The Pakistani business, industrial, and trade community is dissatisfied with the monetary policy, according to Atif Ikram Sheikh, President of the FPCCI. This is because the policy is still predicated on a significant premium relative to core inflation. He went on to say that, although they were grateful for the rate drop of 200 basis points (2%), it came too late when considering the domestic and foreign price statistics.
According to Mr. Atif Ikram Sheikh’s analysis of data from the Pakistan Bureau of Statistics (PBS), core inflation in Pakistan was 9.6 percent in August 2024. This data comes directly from the government. Consequently, despite the rate drop, the real interest rate remains 790 basis points higher than core inflation, which is, to put it mildly, detrimental to business and growth.
Core inflation is expected to be around 8% in September 2024, according to market forecasts, as Mr. Atif Ikram Sheikh indicated. International oil prices hit a three-year low of less than $70 per barrel this week, adding insult to injury. He went on to say that the government had all the tools at their disposal to announce a significant rate drop, but instead stuck with their contractionary, regressive, and ineffective monetary policies.
Pakistan has the lowest cost of doing business, convenience of doing business, and access to financing compared to all of its export market competitors, according to Mr. Atif Ikram Sheikh, who restated his stance. He continued by saying that the only way to bring the economy back on track for growth is to boost industry and exports, and that thankfully, the significant decline has been going on for a long time.
The President of the FPCCI has made it clear that the interest rate needs to drop to 12% immediately so that Pakistani exporters may compete on a regional and international level by cutting the cost of capital. He also mentioned that the government should reevaluate the power purchase agreements (PPAs) of independent power producers (IPPs) and fulfill its promise to reduce energy tariffs for industry in conjunction with this step.
In his role as President of FPCCI, Pakistan’s highest trade and industry body, Mr. Atif Ikram Sheikh has raised concerns about the government’s approach to economic policymaking and the lack of consultation and transparency it has shown thus far. He has also emphasized the importance of the government answering two sets of questions that businesses need answered in order to plan for the future: (i) how are they implementing measures to secure the new IMF program and how will this affect the cost of doing business in Pakistan? And (ii) what measures will be taken to stabilize the economy once the program is signed, and when and how will the business community be reassured of these measures?
The patron-in-chief of the UBG, Mr. S. M. Tanveer, has stated that the SBP should immediately shift its focus from general to core inflation because the latter does not include food and energy, two of the most volatile and irrelevant components of the basket. In order for price control measures to work, the government must crack down hard on activities like stockpiling and price gouging.
According to S. M. Tanveer, patron-in-chief of the UBG, general inflation in Pakistan stayed high and did not react to the policy rate, even though the policy rates were gradually and significantly raised from 9.75% to 22% over six quarters in 2022 and 2023. Furthermore, he emphasized that we need to begin basing our fiscal and monetary policies on our own concrete realities and concrete truths.