The patron-in-chief of the United Business Group (UBG), S M Tanveer, has called for an immediate 500 basis point rate cut, citing the sharp decline in inflation to 6.9% from a peak of 38% in May 2023. This significant reduction in inflation strengthens the case for further lowering the current high interest rates.
Pakistan’s annual consumer price inflation significantly slowed in September, reaching the lowest level in more than three years. This comes as the government seeks to implement International Monetary Fund (IMF) conditions, which many households fear will impact them financially. The annual inflation rate was recorded at 9.6% in August, the first single-digit reading in almost three years. This was a significant drop from 27.4% in August last year and 11.1% in July this year.
Tanveer emphasized the need for the central bank to bring the policy rate down to 8% by January 2025, arguing that the ease of doing business is crucial due to overall improvements in economic indicators. The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) recently slashed the key policy rate by 200 basis points to 17.5%, following a series of cuts this year, confident that inflation is now under control after previously raising rates to an all-time high of 22%.
“A comparison of Pakistan’s macroeconomic indicators between June 2023 and September 2024 suggests significant economic improvements, leading to the approval of the IMF package from its executive board,” Tanveer noted. He praised the efforts of Prime Minister Shehbaz Sharif’s government and the Special Investment Facilitation Council (SIFC) for these achievements. However, he cautioned that further efforts were needed to revive closed business activities through a single-digit interest rate and lower energy tariffs.
Tanveer stressed that both the economic indicators and the IMF package support the demand for a business-friendly environment that promotes investment and employment growth in the country. The economic data suggests notable improvements: the GDP growth rate increased from 0.29% to 2.38%, and it is projected to hover around 3.9% for 2025. The trade deficit narrowed from $27.47 billion to $24.09 billion, and the current account deficit from $2.55 billion to -$0.68 billion. Exports surged from $27.7 billion to $30.6 billion, with agricultural exports increasing from $4.7 billion to $7.1 billion.
Additionally, Information Technology (IT) exports jumped from $2.6 billion to $3.2 billion, remittances increased from $27.3 billion to $30.2 billion, and foreign direct investment rose from $1.63 billion to $1.9 billion over the past year. The value of the rupee also improved significantly, from Rs333.5 to Rs278 per dollar, from June 2023 to September 2024.
Tanveer’s call for an immediate rate cut underscores the need for continued economic reforms and support for the business community to sustain the recent positive trends in Pakistan’s economy.
