Governor of the State Bank of Pakistan (SBP), Mr. Jameel Ahmad, held meetings with key international investors during events organized by global banks, including Barclays, JP Morgan, Standard Bank, and Jefferies, on the sidelines of the IMF-World Bank meetings in Marrakech, Morocco. During these meetings, the Governor of the State Bank provided updates on recent macroeconomic developments, policy responses to current challenges, and the outlook of Pakistan’s economy, addressing questions from investors.
The Governor conveyed that the Government’s current policy approach focuses on achieving stabilization by addressing macroeconomic imbalances. He mentioned that the SBP was one of the first central banks to tighten monetary policy in response to rising global inflation. However, domestic challenges, including unprecedented floods at the start of the previous fiscal year, complicated efforts to control inflation. Over the past two years, SBP has raised the policy rate by 1500 basis points, and the government has intensified fiscal consolidation efforts.
Mr. Ahmad noted that these stabilization measures have begun to yield results. Inflation, which peaked at 38.0 percent in May 2023, dropped to 31.4 percent in September 2023 and it may continue decreasing in the coming months. Additionally, Pakistan’s external account has significantly improved, and foreign exchange reserves have bolstered. With the policy rate at 22 percent, real interest rates may turn substantially positive, considering the expected decline in inflation during the second half of the fiscal year. The Stand-By arrangement with the IMF will further support ongoing efforts to stabilize the economy.
Economic Resilience and Multilateral Cooperation
The Governor also emphasized the role of the market-determined exchange rate in absorbing economic shocks and the assistance provided by multilateral and bilateral lenders in addressing external sector challenges. The current account deficit (CAD) reduced to 0.7 percent of GDP in FY23, down from 4.7 percent in FY22. While earlier administrative measures that contributed to lowering the CAD have been withdrawn, ongoing stabilization measures and a flexible exchange rate are projected to maintain the CAD within the range of 0.5-1.5 percent of GDP in FY24.
Mr. Jameel Ahmad informed investors that foreign exchange reserves have improved, reaching $7.6 billion by the end of September 2023, up from a low of $3.1 billion in January 2023. This increase was primarily due to non-debt-creating inflows in favorable market conditions. He also mentioned that forward foreign exchange liabilities have declined, and the forward book target of $4.2 billion for end-September 2023, agreed with the IMF, has been significantly exceeded. Furthermore, SBP is in a fine position to meet other IMF targets for end-September, including Net International Reserves (NIR) and Net Domestic Assets (NDA).
Governor SBP highlighted the challenges faced by emerging economies, including access to capital markets, anti-trade sentiments, debt sustainability, and the need to build climate-resilient and inclusive economies. He stressed the importance of multilateral institutions like the IMF and World Bank in addressing these challenges on a global scale. Pakistan, with support from its multilateral and bilateral partners, aims to address its longstanding structural weaknesses and achieve sustainable and inclusive economic growth over the medium term.
