State Bank of Pakistan (SBP) Acting Governor Dr Murtaza Syed has assured that Pakistan will bridge an external financing gap of $4 billion soon and that the economy is “not close to recession mode”.
He made the remarks in an interview with The News that was published on Monday.
Dr Syed said Pakistan had already arranged external financing of $34-35bn while it was trying to confirm inflows of $4bn from friendly countries, including Saudi Arabia, Qatar and the United Arab Emirates.
“These additional dollar inflows will be materialised for increasing foreign currency reserves’ position to create a buffer in case of a crisis-like situation,”
He did not tell the publication when the inflows were expected but said that the government and the International Monetary Fund (IMF) were both trying to get confirmation of the inflows from friendly countries and the financing gap would be bridged “soon”.
Sources had earlier told Dawn that the IMF had asked Pakistan to get assurances from Saudi Arabia and the UAE that they would give an expected $4bn loan to the country after the IMF releases its tranche.
The SBP chief said global supply disruptions had led to a “supercycle of commodities” internationally and Pakistan had no choice but to increase its agricultural productivity in order to ensure food security.
Inflation would remain in the higher range for the next 11 months to a year and the central bank was keeping its target between 18-20 per cent on average in the current fiscal year, he said.
Dr Syed said there was no magic wand to control inflation immediately and people would have to face a difficult situation for some time. “We know it is a difficult phase but there is no other choice.”
‘Not close to recession’
“We are not close to recession mode but there is a need to handle the economy in a careful manner,” he cautioned.
Dr Syed said Pakistan would continue to go through boom and bust cycles unless the structural problems in the economy were fixed. He noted that the GDP growth during the last fiscal year came in at 6pc, which led to “overheating” and caused imbalances.
The country would have to increase its exports and foreign direct investment to avoid the boom and bust cycles. “This boom and bust cycle cannot be overcome until the private sector attracts dollar inflows. Currently, the IMF helps to manage the external financing gap. When the Fund programme ends, there is no binding force to [make] the country stick to the path of the reform process.”
The country had faced external and internal economic imbalances because of the reversal of structural reforms in the past, he added.
Pakistan’s external financing gap was “not huge”, he said. However, it became a problem because unlike other countries where the private sector stepped in to help, in Pakistan, it was the government that was solely responsible for bridging the gap, he added.
The country’s economy would be stabilised through a “slowdown”, he said.
The SBP chief denied that the country was facing a debt crisis, stating that its overall debt was “manageable”.
When he was asked how the latest crisis had come about, Dr Syed said the previous government’s decision to subsidise fuel had “irked” the IMF. In addition, last year’s budget had led to an expansionary policy and the monetary policy had adapted with a “time lag”.
There was also a lag in the availability of data that resulted in policymakers taking a longer time to respond to emerging economic realities, he added.
The acting governor denied that the IMF had set a specific target for the exchange rate. He noted that the State Bank had intervened recently and would do so again in the future if it observed “disorderly movements”.
He also referred to the SBP’s recent crackdown on exchange companies in the light of findings from ongoing inspections and mystery shopping.
The rupee would not be managed artificially, he asserted. “However, speculators could not be allowed to do whatever they wanted to do, so the central bank would remain vigilant in taking action to stop the disorderly movement of the exchange rate,” he told The News.
Dr Syed said he hoped the pressure on the exchange rate would end in the next two months.