Considering the scale of Pakistan’s external borrowing, obligations related to debt payments, profit repatriation, and the overall external financing landscape, the decline of $ 152 million in the State Bank of Pakistan’s (SBP’s) weekly foreign exchange reserves is neither unusual nor shocking.
Nevertheless, net foreign reserves have increased by $206.7 million.
The primary challenge lies in making payments on their due dates. In this context, balancing the maintenance of high foreign exchange reserves with boosting economic activity is quite difficult.
This is why excessive spending can disrupt economic balance and exert pressure on current account balances.
We owe gratitude to Pakistani expatriates for their significant contributions, which have driven remittances to record levels.
While exports have yet to increase significantly, achieving this requires commercial banks to extend credit to the private sector.
A decline in tax revenue collection is yet another indicator of reduced economic activity, primarily due to banks lending at their lowest levels, which is also contributing to a downturn in GDP growth.
A positive development is the sharp decline in the inflation rate, thanks to coordinated efforts from fiscal and monetary authorities, alongside falling global oil prices which help lower the oil expenditure.
Tariff issues remain a primary concern for the international community, generating greater concern about potential future repercussions.
However, historical events like Hurricane Katrina in 2005, the Japanese tsunami and earthquake in 2011, and Covid-19 in 2019 have shown that our economy has not been significantly affected by such events. Thus, tariff trade will not pose a threat to our financial stability.
Our economic struggles stem from ineffective decision-making processes that need to be addressed to tackle the core issues.
Frankly speaking, our tax collection percentage is alarmingly low, and there is an urgent need to improve our tax-to-GDP ratio.
The State Bank of Pakistan must play a critical role in facilitating an increase in bank lending to the corporate sector. The SBP and its monetary policy committee should maintain low interest rates to stimulate the economy.
Stabilising economic activity is a significant task for the central bank of Pakistan, which should devise a plan for banks to double their lending to both the agricultural and private sectors proportionately.
It is evident that our foreign lenders are tightening their grip on loan provisions. Our economy cannot handle a disruption in the flow of foreign money without alternative resources.
“Uraan Pakistan”
Regarding the Prime Minister’s five-year National Economic Transformation Plan (2024-29), titled “Uraan Pakistan,” the main goal is to double exports to $ 60 billion by 2028 and achieve 6% growth, with a vision of transforming the economy into a trillion-dollar economy by 2035.
Realising this vision requires substantial investment, necessitating a collaborative effort between the finance ministry (MOF) and the State Bank of Pakistan to develop an actionable plan. The finance ministry may provide an outline for the plan and the overall strategy for structural reforms, but the SBP bears a greater responsibility to arrange financial support.
Without it, the plan is unlikely to succeed. Given the scale and duration of the necessary funds, the SBP must work closely with the Ministry of Finance to conduct thorough calculations and present a detailed forecast regarding exchange rates and inflation trends.
It is crucial to note the critical shortage of liquidity (in both foreign exchange and local currency).
The central bank has already injected nearly Rs 12 trillion through open market operations (OMOs), a trend likely to continue until tax and export targets are fulfilled.
The SBP must take note of the recent changes in the Advance to Deposit Ratio (ADR) seriously. If these adjustments prove accurate, they suggest that the economic activity reports from the SBP are not conveying an accurate picture.
Without support from fiscal and monetary authorities, the Prime Minister’s Uraan programme is unlikely to take off.
With the programme announced in late December 2024, budget preparations are underway and are anticipated to be completed by June. If there are further delays and this stretches into the budget cycle, nearly six months will have passed, leaving the government with just 36 months to achieve its goals. This is a daunting challenge, and all involved parties should provide monthly or quarterly updates to track progress.
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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