Industrialists, economists reject interest rate hike

Published: July 18, 2019
Nasir said LCCI had always urged the central bank to reduce the benchmark interest rate so that industries could seek liquidity at cheaper rates. PHOTO: FILE

Nasir said LCCI had always urged the central bank to reduce the benchmark interest rate so that industries could seek liquidity at cheaper rates. PHOTO: FILE

LAHORE: The recent interest rate hike by the State Bank of Pakistan (SBP) is not going to favour domestic industries, noted different business groups and economists.

With a high rate of 13.25%, the government aims to encourage people to invest in saving schemes, however, the economists are of the view that policymakers have forgotten that the real engine of growth is the private sector, which may face further uncertainty keeping in mind the overall scenario of Pakistan’s economy.

“This is not a good sign for the country’s economy and industrial sector,” All Pakistan Textile Mills Association (Aptma) Chairman Syed Ali Ahsan told The Express Tribune.

Market watch: KSE-100 inches up 10 points following hike in interest rate

He said the rate hike would put brakes on industrialisation as no one would be ready to secure loans at such a high mark-up and low profit margins. “This will also apply brakes on repayments, hence completely halting modernisation of domestic industrial sector.”

He said they did not believe in going on strikes, but there was no option “when our downstream industry is on strike; this ultimately will put burden on mainstream industries”.

He said uncertainty and a lack of clear government policy was the biggest issue, which was further hampering industrialisation efforts in the country.

While industrial lobbies are not as optimistic as the SBP governor about the economy’s turnaround in the second half of current fiscal year, many economists have also put their weight behind what the country’s business community is thinking.

“The International Monetary Fund chief had recently said 1.5% interest rate is ideal for any country to grow its economy, we, in Pakistan, are going in the opposite direction despite securing a bailout package from it recently,” said economist Dr Qais Aslam.

“Our economy is not moving as investors – both foreign and local – are in panic,” he said. “If no one will invest, how will the country’s economic managers fuel the private sector?”

He said the current government had put Pakistan on the path where the country was during Musharraf’s tenure; the situation was almost same at that time.

SBP jacks up key interest rate by 100 basis points

“The SBP says it has hiked the rate to control inflation, but on the other hand, the government has raised energy prices and is apparently prepared to raise them again; food prices are also surging; will such measures like hiking the rate control inflation?,” he asked.

The Lahore Chamber of Commerce and Industry also expressed concern over the rate hike.

“The SBP should consider actual ground realities and reduce the interest rate,” suggested Acting LCCI President Shahzad Nasir.

Nasir said the chamber had always urged the central bank to reduce the benchmark interest rate to single digit so that industries could seek liquidity at cheaper rates.

“Only 20% of the total loans have been taken by the local industry, among which 11% has been taken by large-scale industries whereas only 9% has been taken by small and medium enterprises,” Nasir revealed.

“The current interest rate is too high for any industry; the county’s economic managers should know that our industry currently doesn’t have that much profit margins.”

Published in The Express Tribune, July 18th, 2019.

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