Time to shift from an inward-oriented to the export-oriented economy: Dr Reza Baqir

December 9, 2019 (MLN): The signs of stability in Pakistan’s economy have started surfacing now through structural reforms initiated by the central bank to encourage exports to help to end the unrelieved business cycle.

In an interview with Bloomberg, Governor Reza Baqir expressed his satisfaction over the improvement in the economic indicators where authorities want to ensure they can keep the growth momentum going by adopting export-focused strategies.

The State Bank of Pakistan is considering giving cheap credit to new industries with export potential and wants commercial lenders to boost their share of loans to small and medium enterprises by more than double to 17% of total private sector credit by 2023.

To boost trade and facilitate exporters, the markup on loans to exporters is less than half of the regular loans, which are currently priced at more than 13%.

From the viewpoint of Dr Reza Baqir, exporters have an important role in the economy. For sustainable development, the country relies on exports. He said a change is needed from inward to the outward-oriented economy.

Dr Reza Baqir joined Central Bank as Governor when a higher debt, lower FX reserves buffers and weak growth had dented Pakistan’s economy. Before that Dr Baqir worked with IMF in different positions for about 18 years. After he took a charge, SBP raised the policy rates while freeing up the exchange rate to raise the revenue to meet the conditions of IMF loans.

Dr. Baqir said to Bloomberg, ‘The measures that are in this program are all measures that we think are going to lay the foundations for sustainable growth and to end the boom-and-bust cycles that have historically plagued us.’ He said, ‘The start is encouraging, it’s very good but we have to keep our eye on the goal post.’

The economy has started bearing fruits. During Sept-Nov 2019, the fiscal deficit shrank by half to 0.7% of GDP when compared with the same period last year. Moreover, for the first time in four years, the current account turned into a surplus in October as per data released by the State bank of Pakistan.

Speaking of the secondary market’s growth, foreign investment in T-bills valued at $1.2 billion since July, while it was almost zero in the past two years. Moody’s changed Pakistan’s credit rating outlook to stable from negative this week on the account of improvement in Balance of Payment supported by policy adjustments and currency flexibility. The positive and induced environment for stabilizing the economy is the result of reforms which was quite different before.

Pakistan’s economy has fallen into a pattern of fast growth followed by a slump in recent years. As the country heavily relies on capital imports, the increase in demand pushed up the imports by three times higher than exports in the last two years ago, resulting in an increase in CAD and falling foreign reserves. It prompted the SBP to devalue the currency by almost half and twofold the interest rate.

On interest rates, the governor said to Bloomberg that policy action depends on inflation projections. The central bank left its benchmark rate unchanged for the second meeting in November after inflation steadied in previous months, but data since then showed a spike in prices, driven by rising food index.

Going forward, Dr Reza Baqir is confident about the prospects of Pakistan’s economy. He said that the expenditures on development projects would bring more optimism in the economy.

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