FPCCI’s Businessmen Panel for growth oriented monetary policy

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LAHORE – The Federation of Pakistan Chambers of Commerce and Industry’s Businessmen Panel has rejected the central bank’s decision of jacking up key policy rate by 150 basis points to 8.75%, stating that Pakistan’s interest was already very high in view of the regional countries markup rates.

BMP Chairman Mian Anjum Nisar asked the SBP governor to fulfill his commitment of maintaining accommodative monetary stance in the near and long-term to support the rare recovery amid uncertain Covid-19 challenges. He stressed the need for reduction in discount rate, arguing that low key policy rate is essential to make Pakistani exporting sector as well as the local industry competitive. Mian Anjum Nisar also demanded the immediate reduction in electricity tariff especially for SMEs as a first step towards cut in production cost while the second and vital step toward this direction would be bringing discount rate to the regional level with a view to provide level-playing field especially to the export industry. The decision would have the same importance for the domestic industry too, as it has also been facing tough competition of cheaper imported merchandize in the country following FTAs with several countries, he added. While appreciating the central bank’s role in sustaining economic growth through supporting trade and industry, he said that reduction in interest rate would be vital relief to the business community.

Irfan Iqbal Sheikh, the BMP’s presidential candidate for the FPCCI’s upcoming elections, said that after the Corona devastation, Pakistan should take advantage of those export orders canceled by the other regional countries. For this, the government will have to reduce production cost of the industries to avail this offer by the international buyers. Irfan Iqbal, the former LCCI president, said that the central bank should announce an initiative related to loans for small and medium enterprises (SMEs), as the SME sector has to show collateral to banks, which are always reluctant to offer them concessional credit.

Meanwhile, business community has appealed the government to review its tight monetary policy stance as it will hamper the production and thwart the economic growth of the country. Pakistan Industrial & Traders Associations Front (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 markup 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 Sept over Aug. 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. 

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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.

PIAF vice chairman said if regional countries have maintained their key policy rate at average 6.5% to attract investment and stimulate the economy. These countries can manage surging inflation through regulatory tools without throttling growth, so Pakistan should also take benefit of such approach.

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