December 07, 2018 (MLN): Monetary and Fiscal Policies Coordination Board met on Friday to review the current state of Pakistan’s economy. Finance Minister Asad Umar chaired the meeting, revealed a recently issued, press release.

According to the press release, the following areas were reviewed :(i) the fiscal policy; (ii) the external sector and (iii) the recent steps in monetary policy.

While reviewing fiscal policy, the Board noted that fiscal deficit for the first quarter of FY19 turned out to be 1.4 percent of GDP.

The Board appreciated the authorities’ adjustment plan for fiscal consolidation.

As far as the financing of the fiscal deficit is concerned, the Board discussed the inflationary and monetary impact of reliance on SBP financing during the current financial year. 

Moreover, the fiscal authorities explained that the financing mix is expected to record a substantial improvement as most of the external financing would be realized from January, 2019 onwards, which will result in lesser reliance on banking sector borrowing.

As per the bulletin, turning to the external sector the Coordination Board was apprised that current account is visibly responding to the measures taken since Jan 2018.

In the first four months, of current financial year, non-oil imports witnessed a decline of 4% compared to high growth of 25% over the same period last year. 

Remittances have recorded a substantial growth in FY19, while exports have shown growth of 4%.

On the exchange rate front, the Board discussed the recent volatility in the PKR parity.

The Board is of the view that the present developments are mainly explained by market demand-supply gap of dollar liquidity on the one hand and more underlying structural impediments on the other. In principal the parity should be at their competitive-enhancing levels, says the press release.

The Board also anticipates that the short-term conditions on the exchange rate front are likely to normalize. Particularly, availability of deferred oil facilities and the recent decline in the international oil prices is expected to reduce pressures in the Pakistan foreign exchange market in the near-term. Moreover, the bilateral flows would close the financing gap for FY19. These positive developments will build FX reserves in the coming months.

On recent changes in monetary policy, the Board was of the view that the stance is appropriate at current levels given the projections for inflation in FY19 and FY20.

Going forward, the Board expects that the Monetary Policy Committee would continue to make data-driven decisions based on macroeconomic fundamentals.

Furthermore, the Board advised authorities to be more forthcoming with the stakeholders to explain the homegrown adjustment plan, which seems to be effectively working for the stabilization of the economy.

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