LAHORE: The Pakistan Industrial & Traders Associations Front (PIAF) has appealed the State Bank of Pakistan (SBP) to review its tight monetary policy stance as it will “hamper production and thwart economic growth” of the country.
PIAF senior vice chairman Nasir Hameed and vice chairman Javed Siddiqi, in a joint statement, said that the growth in large-scale manufacturing industries is already nominal in the first quarter of current fiscal year, as the industries were poised to face the impact of high input prices and shortage of gas in winter, while further hike in mark-up rate is another threat for them.
During the July-Sept period of fiscal year 2021-22, the LSM sector output grew just by 5.2%, while on a month-on-month basis, the LSM sector contracted by less than 1% in September August. The year-on-year growth rate in Sept was only 1.2% over the same month of previous year. The low base effect has so far been driving the growth in large industries as the index had dropped to the low level of 86.2 in April last year from the peak of 160 before Covid-19 struck Pakistan. The index still remains below the pre-Covid level as it stood at 139.8 in Sept. Since large industries contribute heavily to revenue collection and job creation, any change in key policy rate will affect negatively on the growth of industry, they added.
Nasir Hameed said high interest rates in low growth environment will create bad debts in the private sector squeezing fiscal space for development. He said the current high monetary policy will depress the domestic demand and retard the economic progress. He said the current monetary policy will also stifle capital formation both in the public and the private sectors. He said despite nominal growth, inflationary pressures are again building up in the economy while steep depreciation of the rupee is pushing up prices of imported industrial inputs, which will further cripple industrial activities.
PIAF vice chairman Javed Siddiqi said it is high time that government should revise interest rate to turn Pakistan into a production economy. He said our future lies in strengthening the production sectors, but that would require the government to make a decision and cut the cost of credit as there is no justification to keep interest rates that high particularly when this policy is unlikely to produce the desired results in the wake of cost-pushed inflation.
Javed Siddiqi said that tight monetary policy has not produced desired results for the economy in past as the inflation rate on which the current policy is based, is once again surging despite increasing key policy rate. He said that the tight monetary policy is casting multiple negative effects on the economy as it has kept interest rate very high causing sharp fall in the value of rupee, squeezing credit for private sector and reducing domestic savings, investment, production and exports. He said it is right time that SBP should revisit its monetary policy to mitigate its harmful impact on the business and economy.
Copyright Business Recorder, 2021