ISLAMABAD/LAHORE -Business and industrial community here on Saturday hailed the initiative of the State Bank of Pakistan to reduce policy rate by 2 percent and urged the government to further slash it down to 5 percent.

They also urged the government to announce another incentives package for the revival of small and medium sized industry.

In press statement, SAARC Chamber of Commerce and Industry (CCI) President designate Iftikhar Ali Malik urged the State Bank Pakistan to further cut policy rate for easy access to finance for the local industry and exporters who were confronting new challenges and uncertain conditions.

He also urged the need of deferment of payment of utility bills and waiver of surcharges for at least next three years, restoration of zero-rated sales tax regime and exemption from welfare fund contributions.

He said that the government’s resolve to contain the spread of virus was commendable and foreign industries were now considering relocating to Pakistan due to it. On behalf of the manufacturers, he said that incentives such as the cut in import duty on the required raw materials must continue unabated as it would ensure an economic stimulus.

He said the global oil price reduction comes as a mercy at a time when the entire machinery has shifted gear on exploiting the optimum export potential.

Iftikhar Malik opined that a lowering of interest rate at 5 percent together with cheaper oil import shall raise future expectations of investors and serve as vantage point for Pakistan in steadily conquering the budding trade gap in GSP Plus backed markets of Europe. “Moreover, it would also make business climate more lucrative for foreign investment in the ongoing pandemic,” he added.

He said that presently effective power houses like USA, UK, China, South Korea and Japan who controlled 65 percent of the manufacturing industry of the world were being in trouble whereas Pakistan still can meet the challenge and can grow its economy.

He also urged the State Bank to draft a separate policy for micro and small enterprises to enable them to keep their workforce, survive in current critical conditions and sustain in the long term.

Micro, small and medium-sized businesses accounted for roughly 70% of Pakistan’s economy and provided employment to more than 10 million people, he highlighted. Iftikhar Malik feared that the economic impact of Covid-19 would lead to the closure of many businesses as they were suffering from lockdowns and generating no income.

Meanwhile, Pakistan Hosiery Manufacturers & Exporters Association has welcomed the central bank’s hefty cut of 2 percent in its key interest rate, bringing it down to 9 percent, besides appreciating the Ministry of Commerce proposal to exempt duties and taxes on exports proceeds to cope with the fallout from Covid-19 on exports.

Meanwhile, Pakistan Industrial & Traders Associations Front has also appreciated the State Bank of Pakistan’s decision of lowering the discount rate by 200 basis points, bringing it to 9 percent, which will spur the economic activities, slowed down amidst coronavirus.

PIAF chairman Mian Nauman Kabir, in a joint statement with senior vice chairman Nasir Hameed and vice chairman Javed Iqbal, said that a cumulative reduction of more than 4 percent in interest rate in just one month period will cut cost of production, strengthen debt repayment ability and improve the credit worthiness.

“PIAF welcomes SBP’s decision of third cut since March 17, 2020 when the rate was 13.25 percent, which will definitely stimulate economic activity, as the interest rate was declined by 4.25 percent during one month alone.”

Mian Nauman Kabir observed that such initiatives also result in job creation, leading to increased employment opportunities. Such financing helps businessmen enhance their working capital and better manage their inventory, he added. He believes the decrease in borrowing costs coupled with the decline in energy price may raise the exports in times to come.

He said that interest rate cut would complement other measures introduced by the central bank to support Pakistan’s economy during this crisis. In the past month, it has offered concessional financing to companies that do not lay off workers; one-year extension in principal payments; doubling of the period for rescheduling of loans from 90 to 180 days; concessional financing for hospitals and medical centers facing rising costs in fighting COVID-19 pandemic.

Nauman Kabir said that the cost of doing business and cost of production have shot up to the level of un-competitiveness. Under this, the cost of borrowing was huge and capital financing had become more expensive. He said that a significant cut of over 4 percent in the discount rate would inject fresh blood to the industrial sector which was facing a number of internal and external challenges.

PIAF senior vice chairman Nasir Hameed said that the State Bank approach toward monetary policy had been rather conservative in the past and was based on its own analysis of the situation. The government has now come up with concrete policies to reduce rampant corruption in state-owned organisations, eradicate poverty and unemployment.

Nasir Hameed said the government should also bring down electricity rates, logistics in the falling oil price scenario.

He said that this move would cushion the impact of the coronavirus shock on growth and employment, including by easing borrowing costs and the debt service burden of households and firms, also maintaining financial stability. It would also help ensure that economic activity is better placed to recover when the pandemic subsides.

PIAF Vice chairman Javed Iqbal said that lower interest rate triggers borrowing and investments. He added that excessive use of bank borrowing by the government led to excessive rate of inflation, reduced the supply of credit to the private sector and increased the nominal lending rates, reflecting high inflation, attractive return offered by the government and high interest rate spread.

According to reports, the global economy was expected to contract by as much as 3 percent in 2020, which will be much worse than the 0.07 percent contraction during the global financial crisis of 2009. The Pakistan economy is also expected to contract by -1.5 percent in FY20 before recovering to around 2 percent growth in FY21.

Javed Iqbal said that now SBP’s large cut in interest rate will revitalize the country’s economic growth. He said that Pakistan has no employment generation, as industries are being closed down and non-performing loans are rising, posing a threat to industrial growth.