Former caretaker federal minister and Chairman of the Economic Policy & Business Development (EPBD) think tank, Gohar Ejaz, has issued a strong call for the State Bank of Pakistan (SBP) to realign its monetary policy with ground realities, warning that the current interest rate regime is strangling the economy and burdening taxpayers.
Ejaz emphasized that 100 percent of domestic bank deposits are currently invested in government securities, making the government the largest borrower from the banking sector. With inflation hovering below 5 percent, he argued that the policy rate of 11 percent is unjustifiable, and is resulting in excess interest payments of approximately Rs 3.5 trillion annually—a cost borne by taxpayers to the benefit of commercial banks.
“How does paying higher interest from taxpayers’ money to banks control inflation, when consumer and mortgage borrowing in Pakistan remains negligible?” Ejaz questioned, highlighting the disconnect between monetary policy and its intended outcomes.
He further noted that Pakistan’s interest rate is nearly double that of regional competitors—India at 5.5 percent and China at 3 percent—making it difficult for local industries to compete globally. The high cost of capital, coupled with elevated electricity tariffs and import dependency, has stifled manufacturing and export-led grow.
Ejaz proposed an immediate reduction of the interest rate to 9 percent, with a target of 6 percent by December 2025, aligning Pakistan with regional benchmarks and unlocking economic potential.
“Reducing the interest rate would not only cut domestic debt servicing costs by half but also stimulate business activity, create jobs, and make Pakistan competitive in global markets,” he asserted.
With unemployment at 22 percent and industrial activity subdued, Ejaz urged the SBP’s Monetary Policy Committee to prioritize economic revival over conservative inflation control. He also dismissed concerns that lower interest rates would trigger instability, citing the 2022 boom-and-bust cycle as driven by external shocks—not domestic monetary policy.