KARACHI: The State Bank’s move to raise the policy rate to 22 per cent will strike a mortal blow to an already struggling business community, the chief of Karachi Chamber of Commerce and Industry (KCCI) said on Monday.

“The decision will further push up the cost of doing business and dampen prospects for reining in cost-push inflation,” Tariq Yousuf, the KCCI president, said.

The interest rate would virtually go up to 25 per cent after adding KIBOR plus, making borrowing from banks highly unattractive, Mr Yousuf said. “This decision of the State Bank is totally against investment.”

He said it would be hard for business and industry to survive on high interest rates at a time when the soaring power tariff and rising taxes had already pushed up the cost of doing business, making exports uncompetitive in the world market.

Tariq Yousuf said despite several rounds of negotiations between the government and the business community, no remedial measures have been proposed in the budget to spur industrialisation. Instead, industries have been burdened with countless taxes and duties. “I don’t know where we will end up,” the KCCI chief added.

Ehsan Malik, CEO of Pakistan Business Council (PBC), said the 100 bps point increase, like previous ones, would not stem cost push inflation. “It’s clearly aimed at pleasing the IMF.”

One wonders how with the current precarious level of foreign exchange reserves, the monetary policy committee (MPC) could possibly believe that imports can be encouraged, Mr Malik said.

Higher taxation, he went on to warn, would reduce disposable income and demand. “So that cannot be a reason to increase the policy rate either.”

The government should have foreseen the inflation risk when it proposed a 30pc raise in government salaries and pensions, the PBC chief said.

Andul Aleem, Secretary General of the Overseas Investors Chamber of Commerce and Industry (OICCI), said “the interest rate hike is going to further make cost of doing business uneconomical and upset investment plans”.

Jawed Bilwani, the President of Pakistan Apparel Forum (PAF), said “can the IMF or Finance Minister Ishaq Dar tell us” which trade or industry can run, survive and make profit at 22pc policy rate.

“Time is coming for industrial suicide. How can we contribute to government revenue amid a rising interest rate regime.”

Riazuddin, President of the Site Association of Industry (SAI), said a tricky situation had emerged as the interest rate hike would hurt both the government and the industry. The government is the main borrower while the private sector is reluctant to borrow due to high interest rates, he observed.

“At 25-26pc interest rate, it will be hard to borrow from the banks,” he said, adding that it will be hard for the government to earn revenue due to plant closure and decline in large-scale manufacturing.

Auto parts vendor/exporter Mashood Ali Khan said interest rates were going up at a critical juncture for the economy, thus making the future more challenging.

Published in Dawn, June 27th, 2023