FPCCI seeks ‘special’ power tariff for industry, demands cut in policy rate

15 Mar, 2024

KARACHI: The Federation of Pakistan Chamber of Commerce and Industry (FPCCI) has urged for reduction in key policy rate, special power tariff for industries and effective price control measures to reduce the industrial cost of production.

Addressing a press conference here on Thursday at Federation House Karachi Acting President FPCCI, Saqib Fayyaz Magoon has demanded of the government and State Bank of Pakistan to cut interest rate by 6 percent in forthcoming monetary policy to make sure that the industries flourish.

He said that the country’s economy has suffered record-high inflation and an economic slowdown compounded by devastating floods last year. Persisting double-digit inflation, despite Pakistan’s contractionary monetary approach, has raised concerns regarding monetary decisions, he added.

Presenting recommendations for economic improvement, he said SBP should focus on core inflation rather than general inflation on an immediate basis as these exclude the most volatile components of the basket.

He suggested the government to ensure the effectiveness of price control measures through an active Competitive Commission of Pakistan, a robust price control magistracy system, and vigilant actions against hoarding and malpractices.

Demanded the special power tariff for industries, he said that the cross-subsidization mechanism must be abolished. It is hurting the economy. The current power tariff for industrial consumers is not regionally competitive, therefore industrial consumers should be charged with the actual cost of electricity which is estimated to be at Rs25.86 per kWh.

In addition, the government is renegotiating power purchase agreements with Independent Power Producers (IPPs) on priority basis to extend the debt repayment period, he demanded.

Magoon the sharp increase in prices can be attributed primarily to several factors on the supply side, including elevated international commodity prices, disruptions in global supply chains, crop damage due to floods, currency devaluation, and domestic political uncertainty. Despite these supply-side challenges, the State Bank adjusted the policy rate adjustments to address the issue of double-digit inflation, he said.

He mentioned that the current high policy rate of 22 percent has severely limited the operational capacity of businesses, rendering borrowing costs prohibitively expensive for the local business community. Therefore, the SBP must revise the interest rate downward to support the industry.

He informed that during 2019 policy rate was 13.25 percent and inflation was 12.6 percent, while in 2023 policy rate is 22 percent and inflation is 29.7 percent.

He said that Pakistan’s credit accessibility for the private sector, as a percentage of GDP, is notably lower than that of its regional counterparts due to exorbitant interest rates. Specifically, the country’s policy rate is the highest in the region and it is restricting the growth of Small and Medium Enterprises (SMEs).

Talking about the exchange rate, he said that the flexible exchange rate system, as recommended by the IMF, has not produced the anticipated benefits. Instead, it has triggered significant volatility in the value of the Pakistani rupee.He said that since the adoption of this system in 2019, the rupee has depreciated by approximately 102.25 percent, without putting a positive impact on the balance between exports and imports.

Acting President FPCCI said that empirical evidence suggests that, on average, a one percent increase in discount rate increases the inflation by 1.3 percent and increases debt servicing by Rs 200-250 billion annually.

Copyright Business Recorder, 2024

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