the people of the republic Pakistan self sufficient in the field of business so that they can play their significant loan in the economy. The government is of the view that they want to help the people of the nation and are motivated to remove the unemployment from the country; in this regard the loan scheme is initiated to exhort the youth and polish their hidden talent for the betterment of the economy. In my opinion, this step of the government is an impressive thinking to overcome the problems of the country, but I think that besides the advantages provide by this policy, a large number of
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objections are also associated with it. I can explain them all, but here I can say that the step is not so gracious enough and is not an accurate solution for the problems faced by the people of the Pakistan. This is because of the fact that there are lots of other things that are to be solved on the immediate basis by the government. Among the huge list, few notable things are the electricity breakdown, stability of the inflation, law and order maintenance and improper infrastructure in the country. Today, if we are seeing our condition on the international forum, we can clearly understand that no one come to this country for investment, because of these problems. The structure is too poor that this option also results in freezing of the resources of the government. There is no electricity and fuel to run the industry along with the poor infrastructure of the country. This is not an enough; the education level is also low among the tenants of the country, so they are waiting the amount of loan to fulfill their lavishness of the business. So in a nutshell, I just remarked that this loan results an unprincipled decision of the government and shows the short term objectives of the current government. This decision results in the economic bubble and results in the excessive supply of money in the economy. It also expands the monitory supply of the country due to which it became difficult to control the consequences of loans from the economy on the long run. The effect of loan on the economy: When we talk about the effect of loan on the economy, then it is a clearly understood in the Pakistani economy that this loan scheme provides a short term benefit for the economy. On the long run, the aftershocks of this decision of government are to be faced by the economy as well as the people of Pakistan. There are certain reasons behind this argument, and one of them is the excessive supply of money in the economy in the form of fiat money that results in the decline in the reserves of Pakistan. This is because of the fact that the amount of loan that the government is promised to pay against loan scheme is almost equals to estimated 50 billion rupees. This amount is paid to the people by issuing further currency notes, not from the existing money circulated in the market. The effect will be the increase in the supply of money in the economy that further raises the level of inflation in the economy and deteriorates the
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Pakistani currency further by the amount of that loan. This amount of 50 billion will again come in the economy without any security or reserve behind it than raise the situation like circular debt that can never be solved. Another effect will be the pressure of distress on the banks because the government imposes regulations on the banks to provide loan at the rate of 8%, which is equal to the rate that they acquire from state bank of Pakistan. Though, government announces to pay the above amount of processing and incentive of premium on rate of 8% to banks, but the amount sanctions from them raises the chances of distress of that amount of capital from the bank. Another disadvantage is of the lack of any mortgage security behind the loan. Government intended to provide loan on the guarantee of gazette officer, but the officer how can provide his surety about the repayment of the loan. For example, if guarantor dies than and lender shows his insolvency then how can the government recover the loan, etc. Effect of loan on Client: If, we see the effect of this loan on the client than it is clear that the lack of the proper guidance about the usage of funds, lack of education, infrastructure and the maturity departs the effectiveness of the purpose of facilitation of public towards never end debt in the economy. In order to facilitate tenant, government do not offer any kind of mortgage security, though this is a potent signal for people to easily get the loan, but the lack of awareness about the use of the amount of loan to people raise the idleness of the sources of capital and increase the temporary lavishness of the people that stay only, when the amount of loan exists. As the funds finish, they became again poor. So the effect will be negative as compared to positive on the tenant. People became ignorant about the efficient use of funds because of their low level of education and hence, spent the whole amount of loan in unproductive ways and at the end find themselves in trouble because of the zero gain from the amount of loan and had nothing to pay back that can further put the economy also in trouble. Coins of Industries: The prime minister loan can be provided to the youth, but it is limited against certain industries, which are:
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Engineering and Manufacturing Information technology Agriculture Agriculture and food processing Livestock Food Services Minerals

Among these industries, there are different names of businesses that the government wants to establish in the economy. In this regard, they provide the amount of loan to start such businesses and these businesses are as following: Engineering and Manufacturing Auto and Tractor Parts Manufacturing Engineering Workshop Subcontracting Furniture Manufacturing Unit (Wooden) Hand Made Carpet & Rugs Manufacturing Injection Molding Plastic Products Leather Goods Manufacturing Unit (Wallets) Roof Tiles Manufacturing Unit (Light Weight) Steel Products Welding UPS and Stabilizer Assembling Unit Information technology Animation Production Facility Internet Cafe Medical Transcription Agriculture Cut Flower Farm (Gladiolus, Marigold, Statice and Chrysanthemum) Cut Flower Farm Rose Off Season Vegetables (High tunnel)
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 Off Season Vegetables (Low tunnel) Agriculture and food processing Fodder Production & Trading Company Fruit Grading & Packing Honey Production, Processing, Packaging & Marketing Processing, Packaging & Marketing Rose Water Seed Oil Extraction Unit (Rape Seed) Pickle Production, Spices Processing, Packing & Marketing Livestock Calf Fattening Camel Farming Dairy Farm Goat Fattening Farm Inland Fish Farming Layer Farming Meat Shop (Mutton and Beef) Poultry Farm Sheep Fattening Farm Shrimp Farming Veterinary Clinic Food Bakery & Confectionery Catering & Decorating Services Restaurant Cum Fast Food (Take Away) Services Beauty Clinic Boutique (Women Designer Wear)
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 Day Care Center Direct Marketing Driving School Florist Shop Footwear Retail Outlet Gaming Zone Interior Decoration Medical Store Montessori School Security Agency Whole Sale / Distribution Agency Minerals Gems Stone Lapidary Marble & Onyx Products Manufacturing Marble Mosaic Development Center Marble Tiles Manufacturing Unit Salt Products Manufacturing Unit Stone Crushing The following above are the areas, about which there is a need of development in the country as per the rationale of the government and for that purpose they are providing the loan. No dought, this is an appreciable step from the government, but in my opinion as per I think on the facts and figures as I mentioned above the consequences of the loans are worse on the economy of Pakistan.

Prime Minister loan Initiative Evaluation |A discussion based review