ICMA Pakistan recommends reduced interest rates to drive economic recovery

LAHORE: ICMA Pakistan has released its latest ‘ICMA MPS Review’, analysing the recent 250-basis-point (bps) cut in the policy rate and outlining a roadmap for future economic policy.

The report offers strategic recommendations to foster Pakistan’s economic stability and sustainable growth, focusing on inflation management, unemployment reduction, and cost-cutting measures to promote a competitive business environment. ICMA strongly recommends that the State Bank of Pakistan (SBP) consider further reductions in the policy rate, aiming for alignment with the current inflation rate, which hovers around 7.0 per cent. A single-digit inflation and policy rate combination would encourage investment, lower business costs and stimulate growth across various sectors.

ICMA also suggests that the SBP maintain a vigilant approach in monitoring inflation trends to preserve the effectiveness of these adjustments and ensure economic stability.The review also calls on the government to address the high cost of doing business by aligning gas and electricity prices with regional standards. These measures are essential to boost the competitiveness of local industries, increase production capacity and drive job creation.

ICMA identifies the years 2024 to 2028 as pivotal for Pakistan’s sustainable growth, stressing that sound policies during this period could lead to steady economic progress. According to IMF projections, Pakistan’s unemployment rate could fall from its current 8.0 per cent to 5.0 per cent by 2028. To support this, ICMA urges policymakers to engage the surplus labour force by promoting sectors that produce import substitutes, particularly in manufacturing and agriculture.

The publication also highlights recent inflation trends, noting a significant drop in the national CPI from 31.4 per cent to 6.9 per cent over the past year, driven largely by reduced costs in food and transport. However, critical areas like housing and utilities remain under inflationary pressure, underscoring the need for targeted efforts to address these ongoing challenges.ICMA underscores the importance of a coordinated approach between the SBP and government policymakers to implement these strategies. By prioritising these initiatives, Pakistan can strengthen its macroeconomic indicators, build resilience and pave the way for sustained growth and long-term prosperity.