Business community voices concern over devaluation of PKR, policy rate hike

Business community has expressed serious concern over continued depreciation of Pak rupee against dollar and hike of policy rate by another 150 basis points and termed it damaging for the economy. The declining Pak rupee value (PKR) value and hike of policy rate has caused chaos like situation, which is a very serious blow to the trade and industry. Stable foreign exchange rate is a key factor for sustainable growth. They said the enhancement in the rupee dollar party is due to inefficiency of policy makers. The Rupee has plunged to life-time low position and increase in policy rate will not attract the investors.
President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) Engr Daroo Khan Achakzai expressed serious concern over the hiking of policy rate in view of prevailing inflation, devaluation of currency and twin deficit in Pakistan. He added that SBP continues to operate a tight monetary policy despite the clear evidences that this policy strangulates investment and hampered the economic activities in Pakistan in Pakistan.
He underlined that the IMF bailout package will further create burden on poor segment of society in terms of rising utility prices which will ultimately increase inflation in the economy. At present, every Pakistani possess a debt of Rs 159,000.
The FPCCI chief termed the concretionary monetary policy as an anti-investment policy which has declined the economic activities in the first ten month of the current fiscal year due to declining of large scale manufacturing and service sector.
He indicated that 12.25 percent policy rate is very high compared to regional economies like India 6 percent, China 4.35 percent, Sri Lanka 9 percent, Thailand 1.75 percent, Indonesia 6.5 percent, and Malaysia 3 percent.
While commenting on the devaluation of currency, he stated that the rising of exchange rate will increases the prices of imports particularly petroleum products which comprises 30 to 35 percent import bill of Pakistan.
He suggested the government to intervene in the economy for currency stabilization and control of inflation.
He said the present inflation rate is 7 percent which is high compared to last year same period 3.8 percent; but this inflation is cost push inflation which can't be controlled through demand management policies.
The major cause of rising inflation in the country is high cost of doing business particularly utility prices, increase in the prices of industrial inputs and shortage of essential items of daily necessity.
Government should focus to increase the demand for credit by declining interest rates and make easy access to finance. Globally, the aim of monetary policy is to protect the value of the currency in co-ordination with the fiscal policy in order to achieve the objectives of macro-economic stability with constraining inflation and expansion of private sector investment, he added.
He further stated that the government should create its own fiscal space for financing its expenditures instead of borrowing from SBP and other institutions.
During the first ten months of year, there was an expansion in private sector credit, but is largely attributed to working capital due to rising of input prices.
This private sector credit should be expanded to agriculture and industrial sector which are showing declining growth trend, he suggested.
Businessmen and Intellectuals Forum (PBIF) chief Mian Zahid Hussain said recently announced monetary policy is too aggressive. An interest rate hike of 1.5 percent by the central bank is over and below the expectations of the experts and the business community but it will choke the economic growth at this critical juncture, he said.
He said the monetary policy after a poorly negotiated deal with the IMF, will hit manufacturing, agriculture, exports and jobs while it will deprive the private sector of much-needed credit resulting in defaults and litigation. He said that another interest rate hike is expected which will be disastrous for the economy.
He added that private banks will find it attractive to lend to the government which is risk-free while the private sector will be able to get loans at 15 to 16 percent interest which is unsustainable.
He noted that business community was already facing problems like increased cost of doing business, inflation, devaluation etc. and now the interest rate hike will add to their difficulties.
Mian Zahid Hussain said the government will also come under pressure as it will not be able to seek loans from the central bank and borrowing from commercial banks would be a costly option which will hurt all other sectors. Steel, cement, fertilizer and other sectors will lose while the banking sector will thrive on the high policy rates and they will ignore the private sector due to risks associated with it.
He noted that interest rates have touched eight-year high to 12.25 percent which will not only hit production and make increasing exports impossible.
The development will not only discourage industrial sector but also hit the new investments as inflation would grow in the backdrop of depreciation of local currency against the dollar, increase in petroleum prices in the international and domestic markets, and a further increase in power and gas tariffs in the near future which will increase poverty, he warned.
Korangi Association of Trade & Industry (KATI) president Danish Khan, SVP Faraz-ur-Rehman and vice president Maheen Salman expressed their concern over declining rupee value and increased interest rate and suggested that promotion of industrial sector is the only solution to economic crisis of the country.
KATI chief said according to available numbers large scale manufacturing sector has shrink nearly 11 percent and LSM production has dipped 2.93 percent during the first nine months of current fiscal year.
He said although PM Khan took positive measures to enhance country's exports but the results were not outstanding. "Cost of doing business and production is the root cause of lesser competitiveness of our products in international market, this should be addressed" he said.
He said if the situation would follow the course disaster of SME and industrial sector is well anticipated.
He was of view that depreciated rupee means hike in raw material prices of export oriented industry and on other hand increased interest rate will effect investment in the sector.
Danish khan urged the government to provide SMEs an easy access to the power and credit, and should define it on policy level in forthcoming national budget.
He also said that incentives to the exporters should be benefited directly and urged government to outline a mechanism for the same. He added that promoting industry is the only way to economic growth and prosperity of Pakistan.