The US Fed Reserves recently increased interest rates in a bid to control rising inflation in the country. This is a deliberate attempt to reduce consumer spending. It is an undeniable fact that the effects of any monetary policy changes in the US are also felt in developing economies. Pakistan’s battered economy will now have to prepare for bracing the impact of this increase.
A hike in interest rates means that US investors who have borrowed money to fund different projects in developing countries like Pakistan are likely to withdraw their investments – as the returns on investment will not cover the borrowing costs. Also, other investors may withdraw their capital and invest it in the US where the returns are high. Pakistan has to revise its economic policy to avoid economic slowdown. To prevent the possible capital outflow from the country, Pakistan should work towards achieving political stability in the country. This will gain the confidence of foreign investors.
Shahid Sattar
Karachi
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