Pakistan: Business leaders term hike in interest rate ‘disastrous for fragile economy’

According to a Dawn newspaper report, the business community of Pakistan has strongly condemned the decision of the State Bank of Pakistan (SBP) to increase the interest rate to 15%.

Trade and industry representatives said the move would prove highly disastrous for industries and the SME sector. They demanded that the government intervene and get the central bank’s decision withdrawn with immediate effect.

Irfan Iqbal Shaikh, President, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said he did not understand SBP’s logic in raising the interest rate to 15% at a time when power, gas and petroleum prices, along with looming uncertainty, have already reached new highs.

“The interest rate in Pakistan is three to four times higher than in the region, and in such circumstances, no stakeholder would dare to set up any new industries or go for any vertical expansion of their units,” he said.

“It seems that the government is more focused on dealing with political issues rather than showing any seriousness in tackling the issues of the business community. No planning is being done while the economic situation is getting out of control,” said Shaikh.

FPCCI President urged the government to listen to stakeholders and implement policies that will help the country recover from its economic crisis.

Abdul Rasheed, President, Site Association of Industry (SAI) said while the industry was already perturbed over the interest rate, the SBP has continued to crawl up the policy rate, bringing more trouble in the functioning of the industries.

He said many industries, including the textile sector, have invested billions of dollars in importing machinery in the last three years at a 4 to 4.5% markup rate after obtaining loans from the banks. At the 15% policy rate, industrialists and exporters would stop importing machinery, leading to a suspension in industrial activities besides creating unemployment and a law and order situation.

Muhammad Idrees, President, Karachi Chamber of Commerce and Industry (KCCI) said the SBP has increased the policy rate under some pressure, which would plunge many industries into a default situation. “The government can make borrowing, but the industries will be unable to take loans,” he added.

“What is the government doing? Will it put the economy on track by taking such decisions? “deplored Ijaz Khokhar, Chief Coordinator, Pakistan Readymade Garments Manufacturers and Exporters questioned the rationale.

“In Sialkot alone, a huge cottage industry (SMEs) comprising around 7,000 small units has been in operation for a long time. So they all would be no more gradually due to the increase in the interest rate at 15% which is already too much higher than our neighbouring countries,” he explained.

In a statement, Haris Ateeq Vice President, Lahore Chamber of Commerce & Industry (LCCI) also condemned the decision, expressing concern that further increases in discount rates would raise the cost of doing business.