KCCI member and Afzaal Memorial Thalassemia Foundation (AMTF) executive director Ateeq-ur-Rehman expressed his deep concerns over increase in policy rate which reached six years highest. He phrased fear that increase in policy rates will adversely hit hard the Small and Medium Enterprise (SME) sector. He said SME sector is already deprived of access to finance, now they will be more under pressure of financing shortage, as dominance of high interest rate will make them sufferer.
For SMEs, the borrow capacity will deteriorate. It will hurt the common man as well, he added.
Monetary tightening will discourage expansion of economy and investment, as such higher bank interest rates means higher cost of finance which will not only hurt the SMEs but also hurt large scale manufacturing sector whose production capacity totally depends on bank borrowing as they cannot rely on their own cash flows.
He said it is extremely disastrous as this decision will scale up inflation and aggravate the already existing balance of payment crisis.
He expressed that recent interest hike will not be instrumental to reduce higher fiscal deficit because government failed to reducing "current expenditure" instead slashed "development expenditure" in recent economic council meeting.
He said Pakistan a debt burden country also undergoes currency devaluation after talks with the IMF for a bailout to bridge a $12 billion financing gap, creating negative implication as around Rs 300 billion will be added to the external debt.
Nonetheless, SBP projected real GDP growth for FY19 at slightly above 4 percent, whereas in the previous monetary policy statement, the central bank had forecasted 5 percent GDP growth for the year compared to the government set target of 6.2 percent for the year in progress.
Ateeq express fear that cost of production will increase manifold and adversely hit exports. Higher interest rate will make private sector borrowing more difficult due to high cost factor and increase the risk of international competitiveness.