Pakistan’s Industrial Sector Pushes for Major Policy Rate Reduction
Business Leaders Urge Drastic Interest Rate Cut to Revive Pakistan’s Economy. Leading voices from Pakistan’s business and industrial landscape have issued a collective appeal to the State Bank of Pakistan (SBP) to slash its benchmark interest rate to 5–6%, arguing that current rates are out of sync with regional trends and stifling the country’s economic revival.
In light of falling inflation and sluggish industrial activity, these business leaders are calling for bold monetary policy shifts at the upcoming Monetary Policy Committee (MPC) meeting. Their primary concern: the unsustainable cost of doing business, which they say is pushing entrepreneurs to the brink and halting growth.
Business Community Calls for Economic Relief
A Unified Voice for Monetary Policy Easing
At the forefront of this campaign is Muhammad Jawed Bilwani, President of the Karachi Chamber of Commerce and Industry (KCCI), who emphasized that Pakistan’s borrowing costs are among the highest in Asia. Such conditions, he warned, are making local businesses increasingly uncompetitive, especially in export markets.
Bilwani stressed the importance of aligning Pakistan’s policy rate with those of its neighbors. Citing figures, he highlighted that:
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Vietnam’s interest rate stands at 6.3%
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India’s at 5.5%
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Indonesia’s at 6%
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Cambodia’s at 3%
He called for Pakistan’s rate to be brought within the 5–6% range to restore parity and support economic activity.
Interest Rate Comparisons with Asian Countries
In South and Southeast Asia, central banks have maintained lower interest rates to support industries, stimulate investment, and cushion their economies against global headwinds. Pakistan’s continued adherence to an 11% policy rate has raised concerns about the disconnect between inflation trends and monetary decisions, leading to a growing demand for change.
Pakistan’s High Cost of Borrowing
The Pressure on Businesses from Current Rates
Local businesses, particularly SMEs, are feeling the brunt of high financing costs. Access to capital has become unaffordable, with many small manufacturers either downsizing operations or halting expansion altogether. “A rate cut could mean survival for thousands of small enterprises,” Bilwani emphasized.
SMEs Struggling to Stay Afl
Small businesses, which account for a large share of Pakistan’s industrial output and employment, are most vulnerable to tight monetary conditions. With limited access to cheap credit, they are unable to invest in modernization, hire skilled labor, or maintain competitive pricing in export markets.
Regional Energy Costs and Competitive Disadvantage
Electricity Prices Across South Asia
Pakistan’s high energy costs are further aggravating the problem. Current electricity rates are around 16 cents per unit, which is significantly higher than other regional economies:
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Bangladesh: 9 cents
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Vietnam: 8 cents
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Cambodia/Indonesia: 10 cents
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India: 7.2 cents
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Sri Lanka: 5 cents
These disparities leave Pakistani manufacturers at a disadvantage, pushing production costs higher and eroding competitiveness in international markets.
Impact on Export-Oriented Industries
Exporters are especially hard-hit, with many losing out to lower-cost producers in regional markets. Industrialists argue that unless energy tariffs and interest rates are rationalized, Pakistan’s export base will continue to shrink, further worsening the balance of payments.
Over-Dominance of Government in Credit Allocation
Disproportionate Lending Practices
According to KCCI, more than 75% of the country’s domestic credit is absorbed by the public sector, leaving less than a quarter for private businesses. This crowding-out effect leaves minimal room for the private sector to grow and innovate.
Need for Balanced Credit Access
Business leaders are urging the SBP to adopt pro-growth monetary strategies that prioritize industrial activity. “Only a fair allocation of financial resources can ensure economic sustainability,” said Bilwani.
Industry Experts Highlight Broader Economic Challenges
Structural Cost Burdens on Businesses
Besides interest rates, manufacturers are grappling with high utility bills, excessive taxation, and one of the region’s highest minimum wage levels. Yet, labor productivity in Pakistan remains below regional averages, adding another layer of inefficiency.
Urgency for Comprehensive Reforms
Business leaders argue that these structural issues must be tackled alongside monetary easing. “Without a full-fledged reform plan, Pakistan’s industries will remain uncompetitive, regardless of short-term interest rate adjustments,” warned industrialists.
Inflation Drop and Monetary Policy Disconnect
Business Leaders Cite Low Inflation
Junaid Naqi, President of the Korangi Association of Trade and Industry (KATI), pointed out that inflation has plummeted to 3.2% as of June, yet interest rates remain excessively high. He questioned the economic logic behind such a mismatch and urged the SBP to adapt its strategy accordingly.
Stalled Investments and Declining Confidence
Naqi further noted that industrial production is operating well below capacity, fresh investment is almost non-existent, and overall business sentiment is in decline. “Continuing with outdated monetary policies risks economic stagnation,” he warned.
Unified Demand from Trade and Industrial Associations
Stakeholders Advocate Single-Digit Interest Rates
Other key stakeholders also echoed the demand for lower policy rates:
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Amaan Pracha and Asif Sakhi from the FPCCI
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Faisal Moiz Khan of the North Karachi Association of Trade and Industry
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Sheikh Mohammad Tahseen of the Federal B Area Association
They all emphasized the need for single-digit interest rates to facilitate industrial expansion and restore economic growth momentum.
Proposals for Gradual Policy Adjustments
Zubair Tufail, President of the United Business Group (UBG), recommended a 4–5% cut, arguing that aggressive easing would be essential for recovery. Meanwhile, Yakoob H. Karim, President of the Lasbela Chamber of Commerce, advocated for an initial reduction from 11% to 9% in July, with a 5% target by year-end 2025.
Both leaders agreed that such adjustments are not only desirable but necessary to stimulate long-term economic resilience.
