KARACHI/LAHORE, May 23: Trade and industry leaders have criticised measures taken by the State Bank of Pakistan under the pretext of curbing inflation and said that these would rather hurt business activity already under pressure owing to high cost of doing business and tough global competition.

There was a general consensus amongst the business leaders that the central bank’s measures announced on Thursday would only accelerate closure of industry already ridden with crisis. The worst affected would be the export-oriented sector already facing tough competition in the world market, they added.

They pointed out that in the last monetary policy also SBP Governor Dr Shamshad Akhtar said that the measures were being taken to stem inflation but on the contrary there had been hardly any relief in rapidly rising prices of almost all commodities, including essential items of daily use.

Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Tanvir Ahmed Shaikh expressed his serious concern over the monetary policy statement of the SBP governor and said that further tightening of monetary policy by 150 basis points raise in discount rate and increase in the cash reserve requirements on deposits will hamper the ability of the banking sector to lend. It will adversely affect the industry.

The most drastic step is imposition of minimum LC margin requirement on imports. On the one hand, this condition will add to the liquidity problem for the industry and on the other hand will increase cost of production, the FPCCI president said.

Mr Tanvir disagreed with the SBP governor that the industry was paying lower interest rate in real term. He mentioned that cost of production was always accounted in nominal term and the reason behind the higher growth in private sector credit was not the lower real interest rate but higher cost of production and inflationary pressure were the real causes of higher credit requirement.

All Pakistan Textile Mills Association Chairman Iqbal Ebrahim said that decision to increase discount rate by 1.5 per cent and imposition of 35 per cent margin on opening of L/Cs will have a negative impact on economy.

He believed that from now on no L/C would be opened because the industry has to pay mark-up on the margin, which will increase the cost of production.

Karachi Chamber of Commerce and Industry President Shamim Ahmed Shamsi said that the State Bank’s new monetary policy measures were unlikely to control the inflation. He pointed out that the steps taken by the SBP so far to stem inflation had actually resulted in pushing it further up. There is a need to check the overall system that has been responsible for inflation, he added.

The KCCI chief said that the 35 per cent margin decision will ultimately push up the cost of raw material used in the manufacturing thus making the local products uncompetitive in the foreign markets, besides pushing the rates up in domestic market.

Korangi Association of Trade and Industry Chairman Sheikh Fazl-e-Jalil said that the SBP’s measures were entirely against the trade and industry as 1.5 per cent rise in discount rate will increase cost of doing business.

He said the industry had been importing raw materials on deferred payment (DA) for 90 to 120 days but now it will have to pay 35 per cent cash at the time of opening of L/C, which will further squeeze its running finance and create liquidity crunch.

Pakistan Bedwear Exporters Association Chairman Shabir Ahmed said that the measures announced by the SBP governor would prove to be the last nail in the coffin of the industry, which had been just pulling along in the hope of better days, particularly after the induction of the elected government.

F B Area Association of Trade and Industry Chairman Idrees Gigi said that if inflation could be controlled by raising discount rate then let the State Bank do it in a single go by raising the rate to a maximum.

However, he said that if interest rates were high no body will invest in industry and many may even close their units to get good returns while sitting back home without going into hassle of running an industrial unit.

North Karachi Association of Trade and Industry Chairman Noor Ahmed Khan said that already large number of garments units in his area had closed down owing to high cost of production and power crisis.

He said that industry was being hit on two accounts, namely higher dollar rate and rapidly increasing oil prices. As a result raw materials and cost of all industrial inputs keep moving higher.

Pakistan Leather Garment Manufacturers and Exporters Association Chairman Fawad Ijaz Khan said that the exporters had to import raw and wet blue leathers by opening L/Cs on deferred payment (DP) for a period of 60 to 120 days. The condition of 35 per cent margin would block huge funds on this account.

Mr Khan said that by raising discount rate the cost of doing business would further rise and it would affect leather garment exports, which have been showing sign of improvement recently.

Small and Medium Enterprises Alliance President Zafar Iqbal said the State Bank’s measures to increase discount rate by 1.5 per cent and 35 per cent L/C margin would cripple small and medium size industrial units already under severe financial crisis.

He urged the government to arrange financing for SMEs at low discount rate and also facilitate them by removing the condition of 35 per cent L/C margin on import of raw material.

Pakistan Industrial and Traders Associations Front Chairman Mian Abuzar Shad said that the textile units would close down and survival of other industrial units would become difficult as a result of measures announced by the SBP governor.

He said that the inflation could be controlled only by facilitating the growth of industry by reducing the cost of doing business.

Pakistan Association of Automotive Parts and Accessories Manufacturers Chairman M.A. Malik called upon the State Bank governor to take measures for reducing the big gap between borrowing and lending rates of the banks instead of raising the already high minimum interest rates.

He said that reducing the gap between borrowing and lending rates was necessary for providing relief to the business community but the SBP had preferred to increase the minimum discount rate to 12 per cent instead.

The All Pakistan Textile Association expressed the fear that the monetary policy announced by the State Bank governor would increase the cost of doing business and industry would come to a grinding halt.

A spokesman of the association said that the raise in interest rates would further increase cost of production and industries will transfer this increase to the consumers thus adding to inflationary pressure.

Pakistan Hosiery Manufacturers Association Chairman Shahzad Azam Khan said that the measures announced by the SBP to curb inflation would have a negative impact on economy.

He said that the high import bill due to rising international prices of edible oil and petroleum products were the root cause of inflation, which could not be controlled by raising the interest rates.

The steps had shattered the hopes of the knitwear garments industry, which was fighting for survival and was looking for relief to combat internal and external pressures, he added.