Policy rate is set to 8.5 pc after 1 pc increase; Economic activities will be limited. Increase in gas tariff and interest rate will cause increased cost of doing business, decreased exports. IMF program seems unavoidable given to current economic situation.


(1 October, 2018)

President Pakistan Businessmen and Intellectuals Forum (PBIF), President AKIA, Senior Vice Chairman of the Businessmen Panel of FPCCI and former provincial minister, Mian Zahid Hussain on Monday said that policy rate has increased by 25 bps in the January 2018 to 6 percent, which has further increased by 50 bps to 6.5 percent in May 2018 and further increased by 100 bps to 7.5 percent in July this year. Effective from October 1, 2018, the state bank has announced further increase in policy rate by 100 bps to 8.5 percent.

The veteran business leader while talking to the business community said that constant increase in policy rate in causing reduction in economic activities in the Country. Major hike in inflation is badly affecting the purchasing power of the people. According to the State Bank, the policy rate has been increased to control inflation but other impacts are highly neglected. Local and foreign investment is need of time given to pressure on foreign reserves but increase in interest will discourage investment in all sectors. Though remittances and exports have observed growth of 13.5 5 percent respectively in the first two months of the current fiscal year, but due to increase in import of oil the current account deficit has increased to $ 2.7 billion which is 9.9 percent higher than the same period of last year.

The former minister said that performance of large scale manufacturing will be badly affected due to ongoing financial crisis and industrial production thus exports will be decreased. The budget real GDP growth for the current fiscal year was said to be 6.2 percent, which will remain 5 percent as per the state bank. The finance minister Asad Umar has said that Government has no intention to seek the IMF bailout program but given to the current economic situation and new leaked regarding recommendation of devaluation of currency by IMF, PKR has declined to Rs. 126 against USD in the open market. The rupee can be further devalued if measures are not taken in this regard. Given to the ongoing economic crisis including increased trade and current account deficits and pressure on foreign reserves, seeking IMF program seems unavoidable.

Mian Zahid Hussain said that encouraging local and foreign investors is need of time. It is vital to promote and encourage investment in all sectors of the economy including agriculture, industry, services and trade. Sustainable policies should be introduced in order to restore investors’ confidence. In the supplementary budget, taxes have increased in order to enhance revenue by Rs. 183 billion; gas tariff has also increased by 10 – 53 percent for different sectors and rates of petroleum products are also expected to be increased. The cost of doing business has increased by all these measures which are diminishing chances of increased exports in the near future.