ISLAMABAD, Nov. 30 (INP-WealthPK)— All Pakistan Business Forum (APBF) has expressed reservations on the continuous increase in the policy rate by the State Bank of Pakistan (SBP).
APBF has called on the State Bank to revise its policy of increasing the interest rate without considering the interests of broader economy, especially the industrial and business sectors.
APBF has said that strict monetary policy measures by the SBP are creating an environment where growth will be stifled, credit for the business sector will squeeze out and cost of production for the industry will increase.
President of APBF Syed Maaz Mahmood said that government needs to revisit its policy of inflation-targeting. He said relying on cosmetic measures will not solve the long-term issue of rising prices.
He said deep-rooted structural problems in the economy need to be addressed so that price increases are accompanied by a concomitant increase in wages. Only then will the government be able to rely on monetary policy tools to curb inflation in the short term.
He said that the industrial sector is in need of dire help from the government in the form of improved business environment, lower cost of production, paying early refunds to the industry to solve liquidity crunch, relaxing import policy for industrial raw material, and equalizing the energy tariffs across the country.
He continued, “all the measures taken by the government are adding to the cost of production, instead of reducing it. It should be tackled and brought down to the level of regional competitors.”
He further stressed the need to reform the energy sector and make it competitive for the industrial sector, since, he said, the industry was the only link to value-addition in the entire supply chain.
Mahmood regretted that industry was suffering from the double-edged sword of food and energy price increase, with transport inflation peaking at a record 65% and the annual inflation rate increasing to 27% in the fiscal year 2021-22.
He called for adopting an alternative energy strategy, as Pakistan is not currently facing a fuel shortage and the country can divert fuel supplies to high priority sectors like power generators.
He said that government needs to work out plans for the conservation of energy through various means like cutting the working hours of public servants, and closing shopping centers soon after sundown.
He highlighted the depreciation in the value of rupee and said that it is causing the cost of importing raw materials to increase, further contributing to inflationary pressures through the phenomenon of cost-push inflation.
He said that we need to increase the productive capacity of our economy. It can be done through reducing the cost of doing business by bringing down interest rates. He added that in the current economic scenario, rigid monetary policy will not have the desired effect.
He continued, “high inflation hurts the economy while low inflation helps it. High inflation affects all the agents in an economy like investors, savers, consumers and producers through uncertainty about the expected payoffs from their decisions.”
“High inflation erodes the value of the local currency against the foreign ones. In turn, more harm is done to the economy. We need to move away from dependency on IMF loans since they increase the costs of utilities and doing business. This results in a loss of competitiveness against international business rivals,” he concluded.
