Karachi, March 14, 2024 – The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) voiced apprehensions on Thursday regarding the State Bank of Pakistan’s (SBP) persistent adherence to high-interest rates despite escalating inflation rates.
During a press conference, Saquib Fayyaz Magoon, Acting President of FPCCI, highlighted the economic challenges posed by the current monetary policy and proposed several recommendations to address the situation effectively.
Concerns Raised by FPCCI:
Magoon emphasized the need for the SBP to shift its focus from general inflation to core inflation, which excludes the most volatile components of the inflation basket. He suggested that this approach would provide a more accurate reflection of underlying inflationary pressures.
The FPCCI urged the government to bolster price control measures through the Competitive Commission of Pakistan and an efficient price control magistracy system. Vigilant actions against hoarding and malpractices were also recommended to stabilize prices.
Regarding industrial electricity tariffs, Magoon highlighted the lack of regional competitiveness due to high tariffs. He advocated for industrial consumers to be charged the actual cost of electricity, estimated at Rs. 25.86 per kWh, and called for the abolition of cross-subsidization mechanisms, which he argued were detrimental to the economy.
Furthermore, FPCCI raised concerns over the significant increase in capacity charges, amounting to 71.8% of the power purchase price for the fiscal year 2023-24. Magoon urged the government to prioritize renegotiating power purchase agreements with Independent Power Producers (IPPs) to extend the debt repayment period.
Analysis of Economic Indicators:
The FPCCI provided a comparative analysis of inflation rates and policy rates over the years, indicating a persistent gap between the two metrics. Despite successive increases in policy rates by the SBP, inflation rates continued to rise sharply, suggesting a potential misalignment between policy measures and inflationary dynamics.
Furthermore, the FPCCI highlighted the adverse impact of high-interest rates on private sector credit accessibility and economic growth. Pakistan’s policy rate, the highest in the region, coupled with stringent collateral requirements, severely restricts the growth of Small and Medium Enterprises (SMEs) and formal lending engagement.
Recommendations Proposed by FPCCI:
In light of the concerns raised, the FPCCI proposed several recommendations to address the prevailing economic challenges:
• Focus on core inflation rather than general inflation.
• Strengthen price control measures and combat hoarding and malpractices.
• Revise industrial electricity tariffs to reflect actual costs and abolish cross-subsidization mechanisms.
• Renegotiate power purchase agreements with IPPs to alleviate capacity charges.
• Reevaluate monetary policy strategies to align with inflationary dynamics and promote economic growth.
As Pakistan grapples with economic challenges exacerbated by inflationary pressures, the FPCCI’s recommendations underscore the need for comprehensive policy reforms to stabilize the economy and foster sustainable growth.
