KARACHI: Already struggling for their survival amid multiple economic challenges mainly massive rupee-dollar fluctuation and severe energy shortages, the trade and industry leaders on Friday rejected the State Bank of Pakistan’s move to raise its policy rate by 100 basis points saying it would play havoc with the cost of doing business besides hitting exports hard.

Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Irfan Iqbal Shaikh said the business community has rejected a higher-interest rate of 16 per cent and it cannot be termed as a wise decision.

He said Pakistan has the highest interest rate compared to Malaysia’s 2.25pc, China’s 3.85pc, India’s 4.5pc and Bangladesh’s 5.5pc. After adding Kibor, the policy rate would swell to 18.50pc. “Who will borrow at this rate and operate their industries?” he asked.

The economic situation is highly volatile. The government has failed to control the rising strength of the dollar, which is short in the market. Letters of credit are not opening. The business community is already in crisis due to gas shortages and load shedding. Local products are losing their competitiveness in the world markets due to high production costs. The business community is already in deep crisis, he said.

Under these circumstances, neither the local nor foreign investors would put their money at stake, Mr Irfan said, adding that the economic situation is certainly a cause of concern.

He feared inflationary pressure on the already stressed consumers as the manufacturers would pass on the burden of costly loaning from the banks to the consumers by raising the prices of food items.

“There is a need to cut the interest rate now to save the economy from further shrinking. There must be some other tools to curb the food inflation rather than jacking up the interest rate,” he said, adding that it seems that “nobody in the government is bothered as to where the country is heading.”

Mr Irfan said the interest rate rise has come at a time when industrial activities are already facing numerous challenges.

Karachi Chamber of Commerce and Industry President Tariq Yousuf said that the interest rate hike reflects extra pressure on the government in managing the economic affairs in a tight situation to curb rising dollar value, the gap between open and interbank markets, gas shortage, non-availability of dollars in the market etc.

“Holding the interest rate hike would have been a better option under current circumstances to avoid putting extra burden on the cost of doing business,” he said, adding that the consumers would certainly feel the pinch of paying higher food prices after a rise in interest rates.

Pakistan Apparel Forum President Jawed Bilwani said “the central bank has pushed up the policy rate in an adverse atmosphere when world markets are facing recession which is creating another challenge for the exporters to make competitive products to face their counterparts in world markets.”

He said many local industries, as well as exporters, are operating at half of their plant capacity given the gas crisis and massive delay in sales tax refunds worth Rs300 billion has created liquidity issues in the industries. “How can Pakistan survive without boosting its exports?” he questioned.

Association of Builders and Developers (ABAD) Chairman Altaf Tai said consumers would bear the burden of the high-interest rate as the cost of doing business would surge due to high borrowing costs.

“There was no need to raise the interest rate but external and internal pressures have forced the SBP to take the decision. It will badly affect the economic cycle,” he said.

Published in Dawn, November 26th, 2022