We are making all-out efforts to shut-down the industry and businesses in Pakistan. Apart from the fact that industries and businesses are hardly making any contributions and their slowing down is not felt by the common man in terms of sharp decline in the quantum of tax revenues, there are certain industries which are in export business earning foreign exchange and the businesses and industries offer employment opportunities. Their slowing down or closure will result in unemployment, though it will save energy for air-conditioning etc. State Bank of Pakistan has decided to increase the interest rate in the wake of persistent inflation in spite of the official target to bring it down to 9%. This inflation, and a persistent inflation at that, indicates that money is overflowing in the economy and has exceeded the amount of goods leading to a situation where goods are virtually sold through auction and rates are dictated by the suppliers.
The traditional approach to arrest the inflationary trends is to take the money out of the market and divert it to other uses. These other uses could be many but the quickest way to divert the money from the economy is towards investment. For this purpose, the Central Bank offers attractive returns on the moneys invested. One of the best ways of offering attractive returns is to control the interest rate and fix it a higher rate so that those with excess liquidity can find alternative use of their money to make more money.
This approach has some pitfalls like it increases the cost of doing business. With increase in the rate of interest, the financial cost also shoots northward making businesses totally unviable. Naturally, if a business has been started keeping in view existing hurdle rate and suddenly, the business finds the hurdle rate shooting up; the entire feasibility of the business crumbles. This has a chain effect in the economy. Given the fact that businesses are already falling apart due to non-availability of the basic input like gas and electricity and there becoming dearer by the day, this decision of increase in the interest rate will deal a severe blow to the already collapsing economy.
Business Recorder has reported that the business community has rejected the increase in interest rate, pronouncing it as anti-industry and anti-economy move by State Bank of Pakistan. Business community Saturday showed deep concerns over the increase in interest rate and termed it an irrational decision, especially for the industrial sector, already facing enormous problems. They feared that country would witness another spell of economic slow-down due to the decision.
They said the industry is already under extreme pressure due to consistent power shortage, prevailing law and order situation, high bank charges and interest rates where foreign investors are hesitating to invest. Nothing was going in the favor of business community; industrialists were repeatedly demanding to bring down the interest rate to single digit so that the ailing industry is able to recover from depression, however, the adverse decision would only give severe damage to the economy, cost of doing business would go up as a result of recent increase in power tariff and now increase in interest rates.
The industrialists and businessmen are of the unanimous view that instead of boosting, the decision to increase interest rate will slow down the economy.