Business leader concerned at ‘possibility’ of hike in interest rates

KARACHI: Chairman of the National Business Group Pakistan and President of the Pakistan Businessmen and Intellectuals Forum Mian Zahid Hussain has said the possibility of a further increase in interest rates by the central bank has disturbed the business community.

He said a further increase in interest rates will adversely affect businesses, so before taking such a step its implications should be considered carefully.

Mian Zahid said that raising interest rates would increase the cost of debt servicing. The private sector would feel the pain as the cost of doing business would increase, many businesses would close down and jobs would be reduced. Both exports and investment would be affected.

He said the move would hit the growth rate which is already unsatisfactory. A continuous decline in the foreign exchange reserves of the central bank in the past several months, continuity of unnecessary imports, sharp rise in prices of oil, gas and other commodities in the international market and the IMF’s demand for the elimination of oil subsidies have made the situation worrisome.

The increase in interest on loans given to commercial banks by the government is adding to the problems.

Mian Zahid said that commercial banks are reportedly in agreement with a proposal to get more profit on loans, which merits an investigation.

The previous government, he said, had estimated that the fiscal deficit would be up to Rs 3.9 trillion, but unnecessary and wasteful expenditure has worsened the situation and now Finance Minister Miftah Ismail says the fiscal deficit could increase to Rs 6.4 trillion, which would be equal to 10 percent of the GDP.

In such a situation, when the government has only a limited amount of rupees left and the affairs are getting out of hand, it would be better to take foreign loans instead of borrowing from local sources; this would also reduce the difficulties in making the upcoming budget.

He said there is a possibility for enhanced cooperation from the International Monetary Fund (IMF), Saudi Arabia and China in view of the good governance of Mian Shehbaz Sharif. Such an outcome will be good for the country.

India and Bangladesh do not need IMF loans but Pakistan cannot function without the help of international institutions because its economic model is flawed.

At present, there is a need to devise a workable strategy to increase foreign exchange reserves, he added.

Copyright Business Recorder, 2022