Governor State Bank of Pakistan, Raza Baqir announced the monetary policy for the next two months under which the interest has been raised by 100 basis points to 13.25 percent which is almost close the one that prevailed in the decade of 1980s. Interest rate has been increased for the 9th time during one year. While announcing the monetary policy, Governor central bank gave a bit of plain talk about the state of economy and fiscal measures which have been taken in the budget for the current fiscal year. He told the rate of inflation will reach the double digit of 11 to 12 percent mainly driven by the increases that have been made in the electricity and gas tariffs; employment creation opportunities will remain low; and the upward trend in prices of consumers’ goods will continue till 2020 after which the downward trend will start.
Increase in the interest rate was one of the conditions of International Monetary Fund (IMF) attached to the recently approved bailout package of $ 6 billion to fight inflation. However, bank rate policy and open market operation of the central bank cannot contain the rising inflationary pressure which is caused by the decline in the productive capacity of the economy due to stagnant or decreased growth of agriculture and industry. It were the regressive fiscal policies of the previous two governments that vitiated the economic environment for both domestic and foreign investment. In the past the inflationary wave which had been caused by the nationalisation policy of Z.A Bhutto government had been contained with viable strategies of increase in production and supply augmentation measures of the succeeding government for which the team of economic mangers comprising the dedicated and intelligent technocrats including GhulamIshaq Khan, Dr.MahboobulHaq and HabibullahBaig had earned all praise from the people of the country. The government of Imran Khan also needs such a patriotic and devoted team of economic managers instead of 16 technocrat advisors. At this crucial juncture of grave economic crisis the country does not need the imported technocrats who prefer to remain on the payroll of multilateral donor agencies and the one whose sole job is to protect the vested interest of IPPs’ owners at the cost of national interest.
Governor central bank has admitted that increase in interest will have a depressive impact on fresh investment activities about which there can be no two opinions. But it is also a matter of record that foreign direct investment nosedived to $750 million in the previous PML-N government despite the low interest rate of 6 percent. Rather it worked as double edge sword by not giving impetus to investment and significant decline in saving rate. The increase in interest rate during the present government has given considerable boost to small saving deposits in the National Saving Certificates.
The turn around of the economy will be very difficult unless the productive economic activity gains momentum for which provision of energy inputs at affordable price, improvement in technology and skill development are the essential ingredients. The era of 1978-88 witnessed the revival and stabilization of economy by virtue of low prices of electricity and gas, fiscal incentives and skill development despite the high interest rate.