High interest rates, input costs continue to batter industries

Business leaders and industrialists have stressed the need to align Pakistan’s interest rate with the regional economies and reduce input costs to create a more competitive and conducive environment for domestic industries to flourish, reports WealthPK.

Worried by the deteriorating trend in the industrial sector, they warn the Senate Committee on Finance and Revenue that the rising cost of doing business has affected the performance of the sector and this might prevent Pakistan from competing in the international market.

As per the data released by the Pakistan Bureau of Statistics (PBS), the manufacturing output of large industries shrank 15% year-on-year in June 2023 owing to the high cost of doing business. In addition, the 12-month period of FY2023 also shows an overall decline of 10.26%.

Businessmen Group (BMG) Chairman Zubair Motiwalla, and Karachi Chamber of Commerce and Industry (KCCI) President Muhammad Tariq Yusuf claim that the rising interest rates, soaring inflation, and massive currency devaluation all are eroding the purchasing power and making the industries less competitive.

Pakistan has the highest interest rate in the region at 22%, compared to Malaysia’s at 3%, China’s at 3.45%, India’s at 6.5% and Bangladesh’s at 6%.

High interest can have a devastating impact on the world economies, as many international examples show. There are negative consequences for trade, commerce, industrial output, industrial expansion, and socioeconomic development.

The economic damages caused by high interest rates have been witnessed in Thailand (1997), Argentina (2001), Brazil (2015), Venezuela (2010s), Turkey (2018), and Nigeria (2016).

CPI inflation was recorded at 29.4% on a year-on-year basis in June 2023 as compared to 21.3% in June 2022, according to the monthly economic update and outlook for July 2023.

The Pakistani rupee, which was valued at 207.35 rupees against the US dollar in July 2022, ended June 2023 at 286.73 rupees – a depreciation of 38%. The rapid fall in the rupee’s value has eroded the business confidence.

Frequent upward revision in electricity, gas, petrol and diesel prices is another equally strong factor that continues to fuel inflation, resulting in reduced industrial output.

Kashif Anwar, president of the Lahore Chamber of Commerce and Industry (LCCI), told WealthPK that the alarming surge in the production cost over the last few months has set a distressing upward trend across the country.
“It would be hard to compete with countries such as India, Bangladesh and China in the presence of high interest rates, a vulnerable exchange rate and rising prices,” he added.

“I expect a continuous drop in exports, as the manufacturers are facing tremendous problems in handling the rising cost of production,” Kashif said.

Leaders believe it is the business and industrial community that is bearing the brunt of the high cost of doing business. Furthermore, they urge the government to take the stakeholders on board and chalk out strategies to bring these costs down.

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