The Economic Policy & Business Development (EPBD) think tank termed the decision of the State Bank of Pakistan (SBP) to maintain policy rate at 11 percent as very conservative.
Gohar Ejaz Chairman EPBD said that with policy rates at 11 percent – nearly double the regional average, how can Pakistan realistically pursue business development, job creation, and export-led growth?
He said that the decision to maintain policy rate at 11 percent when inflation rate is about 4-5 percent, was very conservative. Ejaz said that competing in the region requires a more enabling economic environment.
Ejaz earlier stated that the monetary policy is strangling the economy. The interest rate in Pakistan is 11 percent, while in India it is 5.5 percent and in China it is 3 per cent. The monetary policy is suppressing tax-paying business activities.
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He said that the Federal Board of Revenue (FBR) has set a target of an 18 percent increase in tax collection, but the monetary policy is stifling tax-paying business activities.
He demanded that the interest rate should be immediately reduced to 9 percent and brought down to 6 percent by December 31, 2025. Pakistan has strong potential in manufacturing and exports, but the monetary policy is blocking economic growth.
There are multiple ways to restrict unnecessary imports in economic policy. He further said that the 2022 boom-and-bust cycle did not occur due to low interest rates.
In 2022, $3 billion worth of vaccines were imported, and an additional $12 billion was spent on oil and gas imports due to the Ukraine war. These factors had nothing to do with the domestic interest rate. An 11percent interest rate against 5 percent annual inflation is incomprehensible, he added.