Rise in interest rate
The economy is struggling with jugglery of figures. The central bank seems compelled to do some auto-correction and has for the second consecutive time raised its benchmark interest rate. This apparently is an endeavour to control or, at least, streamline inflation, which is eating away into the vitals of our economic base. Thus, the State Bank of Pakistan on Thursday raised the interest rate by 125 basis points to 15 per cent – the level last witnessed in year 2009. This supplementary hike follows May’s 150 basis points escalation to 13.75 per cent. That there has been a 525 basis point rise in year 2022 alone, the question is: will this option of tampering with the interest rate to obtain desired results deliver, or will it continue to weaken the forces of inertia? There is no instant answer to it until and unless the prevailing economic turmoil is addressed head-on and critical issues such as depleting foreign exchange reserves and a battered currency sees a facelift.
The central bank’s acting governor, however, was upfront and didn’t hide the bitter realities of the economy while presenting a statistical sheet. It is official that inflation is uncontrollable and has hit a 13-year-high of 21.3 per cent. But unconfirmed market sources put the figure at 22 to 24%, and the hyperinflation tendency is far from being arrested. Obviously, it will create more pressure on the economy and snatch the purchasing power of consumers, who are already on the edges while embracing an unusually tough IMF-dictated budget. The rise in oil and electricity prices, and now the shock and awe of unprecedented rise in gas prices to the tune of a whopping 235%, will almost take the stream out of productive activities. The economy is on the verge of a retreat, and a whirlpool recession is in the making.
One more interesting point that surfaced is the reality that Pakistan’s GDP growth projects are unattainable. The SBP guru said that economic growth is expected to come in at 3 to 4 per cent in the ongoing fiscal year. This might act as a measure to reduce inflationary trends. But the question is: why should we go back on growth and production merely to stem the price spiral? China and India, and many other industrialised countries of the world, had recklessly pursued an 8 to 10 per cent growth rate consistently for many years, and then made its fruits flow down the stream in buoying prosperity.
One fails to understand why Pakistan is so scared of growth. Apparently, it is compromised at the hands of donors and their vilifying terms on the counts of controlling the current account deficit. This prevailing uncertainty can only be addressed if the deal with IMF comes through – and that too not on suicidal terms. The public has been burdened enormously, and it’s high time for the government to tax those sectors in the economy that are making money but continue to be treated as holy cows.
Published in The Express Tribune, July 9th, 2022.
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