Islamabad
The Pakistan Hosiery Manufacturers and Exporters Association (PHMA) has suggested the State Bank of Pakistan (SBP) to adopt an accommodative monetary policy stance instead of further raising it.
In a statement, the PHMA Central Chairman Shahzad Azam Khan stressed the need for reduction in discount rate, arguing that low key policy rate is essential to make the Pakistani exports sector competitive.
The PHMA Chairman said that the achievements in exports and stabilization of the economy through the monetary policy measures now required to be sustained again by extending reduction in the policy rates so that the debt liability of the business sector is compensated through lower markup rate.
Demanding competitive interest rates at regional countries’ level, he said that the SBP’s stance of jumping the monetary policy rate by 1.5 percent is not right because it was already high compared with the markup rate of China, India and Bangladesh.
Pakistan should take advantage of those export orders, which were cancelled by other regional countries, he suggested and added that for this, the government will have to reduce the production cost of the industries to avail this offer by the international buyers.
Yet, the central bank jacked up the key policy rate by another 150 basis points to 13.75 per cent, leading to the crash of the stock market, which will remain bearish until the next policy announcement.
He asked the SBP governor to fulfill his commitment of maintaining an accommodative monetary stance in the near- and long-term to support the rare recovery.
He said the stock market investors were stuck in a selling frenzy over economic fallout from the country’s record trade deficit and the continued hikes in discount rate.
Shahzad Azam said that most economic activity data and indicators of consumer and business sentiments have shown continued improvement. The export industry needs continued support from the government in the form of lower interest rates, amid such external shocks, he suggested.
He also demanded the immediate reduction in the electricity tariff, especially for the Small and Medium Enterprises (SMEs) as a first step towards a cut in the production cost, while the second and vital step towards this direction would be bringing discount rate to the regional level with a view to provide level-playing field, especially to the value-added textile export industry.
Appreciating the central bank’s previous role in sustaining economic growth through supporting trade and industry in past, he said, the reduction in interest rate would be a vital relief to the business community.
He said the central bank should announce an initiative related to loans for the Small and Medium Enterprises (SMEs), as the sector has to show collateral to banks, which are always reluctant to offer them concessional credit.
He called this move unwise as it came at a time when the economy was deteriorating at an unprecedented rate. He said it would not be possible for the businesses to operate in such a high interest rate environment.
He foresaw huge adverse impacts on the economic growth, which was already fragile, while rupee devaluation and high inflation were hurdles in the way of export industry expansion. He termed the policy announcement a blast for the value-added apparel industry, saying it would add to more economic crises amid rupee devaluation and political uncertainty.
The PHMA leader again warned that the trade deficit and further increase in the interest rates will kill the economy. This is the result of taking foreign loans and the continuous rupee depreciation and calling for putting an end to this destruction.
