Trade bodies and chambers of commerce and industries of Rawalpindi and Islamabad have expressed serious concern over what they lamented/ called a nominal decline in the discount rate from 13 to 12.50 percent. President Rawalpindi Chamber of Commerce and Industry (RCCI) Kashif Shabbir told Business Recorder here on Wednesday that the reduction in discount rate is so insignificant that it would not have any positive impact on the economy.
The discount rate should be brought at par with the international rates applicable in different countries. He said that the government had linked the discount rates with high inflation. Now the inflation has come down, the discount rates should also be brought down to single digit.
This is necessary to make Pakistani products competitive in the international markets, but high discount rates have made it almost impossible to compete in the international market. The high cost of doing business and uncompetitive business environment along with existing high cost of borrowing would only have negative implications on the overall economy, particularly in the industrial sector.
He stated that Pakistan is not a "Least Developed Country" like Afghanistan, therefore it does not enjoy concessions available to "Least Developed Countries". It is difficult to compete with the regional countries under current circumstances, he maintained. Shabbir added that it is the right time for the government to realise the fact that the discount rates must be decreased to facilitate the business community.
Representatives of the trade bodies in Islamabad categorically rejected the view that the announced decline in the discount rate would improve matters. They urged a further reduction in the rate as critical in the current business environment. The State Bank of Pakistan (SBP) should bring down interest rate to a single digit, they added. A senior expert from Pakistan Institute of Development Economic (PIDE) said that the reduction in discount rate by 50 basis points (bps), to 12.5 percent would not have any significant impact on the actual market rate.
The reduction is so insignificant that no investment could be attracted as a result of this measure. If the government decreases the discount rate by 2 percent, it would automatically bring down the interest rate. Resultantly, private sector would be encouraged to borrow more. Responding to a query, PIDE expert said that the reduction in interest rates would considerably increase demand for investment and production in the country.
It is worth mentioning that the SBP had said in the Monetary Policy that overall level of risk and uncertainty in the economy had increased considerably, given the present law and order situation. As a consequence, the pressure on the fiscal position, especially from the financing side, has escalated, and growth in the real economy is limited. The central bank said that economy has some risks like inflation, prevailing security situation in the country, and fiscal uncertainties.