Economy was on the right track before the Coronavirus pandemic, says Dr Raza Baqir

The Governor State Bank Dr Raza Baqir said that the economy was improving before Corona arrived. He also said that SBP has taken several steps to save the economy from Corona. According to the governor, current inflation is due to supply constraints. The current account deficit was reduced from 17 billion Dollars to 3 billion Dollars. He also said that. YOU CAN WATCH THE FULL INTERVIEW HERE

The SBP governor also said that despite Coronavirus impacting the economy, the State Bank’s foreign exchange reserves saw a net increase of five billion Dollars from seven billion to twelve billion dollars in the last fiscal year. He said that one of the major reasons of this increase was the significant reduction in the current account deficit of about fourteen billion dollars and the factors behind this reduction in the current account deficit were a healthy increase in remittances and in the country’s exports. Dr Raza Baqir also said that the exports had started to pick up before corona struck the economy and this pickup in exports was after the exports remained stagnant in the last five years. He said that the biggest benefit of the reduction in the current account deficit is that it gives confidence to the investors and business men that the country will have financial stability in the longer run. He also said that to attract long term investments, financial stability is extremely important and the surge in reserves has played a major role in achieving financial stability which will further go on to increase the economic activity. The governor also said that economy was doing on the right track before corona came and also referred to Bloomberg’s report that said that Pakistan’s stock market index increased by 30% and was the world’s best performing market between June’2019 and January’2020. He also said that all the inflows from friendly countries have been utilised in the payment of loans.

The governor SBP said that the impact on the country’s GDP growth due to Coronavirus and to revive it is a big challenge. He also said that the cash flow of businesses was impacted the most due to cancellation of export orders, closure of restaurants. Dr Baqir also talked about the steps taken by SBP to support the businesses during the economic downturn due to the pandemic. According to him , the biggest priority of the state bank was to support the cash flow of businesses and to do this, state bank talked to the banks and announced to defer the principle loan repayments for one year which amounted to 590 billion Rupees . The state bank also introduced a scheme of the restructuring or rescheduling of debts and the total amount of loans restructured amounted to 125 billion Rupees . He also said that the central bank made the highest interest rate cuts in the world and decreased the rate from 13.25 % to 7% and this provided an additional support to the businesses of more than 450 billion Rupees in terms of the payments they were supposed to do. The governor also talked about a state bank scheme that provided loans at lower rates to pay salaries of the workers, under this scheme, 100 Billion Rupees were released and this protected around 1.1 million jobs. The state has provided assistance of 1.3 trillion Rupees to support the economy and the details are available on the website or on State Bank’s Twitter account. He also said that the State Bank also announced a set of measures for the public health care system where the hospitals who want to set up a covid ward or businesses who are manufacturing PPE kits can get a loan from the Central Bank at 3%.

While commenting on the International Monetary Fund(IMF)’s demands related to the discount rate, the governor said that the IMF recommends that discount rates should be set by an independent and autonomous committee and Pakistan exactly does that via the monetary policy committee(MPC). The MPC sets the interest rates after looking at the economic situation of the country which is deduced on the basis of forward looking expectations. He also added during the MPC conducted three emergency meetings in the span of one month and brought down the interest rates from 13.25% to 7% and this happened for the first time in Pakistan’s history. While commenting on matters related to the Financial Action Task Force(FATF), Dr Baqir said that Pakistan has worked really fast and has made noticeable progress in following FATF’s guidelines and he expects Pakistan to meet all the demands of FATF in very little time.

The governor reiterated that Pakistan’s economy was improving before Corona struck Pakistan but the Government’s and State Bank’s quick and bold measures have supported the economy and will help businesses to recover. The governor said that he expects things to improve in the longer run but since there’s a public health and economic crises at the same time, there is uncertainty due to this and this is why things can worsen instead of improving and the State Bank is completely prepared to provide support in case things done improve.

Dr Baqir commented on the increase in the inflation and said that the recent surge in inflation after the latest cut in interest rates has nothing to do with the demand as the demand collapsed due to the economic impact of the Coronavirus and the recent surge in inflation came due to supply constraints. He said that the State Bank is not worried about the surge in inflation due to supply constraints because it expects this to come under control after the government takes counter measures to control the prices just like it took in the past.

Dr Raza Baqir said that the worst phase in terms of exports is over and exports have started to show signs of recovery and SBP’s focus right now is on the country’s economic growth and for that it will continue to take steps for economic recovery so that the country’s economy can go back to where it left from when thenCoronavirus pandemic started.