FPCCI Rejects SBP’s Interest Rate Hike Warns of Industrial Closures and Economic Stagnation

Atif Ikram Sheikh, President FPCCI

Karachi: Mr. Atif Ikram Sheikh, President of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI), has expressed his profound concerns and has unequivocally rejected the decision made today by the State Bank of Pakistan's (SBP) Monetary Policy Committee (MPC) to increase the key policy rate by 1%. It is ill-timed and unfortunate as the country’s economy was on a take-off stage after the stabilization phase, he added.

Mr. Atif Ikram Sheikh reiterated that the apex trade body had already categorically cautioned that the continued tightening of monetary policy in the country will deal a crippling blow to the country’s struggling industrial and export sectors. Pakistan doesn’t any longer need contractionary, regressive monetary or fiscal policies, he added.

FPCCI Chief pointed out that a high-interest-rate environment fundamentally contradicts the government’s stated goals of economic revitalization, export growth and job creation – rendering Pakistani products uncompetitive in the regional and international markets.

Mr. Atif Ikram Sheikh strongly condemned the decision, stating that this rate hike is a harsh setback for the business community. We have repeatedly provided the SBP and the Ministry of Finance with data showing that our industries simply cannot survive, let alone expand, under such an exorbitant cost of borrowing as we are competing with the regional economies with much lower interest rates.

Mr. Atif Ikram Sheikh explained that instead of curbing inflation – which is largely driven by administrative energy costs and supply-chain inefficiencies – this monetray policy will only escalate the cost of doing business; choke private-sector credit even further and potentiate the pressures of de-industrialization. The government cannot rely on squeezing trade and industry while projecting economic growth, he added.

Mr. Saquib Fayyaz Magoon, Senior Vice President (SVP) of FPCCI, highlighted the disproportionate impact of this decision on small and medium enterprises (SMEs) as today's decision will essentially shut the door on affordable access to finance for SMEs.

Mr. Saquib Fayyaz Magoon continued that – coupled with exorbitant energy tariffs and heavy compliance costs – this monetary tightening will push many manufacturers toward default or complete closures. It is impossible to achieve the Federal Board of Revenue's (FBR) ambitious revenue targets when you are actively stifling the very engines of production.

Mr. Abdul Mohamin Khan, VP & Regional Chairman Sindh, FPCCI, voiced the distress of traders and industrialists of Sindh as the regional chambers and industrial estates are already reporting severe challenges. Factories operating well below their capacities will now be forced to lay-off workers; and, an increase in the interest rate today means stalled expansions and canceled orders tomorrow, he added.

Mr. Abdul Mohamin Khan said that FPCCI urgently demands that the authorities review this destructive, textbook approach to inflation management; and, instead adopt a pro-growth monetary framework that facilitates, rather than penalizes, the local industry.

FPCCI calls upon the Prime Minister, the Federal Minister for Finance & Revenue and the Governor of the State Bank of Pakistan to reconsider the monetary policy trajectory. The apex trade body reiterates its demand for comprehensive, growth-oriented macroeconomic framework that prioritizes broadening of the tax-net – and, reduction in energy and borrowing costs for export-oriented and domestic manufacturing industries.

Brig Iftikhar Opel, SI (M), Retd.

Secretary General