In continuation of an informative PodCast series launched by the State Bank of Pakistan (SBP), an exclusive video interview of the Acting Governor of SBP – Dr. Murtaza Syed along with the two Deputy Governors of SBP – Dr. Inayat Hussain and Sima Kamil, has been released recently.
The State Bank leadership discussed the serious concerns and rumors, currently prevailing among the masses, about the economic situation of Pakistan. He also answered several questions being raised about the Central Bank and its management team. He assured the nation that the current leadership at SBP is fully capable and fully authorized to manage all the regulatory functions. It is fully engaged with global institutions to overcome the present adversities in the international economic environment. The nation should reject the negative fake news circulating on the social-media, as a new SBP Board has also been appointed now.
Analyzing the current vulnerability of the national economy, Dr. Murtaza Syed stated that: As the world is still in the process of overcoming the impact of the Covid-19 pandemic, the next 12 months will be very challenging for the global economy. Record increases are occurring in the international commodity prices and the Fed Reserve is tightening its policies, while all countries are worried about Geo-Political tensions. The emerging markets are facing a sharp rise in inflation, while financial pressures are growing in countries with high debt-levels.
However, Dr. Murtaza has expressed his belief that; ”Pakistan is not among the most vulnerable countries in the world, so its citizens do not need to panic. This optimism is based on the following, three fundamental reasons:
Pakistan has a reasonable Debt-Level at 70% of its Gross Domestic Product (GDP). It is not justifiable to categorize Pakistan’s ‘Debt-to-GDP’ ratio with Ghana (80% Ratio), Egypt (90% Ratio) and Zambia (100% Ratio), while Sri-Lanka has 120% ratio.
Moreover, Pakistan’s External-Debt is 40% of GDP, while Tunisia has 90%, Angola has 120% and Zambia has over 150%. Fortunately, Pakistan is relying more on its domestic debts, which are payable in our own currency and are easier to manage, as compared to external loans which are payable in foreign currencies.
Only 7% of Pakistan’s External Debts are Short-Term, other countries have taken much higher Short-Term External loans, like: Turkey (30%). Pakistan has taken only 20% of its borrowings on Commercial-Terms, which are concessional loans, taken from IMF, World-Bank or friendly countries. So, it is easier for us to return these loans and all the Debt-Indicators of Pakistan are much better than the countries who have done more commercial-borrowings.
Pakistan’s economy was recovering well from the Covid impact, achieving 6% growth last year, and hopefully this year too. Therefore, we can afford to slow-down our economy a little bit, so we have started working on adjusting our policies according to this strategy. Interest rates have been increased very proactively by SBP, while other vulnerable countries have not increased their interest-rates. Pakistan’s budget will be difficult this year, so we are working on tightening the belt to reduce the economic-vulnerability of our nation.
Over the next 12 months, the countries who have taken an IMF programme, will be much safer, compared to the states like Ghana, Zambia, Tunisia and Angola, who do not have IMF’s support, and they may face bigger pressures. We have completed the current review with the IMF, and we have successfully achieved the difficult task of receiving a Staff-Level agreement from the IMF, by fulfilling all their requirements. Now, it should be much easier for us to get an approval from the IMF Board to get the large scale funding. We will also get some additional funding and Oil-financing from friendly countries. So, the Pakistanis should dismiss all the economic fears in their minds.
The Deputy Governor of SBP – Dr. Inayat stated that: Pakistan has nearly 9.3 billion Dollars of Foreign Exchange Reserves. This current level of reserves is not too good and we would like to increase it to equalize 3 months of Pakistan’s import-bills. However, this current level is not too low or worrisome for the nation. Pakistan also has Gold-reserves worth around 3.8 Billion Dollars. Currently, we are not in a debilitating crisis, so we do not need to pledge these gold-reserves. We must not panic. I advise the Pakistanis to reject the fake news-reports drawing a doomsday scenario for Pakistan.
The Pak Rupee has depreciated very sharply, around 18 percent, since December 2021. However, 12% of this depreciation was caused as the US Fed-Reserve increased its interest rates very aggressively, to increase the value of the US Dollar. Pressures on the Pak Rupee were also created due to rising imports and demand for Dollars in Pakistan, while the supply of dollars has remained low due to Geo-Political and domestic uncertainties. We expect the imports to slow down gradually, so this gap in Dollar-Demand and Supply will reduce. The Foreign-Exchange Market in Pakistan is functioning consistently, while SBP is vigilantly controlling this market to prevent disruptions or malpractices.
Dr. Inayat further said that: Over the past few months, the global suppliers of Oil and Gas have begun demanding that; any LC opened by a Pakistani bank, must be reconfirmed by an International Bank, therefore, the importers of Oil and gas in Pakistan were facing some difficulties in their Import LC procedures. However, this situation has improved significantly now.
Ms. Sima Kamil discussed ‘Mera Pakistan – Mera Ghar’ – This affordable financing scheme is designed to facilitate the lower-income segment in buying their own house. However, it has been temporarily halted, as the economic pressures were mounting and the present government needed to make some alterations in the financial-model of this large scale initiative. The Finance Minister has now decided that the beneficiaries who have completed all the formalities, will be granted these house-loans very soon.
The need of the hour is to work-hard and inspire confidence in our economy, to lift the spirits of our people. Together, we will overcome the multiple challenges and defeat all the negativity.
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