Latest news with #EconomicPolicyandBusinessDevelopment
Business Recorder
02-08-2025
- Business
- Business Recorder
Gohar Ejaz praises trade deal with US
ISLAMABAD: Economic Policy and Business Development (EPBD) Chairman Gohar Ejaz termed the trade deal with the United States as a great success, while saying that it would create a competitive environment for Pakistani products. Ejaz in a message on X stated that the US has reduced the tariff on Pakistan from the initially proposed 29 per cent to 19 per cent. This deal is a great opportunity for the country, as Pakistan has been given a 10 per cent tariff relief compared to the initially proposed rate and the country should take full advantage from it. EPBD terms SBP decision 'very conservative' 'The US has imposed higher tariffs on our competing countries', said Ejaz, adding that he hoped that US will further reduce tariff for Pakistan. He further said that emergency measures should be taken for an export-oriented economy and utilise the opportunity to the full. He also congratulated to team Pakistan on successful trade deal with the US. Copyright Business Recorder, 2025
Express Tribune
28-07-2025
- Business
- Express Tribune
Inflation forecast puts pressure on SBP
Two days before the interest rate-setting meeting, the federal government on Monday predicted the inflation rate to stay in the current range of 3.54.5% in July, putting the spotlight on the central bank to substantially cut the rates to single digits. "Inflation is projected to remain within 3.5 to 4.5%, though risks from recent heavy rains may affect agricultural yields and supply chains," according to the monthly economic outlook report that the Economic Advisor Wing of the finance ministry released on Monday. The report also came a day after a new think tank, Economic Policy and Business Development (EPBD), demanded the State Bank of Pakistan (SBP) reduce the interest rate to 6%, which is currently the highest among the regional economies. Pakistan's real interest rate of 7.8% represents the highest burden among regional economies, more than double India's 3.4% and over five times China's 1.4%, said EPBD in a statement on Sunday. It added that this excessive real cost of capital makes Pakistani business investments fundamentally uncompetitive. While India's supportive 3.4% real rate enables projected 6.5% growth in 2026, Pakistan's punitive 7.8% real rate constrains growth to just 3.4% – nearly half of India's performance, according to EPBD. The Monetary Policy Committee (MPC) of the central bank is going to meet on July 30 to set the interest rate for the short term. The market is not expecting more than a 1% cut despite calls from across all segments and the government to reduce the rates. The finance ministry said in its report that Pakistan's economy is expected to sustain its recovery in early fiscal year 2026, supported by improved macroeconomic fundamentals and rising investor confidence. Large-Scale Manufacturing (LSM) is likely to maintain momentum in June 2025, driven by increased private sector credit offtake and expanding production activity, it added. However, with an 11% interest rate despite low single-digit inflation, the investors do not feel confident to expand businesses. Pakistan's businesses face an existential threat from unsustainable monetary policy, according to EPBD. The anticipated minimal 0.51% rate reduction fails to address the fundamental crisis destroying Pakistan's industrial competitiveness and fiscal stability, it added. With inflation at 3.2%, the current 11% policy rate imposes a crippling 7.8% real cost of capital on Pakistani businesses. The finance ministry stated that the economic rebound is expected to boost imports of raw materials and intermediate goods while supporting exports of value-added products. It said that strengthening domestic demand, a stable exchange rate, steady global commodity prices, and improved foreign demand are likely to enhance exports, remittances, and imports in July 2025, reinforcing external sector stability. Inflation last month fell to 3.2%, which the finance ministry attributed to a significant decline in perishable food prices, which fell by 10.6%, easing pressure on the overall food basket. Additionally, the housing, water, electricity, gas, and fuels group also recorded a decline of 3.3% in prices. The finance ministry said that for the new fiscal year, policy priorities include continued fiscal consolidation, enhanced revenue mobilisation, modernisation of the agriculture and industrial sectors, and improvements in the business climate and human capital development. It added that because of these factors, real GDP is expected to grow by 4.2% in this fiscal year, alongside continued price stabilisation. The ministry underlined that the last fiscal year showed that Pakistan's economy demonstrated clear signs of recovery and growing resilience. The economy sustained growth momentum at 2.7%, while inflation fell sharply to 4.5%, supported by a lower policy rate, exchange rate stability, and prudent macroeconomic