Exchange rate: Situation different from Sri Lanka’s, says SBP

ISLAMABAD: A State Bank of Pakistan (SBP) official on Wednesday said that the central bank was not sitting idle but was moving cautiously to avert disorderly movement of the exchange rate.

However, the official was of the view that if the SBP intervened more frequently, it would result in losing the foreign exchange which the country cannot afford to keep in view of depleting reserves positions.

The senior SBP official, who did not wish to be identified, in a press briefing termed the current fiscal year 2022-23 as the most difficult fiscal year on the economic front mainly because of geo-political environment in the wake of ongoing Russia-Ukraine war and super cycle of commodities prices that had even created a difficult situation for Federal Reserve Bank of USA. On the domestic front, the official said that political uncertainties and bad sentiments increased difficulties. The trust deficit struck with the IMF in the aftermath of breach of agreement with the Fund by the last government increased Pakistan’s problems. The IMF was quite annoyed because of expansionary fiscal policies and doling out of subsidies in the last fiscal year, which was done by the PTI government. After passing through difficulties, he said that Pakistan struck a staff level agreement with the IMF.

“Pakistan achieved 6 percent GDP growth in the last two fiscal years that created imbalances, so the country would have to moderate its GDP growth in the range of 3 to 4 percent,” he said and added that no one should make comparison with Sri Lanka. “We should stop politics on economic front,” he advised and added that all political parties had agreed on IMF program except the PTI but everyone knew that it was the party that had signed the EFF agreement with the IMF. “We will have to remain under the IMF program keeping in view the massive external financing requirements,” he said and added that it was a wrong impression that the central bank was lying idle and doing nothing on the exchange rate. “We moved to avoid disorderly movement in exchange rate. The IMF can deal with any government, including caretaker setup,” he said.

He said that he did not want to comment how the inflation target was fixed at 11.5 percent by the government on the occasion of the last budget for 2022-23. However, the SBP’s target would be hovering around 18 to 20 percent. He said the dollars received through Roshan Digital Accounts (RDA) were cheaper than bond yield witnessed in recent days.

The official distanced himself from the inflation target of 11.5 percent in budget 2022-23 and said that he did not want to comment on how the inflation target was fixed for the current fiscal year. He said the SBP saw inflation around 18 to 20 percent. Further, he was of the view that the IMF program was on track and the Fund’s Executive Board would meet on the first available date after summer vacations in the first two weeks of August. The official said that all political parties had agreed on fulfilling the IMF conditions except PTI but it was also a fact that the ongoing Extended Fund Facility (EFF) was signed by the PTI-led government.

Official sources said that the government is likely to appoint a permanent governor SBP and a decision to this effect will be taken by the government soon. The name of the acting governor SBP is also considered for permanent governor under the SBP Amended Act 2022.