ISLAMABAD - State Bank of Pakistan (SBP) on Wednesday claimed that default of the country is out of question as the economy is running on right path.

The country’s situation is completely different from Sri Lanka, as their fiscal situation was much deteriorated than Pakistan.

A senior official of the SBP informed that there should be no use of word ‘default’ as the country’s economy is moving in right direction. “Fiscal year 2022-23 is one of the toughest years for the economy,” said a senior official of the SBP in media talk wishing not to be named.

He further said that the global economy is confronting with several challenges including higher commodity prices, Russia-Ukraine war and others, which are worse than the Covid-19 situation. Due to the aforesaid reasons, inflation in different countries had touched 40-year highest level.

Talking about Pakistan’s economy, he said that apart from global issues, the domestic issues have also played a role in the current economic situation. He informed that uncertainty in economy was created after the vote of no-confidence motion in February-March this year. He said that the decision of previous government of giving blanket subsidy on oil prices had resulted in suspension of International Monetary Fund’s programme that created uncertainty on economic front. The recent by-election in Punjab province has once again created uncertainty. However, its intensity is lower than the uncertainty caused in February or March.

He said that the incumbent government has taken tough decisions including increasing oil prices to revive IMF’s programme. All political parties are agreed on the IMF’s programme except PTI. “Next 12 months will be difficult for Pakistan without IMF”. In case of political instability, the IMF has no problem negotiating with the caretaker government, as it had already happened in 1990s. He informed that the IMF board would approve loan tranche for Pakistan after mid August.

The official said that the SBP is increasing interest rate.

The country’s economic growth had touched 6 percent in last two years, which is not sustainable as economy has started overheating due to increase in imports. The government had announced tough budget to control the situation. He claimed that country’s GDP growth would be moderate at 3-4 percent during the current fiscal year. The SBP official said the State Bank is constantly monitoring the economic situation and also taking steps to stabilize the rupee, adding that Pakistan will never default because the country’s situation is completely different from Sri Lanka. The country is in IMF’s programme, which would provide help to meet external financing situation.

Meanwhile, other friendly countries have also announced to provide assistance to Pakistan, he added.

Talking about the exchange rate, the official said that foreign exchange reserves would further decline if the central bank wants to intervene in the market for stabilizing the currency. The central bank intervenes only when there is need.

n Central bank terms 2022-23 toughest fiscal year for Pakistan due to international prices increase n Miftah blames political turmoil for rupee freefall n Says trade deficit recorded at $48b, CAD at $17b during last fiscal year

The government has controlled the unnecessary imports. He did not comment on the exchange rate value for next few days. He claimed that Pakistan’s external financing is higher but the debt to GDP is on the lower side, 70 percent, as compared to the other countries. Meanwhile, the country’s interest payment is also on the higher side.

He rejected the claims that currency depreciation is one of the prior actions of the IMF for loan tranche. He admitted that arranging financing is a tough job but with the help of IMF deal the government could arrange it.

He said that inflation has increased due to the currency depreciation. He added that inflation would remain in the range of 18-20 percent in current fiscal year as per estimates of the central bank.

He informed that SBP has taken measures to control imports. It included reduction in the maximum time available for exporters to surrender FX in the interbank (from 6 to 4 months) to improve the supply. A new product for incentivizing exporters to forward sell their export proceeds (i.e. bill discounting) instead of holding them. Exchange companies were incentivized to surrender US$ in interbank market. Imposition of 100% cash margin against LCs opened for the import of non-essential items.

 

 

 

 

Finance Minister Miftah Ismail on Wednesday held political uncertainty in country responsible for rupee’s depreciation following the by-election in Punjab and hoped that situation regarding currency depreciation would move towards normalisation in next few days.

Address a press conference, finance minister informed that Pakistan would receive financing of around $8.5 billion from friendly countries in next few months apart from the inflows from multilateral sources that would fulfil the financing requirements of the country. He said that the government would receive loans from World Bank, Asian Development Bank, Asian Infrastructure Investment Banks and others after a deal with International Monetary Fund (IMF).

He said the IMF deal has done and the Executive Board would soon approve the loan tranche for Pakistan as the country had already met all the prior requirements for the fund. He clarified that there is no prior action regarding increasing gas prices. Meanwhile, the government would increase the electricity tariff as per agreement with the IMF.  However, the government would protect poor segment of the society from hike in electricity tariffs.

Without sharing the names of   friendly countries, Miftah Ismail said that Pakistan would receive $1.2 billion deferred oil payment facility from a country. Meanwhile, one friendly country has expressed interest to invest one to two billion dollars in Pakistan stock market whilst another has shown interest to provide gas worth $2.4 billion to Pakistan on deferred payment. Similarly, another friendly country will deposit two billion dollars with State Bank of Pakistan whilst another will provide two billion Special Drawing Rights (SDRs). The government also want to sell out Balloki and Haveli Bahadur Shah Power Plants, which would generate additional $2 to $3 billion.

Finance minister said that trade fundamentals have been corrected as a result of measures taken by the present government over the last few months. The government is working to control the imports, which had increased massively in last fiscal year. Imports had recorded to highest ever $80 billion in previous fiscal year, which exerted pressure on the currency in last six to eight months. Trade deficit had recorded at $48 billion dollars and $17 billion current account deficit (CAD) during the last fiscal year, which, he stressed, the country cannot afford.

Talking about increase in imports, Miftah said that energy imports increased due to price-hike in the international market and the import bills surged by 120 percent last month. He said that there were imports of $7.4 billion in last month including $ 3.7 billion in energy and $3.7 billion in other imports. Imports would be controlled by $2 billion in current month (July) by controlling energy imports, he said and added that in current financial year, the government would meet the imports through exports and remittances, as the government does not have space in foreign exchange reserves to reduce deficit.

Miftah Ismail said that Pakistani currency has appreciated against other currencies Euro, Pound and Yen. However, it has depreciated against US dollar   like currencies of other countries. He further said that things would further improve from next month (August).  Quoting the State Bank of Pakistan (SBP), Miftah said that in terms of real effective exchange rate, the rupee has depreciated by 3percent since December keeping in view the inflation.

Talking about economic situation, finance minister said that tax collection had recorded highest growth in last month and the government had paid all pending refunds. The agriculture sector is also showing handsome growth. He further said that government would control the inflation rate in next two to three months. He said that the government will enhance tax to GDP ratio and reduce the budget deficit during the current fiscal year. He was confident that the issue of inflation will also be tackled in the next two to three months.

He claimed that the country has stock of diesel for 60 days.