Dr. Gohar Ejaz, Chairman of the Economic Policy and Business Development think tank and former caretaker federal minister, has raised serious concerns over Pakistan’s reliance on monetary tightening to control inflation, arguing that recent interest rate hikes are ineffective against fuel-driven price pressures.
In a statement issued on Wednesday, Dr. Ejaz said the recent 100-basis-point increase in policy rates by the State Bank of Pakistan would not help contain inflation, as the primary driver remains volatile international fuel prices influenced by global conflicts and supply disruptions.
He argued that monetary policy tools are limited in addressing imported inflation, stressing that higher interest rates cannot influence global commodity markets or reduce fuel prices domestically.
Citing Nobel Prize-winning economist Joseph Stiglitz, Dr. Ejaz said supply-side shocks particularly in energy and commodities are not effectively addressed through monetary tightening.
“Such policies risk slowing economic activity without providing relief to consumers,” he noted.
He also questioned whether higher borrowing costs could meaningfully reduce fuel consumption or affect international price trends, stating that the answer to both was “clearly no.”
Highlighting fiscal pressures, Dr. Ejaz warned that every 1% increase in interest rates adds roughly Rs600 billion to Pakistan’s annual debt servicing burden. He noted that debt repayments are already projected to exceed Rs8 trillion this fiscal year.
“This additional burden will ultimately translate into higher taxes and greater pressure on citizens already facing inflation and stagnant incomes,” he said, adding that the situation reflects a broader fiscal and structural challenge.
Dr. Ejaz urged policymakers to shift focus away from repeated interest rate hikes and instead pursue supply-side reforms, energy sector restructuring, and measures to boost domestic production.
He said that without addressing structural inefficiencies and external vulnerabilities, monetary tightening would continue to slow economic growth without stabilizing prices.
The remarks come amid ongoing debate over Pakistan’s macroeconomic strategy under its IMF-supported programme, where balancing inflation control with economic growth remains a key policy challenge.
