LAHORE: Ahead of the upcoming Monetary Policy Committee meeting on July 30, Pakistan’s businesses face an existential threat from unsustainable monetary policy.
The anticipated minimal 0.5%-1% rate reduction fails to address the fundamental crisis destroying Pakistan’s industrial competitiveness and fiscal stability. With inflation at 3.2%, the current 11% policy rate imposes a crippling 7.8% real cost of capital on Pakistani businesses. EPBD demands an immediate rate reduction to 6pc to restore industrial viability and economic growth.
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.
This disparity, combined with energy costs of 12-14 cents per kWh versus regional levels of 5-9 cents, creates insurmountable competitive disadvantages.
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%. 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.
The 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.
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%.
