The Economic Policy and Business Development (EPBD), an independent policy think tank, has urged the government to shift its focus from subsidising the profits of banks to boosting productive sectors such as industry, exports, and small businesses.
As per the think tank, Pakistan’s businesses are at a disadvantage compared to regional peers that benefit from more business-friendly policies.
The EPBD issued a statement on the same day the Economic Coordination Committee (ECC) criticised excessive subsidies to banks under the Pakistan Remittances Initiative, revealing that banks had claimed Rs200 billion for the current fiscal year, surpassing the budgeted subsidy by Rs115 billion.
The think tank argues that these funds could be better utilised in sectors that foster economic growth and development, instead of being allocated to profitable banks.
According to the think tank, the current approach, which maintains an 11% policy rate, burdens the economy with high debt servicing costs and inhibits growth in manufacturing and exports. The government has allocated Rs8.2 trillion for total debt servicing in the 2024-25 fiscal year, with Rs7.2 trillion going to domestic banks holding government securities.
The EPBD argued that lowering the policy rate to 6% could save Pakistan up to Rs3 trillion in debt servicing costs. These savings could be reinvested in sectors like manufacturing, SME financing, technology upgrades, and export growth, stimulating economic activity and creating jobs.
The think tank also criticized the high proportion of bank investments tied up in government debt, which limits the funds available for businesses. With 97.3% of bank investments directed towards government securities, there is little capital left for working capital, expansion, or innovation in the private sector.
The EPBD also pointed out that the current remittance structure benefits banks rather than the intended recipients, with Rs87 billion allocated to banks for basic remittance transfers. The think tank called for a more effective allocation of resources to support entrepreneurship and small businesses instead.
While the ECC deliberated on the future of remittance-linked subsidies, the EPBD reiterated that businesses do not need further subsidies, but a more competitive environment supported by lower interest rates. This would bring Pakistan in line with regional economies, allowing businesses to thrive and supporting broader economic growth.
