KARACHI: The business community has expressed deep concern over the State Bank’s decision to maintain its policy rate at a steep 22 per cent. This rate, according to industry representatives, is unsustainable for businesses and could lead to widespread closures and a freeze on new investments.
Representatives of the United Business Group (UBG) said they had expected some cuts in the key policy rate that would have helped the industry breathe a sigh of relief.
Pakistan Business Council (PBC) CEO Ehsan Malik said that on a forward-looking basis, the policy rate is significantly positive and this should have allowed the SBP’s Monetary Policy Committee (MPC) to cut the rate.
However, given the likelihood of further increases in energy tariffs and the transition to an elected government after the Feb 8 elections, it was best to wait and watch if the fiscal policy remains aligned with the monetary policy, he said.
As for the chances of any decline in interest rate in the next MPC meeting, Mr Malik said, “I expect a drop in the policy rate owing to declining inflation.”
Representatives say rate notably higher among regional peers, leading to higher inflation, unemployment
Johar Ali Qandhari, the newly elected president of the Korangi Association of Trade and Industry (KATI), said that maintaining the interest rate at 22pc would have severe consequences for industries, potentially leading to their destruction.
He emphasised that the current interest rate posed a significant obstacle to achieving economic goals and contributed to inflation and a decline in the country’s growth rate. Mr Qandhari said industries were grappling with reduced growth due to high debt and businesses were struggling to sustain operations with high interest rates. This, in turn, has led to the closure of some operational industries.
He highlighted that Pakistan’s interest rate was notably higher than that of its regional peers, leading to higher inflation and unemployment. He underscored that the business community had been consistently urging a reduction in interest rates for several months.
The KATI chief called upon the State Bank to bring down the interest rate to single digits to boost industrialisation by providing access to affordable loans.
He argued that with more accessible financing, the industrial cycle would accelerate, exceeding the SBP’s current growth expectations of 2pc to 3pc and, consequently, leading to an increase in tax revenue.
UBG President Zubair Tufail said that when the industries started expanding by bringing in new investment, the policy rate was 13pc but the interest rate at 22pc has pushed up industrial cost manifold, making local products uncompetitive in the global market.
The group’s chairman for Sindh, Khalid Tawab, said the high interest rate regime had also discouraged investment in the industrial sector, which was already reeling from high energy and raw material prices due to the rupee’s depreciation against the dollar.
UBG Sindh General Secretary Hanif Gohar urged the State Bank to bring down the policy rate to 10-12pc to help the industry attract new investments for expansion and modernisation.
Published in Dawn, January 31st, 2024
