Heavy defaults in textile sector are on the cards with tight monetary policy of the State Bank of Pakistan, as the cost of money has skyrocketed to 17% to 19%, resulting in more defaults on the one hand and a cap on further industrialisation on the other.

The government has increased the discount rate to curb inflation (moving in an abnormal range of 25% to 30%), but the industry takes it as a futile exercise and a wrong diagnosis of disease, as it would do little on controlling inflation, but more on discouraging the industrialisation.

The industry circles are of the view that a cut of 4% in the mark up with a reduction in spread margin would ease down the pressure of cost of doing businesses. The KIBOR mechanism is another source of irritation for the textile sector, as the banking sector has been manipulating the situation for long in the past. In recent past, the discount rate was 14% against 16.75% KIBOR rate.

The business circles have been criticising the banking industry for extortion of industry on this very pertinent point. However, this difference is over with the latest increase in discount rate to 16% and both the discount and KIBOR rates are now running parallel. A disconnection of power and gas to the textile sector is proving last straw on industry's back.