Pakistan’s economy in growth mode: SBP’s Baqir

ISLAMABAD: State Bank of Pakistan Governor Dr Reza Baqir said that Pakistan was achieving positive signs of economic recovery, and hoped that the country would not go back into the International Monetary Fund (IMF) programme for any bailout package.

“Pakistan economy has turned around, and we are in growth mode,” this was stated by SBP Governor Dr Reza Baqir, in an exclusive talk at the Islamabad Policy Research Institute (IPRI) on Thursday.

He also said that the decision to convert the exchange rate from fixed to market-based mechanism had resulted in dividends for the economy, as rupee strengthened and buoyed investors’ confidence.

Understanding the indispensability of remittances, which have swollen to more than $2 billion per month, he said the Roshan Digital Accounts (RDA) initiative has generated 181,556 new accounts, pouring in a staggering $1.56 billion.

“Let us work to improve inflows as our economy is growing at 4 percent,” he said. He was confident that with positive signs of recovery, Pakistan would not go back to the IMF in future for any new bailout package.

Spelling out the economic outlook from the central bank’s perspective, the governor said that Pakistan remained successful in containing Covid-19 waves that had opened new vistas of prosperity.

He defended his policies and said the current account deficit that had ballooned to $19 billion at one point of time was now converted into surplus and the budget deficit was slashed down by 1 percent.

“Our foreign currency reserves stood at $16 billion now that had increased from $7 billion in 2019,” he added.

Terming the stabilisation programme, a success story, he said steel and cement production had gone up, and the policy to finance housing and construction sectors led to a boom.

Baqir said SBP’s policy support measures during Covid were “aggressive, protective, flexible and targeted.” With falling domestic demand and inflation, the regulatory bank aggressively reduced interest rates, which worked very well.

“The SBP injected 5 percent of GDP liquidity to support jobs, public healthcare and investment in order to ward off bankruptcies during the pandemic.”

The SBP brought schemes in collaboration with banks to extend principal and provide concession to lenders. It reduced the policy rate by 625 basic-points in a short span of time.

The governor foresaw industrialisation in the country, and hoped that the turf fund would enable businesses to import machineries, and broaden the mosaic of production.

He mentioned about the current account and fiscal deficit state when he was called upon to take over the affairs of the central bank. Despite pre-Covid straitened economic circumstances when the forex reserves had plummeted to $7 billion with a current account deficit of $19 billion, the path to recovery was palpable when the pandemic struck and presented serious economic challenges in a depressed global and regional economic milieu.

SBP interventions like change from fixed to market-based exchange rate and discount rate interventions helped arrest the economic slide and improved the fundamentals of the economy. He explained economic recovery and relief measures like reduction in discount rates by 625 base points, which ensured that the liquidity losses did not become solvency issues.

He cited interventions like Temporary Economic Reform Facility (TERF) that had helped shore up industrial productivity in a demand depressed environment. The “Principal Loan Extension Programme” and “Rozgar Scheme to Prevent Layoffs,” provided timely loan relief and working capital to entrepreneurs, as well as the worker class.

The cumulative relief granted was to the tune of five percent of GDP with 95 percent of the beneficiaries of loan extensions being small and medium entrepreneurs.

The above relief regime was supplemented with a munificent housing and construction finance package with an improvement from erstwhile Rs1.5 billion to Rs200 billion. The RDA was another achievement, encompassing 171 countries; 181,556 accounts and $1.5 billion worth of deposits.

The measure was an excellent vehicle to connect seven to nine million overseas Pakistanis with the national economy. Measures like Roshan Apna Ghar and Roshan Samajhi Khidmat are being introduced through digital means to enable non-resident Pakistanis settled abroad to be part of the national economy.

The biggest achievement, according to the governor, was provision of relief and promotion of growth without an adverse impact on the fundamentals of the economy.