Lahore
The Pakistan Industrial and Traders Associations Front (PIAF) has urged the government to review its tight monetary policy stance, as the current high monetary policy will depress the domestic demand and retard economic progress.
PIAF Chairman Faheem Ur Rehman Saigol, in a statement, said that the growth in large-scale manufacturing is already negative as the industries were poised to face the impact of high input prices and shortage of gas in winter, while the high markup rate is another threat for them, he said. He added that the high interest rates in a low growth environment will create bad debts in the private sector, squeezing fiscal space for development, adding that the current monetary policy will also stifle capital formation both in the public and the private sectors.
He said that despite nominal growth, inflationary pressures are again building up in the economy while steep depreciation of the rupee is pushing up prices of imported industrial inputs, which will further cripple industrial activities.
The PIAF Chairman said that it is high time that the government should revise interest rates to turn Pakistan into a production economy. Our future lies in strengthening the production sectors, but that would require the government to cut the cost of credit as there is no justification to keep interest rates that high particularly when this policy is unlikely to produce the desired results in the wake of cost-push inflation,” he added.
He noted the economy has slowed considerably since the last MPC meeting. Most demand indicators were lower in both July and August than in the same period last year, including sales of cement, petroleum products and automobiles.
On the supply side, electricity generation declined for the third consecutive month in August, falling by 12.6 percent year-on-year In July, LSM declined by 1.4 percent year-on-year its first contraction in two years, largely driven by broad-based deterioration in domestically-oriented sectors.
Looking ahead, the recent floods are likely to adversely affect the output of cotton and rice as well as the livestock sector this year. On the external sector, it observed the current account deficit shrank for the second consecutive month in August to only $0.7 billion, almost half the level in July.
In September 2022, the trade deficit contracted sharply by 19.7 percent monthwise and 30.6 percent yearly to reach $2.9 billion, reflecting a decline in both energy and non-energy imports amid stable exports. During the first quarter of the financial year, imports have declined by 12.7 percent year-on-year basis to $18.7 billion while exports have grown by 1.8 percent year-on-year to $7 billion.
Looking ahead, the floods are likely to result in greater need for some agricultural imports such as cotton and a few perishable food items. Given secured external financing and additional commitments in the wake of the floods, the forex reserves should improve through the course of the year.
Fiscal sector: In July, fiscal outcomes were better than in the same period last year. The fiscal deficit fell to 0.3 percent of gross domestic product while the primary balance recorded a surplus of 0.2 percent of GDP.
PIAF chairman said that regional countries have maintained their key policy rate at low level through regulatory tools without throttling growth, similarly Pakistan should also take benefit of such approach.
