In meeting with investors in US, SBP chief says economy on its way to achieving stability

State Bank of Pakistan (SBP) Governor Jameel Ahmad has said Pakistan is on its way to achieving macroeconomic stability as the impact of policy measures is already playing out in the economy.

In a meeting with international investors and fund managers in an event organised by Barclays on April 13 in Washington, he said the current account deficit has narrowed and foreign exchange reserves, albeit low, were increasing, according to a statement issued by the central bank on Friday.

Karachi’s business community comes down hard on SBP governor

“While inflation is currently elevated, it is expected to start decelerating over the next few months and with the revival of the International Monetary Fund (IMF) program, the uncertainty regarding external financing will also fade away,” he was quoted as saying.

According to the SBP, the governor also briefed participants about the challenges being faced by Pakistan, its policy response and the way forward for the country to address such challenges.

Ahmad explained that Pakistan’s economy is witnessing high inflation and external balance of payments pressures, which are largely driven by adverse global shocks and domestic developments.

SBP governor hopeful of foreign exchange inflows in coming days

“Commodity prices in the international markets, though have fallen from their peak levels in mid-2022, are still significantly higher than their pre-Covid levels, taking their toll on domestic inflation and external account.”

At the same time, global financial conditions have tightened, which has made it harder for EMs like Pakistan to access international financial markets. As a result, the country’s foreign exchange reserves and exchange rate came under stress. He stated that devastating floods during July-August 2023 in Pakistan have further accentuated the economic distress in the country.

With regards to the external account position, the SBP governor stressed that, contrary to earlier expectations by the market, Pakistan has met all its obligations in a timely manner.

He explained that the country’s debt repayments have been rather front-loaded, whereas inflows have been gradual.

Jameel Ahmad: a short profile of the new SBP governor

“The program loans from other multilateral agencies are waiting for the completion of the IMF review,” he said. “In this interim period, the country continues to receive fresh financing, in addition to rollover of existing loans, from bilateral partners.”

The State Bank’s foreign exchange reserves, after touching a low of $2.9 billion by February 3, have since recovered to $4.2 billion by March 31, he said.

While discussing the policy response in Pakistan, he informed the participants that over the past 18 months, the SBP has raised the policy rate by 1400 basis points to 21%.

“Other measures taken to reduce demand-side pressures on inflation and the current account included tightening of regulations,” the governor said. “Moreover, the exchange rate has adjusted over the past couple of months, served as the first line of defense against emerging external imbalances.”

He stated that on the fiscal side, the government is pursuing a contractionary fiscal policy.

“The fiscal deficit during July-January FY23 is lower than last year, despite the flood-related rehabilitation and reconstruction expenses. Moreover, the primary balance is in surplus so far, against a deficit last year.”

The SBP governor 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.

In his concluding remarks, 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. But we strive to rebound strongly from the current challenges as well.”