management. However, independent economists dispute the 2.7% economic growth figure. The EPBD said that reducing policy rates to 6% would restore competitive financing for Pakistani businesses, enable industrial expansion necessary for employment creation, support export growth through affordable working capital, and generate the business activity required for tax revenue growth. With 59% of government debt in floating-rate instruments, this reduction would immediately lower debt servicing costs, currently consuming 46% of federal expenditure, and deliver immediate fiscal relief of Rs3 trillion annually. Pakistani businesses operate under impossible conditions compared to regional competitors. While regional manufacturers access capital at an average of 5.5% policy rates, Pakistani industry faces 11%, double the regional average, stated the think tank. EPBD said that the interest rate disparity, combined with Pakistan's energy costs of 1214 cents per kWh versus regional levels of 59 cents, creates insurmountable competitive disadvantages. Likewise, the economic growth differential has direct consequences for employment. Pakistan's 22% unemployment reflects businesses unable to expand operations under prohibitive financing costs, while India maintains 4.2% unemployment through policies that enable business growth, according to EPBD. Manufacturing capacity sits idle while competitors with supportive monetary policies capture global markets. Pakistan's export-to-GDP ratio has stagnated at 10.48% compared to India's 21.85% and Vietnam's 87.18%, said EPBD. High interest rates systematically reduce corporate profitability, limit business expansion, constrain employment growth, and diminish consumer spending – all primary sources of government revenue. Pakistani businesses cannot generate the profits necessary for robust tax payments while servicing 11% debt costs. The policy framework ensures continued fiscal shortfalls while demanding impossible revenue growth.
Business Recorder
02-07-2025
- Business
- Business Recorder
‘Businesses can't expand while banks earn from govt debt'
LAHORE: Economic Policy and Business Development, a think tank, has feared that Pakistani businesses cannot compete, expand, or create jobs while banks earn guaranteed returns from government debt. Regional economies with 5.5% policy rates and 25% debt servicing achieve 6% growth by supporting business development, it added. According to the think tank study, the government justifies this constraint through fear of Current Account Deficits, claiming high interest rates prevent import surges. But the import data proves this reasoning is flawed. The 2021-22 CAD surge was driven by COVID vaccines ($3.2 billion), energy crisis ($15.6 billion), and smartphones ($1.7 billion) - none of which were interest rate sensitive. High rates contributed nothing to import control while crushing domestic business activity. It has further been pointed out that Pakistan allocates Rs 7.197 trillion annually to debt servicing - 46% of federal expenditure flowing to banks as guaranteed profits. With 59% of government debt (Rs 25,758 billion) in floating-rate instruments, reducing policy rates from 11% to 6% would generate immediate savings on the majority of debt stock. The government compounded this burden by issuing Rs 2 trillion in fixed PIBs at peak rates of 22% during FY23-FY24, locking in excessive costs for banks' benefit. Despite this poor timing, Rs 3 trillion in annual savings remain achievable through rate reduction on floating debt. With current inflation at 4.5%, a 6% policy rate would provide adequate real returns while significantly reducing debt servicing costs. This money could transform Pakistani business through manufacturing revival, industrial expansion enabling technology investments and job creation, SME development providing access to growth capital, and export enhancement through competitive financing costs. Instead this money guarantees banking sector returns while businesses struggle with credit starvation. Pakistan's banks operate as government bond traders while businesses cannot access productive financing. Banks earn guaranteed returns from public funds while contributing zero value to productive economic activity. The remittance system compounds this issue, with Rs87 billion flowing to banks for basic money transfers - resources that could finance small business development. Copyright Business Recorder, 2025
Express Tribune
28-06-2025
- Business
- Express Tribune
Govt urged to end bank subsidies
