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Impact of Higher Interest Rate on Local Business

We must admit that the country's economy is on ventilator, and we have no choice but to save it with a temporary bailout.

The State Bank of Pakistan, in the second monetary policy, has increased the interest rate from 15 to 16 percent, which is the highest level ever so far. In the monetary policy announced for one and a half months, it is said that the inflation will continue next year, the inflationary pressure is continuous and higher than the expectations and the interest rate has been increased from 15 to 16 percent to control it.

The report suggested that higher food prices and inflation will push the average inflation to 21-23% in FY23 and this will undoubtedly be the highest level in history. As far as increasing the interest rate is concerned, this formula is considered indispensable to control the value of the dollar, so that is why the interest rate has been increased by one percent, i.e. fifteen percent has been increased to sixteen percent.

The increase in interest rate and further inflation in the new year is also expected because we started the current year by creating uncertainty in the national politics, which continues till today. Although the governments in center and Punjab have changed, the worst flood in history occurred in different parts of the country, which washed away all hope and so the results of the political conflict are going to be as indicated by the State Bank of Pakistan.

There is another purpose of increasing the interest rate which actually indicates the unfortunate condition of the economy. The increase in interest rate is to attract investors to deposit their money in Pakistani banks, which is becoming more and more difficult due to political instability.

We must admit that the country’s economy is on ventilator, and we have no choice but to save it with a temporary bailout. We must understand that long-term economic policies need of time to get out of this critical economic crisis, which unfortunately we have always lacked.

Every government prefers to set new economic policies, but there is no improvement in the economy yet. Politicians verbally acknowledge the seriousness of the economic situation, but their egos do not allow them to sit together to find a sustainable solution. This year, imports were 20.6 billion dollars and exports were 9.8 billion dollars, and if the political instability in the country continues, exports may go even lower. It is not that only the general public know this fact, all of those who are in power also know it well. However, in order to take a long and lasting solution to this economic problem, the political leadership, i.e. the ruling party and the opposition, must be serious.

The current coalition government claimed to bring the country out of economic problems and gained power based on this, so how come the economic situation is deteriorating even though Miftah Ismail has been replaced by Ishaq Dar. The replacement of Ismail with Dar was based on assumptions that the dollar price would go down but it didn’t happen.

The common Pakistani citizen is in trouble due to inflation and in fact every facility for the people has disappeared and next year when they face more inflation, it is natural for the common people to protest. The sad news about suicides along with children and family members are already emerging in media on frequent basis.

Although there is a recession at the global level and the situation in the region, especially the Russia-Ukraine war, has also created economic problems and there is a chaotic situation in the whole world, it can be seen that the governments there are also doing their best to overcome such challenges seriously. However, in our country, political instability is not the only thing that is ending with us and it is a pity that those who we consider as senior politicians are not interested in resolving conflicts in the best interest of the country.

Due to the increase in interest rate, people will prefer to deposit money in banks instead of doing business. When dealing with crises, first of all, it is necessary to have sincerity and commitment. Unfortunately, we have a long history and tradition of suffering, so sad news like the expected increase in interest rates and inflation is not new to the general public. The economic conditions of the country are making the people worry about the future but still our elite class is in a chill mood.

With the most expensive electricity and utilities, high taxations and interest rates, we are hoping to increase exports. It is quite understandable that the local businessman who will borrow money from the bank at high interest rates is unable to sell items he produces at a lower price in the local market. And when it goes to the world market, the relatively low cost goods are already in competition. No foreign power can come and pull our economy out of crisis, so we will have to change our priorities.

The views expressed in this article are the author’s own and do not necessarily reflect Coverpage’s editorial stance

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