BMP urges industry-friendly policy as war risks, inflation mount

By Muhammad Shahzad
LAHORE:
The Federation of Pakistan Chambers of Commerce and Industry (FPCCI)’s Businessmen Panel (BMP) has called for an urgent shift toward a more industry-friendly and growth-oriented monetary policy, warning that rising interest rates, geopolitical tensions, and inflationary pressures are placing Pakistan’s fragile industrial sector under severe strain.
The appeal comes ahead of the State Bank of Pakistan’s (SBP) monetary policy announcement expected on Monday, where markets anticipate a potential increase of 50 to 100 basis points in the policy rate. The expected hike is driven by persistent inflation, rising petroleum prices, and growing uncertainty in global and regional markets amid escalating Middle East tensions, particularly involving Iran.
Former FPCCI President and BMP Chairman Mian Anjum Nisar said the current economic challenges are no longer solely inflation-driven but are increasingly shaped by external geopolitical instability, creating unpredictable conditions for businesses, exporters, and manufacturers.
He cautioned that aggressive monetary tightening at this stage could further suppress industrial output, discourage private investment, and hinder job creation, at a time when economic recovery remains fragile.
The BMP noted that Pakistan’s industrial sector is already grappling with high electricity and gas tariffs, expensive credit, exchange rate volatility, and subdued domestic demand. Any further increase in borrowing costs, it warned, could significantly impact the ability of businesses to sustain or expand operations.
Mian Anjum Nisar argued that inflation in Pakistan is largely driven by external factors, including imported inflation, fuel price adjustments, and global supply chain disruptions, rather than excessive domestic demand. Therefore, relying solely on higher interest rates may fail to address the root causes while hurting productive sectors.
The panel urged policymakers to adopt a balanced monetary approach that ensures macroeconomic stability without pushing the industrial sector into deeper contraction. It emphasized that manufacturing, exports, and small and medium enterprises (SMEs)—key pillars of the economy—are particularly sensitive to financing costs.
Highlighting external vulnerabilities, the BMP chairman pointed out that Pakistan’s reliance on external financing and its trade deficit make it more susceptible to interest rate increases, which elevate debt servicing burdens for both the public and private sectors.
He also warned that continued tightening could deter foreign investment and increase the risk of capital outflows, especially amid regional uncertainty affecting investor confidence.
Comparing regional trends, the BMP noted that several neighboring economies maintain relatively lower interest rates to support industrial competitiveness, urging Pakistan to align its financial policies accordingly to remain competitive in global markets.
While acknowledging recent government measures, including partial energy tariff relief for export-oriented industries, the BMP called for extending such support to SMEs and domestic manufacturers, which remain financially vulnerable despite forming the backbone of the economy.
The panel also advocated for soft credit schemes, subsidized financing, and easier access to loans for SMEs, particularly in flood-affected and economically distressed regions. It stressed that strict collateral requirements and high lending rates continue to limit small business growth and employment generation.
Mian Anjum Nisar reiterated that Pakistan’s long-term economic stability hinges on export-led growth, which requires reduced production costs, currency stability, and affordable financing.
The BMP concluded by urging policymakers to prioritize industrial sustainability, employment protection, and export competitiveness, warning that unchecked monetary tightening combined with external shocks could lead to industrial slowdown and long-term economic stagnation.