The Need for Competitive Utility Prices and Interest Rates in Pakistan
Pakistan’s business community has expressed growing frustration over the government’s decision to raise petroleum product prices yet again, despite a global decline in oil prices. Main Anju Nasir, former president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) and chairman of its Businessmen Panel (BMP), has been vocal in his criticism. He urged the government to reduce utility costs and interest rates, emphasizing the need to align these with regional competitors to foster industrial growth and boost exports.
This increase comes at a time when Pakistan’s industrial sector is struggling with sluggish growth and declining exports. With SMEs, the backbone of the economy, bearing the brunt of these decisions, the stakes have never been higher.
The Disconnect: Global Trends vs. Local Policy
The international market has seen a decline in oil prices over the past month. The price of petrol dropped from $77.5 to $76 per barrel, and high-speed diesel (HSD) prices fell from $86.5 to $84 per barrel. Yet, domestic fuel prices have continued to rise, seemingly disconnected from global trends.
This disparity raises critical questions about policy priorities. While international benchmarks suggest an opportunity to reduce costs for consumers and industries, the government’s contrary approach risks further economic strain.
SMEs: The Economy’s Lifeline Under Threat
The impact of rising energy prices is particularly severe for Small and Medium Enterprises (SMEs). These businesses account for a significant portion of Pakistan’s GDP and employ millions across the country.
However, rising fuel, electricity, and gas costs are eating into their already thin profit margins. SMEs now face a dual challenge: high production costs and reduced competitiveness in both local and international markets. Many are struggling to survive, let alone thrive, in this challenging environment.
Anju Nasir has warned that if the government does not reconsider its approach, the SME sector could face widespread closures. This would result in massive job losses, decreased tax revenue, and further economic instability.
High Interest Rates: A Barrier to Growth
Pakistan’s interest rates remain among the highest in the region, adding to the woes of the business community. While other countries have adopted accommodative monetary policies to spur economic activity, Pakistan’s high borrowing costs discourage investments in infrastructure, technology, and capacity-building.
For businesses, especially export-oriented ones, this means limited resources to upgrade operations or expand into new markets. Combined with high utility costs, the situation is stifling Pakistan’s industrial competitiveness.
Regional Disparity: Losing Ground to Competitors
One of the most pressing issues highlighted by Nasir is the widening gap between Pakistan and its regional competitors in terms of production costs. Neighboring countries like India, Bangladesh, and Vietnam provide their industries with affordable energy and financing, giving them a significant edge in global markets.
This disparity not only hampers Pakistan’s exports but also discourages foreign direct investment (FDI). Investors are more likely to choose countries where the cost of doing business is lower and policies are more supportive of growth.
A Call for Action: Policy Recommendations
To address these challenges and create a conducive environment for economic growth, the government must adopt a comprehensive strategy.
- Immediate Reduction in Utility Prices
The government should align fuel, electricity, and gas prices with international market trends and regional benchmarks to relieve businesses of excessive costs. - Monetary Policy Reforms
Lowering interest rates is crucial to make borrowing affordable for businesses, encouraging investment in technology, innovation, and expansion. - SME Support Packages
Targeted relief measures, such as subsidies on energy costs or tax breaks, should be introduced to help SMEs cope with rising operational expenses. - Strengthen Export Competitiveness
Develop policies to support export-oriented industries, including reducing tariffs on raw materials, improving logistics, and ensuring reliable and affordable energy supply. - Transparent Pricing Mechanisms
The government must implement transparent pricing mechanisms for utilities to prevent unjustified hikes that disproportionately affect the industrial sector.
