October 22, 2019 (MLN): Highlighting the macroeconomic imbalances in the past, Governor State Bank of Pakistan Reza Baqir, while speaking on Pakistan's economy at an international forum has said that the primary cause of Pakistan economic malaise was its escalating current account deficit that used to be less than USD 500 million in early 2016 and increased to USD 1.5 to 2 billion per month by mid 2017. The exchange rate was fixed during this time and was not allowed to adjust to bring the CAD down to reasonable levels.
“The increase in CAD came from a consumption-driven boom where consumption expenditure was noted close to 6% of GDP in FY18 compared to an average of 3 to 4 % in this decade,” says Governor SBP.
He further said that the other point of economic concern was the steep increase in the fiscal deficit that rose to a high of 9% in FY19 compared to a low of 4.5% recorded in FY16, highlighted in the report by BMA Capital.
The SBP Chief while expressing satisfaction over the actions taken by the current government to curb the imbalances said that the first and foremost was the adjustment in exchange rate that has been undertaken in the last 18-months, where the currency is now trading at USD/ PKR parity of 156 compared to 106 in Dec 2017, a devaluation of around 30%.
This has led to a reduction in CAD, which was last reported at a multi-year low of $260 million for Sept 2019 (compared to $1.2 billion in Sept 2018), he added.
Governor further apprised the rise in volumes in exports that are up by more than 10% during the last 18-months due to a more competitive exchange rate environment.
The Governor also shed light on the tax drive b the current government and highlighted the improved fiscal picture by stating that the surplus on primary fiscal balance is a notable achievement.
While defending the monetary tightening during last 18-months, SBP Governor elaborated that due to currency devaluation and adjustment in utility prices to reduce the fiscal deficit, inflation has risen in Pakistan during last 18-moths from low single digits to double digits. Consequently, SBP raised the policy rate by 7.5% to 13.25% to address the rising inflation.
With regards to foreign inflows, Governor SBP highlighted that the rise in portfolio investments in Jul-Sept 2019 has been driven by foreign inflows in debt securities ($333 million). He also underscored that the government was working on reducing tax incidence on foreign investors in local debt markets to attract foreign investments.
Copyright Mettis Link News
30682
