The Governor State Bank of Pakistan, Jameel Ahmed, has said that impacts of policy measures were already playing out in the economy and country was on its way to achieving macroeconomic stability while uncertainty regarding external financing will also fade away with revival of the IMF programme.
The Governor SBP while addressing key international investors and fund managers stated that the current account deficit has narrowed and foreign exchange reserves, albeit low, were increasing while inflation though currently elevated was expected to start decelerating over the next few months.
The event was organised by Barclays on the other day in Washington DC on Pakistan’s Economic Challenges and Way Forward.
Governor SBP briefed the participants about the challenges being faced by Pakistan, its policy response and the way forward for the country to address such challenges while he also responded to the questions of the participants.
The governor emphasised that Pakistan’s economy has always rebounded strongly after undergoing severe shocks. “We saw this happen after the devastating earthquake of 2005; the floods of 2010; and recently after the Covid-19 pandemic. No doubt, this time, we have faced not one but a series of domestic and global shocks,” he said and vowed that Pakistan was striving to rebound strongly from the current challenges as well.
He explained that the country’s debt repayments have been rather front-loaded, whereas inflows have been gradual. The programme loans from other multilateral agencies were waiting for the completion of the IMF review, he said adding that, in the interim period the country continued to receive fresh financing, in addition to rollover of existing loans, from bilateral partners.
He said that the SBP’s foreign exchange reserves, after touching a low of $2.9 billion by 3rd February, have since recovered to $4.2 billion by 31st March.
With regards to the external account position, the Governor SBP stressed that, contrary to earlier expectations by the market, Pakistan has met all its obligations in a timely manner.
While discussing the policy response in Pakistan, Governor SBP informed that over the past 18 months, the central bank has raised the policy rate by 1400 basis points, to 21 percent along with other measures to reduce demand-side pressures on inflation and the current account including tightening of regulations.
Moreover, the exchange rate has adjusted over the past couple of months, served as the first line of defence against emerging external imbalances, he stated.
On the fiscal side, the government was pursuing a contradictory fiscal policy and fiscal deficit during July-January FY23 was lower than last year, despite the flood-related rehabilitation and reconstruction expenses while primary balance was in surplus so far, against a deficit last year.
Governor SBP also highlighted that the country has undertaken a series of reform measures including the strengthening of the central bank’s operational autonomy; prohibition of government borrowing from the central bank; AML/CFT-related regulatory interventions; and measures to increase digitalisation in the economy.
These measures have addressed many structural weaknesses and will allow the economy to pick up sharply once the country is through the current challenges.
Jameel Ahmed explained that Pakistan’s economy was witnessing high inflation and external balance of payments pressures largely driven by adverse global shocks and domestic developments.
Commodity prices in the international markets, though have fallen from their peak levels in mid-2022, were still significantly higher than their pre-covid levels, taking their toll on domestic inflation and external account, he said adding hat at the same time, global financial conditions had tightened, which has made it harder for EMs like Pakistan to access international financial markets.
As a result, country’s foreign exchange reserves and exchange rate came under stress while devastating floods during July-August 2023 in Pakistan have further accentuated the economic distress in the country, he noted.