KARACHI: Businesspersons and industrialists have unanimously expressed perplexity at the central bank’s decision to increase the interest rate by 250bps to 12.25 percent for curbing inflation and asked to revert the decision.
In different statements, Employer’s Federation of Pakistan (EFP), Karachi Chamber of Commerce and Industry (KCCI), Lahore Chamber of Commerce and Industry (LCCI), and Businessmen Group (BMG) said the increase in interest rates would prove disastrous for the economy.
EFP President Ismail Suttar expressed perplexity at the central bank’s decision and questioned the wisdom behind the act. The SBP claimed that this increase in interest rate was due to heightened domestic political uncertainty along with increasing oil prices. The abrupt and unstable decision to increase the interest rate in the country has led Pakistan to become one of the most inflated countries in the region, since the start of 2022.
“The point to be highlighted is that, the interest rates in corresponding countries such as India, Bangladesh, Sri Lanka and Bhutan are still in a range of 4 percent to 7.16 percent. Yet a country such as Pakistan, that is experiencing socio-economic instability to a large extent has been driven to sudden rash decisions in the name of stability,” he opined.
Moreover, the SBP also spiked up the rates for export financing under Export Finance Scheme (EFS) by 2.5 percent in line with the increase in policy rate announced in the MPC meeting held recently. If such actions continue, the business community of Pakistan was bound to see another setback in terms of exports.
This solution adds fuel to the fire as it raises the cost of goods for the business community and individual consumers as well. “It will eventually push the local businessman out of the foreign markets,” he added.
Analysing the economic structure at hand, EFP adheres to the belief that the economic structure of Pakistan, was in actual reality, a cost push inflationary structure, where an increase in interest rates would cause a boisterous rise in prices as opposed to a decrease. The historic trends of the past few decades were enough to prove that increase in interest rates have adversely affected the economy of Pakistan time and again.
BMG Chairman Zubair Motiwala and KCCI President Muhammad Idrees urged the SBP governor to immediately revisit and withdraw this irrational increase as it would prove disastrous for the economy, exports and the industries.
In a joint statement issued, they said that the entire business and industrial community was in a state of shock. They called the rate hike an “anti-business, anti-economy and anti-exports move, which has been taken particularly in a situation when the country’s economy was not so bad”.
Central Bank autonomy “doesn’t mean that it was free to take such a harsh step overnight, which has never happened in 25 years’ history”.
It was highly unfair to abruptly and exorbitantly raise the interest rates without bothering to hold consultation with the stakeholders, they said.
KCCI, from time to time, requested SBP governor to visit so numerous monetary issues and central bank’s policies affecting businesses could be discussed in detail. But, unfortunately, the “governor has no time to discuss some of the most pressing issues being suffered by the business community of Karachi,” the KCCI said.
They noted that last month, Pakistan’s exports recorded an increase of 29.1 percent on month-on-month (MoM) basis as compared to last year, which clearly indicates that the export sector was performing very well. However, now, the increase in interest rate would have a deep negative impact on the export performance.
It will be completely disastrous for the industries and future investments as nobody would come forward to set up any industry due to exorbitant interest rate and the high cost of doing business, they cautioned.
LCCI President Mian Nauman Kabir said, “A 2.5 percent increase would hit all sectors of the economy hard.” The SBP should withdraw the massive hike in the mark-up rates and bring it down to a single digit to encourage new investments and revival of businesses.
He said the increase in markup rate would have dire consequences on our economic growth rate. “It will surely hinder the process of industrialisation and private sector growth. Pakistan should bring its markup rate at par with the regional rates which are much lower,” he urged.
