KARACHI: The increase of 50 basis points (bps) in the discount rate by the State Bank of Pakistan (SBP) has caused renewed worries for the business community, which considers that a continuous rise in interest rate will increase non-performing loans and discourage fresh investment.
The discount rate has now reached 14 per cent from 13.5 per cent after the SBP announced the increase on Monday. Giving the reason, the SBP said that the step will help reduce stubborn inflation, which is one of the major concerns of the monetary policy.
Chairman Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA), Saleem Parekh, was upset over the continuous rise in interest rate, saying the industry could not bear this burden any more. “The government is not taking important economic decisions in the right perspective. Even if the industrialists continue with businesses in present circumstances, they will invest nothing more,” he added.
The Reformed General Sales Tax (RGST) is likely to be implemented soon, which will exacerbate the problems of businessmen, he said, adding exporters will have to wait for their tax refunds for months and resultantly, they will further limit investments.
Korangi Association of Trade and Industry (Kati) chairman Johar Ali Qandhari, said this increase has come at a time when local industries are already under stress due to energy shortage and high cost of production. “I don’t think the government knows the ground realities for businesses,” he said.
“This is the final nail in the coffin of industries,” Qandhari added. Businesses will be badly affected with this development and non-performing loans, which have already touched Rs500 billion owing to high mark-up rates, will also increase, he said.
MK International CEO Younus Khamisani said the rate increase will simply add to the woes of the business community. “The SBP may be weighing its options, but one fact that it will have to acknowledge is that this decision is 100 per cent counterproductive for industrial activity.”
“Every day we learn about a company closing down its business or some factory shutting down operations. No industry could survive with such high interest rate,” Khamisani added. He went on to say that with the deteriorating law and order and high cost of production, nobody is going to invest in Pakistan. “When existing industries are finding it difficult to survive, who will come and bring new investment to the country,” he pointed out.
He said businessmen are also unsure about the RGST regime and the government has also not shown any interest in taking them on board over the last six months.
Published in The Express Tribune, November 30th, 2010.
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