Listen to article An independent think tank has urged the government to choose between subsidising already-profitable banks or diverting limited fiscal resources toward productive sectors by ending the policy of banks guaranteed returns on government borrowing. The Economic Policy and Business Development (EPBD), a new policy research institute, released the statement the same day a federal cabinet body criticised excessive subsidies to banks in the name of attracting remittances. The Economic Coordination Committee (ECC) of the Cabinet was informed Friday that banks had claimed Rs200 billion under the Pakistan Remittances Initiative during the current fiscal year — Rs115 billion more than the budgeted subsidy. The EPBD stated that the current fiscal structure forces a choice between supporting economic growth and subsidising banking profits through guaranteed government payments. It argued that Pakistani businesses face structural disadvantages compared to regional peers who enjoy policies that enhance rather than restrict productive economic activity. The think tank stressed that economic growth requires policy alignment with development objectives — not bank profit maximisation. The current approach of keeping policy rates at 11% while allocating Rs7.2 trillion for domestic debt servicing ensures stagnation, while regional competitors grow their industrial and export capacity. The government has allocated Rs8.2 trillion for total debt servicing — equal to 46% of the 2024-25 budget. Of this, Rs7.2 trillion will go to domestic banks holding government securities. With 59% of public debt held in floating-rate instruments, the think tank argued that reducing policy rates from 11% to 6% would yield immediate savings. The government worsened this burden by issuing Rs2 trillion in fixed-rate Pakistan Investment Bonds (PIBs) at peak interest rates of 22% over the past two years, locking in excessive costs to the benefit of banks, it added. By cutting interest rates to 6%, in line with falling inflation, the government could save Rs3 trillion on debt servicing. Even a portion of this amount, the think tank said, could lower business costs and stimulate employment. A 6% rate would still offer banks real returns while easing debt burdens. The savings could support manufacturing revival, industrial expansion, SME financing, technology upgrades, and export growth. The statement added that Pakistan's future depends on diverting resources from guaranteed banking profits to investments that create jobs, enhance productivity, and ensure long-term growth. Pakistani businesses cannot expand or generate employment while banks earn risk-free profits from public funds. In contrast, regional economies maintain 5.5% policy rates, allocate only 25% of budgets to debt servicing, and still achieve 6% GDP growth by prioritising business development. The EPBD challenged the claim that lower interest rates fuel current account deficits. It cited the $19 billion deficit in 2021-22, which it attributed to exceptional, non-interest-sensitive imports such as $3.2 billion in COVID-19 vaccines, $15.6 billion in fuel, and $1.7 billion in smartphones. It said high interest rates did nothing to limit those imports and instead suppressed domestic activity. The think tank added that guaranteed profits have led banks to retreat from commercial lending, opting instead for risk-free government bonds. With 97.3% of bank investments tied up in government debt, virtually no capital remains for working capital, expansion, or technology adoption. Manufacturers struggle to finance inventory, exporters lose global competitiveness, and small businesses are excluded from credit. Pakistan's banks have effectively become bond traders, contributing no value to the real economy while earning from taxpayer-backed securities. The think tank also criticised the remittance structure, noting that Rs87 billion went to banks for basic transfersfunds that could instead support small businesses and entrepreneurship. Its statement came as the ECC met to deliberate the future of remittance-linked subsidies. The finance ministry has decided to end the subsidies in 2024-25 due to pressure from banks and International Monetary Fund (IMF) constraints. The State Bank of Pakistan told the ECC it could no longer offer implicit support under IMF rules. Although the ECC requested a transition plan, the finance ministry said no study has determined any positive impact of these subsidies. Officials noted that funds largely benefit banks and exchange companies, not overseas Pakistanis sending remittances. The central bank informed the ECC that remittance promotion schemes have existed since 1985, but their effectiveness remains unverified. Without reform, the remittance subsidy bill could swell to Rs500 billion in coming years, warned a finance ministry official. The think tank reiterated that businesses do not need subsidies or special treatment — just a level playing field. Reducing interest rates to 6% would bring Pakistan in line with regional rivals, restore manufacturing competitiveness, and improve global market access for exporters. Such a move would also accelerate technology adoption and job creation across sectors, the EPBD argued. Although manufacturing capacity exists, it remains underutilised due to lack of financing. With 97% of banks' balance sheets locked in public debt, there is little scope to support private sector growth. Regional countries have demonstrated that supporting businesses through growth-oriented credit policies can deliver 6% growth while maintaining fiscal stability, it added.
