Shamshad for aggressive implementation of anti-inflation policies

Dr Shamshad Akhtar, Governor State Bank of Pakistan, on Monday stressed the need for aggressive implementation of anti-inflation policies which will provide relief to the general public and restore investors' confidence.
While giving a presentation on 'State of Pakistan Economy' to the Senate's Standing Committee on Finance, Revenue, Economic Affairs and Statistics in Islamabad, Dr Akhtar emphasised that fiscal sustainability is a key factor for macroeconomic stability, which requires increase in tax-to-GDP ratio; containment in non-productive expenditures and expanding public-private partnership.
She said that there is also a need to increase exports through diversification of products and markets and enhancing productivity while imports need to be curtailed through containing aggregate demand. Dr Akhtar said that inflationary trends in the country will settle as the global inflation has come down and government has reiterated its commitment to achieve net zero borrowing from central bank.
Decline in fiscal deficit to sustainable level and low inflation can play an essential role in improving saving rate, she added. SBP governor said additional funding needs to be secured to meet the Current Account Deficit which will require i) increase in savings to reduce reliance on external financing, ii) restoration of investor's confidence to encourage investment inflows and restrict outflows and iii) consistency and continuation of prudent policies.
She said that with the inflow of $3.1 billion from the International Monetary Fund, the country's foreign exchange reserves climbed back to $9.4 billion by November 26, 2008. Dr Akhtar gave a detailed account of the country's current economic situation in the backdrop of global financial crisis and highlighted issues, challenges faced by the economy.
While referring to SBP's recent decision to raise its key policy rate to 15 percent, she said that under the current situation further monetary tightening was necessary to ease demand pressures and ensure long-term growth on sustainable basis. She pointed out that with the adjustment in interest rates and other policy measures, the rupee has appreciated by 3.6 percent during end October to November 25, 2008.
Dr Akhtar also highlighted several other measures taken by the State Bank for the benefit of different sectors of the economy. In addition, the State Bank also developed and launched Crop Loan Insurance Scheme under which the government has agreed to share premium cost of subsistence farmers.
The State Bank has enhanced the indicative per acre credit limit for major and minor crops, livestock, orchards, fishing and forestry by an average 70 percent, she added. Dr Akhtar said that despite economic stress faced by the country, the banking system is sound and its risk absorption capacity is 'strong.'-PR