KARACHI: The government policies to handle the economy during the pandemic have worked well but some challenges need to be addressed to sustain growth momentum, central bank chief said on Wednesday.
“… Pakistan’s economic indicators remained strong during the last two years, despite the multiple waves of the coronavirus pandemic as the government and the SBP’s policies during the pandemic worked well and the country had not been impacted by the Covid as seriously as the other countries were hit,” Dr Reza Baqir, governor State Bank of Pakistan (SBP) told ‘The Future Summit’ organised by Nutshell Group and Martin Dow Group.
“The central bank gave a significant, timely, and well-calibrated economic stimulus during the Covid, helping save lives, jobs, and reviving investment.”
In the case of Pakistan, the fiscal deficit edged down despite the Covid-related spending, allowing for a reduction in the public debt-to-GDP.
“Our debt-to-GDP ratio declined during the last two year,” he said.
The SBP, for a first in history, introduced Temporary Economic Refinance Scheme (TERF), a concessional financing scheme, with the aim to give businesses an incentive for not delaying their investment decisions due to the pandemic related uncertainty.
“We financed banks for extending loans to the industry under the TERF, leaving on the discretion of them to decide which client to be deserved for this,” Baqir said and added that banks have to ensure that their asset quality would not be deteriorated from these credit disbursements.
Banks can’t provide financing to the businesses until they see their letter of credit showing for which machinery or equipment purchase they apply for the loan.
The scheme is unique and different from other financing schemes being provided by development financial institutions.
He said that the SBP’s net foreign exchange buffers increased despite the pandemic. The gross forex reserves rose significantly to over $17.7 billion at the end of December 2021, which were $7.3 billion at end June 2019. He said the strengthened economic fundamentals, as demonstrated by the reduced debt-to-GDP ratio and higher gross reserves will help sustain the balance of payments through the current cycle of escalated global commodity prices.
Talking about the current challenges the economy is facing, he said the surge in the global commodity prices have put pressure on the country’s external current account.
“This [higher commodity prices] is a big challenge at the global and the local level as well. For instance, the US inflation has soared to 40-years high, and we are an importing country in which one third of our payments are related to oil,” he said. The other challenge is the lower export-to-GDP ratio, he pointed out.
“Our exports have improved, which is a good development, but our export-to-GDP ratio is still lowest, compared with other countries, despite the subsidies and incentives provided by the government to the exporters to boost their exports, and the exchange rate is also comparative.”
Pakistan reported one of the lowest levels of exports as a percentage of GDP in the world at 10.1 percent in 2019, according to the World Bank's World Development Indicators.
The SBP’s governor also emphasized on increasing the saving rate in the country. “Our savings rate is low if we compare Pakistan with other countries. That’s one of the main reasons we have to borrow from external sources to help finance the budget deficit and the current account deficit.”
The SBP is taking measures to increase the saving rate by increasing financial inclusion, he said.
The governor, citing Roshan Digital Account, said, RDA has generated more than $3 billion inflows from expat Pakistanis in one and half year, which is higher when compared to the foreign direct investment of $2.6 billion in the same period.
“The RDA figure of $3 billion is higher than the IMF has given for us under this loan programme. We have to generate funds from our sources so we will not need to go to the international lenders to bailout our economy.”