KARACHI
President of Employer’s Federation of Pakistan (EFP), Ismail Suttar, was completely perplexed by the Central Bank’s actions towards the recent inflation rates, and affirmed that the State Bank’s action to run riot in increasing the level of already augmented interest rates proves that there is an absolute uncertainty about the correlation between inflation and interest rates in our noble political structure.
In a statement, Ismail Suttar said that as per the Central Bank’s decision the interest rates were increased, yet again, by 250 basis points to 12.25%. The State bank claimed that this increase in interest rate was due to heightened domestic political uncertainty along with increasing oil prices. The abrupt and unstable decision to increase the interest rate in the country has led Pakistan to become one of the most inflated countries in the region, since the start of 2022.
‘’The point to be highlighted is that, the interest rates in corresponding countries such as India, Bangladesh, Sri Lanka and Bhutan are still in a range of 4% to 7.16%. Yet a country such as Pakistan, that is experiencing socio-economic instability to a large extent has been driven to sudden rash decisions in the name of stability’’, he opined.
Moreover, the Central Bank’s decision has also spiked up the interest rates for the export financing under Export Finance Scheme (EFS) by 2.5% in line with the increase in policy rate announced in the MPC meeting held recently.
If such actions subsist the business community of Pakistan is bound to see another setback in terms of exports, the so called solution to the problem is actually adding fuel to the fire by spiking up prices of cost of goods sold for the business community of Pakistan and hence contributing to an increase in prices for the average everyday individual, eventually pushing the local businessman out of foreign markets.
Analyzing the economic structure at hand, Employers’ Federation of Pakistan adheres to the belief that the economic structure of Pakistan, is in actual reality, a cost push inflationary structure, where an increase in interest rates will cause a boisterous rise in prices as opposed to a decrease.
The historic trends of the past few decades are enough to prove that an increase in interest rates have adversely affected the economy of Pakistan time and again.
Suttar added, ‘’The State Bank of Pakistan should keep in consideration that such actions, only by means of simple incomprehension, are bound to hit economies negatively.
A simple deliberation on the matter, can lead us to realize that the traditional system of increasing interest rates is resulting in the collapse of the economic structure in Pakistan and if no action is taken in due time the country would be facing the recession upfront’’.
The EFP president was of the opinion that the economic structure of Pakistan, being a cost push, can tackle the inflation issue by tough administrative or fiscal policy regimes.
As always, the consideration and analysis of important entities in this regard will play a very vital role in the establishment of sustainable systems that will build the trust of business communities in the region to foster growth and development on their end.
