Pakistan is not vulnerable: SBP chief

KARACHI: State Bank of Pakistan (SBP) Acting Governor Dr Murtaza Syed has denied reports that the country was headed towards an economic collapse, saying that “Pakistan is not susceptible as is being assumed despite soaring global inflation.”

As the world is still in the process of overcoming the impact of Covid-19 pandemic, the next 12 months will be very challenging for the global economy, Syed said in a podcast conducted by the SBP on Saturday.

Dr Murtaza Syed assured the nation that the current leadership at the SBP was fully capable and fully authorised to manage all the regulatory functions. It is fully engaged with global institutions to overcome the present adversities in the international economic environment. The nation should reject the negative fake news circulating on the social-media, as a new SBP Board has also been appointed now.

Record increases are occurring in the international commodity prices and the Fed Reserve is tightening its policies, while all countries are worried about geo-political tensions. The emerging markets are facing a sharp rise in inflation, while financial pressures are growing in countries with high debt-levels, he said.

”Pakistan is not among the most vulnerable countries in the world, so its citizens do not need to panic,” Syed said.

The SBP’s optimism is based on three fundamental reasons:

Pakistan has a reasonable Debt-Level at 70 percent of its gross domestic product (GDP). It is not justifiable to categorise Pakistan’s ‘Debt-to-GDP’ ratio with Ghana (80pc Ratio), Egypt (90pc Ratio) and Zambia (100pc Ratio), while Sri-Lanka has 120 percent ratio, Syed said.

Moreover, Pakistan’s External-Debt is 40 percent of GDP, while Tunisia has 90 percent, Angola has 120 percent and Zambia has over 150 percent. Fortunately, Pakistan is relying more on its domestic debts, which are payable in our own currency and are easier to manage, as compared to external loans which are payable in foreign currencies.

Only 7 percent of Pakistan’s external debts are short-term, other countries have taken much higher short-term external loans, like Turkiye (30pc). Pakistan has taken only 20 percent of its borrowings on commercial-terms, which are concessional loans, taken from IMF, World-Bank or friendly countries. So, it is easier for us to return these loans and all the debt-indicators of Pakistan are much better than the countries who have done more commercial-borrowings, he said.

“Pakistan’s economy was recovering well from the Covid impact, achieving 6 percent growth last year, and hopefully this year too. Therefore, we can afford to slow-down our economy a little bit, so we have started working on adjusting our policies according to this strategy,” he said. “Interest rates have been increased very proactively by SBP, while other vulnerable countries have not increased their interest-rates. Pakistan’s budget will be difficult this year, so we are working on tightening the belt to reduce the economic-vulnerability of our nation,” he added.

Over the next 12 months, the countries that have taken an IMF programme will be much safer, compared to the states like Ghana, Zambia, Tunisia and Angola, who do not have IMF’s support, and they may face bigger pressures. “We have completed the current review with the IMF, and we have successfully achieved the difficult task of receiving a Staff-Level agreement from the IMF, by fulfilling all their requirements. Now, it should be much easier for us to get an approval from the IMF Board to get the large scale funding,” the SBP’s Acting Governor said. “We will also get some additional funding and oil-financing from friendly countries. So, the Pakistanis should dismiss all the economic fears in their minds.”

The Deputy Governor of SBP, Dr Inayat, said Pakistan has nearly $9.3 billion foreign exchange reserves. “This current level of reserves is not too good and we would like to increase it to equal to 3 months of Pakistan’s import bills. However, this current level is not too low or worrisome for the nation. Pakistan also has gold-reserves worth around $3.8 billion,” Inayat said.

“Currently, we are not in a debilitating crisis, so we do not need to pledge these gold-reserves. We must not panic. I advise the Pakistanis to reject the fake news-reports drawing a doomsday scenario for Pakistan,” Inayat added.

The rupee has depreciated very sharply, around 18 percent, since December 2021. However, 12 percent of this depreciation was caused as the US Fed-Reserve increased its interest rates very aggressively, to increase the value of the US dollar. Pressures on the Pak rupee were also created due to rising imports and demand for dollars in Pakistan, while the supply of dollars has remained low due to geo-political and domestic uncertainties.

“We expect the imports to slow down gradually, so this gap in dollar-demand and supply will reduce. The foreign exchange market in Pakistan is functioning consistently, while SBP is vigilantly controlling this market to prevent disruptions or malpractices,” Inayat noted.

“Over the past few months, the global suppliers of oil and gas have begun demanding that any letter of credit (LC) opened by a Pakistani bank must be reconfirmed by an international bank, therefore, the importers of oil and gas in Pakistan were facing some difficulties in their import LC procedures. However, this situation has improved significantly now.”

Deputy Governor Ms. Sima Kamil discussed ‘Mera Pakistan – Mera Ghar’. This affordable financing scheme is designed to facilitate the lower-income segment in buying their own house. However, it has been temporarily halted, as the economic pressures were mounting and the present government needed to make some alterations in the financial-model of this large scale initiative. The finance minister has now decided that the beneficiaries who have completed all the formalities, will be granted these house-loans very soon. The need of the hour is to work-hard and inspire confidence in our economy, to lift the spirits of our people. Together, we will overcome the multiple challenges and defeat all the negativity.