ISLAMABAD: State Bank of Pakistan (SBP) Governor Dr Reza Baqir Thursday said Pakistan’s current economic challenges in the form of inflation and the current account deficit are driven by the global commodities’ prices.
Addressing the event organised by the Swiss Embassy on the economy of Pakistan, Baqir dwelt on the way Pakistan dealt with Covid-19, the country’s economic challenges – inflation and current account deficit – in the wake of global commodity price increase, and whether Pakistan is in a position to deal with the economic challenges.
The governor said that the current challenge of inflation is driven, in large part of the world by the rise in global commodities’ prices, he said, adding that this perception that inflation in Pakistan was higher was not accurate as some of the Western countries are experiencing even higher inflation such as Germany.
He said that the current account deficit is also driven by the global commodities’ prices and the policy tools adopted by the central bank and if oil import is excluded from the import bill the current account deficit is projected to be in a surplus.
Baqir further stated that policy measures were taken to reduce the trade deficit and arrest the increase in the current account deficit.
He said that continuous support is being provided on the fiscal side with continuous decline in the primary deficit.
Rising global commodity prices cause quite a stir
He said that the policies are well geared to deal with the challenge of the current account deficit. About Chinese liabilities, he said that a loan is a loan and any creditor first and foremost is a creditor and all the debt taken by Pakistan is reflected in the public debt. He further stated that Pakistan has reduced its debt during the Covid.
“We have been able to reduce the debt-to-GDP ratio and going forward increasing the tax-to-GDP ratio is a committed priority of the government.”
Earlier, the SBP governor said that he wanted to begin by talking about updated growth figure of the IMF that showed that Pakistan’s growth has not fallen as badly as in the case of many other countries and in recovery the country did not do badly and even its growth was slightly higher compared to the US due to the managing of its economic policies.
He said that now the question was whether this growth has come at the expense of fundamentals, fiscal or monetary. He said that the public debt during this period of two years have declined by negative 2.9 percent, adding that while supporting growth, Pakistan’s vulnerability was reduced, foreign exchange reserves continued to increase despite Covid.
He said that public health role remained critical during the Covid and saved the country from worst what the rest of the world witnessed. If Pakistan’s health system would not have done well during the Covid, Pakistan’s growth would have been worse compared to the other countries. Secondly, he said Ehsaas Cash Programme, a well-targeted policy measure during the Covid has been able to disburse Rs12,000 per household in such a short time. Additionally, the governor said that timely monetary response and innovative measures from the SBP helped saved jobs and lives, and revived investment.
He said the SBP as policy support measures introduced refinance facility, Rozgar scheme to prevent lay off, provided relief for loan restructuring, introduced principal loan extension, and reduced policy rate by 625 basis points, and in total amount that was injected was five percent of the GDP. About structural system, Baqir said that that the TERF has been very successful and allowed moderation and expansion and financial inclusion is another area and now the government is giving subsidy on interest rate to the low-income group on mortgage. The SBP is promoting affordable houses under Mera Pakistan “Mera Ghar Scheme” and Rs131 billion have been approved for it.
He said that the central bank has been giving target to the commercial banks for agriculture credit. He said that the central bank has been supporting 100 percent single treasury account.
The State Bank governor said that the licensing framework for digital bank, Raast, etc have been launched. He said that first time lending to SMEs was introduced without any collateral, Green Pakistan scheme for concessional credit for renewable energy.
In his opening remarks, the Swiss ambassador said, the Pakistan Swiss Business Council, which was established in 2008 with more than 50 companies and there was 22 percent increase in Pakistan exports to Switzerland and interestingly, these exports to Switzerland are about 60 percent textile, and if Pakistan is successful with its exports, Switzerland would also benefit in terms of export of machinery to Pakistan. He further stated that Switzerland was sixth largest source of foreign direct investment in Pakistan after China, the US, the Netherlands and Singapore, etc.
Copyright Business Recorder, 2022
Comments
Comments are closed.