Analysts urge interest rate cuts, PPP reviews

Economic analysts and industrialists are advocating for a reduction in interest rates and a review of public-private partnerships (PPP) to bolster Pakistan's economy and industrial growth. They argue that aggressive interest rate cuts could stimulate economic growth, encourage investment, and ease financial pressures on businesses and consumers.

Ismail Suttar, President of the Hub Chamber of Commerce and Industry (HCCI) and an economic analyst, highlighted the broad consensus among stakeholders that lowering interest rates is vital for economic recovery and long-term prosperity. Despite current economic challenges and soaring inflation, stakeholders believe that reduced interest rates could facilitate the nation's economic recovery.

Over recent years, Pakistan has faced high inflation, sluggish growth, and an uncertain global economic landscape. High-interest rates exacerbate these issues, burdening businesses and consumers, and stifling economic activity. Pakistan's current policy rate of 19.5% is significantly higher than its neighbours including China and India, giving these countries, as well as Bangladesh and Vietnam, a competitive edge in the export market – acquiring most of Pakistan's textile customers.

"Our manufacturers across all sectors are struggling to keep production costs under control amidst rising inflation and interest rates," said Suttar. "If the current policy rate is maintained, Pakistan risks further losing its export customers, potentially worsening the trade deficit."

Lower interest rates can reduce borrowing costs for businesses, encouraging investments in expansion, technology adoption, and workforce development. This, in turn, can enhance productivity and competitiveness in both domestic and international markets. Additionally, decreased interest rates can provide crucial financial relief to Small and Medium Enterprises (SMEs), empowering them to expand operations, drive innovation, and create employment opportunities. "Pakistan stands at a critical juncture where proactive and bold economic policies are essential," Suttar added. "By lowering interest rates aggressively, the nation can foster a conducive environment for growth, innovation, and prosperity."

Muhammad Farooq Shaikhani, President of the Hyderabad Chamber of Small Traders and Small Industry (HCSTSI), raised concerns about the transparency and effectiveness of public-private partnerships (PPP) in Pakistan. He criticised the government for making crucial decisions under the guise of democracy, which he claimed often undermine the nation's interests and economically assault both businesses and the public.

Shaikhani called for transparency in PPP projects, urging the government to disclose details and agreements of such projects, especially those involving domestic or foreign companies. He stressed the importance of transparency to ensure these projects genuinely aim at public welfare rather than serving elite or political interests.

He highlighted alarming signs of corruption in numerous contracts with international companies under PPPs. Historically, since the 1990s, many projects have inflicted irreparable damage on the national treasury. Shaikhani cited the example of Independent Power Producers (IPPs), whose projects have significantly burdened the country's economy due to a lack of transparency in electricity pricing, resulting in exorbitant costs for the public.

"Over $48 billion has been paid to IPPs in the past decade, while the government secures only a few billion dollars from the International Monetary Fund (IMF) and other financial institutions, often at the cost of the nation's dignity," he said. Shaikhani urged policymakers to explore alternative energy sources such as solar and wind power projects to alleviate the economic burden.