Karachi: In a move aimed at revitalizing the private sector amid more manageable inflation levels, Muhammad Jawed Bilwani, President of the Karachi Chamber of Commerce and Industry, and Mohammad Younus Dagha, Chairman of the Policy Research and Advisory Council, have recommended a substantial reduction of at least 300 basis points in the policy rate at the upcoming Monetary Policy Committee meeting.

According to Karachi Chamber of Commerce and Industry, the leaders applauded the State Bank of Pakistan for reducing the policy rate from 22 percent to 17.5 percent over the last three meetings. They highlighted that the recent dip in inflation to 6.9 percent in September, marking the second consecutive month of single-digit inflation after over two years, suggests that the central bank could further ease monetary policy. They argued that a significant rate cut is crucial to alleviate business pressures and encourage economic growth, particularly in sectors like large-scale manufacturing, which has witnessed consistent declines recently.

President KCCI Jawed Bilwani pointed out that the Large-Scale Manufacturing Index in Pakistan dropped by 19.2 percent from January to July 2024, underlining the challenges posed by high interest rates and restricted credit access. He cited World Bank data showing that collateral for loans in Pakistan averages 153 percent of the loan’s value, which often exceeds the borrowed amount, further stifling private sector financing. Bilwani also noted a worrying trend in the distribution of credit; as of September 2024, the private sector’s share of total credit had fallen to 20.3 percent, a significant drop from 29 percent in March 2022.

Chairman PRAC Younus Dagha emphasized that despite recent rate cuts, Pakistan’s real interest rate remains the highest in the region at 10.6 percent, hindering private sector credit growth and economic recovery. In comparison, India’s real interest rate stands at 2.9 percent, China’s at 2.8 percent, and Bangladesh has a negative rate of minus 0.4 percent. Dagha stressed the necessity of lowering the policy rate below the projected real GDP growth rate of 3.6 percent to enable rapid economic recovery and sustainable debt management.

Dagha further highlighted the need to boost private sector credit as a percentage of GDP by urging commercial banks to enhance lending to SMEs and key growth sectors. He advocated for simplified financing processes and reduced collateral requirements to unlock the private sector’s potential and stimulate business expansion. Dagha concluded by reinforcing PRAC’s commitment to advocating for policies that foster sustainable economic growth, reduce fiscal imbalances, and prioritize private sector development.