ISLAMABAD: A leading economic think tank has called on the government to immediately end Rs7.2 trillion in guaranteed returns to commercial banks and redirect these resources toward the real economy, particularly the industrial sector, to spur productivity and growth.
The Economic Policy and Business Development (EPBD) think tank warned that the current interest rate environment favors banking profits over national productivity, urging the government to recalibrate monetary policy to better support economic recovery.
According to EPBD, Pakistan’s financial sector has been allowed to thrive through risk-free returns on government debt, while real sector investments — particularly in manufacturing, exports, and agriculture — continue to face credit shortages and rising borrowing costs.
Think Tank Proposes Drastic Rate Cut to Boost Growth
EPBD proposed a drastic cut in the policy rate to 6%, arguing that high interest rates have made it more profitable for banks to invest in government securities rather than lend to the private sector.
This distortion, the think tank said, has discouraged entrepreneurship, constrained job creation, and worsened inflation due to supply bottlenecks caused by underinvestment.
The think tank’s policy brief states:
Redirecting Funds to Industry Called Crucial for Recovery
EPBD emphasized that redirecting fiscal support away from guaranteed banking profits toward the productive economy is vital if Pakistan hopes to achieve sustainable economic growth.
It also warned that relying on interest-based fiscal borrowing is not viable in the long run and called on policymakers to overhaul the government’s debt strategy by incentivizing industrial lending and green investments.
The proposal has sparked debate among financial experts, with some supporting the shift toward a growth-oriented credit policy, while others caution that any policy rate cut must be backed by inflation control and macroeconomic stability.
