THIS is with reference to the report ‘Businesses slam policy rate hold, warn of closures’ (Jan 31) about the concern voiced by the business community, which actually happens to be the most privileged segment of society. According to the report, businessmen are not happy with the decision to hold the policy rate at 22 per cent.

The business community is already the largest beneficiary of state’s liberal fiscal rebates, allowances, tax holidays, moratoriums, waivers in tariffs, as well as several other protections. Fair competition is almost non-existent and cartelisation is rampant. And, yet, they are the loudest crybabies in the nation.

As to the effect of policy rate related to loans availed by the businessmen, it may be appreciated that banks extend loans out of public savings that are held in deposits. The banks are only holding the money that is actually owned by the people. Therefore, the monetary value of public deposits kept either in banks or in government savings schemes is losing its worth colossally every day owing to rampant inflation in the country which is about 44pc.

This, besides making savers lose their savings, often tends to discourage savings in rupee terms. When the people loses confidence in the national currency, they tend to protect their savings in some other forms, including foreign currencies. This often leads to depreciation of the rupee, further aggravating the problem.

Eventually, the worst affected are those in the fixed income groups, like the salaried class, the pensioners, and the small savers. To offset all these eventualities and to sustain the worth of the currency and the confidence of the saving public, fiscal and monetary steps are taken, and the policy rate is one of the most important instruments in this regard.

Given the rate of inflation at 44pc, the policy rate at 22pc still stands short of, say, meeting the requirement. On paper, it should be around 44pc to attain micro and macro-economic objectives, which will not be a unique case in Pakistan as in Turkiye, the policy rate is 45pc. Even otherwise, the overall banks in Pakistan on their credit card outstanding, charge interest rates at around 38pc, which everyone readily pays.

As for the business community , all its members benefit largely from lucrative fiscal concessions by the state on taxpayers’ money, enjoy protections at large, often fail to repay what they borrow from lending agencies and banks, frequently indulge in loan restructurings, re-schedulings, waivers and even write-offs on seriously flimsy grounds. As such, the deep concern it keeps expressing every now and then is most unreasonable, if not selfish.

S. Israr Ali
Karachi

Published in Dawn, February 19th, 2024