KCCI pushes SBP to bring down policy rate to 4% in one go

KARACHI: President Karachi Chamber of Commerce & Industry (KCCI) Agha Shahab Ahmed Khan has urged the Governor State Bank of Pakistan (SBP) to bring down the policy rate from 9.0% to 4.0% in view of the extra-ordinary circumstances and a global scale economic crisis, which is certain to have a long term negative impact on Pakistan’s economy.

In a letter sent to Governor SBP Dr. Reza Baqir, President KCCI stressed that reduction in policy rate in bits and pieces is not enough to provide the much needed stimulus to the economy hence, it is necessary to significantly reduce the interest rate in a single step, to help the businesses sail through the unprecedented crisis.

He was of the opinion that there is now ample justification for reduction in policy rate because the inflation rate has declined sharply due to a steep fall in prices of crude oil, commodities and raw materials, while the demand has also been suppressed.

President KCCI appreciated the measures taken by SBP to support the industry and exporters to meet the challenges and financial crunch faced by them due to prolonged lockdowns to prevent the spread of Covid-19 coronavirus. While acknowledging the interest rates of 4% and 5% for filers and non-filers respectively in the package, he suggested that in view of the special circumstances, the rate of interest should be Zero to support the economy and sustain the industries at least for the next one year.

He however stressed that there is a dire need to announce a Rescue Package for Micro level Enterprises and SMEs which contribute around 40 percent to GDP.  He pointed out that unfortunately, no relief has so far been announced for Micro enterprises and SMEs, which are under much greater financial stress then the large scale businesses and their survival is at stake.

He said that these micro level and small entities do not have any credit facilities or relationship with banks and have very limited resources. Yet the sector is employing very large number of skilled and unskilled labor. Being an important link in the supply chain, it is crucial to support these MSMEs which are struggling for survival and are forced to lay off their workers. Such entities are more in need of rescue and support than other sectors.

He requested SBP to formulate a rescue package specifically designed to support the MSMEs and disburse loans of the amounts ranging from Rs 100,000/- up to Rs 1.5 Million/- through commercial banks.  Loans under this rescue package should be at zero percent mark-up rate and should be disbursed immediately without excessive documentation. “Banks should only require the CNIC of the owner and verify the address of premises at which business activity is conducted. No collateral should be required by banks and loans may be approved against personal guarantee”, he added.

Highlighting the plight and difficulties of importers, Agha Shahab further pointed out that due to the lockdowns and closure of markets, recoveries throughout the entire supply chain have stopped during the last over one month.  Consequently, the importers have now run out of liquidity and unable to make payments to the banks to retire import documents and clear imported consignments from the port.  They are not in a position to pay duties and taxes leviable at import stage. Thousands of containers of import cargoes are accumulated at the port and incurring heavy port charges and demurrage.

He feared that if the situation persists, many importers will default on their obligations to the banks and will not be able to pay due taxes and duties to the exchequer.  A substantial part of import cargo belongs to the industry and exporters, comprising the raw materials and intermediate goods.

President KCCI requested Governor SBP to provide urgent relief to all importers through a refinance scheme whereby the import bills which are due for payment which may be financed by SBP at the mark up rate of 4%, for up to a period of one year.

“Commercial banks may be authorized to reimburse the import bills to foreign supplier while holding the imported merchandise in pledge. Banks may also be directed to approve running finance for payment of Customs Duties and Taxes at the rate of 4%”, Agha Shahab said, adding that the measures will enable the importers to clear the consignments held-up at the ports incurring heavy port charges. In the present extra-ordinary circumstances, it is essential to bail out the entities in MSME and the importers, who are an integral part of supply chain and support both local industries, wholesale and retail markets as well as exporters.

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