State Bank says exchange rates in orderly two-way movement for first time

KARACHI: Rupee is orderly moving in a two-way direction for the first time because of the market-based system introduced under the economic reforms program, the central bank governor said on Tuesday.

“Pakistan has transitioned to a market-based exchange rate regime since June 2019, resulting for the first time ever in an orderly two-way movement of exchange rates in the country,” said the State Bank of Pakistan (SBP) Governor Reza Baqir. “This has led to a significant shrinking of the current account deficit, and better fundamentals facilitated capital inflows.”

Baqir told members of the Overseas Investors Chamber of Commerce and Industry (OICCI) that fiscal deficit narrowed to 3.8 percent of GDP in July-March FY2020 with the current account balance in surplus for the first time since 2016.

The rupee has gained 3.1 percent of value against the US dollar since October 1. Since August 26, it has appreciated Rs9.52 or 5.6 percent against dollar. The rupee secured the third best-performing currency position in Asia after Indonesian rupiah and South Korean won. The Indonesian currency increase 4.5 percent, while the won was up 3.6 percent.

SBP governor said a year ago SBP was perceived as inflicting tough stabilisation measures after Pakistan had started an economic reform program to address external and fiscal imbalances and later after the onset of COVID-19 the government and central bank gave a timely and calibrated economic response without compromising buffers. “As a result today the focus is on economic growth of the country,” he said in a statement.

Baqir said the SBP injected overall Rs1.73 trillion or 4.1 percent of the GDP in the economy to support individuals and businesses during COVID-19 through various proactive measures, including reduction in interest rates from 13.25 percent to 7 percent, loan deferment, employment support and Rozgar schemes.

“SBP is taking appropriate and timely actions to address the ever changing economic environment,” he said.

The governor said the SBP is moving towards digitalisation of payment processes and proactive engagement that will address the major issues systematically and facilitate the business community. Through an online case look-up portal, it is now possible for companies to monitor the progress of their respective cases submitted to SBP with increased transparency.

Baqir encouraged all members to figure out ways to increase exports and adopt import substitution practices, as it is a critical step towards moving the country out of poverty.

OICCI President Haroon Rashid said foreign investors are among the largest economic stakeholders and have invested over $16 billion in the past eight years and continue to have a positive view of the opportunities for investment despite the ongoing challenging economic environment in the country. OICCI members sought the governor’s support in the light of SBP policy to facilitate foreign direct investment through improving ease of doing business and reducing delays in approval of foreign exchange payments and cumbersome documentation requirements.

OICCI members appreciated the SBP efforts towards continuous improvement in the economy and presented a comprehensive list of recommendations to facilitate ease of doing business.