Lowering the interest rate is a policy supported by the PML (N) with the objective of fuelling private sector borrowing. However, with the government domestic permanent debt expected to escalate to 292.5 billion rupees next year from the revised estimate of 87 billion rupees this year liquidity would fuel inflation.
In 2008, the IMF had supported and the government agreed to the need to mop up excess liquidity through reducing the rate of interest. Additionally, the Fund at the time was also concerned about net foreign assets falling below the danger level which required higher interest rates not lower; a concern that has resurfaced at present.
Ishaq Dar seems resistant to proposals other than what he has proposed in the budget and his failure to provide data with respect to how much he expects to lose in revenue from business-friendly taxes and how much he expects to gain from taxes on individuals/AOPs merely confuses the issue further.
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