The Economic Policy and Business Development (EPBD) has issued a strong recommendation for the State Bank of Pakistan (SBP) to significantly lower the interest rate to 6%, emphasizing the urgent need to address a slowing economy and soaring debt obligations.
In a detailed statement, EPBD noted that the real interest rate in Pakistan currently stands at 7.8%, the highest in the region. In comparison, India’s real interest rate is 3.4% while China maintains a rate of 1.4%. According to EPBD, such a high interest rate environment is stifling economic activity and undermining the country’s ability to stimulate growth.
The organization expressed concern over alarming economic indicators, including an unemployment rate of 22% and a near standstill in industrial output. EPBD warned that without a substantial reduction in borrowing costs, critical sectors such as exports and employment generation will continue to deteriorate.
A major contributor to the country’s declining industrial competitiveness, according to the EPBD, is the high cost of electricity. At 12.14 cents per kilowatt-hour, Pakistan’s energy prices are more than twice the regional average of 5.9 cents. This disparity, they argue, places an unsustainable burden on manufacturers and discourages investment in local industries.
The EPBD also raised questions about the sustainability of Pakistan’s foreign exchange reserves. It pointed out that much of the increase in reserves has come from external loans rather than export growth or foreign direct investment, indicating a structural imbalance in the economy.
In terms of revenue collection, the fiscal year 2025 fell short of targets, with total collections reaching Rs11.9 trillion. The EPBD maintained that current fiscal and monetary policies are insufficient to meet revenue objectives, suggesting a need for comprehensive reforms.
One of the most pressing points highlighted was the impact of interest rates on government debt servicing. EPBD estimated that a cut in the policy rate to 6% could lead to immediate savings of up to Rs3 trillion in interest payments — funds that could be redirected toward development projects or economic relief initiatives.
The upcoming meeting of the Monetary Policy Committee (MPC), scheduled for July 30, is expected to be a critical moment in shaping Pakistan’s economic future. EPBD urged policymakers to prioritize economic revival and job creation over inflationary concerns, which it argued are being exacerbated by supply-side issues rather than demand pressures.
