Import curbs to be eased after IMF review: SBP chief

ISLAMABAD: State Bank of Pakistan (SBP) Governor Jameel Ahmed has said the current account deficit is projected at $7 billion for the ongoing fiscal year against the budgetary target of $10 billion subsequent to measures taken to control imports.

The governor, during a briefing to the Senate Standing Committee on Finance presided over by Senator Saleem Mandviwalla, said import compression would be eased after the completion of the International Monetary Fund (IMF) review because this policy cannot continue for a longer period of time.

He said low inflows due to the delay in the IMF review, higher commodity prices in the international market and the Ukraine-Russia war are major reasons behind pressure on the external account and an increase in inflation.

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However, he added that an increase of 300 percent basis points in the policy rate was not made on the demand of the IMF, adding that Staff Level Agreement (SLA) is close to be finalised with the Fund.

Ahmed further stated there was an outflow of $2.4 billion on account of debt repayment in the first half of the current fiscal year compared to $6.3 billion inflow for the same period a year ago.

He said that the decline in inflows was due to the pending review of the IMF programme and hopefully budgeted inflow would materialise after the completion of the review in the second half, thereby, increasing foreign exchange reserves.

He said that the pressure of inflation will remain for two to three months and the average inflation this year will be 26.5 percent, the SBP governor added. He said that so far, remittances have decreased by $2 billion and are projected at $29 billion for the ongoing fiscal year against over $31 billion for the last fiscal year.

There was also a decline of 7.4 percent in exports as the country did not have exportable goods due to flood and a decrease in the export of rice. Vegetables and fruit exports have also been declined by 48 and 37 percent respectively.

The committee, lamenting the fluctuation of the dollar stated that it was the responsibility of the regulator to maintain the actual price of the dollar and should have taken measures against black marketing and smuggling.

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The committee sought details of amount of dollars smuggled to Afghanistan in the recent period. The committee members said that the smuggling of the dollar to Afghanistan and the black money business is now being done through infants.

The committee recommended seriously addressing the issue of the difference between dollar rate in the open market and the inter-bank. The chairman of the committee recommended that instead of rupee trade with Afghanistan, either be replaced with the dollar or barter trade because trade with Afghanistan in rupee is also contributing to the external account pressure.

The remittances, FDI, and exports have been on a decline, whereas, the country’s debt was increasing loans, said Senator Mohsin Aziz, adding that imports compression and policy rate were hurting the industry and exports and exporters are unable to compete in the global market with regional players’ consequent to government policies.

In response to the issue of refusal of LCs to importers of pharmaceutical ingredients, the SBP said it was fully supporting the import of above articles and imports of pharma industry have considerably increased in the month of February and the first seven days of March 2023.

Copyright Business Recorder, 2023