Futile Monetary Policy: Economy will collapse at 2100 bps: FPCCI

President of FPCCI – the country’s apex body – Mr. Irfan Iqbal Sheikh, has categorically apprised the government that Pakistan’s entire business, industry and trade community has refused to accept a key policy rate of 21 per cent; after today’s further rise of 100 basis points. No commercial bank will now lend to private-sector for anything less than 23.5 to 24 percent, he added.

Mr. Irfan Iqbal Sheikh questioned the efficacy of country’s monetary policy and noted that interest rate has been increased by a whopping 11.25 percent in a quick succession of last 14 months without attaining any intended headway in the curtailment of inflation; and, if that is not the governance & regulatory failure, then what will be the failure look like to move the government for a course correction, he asked!

Mr. Irfan Iqbal Sheikh highlighted that Asian Development Bank (ADB) has projected Pakistan’s economic growth in FY23 at only 0.6 percent in its latest release pertaining to country’s state of economy on 4th April 2023; and, this bleak economic outlook is the direct outcome of the contractionary, regressive, IMF-dictated and recessionary monetary policy; which has dried out the access to finance for businesses.

FPCCI Chief also stressed that the exports are heading north as it has posted a negative growth in export numbers for the seventh month in a row by posting 14.76 percent YoY decline in March 2023. He added that FPCCI is worried that the two major industries where the government should have had its focus vis-à-vis growth in export earnings are in systematic decline, i.e. Textiles have declined by 11 percent, IT & ITeS by 3 percent – and, the yearly decline in textiles alone can be up to $3 billion or upwards of 15 percent.

FPCCI’s Policy Advisory Board has reiterated its stance that Pakistan’s current policy rate of 21 percent is well above regional countries; including China, India, and Bangladesh, for which the policy rates are 2.75 percent, 6.5 percent and 6 percent respectively.

Inflation in Pakistan, however, appears to be deep-rooted and it mainly stems from substantial exchange rate depreciation, unprecedented hike in international commodity prices, multiple rounds of hikes in energy tariffs and other prescribed measures under the IMF program. Despite the progressive and major hikes in the policy rates by 1125 basis points from 9.75 percent to 21 percent between February 2022 to April 2023, inflation remained stubbornly-high and further surged in a manifestation of an utter failure of the monetary policy.

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