SBP Advised to Cut Interest Rates to Support the Steel Industry

Islamabad: According to news released on October 25, the steel sector in Pakistan has urged the State Bank of Pakistan (SBP) to consider lowering interest rates at the upcoming Monetary Policy meeting.

According to reports, the industry is ringing an urgent alert, warning of potentially devastating economic impacts for the country.

In a letter to relevant ministries, the Pakistan Association of Large Steel Producers (PALSP) highlights the steel industry’s crucial role in Pakistan’s economy, directly employing over 300,000 individuals and supporting 7.5 million jobs across various sectors.

However, this vital industry faces an unprecedented liquidity crunch due to substantial capital requirements.

Currently, Pakistan’s central bank has set its key interest rate at 22%, a level not seen since early 2011. In contrast, neighboring countries like India, China, Bangladesh, Thailand, Indonesia, Vietnam, Sri Lanka, Taiwan, and Malaysia enjoy significantly lower interest rates.

Looking ahead, the CPI is expected to average 19% over the next 12 months, resulting in a positive real effective interest rate of 300 basis points by January 2024.

Wajid Bukhari, Secretary General of the PALSP, emphasizes the seriousness of the problem, stating, ‘Due to high-interest rates, the government of Pakistan’s debt servicing has increased to PKR 7.6 trillion, consuming the majority of the Federal Government’s net revenue.

Bukhari emphasizes the government’s need to acknowledge the issue’s severity and swiftly act on measures to support businesses and encourage investment. Implementing business-friendly laws is crucial not just for preserving jobs in the steel industry but also for Pakistan’s economic prosperity.