Karachi, March 11, 2025 – The Institute of Cost and Management Accountants of Pakistan (ICMAP) has expressed strong reservations regarding the State Bank of Pakistan’s (SBP) decision to maintain the policy rate at 12%.
According to ICMAP, the SBP had ample room to reduce the rate, given the ongoing decline in inflation and economic slowdown.
The SBP’s Monetary Policy Committee (MPC) announced its decision to keep the policy rate unchanged despite a consistent drop in inflation. ICMAP, however, argues that a reduction of at least 100 basis points to 11% would have been more appropriate under the current economic conditions. The continued high policy rate, despite inflation declining from 2.4% in January 2025 to 1.5% in February 2025, has resulted in an excessively high real interest rate of 10.5%.
ICMAP emphasized that such a high interest rate is stifling economic activity, as it increases borrowing costs for both businesses and households. Private-sector credit growth has declined by 8.43% between December 2024 and January 2025, reflecting tighter financial conditions that are dampening investment and economic expansion. The organization believes that a well-calibrated reduction in the policy rate would have facilitated access to credit, stimulated economic growth, and improved overall market confidence.
Pakistan’s economic growth has witnessed a sharp decline, with GDP growth slowing from 3.33% to 0.92%. This contraction has been largely driven by a slump in agricultural output, which fell from 7.27% to 1.15%. Meanwhile, industrial and services sector performance has remained weak. According to ICMAP, maintaining an excessively high policy rate has only exacerbated these challenges by discouraging investment and reducing consumer demand.
ICMAP’s Policy Recommendations
To address the economic stagnation and promote sustainable growth, ICMAP has proposed the following policy measures:
1. Gradual Interest Rate Reduction – ICMAP recommends that the SBP adopt a more balanced approach by gradually reducing the policy rate by 50 to 100 basis points. This would ease borrowing costs without destabilizing inflation expectations. Monetary policy decisions should be based primarily on domestic economic indicators rather than external influences.
2. Export Diversification and Strengthening Forex Reserves – Pakistan must reduce its reliance on debt-based financial inflows by promoting high-growth export sectors such as IT, high-value agriculture, and manufacturing. ICMAP suggests that the government introduce preferential financing schemes for export-oriented industries to enhance competitiveness.
3. Tax Reforms and Fiscal Discipline – The persistent shortfall in tax revenues threatens macroeconomic stability. ICMAP stresses the need for broad-based tax reforms that focus on expanding the tax base, digitalizing tax collection, and integrating the informal sector into the economy instead of merely increasing tax rates.
4. Enhancing Credit Access for Businesses – The SBP’s tight monetary stance has led to an 8.43% drop in private-sector credit, restricting industrial expansion and job creation. ICMAP urges the SBP to introduce targeted lending programs for SMEs, textiles, pharmaceuticals, and renewable energy sectors, along with lower-cost refinancing schemes for long-term investment projects.
5. Addressing Structural Economic Challenges – ICMAP highlights that monetary easing alone will not be sufficient to stimulate growth. Structural reforms addressing high energy costs, exchange rate volatility, and inefficiencies in the taxation system are crucial. The government must also implement energy sector reforms and improve the ease of doing business to drive industrial growth.
6. Mitigating Global Economic Risks – With increasing global protectionism and supply chain disruptions, Pakistan must diversify its trade partnerships and secure alternative raw material sources. ICMAP recommends that the SBP and Ministry of Finance develop a contingency strategy to manage external risks, such as fluctuations in global oil prices and trade restrictions.
ICMAP urges the SBP to incorporate these recommendations into its future monetary policy decisions. A balanced approach, combining interest rate adjustments with broader economic reforms, is essential to fostering long-term economic growth and ensuring financial stability in Pakistan.