KARACHI: Irfan Iqbal Sheikh, President FPCCI expressed concern over an unexpected and massive 250 basis points (bps) hike in the key policy rate by the Monetary Policy Committee (MPC) of the State Bank of Pakistan.
He said that the business community is shocked and clueless at the same time on how to cope with its fallout on economic activities, viability of doing business in Pakistan and inevitable adverse impacts on exports – in the absence of any governmental support.
President FPCCI added that a comparative analysis of the interest rates in Pakistan and the regional countries also showed a big difference to Pakistan’s disadvantage; namely, Malaysia is at two percent, China is at 3.7 percent, India is at four percent and Bangladesh is at five percent.
He emphasised that if the interest and export refinancing rates are not decreased drastically in Pakistan, we will not be able to compete with the regional countries as well.
Sheikh explained that the current tide of the inflation had nothing to do with the policy rate of SBP but, it was due to the political uncertainty and lack of any direction in economic policies due to it.
Additionally, he added, that the inflation in Pakistan has been due to supply-side disruptions and again had nothing to do with the interest rate.
President FPCCI elaborated that it was business community’s genuine demand, even before the recent interest rate raise, that the policy rate should be gradually brought down from 9.75 percent to ensure availability of capital to businesses at lower and affordable rates.
Contrary to what was needed, the interest rate has now been hiked to 12.25 percent, which will put a halt to the economic and commercial activities in the country.
Outlining three factors, he said that volatile rupee-dollar parity, uncertainty in political and economic environment and interest rate hike will totally crush the SMEs; as cost of doing of doing business, ease of doing business, access to capital, access to foreign exchange and remaining profitable will all be next to impossible for SMEs.
Sheikh said if the authorities do not interfere immediately, there will be a lot of bankruptcies, many export orders would not be fulfilled, huge loss of employment opportunities and loss of tax revenue will follow.
He called upon the authorities to instantaneously start a consultative process with all the stakeholders to find a workable way out of the current crises. Meanwhile Ateeq ur Rehman, economic & finance analyst said business community never demanded such a massive hike of key policy rate from 9.75 percent to 12.25 percent under the prevailing circumstances of political turmoil, unstable exchange rate, ballooning inflation, disturb cost of doing business.
The raise in policy rate will negatively impact on productivity of LSM / SSM sectors due to high cost of import of raw material, oil / LNG / coal, etc. He added that basically, Pakistan is struggling for foreign and local investment mobilization in order to boost revenue, create employment opportunities, restore sick/value added industries and above all practically grow industrialisation.
A high rate of interest rate shall not help and support our requirement. Furthermore In a broken economy like ours, these rates will further make “get going” more complicated by making access to finance little more difficult and expensive.
Hence the pressure will be built on balance of payment which is already in crisis being into a huge trade deficit of USD 35.4 billion. For example with the increase of policy rates “Export Refinance Rates” has also been increased from three percent to 5.5 percent.
Copyright Business Recorder, 2022
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