Pakistan’s inflation deceleration broad-based, says central bank chief

KARACHI: The State Bank of Pakistan chief said on Thursday that the deceleration in inflation in the South Asian nation was broad-based, reflecting the combined impact of monetary tightening and fiscal consolidation.

Jameel Ahmad was speaking to international investors on the sidelines of the IMF, World Bank spring meeting in Washington. He said inflation had fallen sharply over the past year, reaching a two-year low of 20.7 percent in March 2024 from a peak of 38 percent in May 2023.

Other factors contributing to the deceleration include an easing of restrictions on imports, improved agricultural output and a more favorable base effect, when compared with last year.

"More importantly, core inflation declined markedly, reaching 15.7 percent in March, after persistently staying above 20 percent throughout last year," a statement quoted Ahmad as saying.

Ahmad and Pakistan’s Finance Minister Muhammad Aurangzeb are leading a delegation to the spring meetings and the finance minister met with IMF Managing Director Kristalina Georgieva on Wednesday.

Aurangzeb has previously said that Pakistan was in discussions with the multilateral lender for a long-term Extended Fund Facility after an ongoing standby arrangement expired earlier this month.

Pakistan is in dire need of external financing to fight a chronic balance of payments crisis, which brought it to the brink of a default last summer. Ahmad, however, told the investors that qualitative improvements in the external account had allowed the central bank to more than double its FX reserves from $3.1 billion in January 2023 to around $8 billion despite the repayment of a $1 billion Eurobond this month.

"At the same time, the SBP’s forward liabilities have also reduced significantly from US$5.7billion in January 2023 to US$ 3.4billion in February 2024."

He said Pakistan was hopeful of signing a long-term IMF program, which will facilitate additional external financing and the adoption of structural reforms to deal with longstanding issues in the economy.

The governor also informed the participants that the external sector has also stabilized, as reflected in the sharp reduction in the current account deficit to $1 billion during Jul-Feb FY24 from $3.8 billion in the same period last year.

"In addition to stabilization policies, improved agriculture output has contributed to higher food exports, while lowering the import demand of agri commodities like wheat and cotton," he said. "Workers’ remittances have risen consistently since October 2023 on y/y basis, driven by incentives and regulatory measures to divert inflows towards formal channels."

The governor stressed upon the improvement in the country’s external debt dynamics, with a reduction in the gross financing requirements due to sizable CAD contraction. "Moreover, the maturity profile of external debt has also improved, with share of relatively costly short-term commercial loans declining while the share of long term concessional financing from multilateral agencies, coupled with support from bilateral partners, is rising."

Ahmad also noted a recent pickup in inflows from overseas Pakistanis via Roshan Digital Accounts and also by other foreign investors, on the back of strong performance in achieving the targets and benchmarks under the IMF SBA program.

"Going forward, the government is hopeful of signing a long term IMF program, which will facilitate additional external financing and the adoption of structural reforms to deal with longstanding issues in the economy."