‘Regressive’ monetary policy has brought trade, industry to a standstill: FPCCI

KARACHI: President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) Irfan Iqbal Sheikh has expressed his concerns that contractionary and regressive monetary policy being enforced in the country has effectively brought the trade and industry to a standstill and there will be economic stagnation in the country like never before.

He added that the current policy rate of 15 percent is the highest in the last 14 years.

The FPCCI president noted with concern that the export finance scheme (EFS) and long-term financing facility (LTFF) meant for export-oriented industries have also been linked with the State Bank of Pakistan’s policy rate. And now only 500 basis points worth of discount is left for exporters, while EFS was 3 percent and LTFF was 5 percent at the start of the year 2022.

Therefore, the exporters have been deprived of a major protective mechanism against interest rate hikes — making them even more uncompetitive for regional, sub-regional and international export markets.

He added that all this is being done in the name of effective monetary policy transmission.

Irfan Sheikh said that what the country needs is pretty simple — enhanced industrial production; rapid increase in exports; private sector and foreign direct investment (FDI) and the resultant employment generation; increased tax collection and a healthy economic growth rate.

He maintained that the current phenomenon of stagflation in the country is not demand-pull based and will not be solved by irrationally increasing the interest rate to an excruciatingly high level, where borrowing from the formal sector becomes unviable.

He was of the opinion that uncertainty in political and economic environment, ever-so-volatile rupee-dollar parity, and incessant interest rate hikes will hurt all the sectors across the board, as cost of doing business, ease of doing business index, access to business financing, and access to foreign exchange for imports will be adversely affected and running companies in profit will become next to impossible.

The FPCCI chief said the trade deficit for the fiscal year 2021-22 has been recorded at $48.3 billion and it has resulted in a current account deficit (CAD) of $15.2 billion in 11 months from July 2021 to May 22.

He expressed dismay that on a month-on-month basis, CAD has increased by 131 percent, from $618 million in April 2022 to $1.425 billion in May 2022.

The only way forward is to increase exports substantially and post a double-digit growth in exports each year, he added.

Copyright Business Recorder, 2022