Karachi: Pakistan’s industry leaders have warned that high interest rates are squeezing businesses, slowing investment and making it harder for small and medium enterprises to survive, as the country’s already fragile growth outlook faces another test from expensive credit.
The latest concern comes after the State Bank of Pakistan raised its policy rate by 100 basis points to 11.5% on April 27, 2026, marking its first rate hike in nearly three years. The central bank said the move was needed to contain inflation risks, particularly after rising tensions in the Middle East increased uncertainty around energy prices, freight costs and supply chains.
Business groups, however, say the decision has landed at the wrong time.
The Federation of Pakistan Chambers of Commerce and Industry, Karachi Chamber of Commerce and Industry, and Korangi Association of Trade and Industry have all voiced concern that higher borrowing costs will weaken industrial activity. Their argument is simple enough: when credit becomes more expensive, companies delay expansion, cut working capital, and in some cases scale back production. For smaller firms, the hit can be brutal.
FPCCI President Atif Ikram Sheikh described the rate hike as “ill-timed,” warning that it could hurt business confidence and slow down economic activity. KCCI also criticised the move, saying it would discourage fresh investment and make it even more difficult for businesses to stay competitive.
Exporters are especially worried. Pakistan’s manufacturers are already dealing with high energy tariffs, refund delays, heavy taxation and inconsistent policy signals. Add expensive bank borrowing to that mix, and the cost of producing goods for international markets rises further. That’s a serious problem for sectors like textiles, engineering, leather, sports goods and food processing, where regional competitors often enjoy cheaper financing and more predictable policy support.
Industry leaders say the current interest-rate environment is also choking SMEs, which don’t usually have the cash buffers or financing options available to large companies. Many smaller manufacturers rely on short-term bank loans to buy raw material, pay wages and keep orders moving. Even a modest increase in borrowing costs can push them into losses.
The State Bank, for its part, has defended the tighter monetary stance. Officials argue that inflation expectations remain vulnerable and that external shocks, especially linked to oil prices and shipping routes, could quickly feed into domestic prices. The International Monetary Fund has also supported Pakistan’s cautious monetary policy approach, viewing it as part of the broader effort to keep macroeconomic stability intact.
Still, businessmen say stability without growth is not enough. They argue that Pakistan can’t tax, borrow or squeeze its way into recovery while factories remain under pressure. What the private sector wants now is a gradual move toward lower rates, targeted credit for productive sectors, and a clearer roadmap for reducing the cost of doing business.
There is a tricky balance here. The central bank doesn’t want inflation to return, and that concern is real. But industry’s warning shouldn’t be dismissed either. When capital becomes too costly for too long, businesses stop taking risks. New machinery is delayed. Hiring slows. Export orders become harder to price.
And eventually, growth pays the price.
For now, the message from industry is blunt: Pakistan needs monetary discipline, yes, but not at the cost of choking the very businesses expected to create jobs, earn dollars and pull the economy out of low-growth mode.
