‘Comfortably placed’: SBP chief says end-Sept targets with IMF met

State Bank of Pakistan (SBP) Governor Jameel Ahmad has said the central bank is “comfortably placed” in terms of meeting end-September International Monetary Fund (IMF) targets under the lender’s Stand-By Arrangement (SBA) agreed in July.

“SBP’s forward foreign exchange liabilities have declined and the forward book target of $4.2 billion for end-September 2023 agreed with the IMF has already been met by a wide margin,” the SBP governor was quoted as saying in a central bank statement on Friday.

“Similarly, SBP is also very comfortably placed to meet the other end-September IMF targets, including Net International Reserves (NIR) and Net Domestic Assets (NDA),” he added.

The remarks came during his meeting with key international institutions during events organised by global banks, including Barclays, JP Morgan, Standard Bank, and Jefferies on the sidelines of the IMF-World Bank meetings in Marrakech, Morocco.

Pakistan’s IMF programme is due for a review in November, which will pave way for release of the second tranche of around $900 million.

As per the statement, the SBP chief briefed the investors about the recent macroeconomic developments, policy responses to current challenges, and the outlook of Pakistan’s economy, and also answered their questions.

“The governor informed the investors that the current policy mix adopted by the government and the central bank is geared towards achieving stabilisation through addressing macroeconomic imbalances,” read the statement.

Ahmed apprised the investors that the SBP is among the first central banks that began to tighten monetary policy in the wake of the rising inflation globally. “However, certain domestic challenges, most notably the unprecedented floods in the beginning of the previous fiscal year, complicated SBP’s efforts to bring down inflation,” it said.

On a cumulative basis, the SBP has increased the policy rate by 1500 bps over the last two years.

The SBP governor also shared that the stabilisation measures have started yielding results.

“Inflation has come down to 31.4% in September 2023 after peaking at 38.0% in May 2023 and is expected to continue its downward trajectory over the coming months, whereas the external account has improved considerably and foreign exchange buffers are being built up,” the central bank said in a statement.

Ahmad shared that with the policy rate at 22%, the SBP assesses the real interest rates turning substantially positive on a forward-looking basis, as inflation is expected to come down significantly during the second half of this fiscal year.

“Going forward, the SBA with the International Monetary Fund (IMF) is expected to support the ongoing policy efforts to stabilise the economy,” the SBP said in a statement.

Ahmad also highlighted the shock-absorbing role of the market-determined exchange rate and the support from multilateral and bilateral lenders in addressing the external sector challenges.

The SBP said that the current account deficit (CAD) reduced to 0.7% of GDP in FY23 from 4.7% in FY22.

The central bank stated the earlier administrative measures that had contributed towards the lowering of CAD last year, are now withdrawn. “Nonetheless, the ongoing stabilisation measures and flexible exchange rate are expected to keep the CAD within the range of 0.5-1.5% of GDP in FY24,” it said.

Jameel informed the investors that the foreign exchange buffers are improving with both build-up in reserves and reduction in forward foreign exchange liabilities.

He explained that since January 2023, SBP’s foreign exchange reserves improved from a low of $3.1 billion to $7.6 billion as of the end of September 2023. The reserve build-up was largely supported by non-debt creating inflows amid favorable market conditions.

In his remarks, the SBP chief also emphasised that emerging economies are faced with multiple challenges, such as access to capital markets, growing anti-trade sentiments, debt sustainability, and building climate-resilient and inclusive economies and there is a need for multilateral institutions like the IMF and World Bank to take the lead role in shoring up global buy-in to address these challenges.

He said that Pakistan is on track to address the longstanding structural weaknesses, and with the support from its multilateral and bilateral partners, it would be able to achieve sustainable and inclusive economic growth over the medium term.