Business Recorder
28-06-2025
- Business
- Business Recorder
Bright economic future: EPBD for shifting resources away from banking returns to productive investments
ISLAMABAD: The Economic Policy and Business Development (EPBD) think tank has emphasised that Pakistan's economic future hinges on shifting financial resources away from guaranteed banking returns and towards productive investments. The group warns that commercial banks have effectively abandoned business lending in favour of risk-free government securities, creating a credit-starved economy. Established primarily by former caretaker Prime Minister Anwaar ul Haq Kakar and former caretaker Commerce Minister Gohar Ejaz, the EPBD in its comments on federal budget 2025-26, criticised the banking sector's overwhelming reliance on government debt. With the industry's Investment-to-Deposit Ratio (IDR) at 97.3 per cent, the think tank argued, almost no capital is left for working capital, industrial expansion, or technology upgrades. 'Pakistani businesses cannot compete, expand, or create jobs while banks earn guaranteed returns from government debt,' the EPBD said in a statement issued Friday. 'Meanwhile, regional economies with policy rates around 5.5 per cent and debt servicing burdens of 25 per cent are achieving 6 per cent growth through business-focused financial policies.' The think tank challenged the government's rationale for maintaining high interest rates—namely, to curb Current Account Deficits (CAD). The EPBD said that recent data disproves this assumption, citing the 2021–22 CAD spike, which was largely driven by non-interest-sensitive imports such as COVID-19 vaccines ($3.2 billion), energy products ($15.6 billion), and smartphones ($1.7 billion). 'High interest rates had no impact on controlling these imports but significantly damaged domestic economic activity,' the statement added. Pakistan currently allocates Rs7.197 trillion annually—46 per cent of federal expenditure—for debt servicing, much of which flows to banks as guaranteed returns. EPBD highlighted that 59 per cent of government debt (Rs25,758 billion) is in floating-rate instruments. A reduction in the policy rate from 11 per cent to six per cent would generate immediate savings on the majority of the debt stock. The think tank criticized the government's decision to issue Rs 2 trillion in fixed Pakistan Investment Bonds (PIBs) at peak interest rates of 22 per cent during FY23–FY24, saying it unnecessarily locked in high returns for banks. Nonetheless, the EPBD estimates that Rs 3 trillion in annual savings remain possible by lowering the policy rate on floating debt. With inflation now down to 4.5 per cent, the group argues that a 6 per cent policy rate would still offer positive real returns, while freeing up fiscal space to stimulate economic growth. 'This money could transform Pakistan's economy—reviving manufacturing, expanding industry, enabling technology investments, creating jobs, and developing SMEs,' the statement said. 'Instead, it guarantees banking sector profits while depriving businesses of financing.' The EPBD also criticised banks for operating more as bond traders than business lenders. 'They contribute nothing to productive economic activity,' it said. 'Even Pakistan's remittance system channels Rs87 billion to banks for simple money transfers—funds that could otherwise support SME growth.' The think tank stressed that businesses are not asking for subsidies but for a level playing field. Affordable financing would restore competitiveness with regional rivals, improve export potential, and enable widespread technology adoption. 'Manufacturing capacity exists but cannot grow. Exporters have potential but are shackled by high borrowing costs. SMEs could create jobs — if only they had access to credit.' According to the EPBD, regional economies demonstrate that supportive financial policies lead to six per cent growth while maintaining fiscal balance. 'These countries prioritise productive investment over rent-seeking by financial institutions. Their policies fuel broad-based development rather than concentrated profits.' In contrast, Pakistan's current fiscal model forces a binary choice: support economic growth or continue subsidising banking profits. 'The 11 per cent policy rate, coupled with Rs7.2 trillion in debt servicing, guarantees economic stagnation while our competitors build industrial strength,' it warned. The EPBD concluded by urging the government to realign its fiscal and monetary policies with business development objectives. 'Pakistan's economic future depends on redirecting public resources from guaranteed returns for banks to productive investments that create employment, enhance competitiveness, and drive sustainable growth.' Copyright Business Recorder, 2025
