The Karachi Chamber of Commerce and Industry (KCCI) has called on the State Bank of Pakistan (SBP) to reduce the monetary policy rate by 400 basis points. KCCI President Muhammad Jawed Bilwani highlighted that this reduction would align interest rates with sustainable levels and make borrowing affordable for businesses and consumers.
Inflation Drops to Lowest in Recent Years
Bilwani pointed out that inflation dropped to 4.86% in November 2024, marking the lowest level in recent years. He emphasized that this decline offers an opportunity for SBP to adjust its policy rate. Global central banks often reduce rates to stimulate economic growth during periods of low inflation, he added.
High Interest Rates Stifling Economic Growth
KCCI noted that despite the reduction in policy rate from 20.5% to 15% in the current fiscal year, Pakistan’s interest rates remain high compared to regional peers. India, Vietnam, and Bangladesh maintain policy rates of 6.5%, 4.5%, and 10%, respectively. Bilwani argued that high rates are suppressing private sector credit growth and limiting economic activity.
Private Sector Credit at Record Lows
Bilwani highlighted that private sector credit in Pakistan is among the lowest in emerging markets, constituting only 12% of GDP. This is significantly lower than India (50.1%), Türkiye (50.3%), and Bangladesh (37.6%). He stressed that the private sector received only 24.7% of total credit as of October 2024, compared to 28.1% in January 2023. Public sector borrowing continues to dominate, crowding out the private sector.
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Stock Market Shows Positive Trends
Bilwani acknowledged positive economic indicators, including a 77.5% surge in the KSE-100 Index since January 2024. The index recently crossed the 100,000-point mark, reflecting investor confidence. Additionally, the government has reduced the current account deficit, signaling improved financial stability.
Large-Scale Manufacturing in Decline
Despite these positive developments, Bilwani expressed concern over the decline in the Large-Scale Manufacturing Index (LSMI). The index fell by 0.76% in July–September 2024 compared to the same period in FY24, when interest rates were in single digits. He argued that high borrowing costs and limited credit access are straining businesses.
High Debt Servicing Costs Widen Fiscal Deficit
Bilwani warned that high interest rates are driving up domestic debt servicing costs. In FY24, debt servicing increased by 50.4%, reaching PKR 7.2 trillion from PKR 4.8 trillion in the previous year. This has placed additional pressure on Pakistan’s national budget and widened fiscal imbalances.
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