ISLAMABAD: Governor State Bank of Pakistan Dr. Reza Baqir said on Friday that the SBP was projecting the GDP growth in the range of 4-5 percent for the current fiscal year as the country was set to achieve higher growth.
Briefing journalists on the economic condition of the country, the Governor SBP, Dr. Reza Baqir, said there was a need to understand the current account deficit in broader context because the economy was on the path of higher growth trajectory and everyone conceded that the economy had come out from the recession mode.
He said, “The current account deficit is projected to remain at around 2 to 3 percent of GDP, equivalent to $6 to $9 billion and it was sustainable and manageable level,” adding, “Alarm bells must have rung when the outflow of dollars exceeded than inflows, resulting into depletion of foreign currency reserves."
He hoped that foreign exchange reserves would touch a ‘historic’ high after receiving $2.77 billion from the IMF, adding that there was no need for alarm bells ringing because market-based exchange rate adjusted accordingly while foreign currency reserves did not decline in recent months.
“There was a possibility of alarm bells ringing if foreign currency reserves were too much low as it had happened when the current account deficit had touched $19 billion and the foreign reserves dipped,” the governor SBP said. He explained that the foreign currency reserves did not build up with help of borrowed money and further stated that Net International Reserves (NIR) position had also improved.
However, he preferred not to disclose when asked whether the NIR had turned into surplus or was still in deficit. He argued that the NIR position and the debt-to-GDP ratio improved when the public debt of emerging economies went up by 10 percent while advanced economies grew by 15 percent in the post-COVID-19 pandemic situation.
He said that it was a welcome decision of the IMF to provide $2.77 billion to help the country improve its liquidity as this money would help in jacking up foreign currency reserves. He said that the foreign exchange reserves held by the SBP had touched a historic high of $19.5 billion in October 2016 but the SBP was now going to break this record of historic high after receiving $2.77 billion from the IMF by end of the ongoing month. The foreign currency reserves held by the SBP stand at approximately $18 billion at the moment.
He said the import coverage would also be improved after boosting up the country’s foreign currency reserves. “The market-based exchange rate adjusted two ways keeping in view ground realities as it helps to boost exports and make imports expansive," he added.
Answering a query, he said that the country had to pass through boom-bust cycles and it was proved because Pakistan had to go back to the IMF for more than 20 times. “Now the question arises how this growth trajectory should be kept sustainable,” he added. “We hope to achieve sustainable growth because the exchange rate was market based and we are hopeful that the current account deficit will not be ballooned to an unimaginative level.”
When asked about the Kamyab Pakistan Program (KPP) for doling out Rs 1.6 trillion loans among the poor, he replied that the SBP was extending all-out support for this program because it would help in achieving financial inclusion. He said that Micro Financial Institutions (MFIs) would be utilized for scaling up loans but its design would be focused upon in order to avoid leakages. “The well-targeted design and audit of the KPP will help to do things contrary to the past practices,” he added.
Talking about the policy rate, the governor SBP said that there was forward looking assessment given in the monetary policy statement that if the inflation hiked because of a surge in demand, then the policy rate could gradually go up but if there was supply side phenomena, then the monetary policy was expected to remain unchanged. He said that remittances had touched a historic high of $29 billion and there were certain risks including its base effect.
However, he was of the view that the SBP took conservative number on account of remittances while making assessment on the current account deficit ranging from 2 to 3 percent of GDP for the current fiscal year.