Before Pakistan’s return to the IMF, SBP bosses are ‘confident’

Before Pakistan’s return to the IMF, SBP bosses are ‘confident’

Dr. Raza Baqir, a former official of the International Monetary Fund and current Governor of the State Bank of Pakistan (SBP), talks on April 4, 2021, at the Geo News program, New Pakistan in Islamabad, Pakistan. News via Geo News / Screen Grub

ISLAMABAD / KARACHI: State Bank of Pakistan (SBP) Governor Dr Raza Baqir on Sunday said he was “confident” in the International Monetary Fund (IMF) for financial assistance before his next repatriation.

Dr. Baqir’s comments came during his appearance Geo News The program “New Pakistan”, hosted by Shehzad Iqbal, in which a SBP official said that the country’s economy is better during the third Corona virus wave than the first two.

Baqir said that Pakistan’s economic performance in the last two years should give people confidence when the country goes back to the IMF. “We have always tried to ensure that policies in favor of the nation are implemented and we will continue to do so,” he added.

“Along with sales of cement and cars, there has been growth in various sectors, including fast-moving consumer goods (FMCG),” he said. “All of them have a growth rate of 20-30%.

Therefore, the SBP has revised its monetary policy [Pakistan’s] The growth forecast is 3% and the expectation for the next financial year will be much higher than that. “People should have a sense of urgency and hope that if the country passes the first test successfully, it will do the same again,” he added.

IMF has ‘when there is no other option’

When Iqbal mentioned that there were fears in some quarters that a return to the IMF program could lead to rising inflation and that the third corona virus could harm economic activity, Dr. Baqir responded by saying that At that time, the country’s economy was bad, forced to return to the IMF in June-July 2019.

“Foreign exchange reserves at that time were ارب 7 billion and today that number is 13 13 billion. We managed to collide. [foreign exchange] Despite the reserves [coronavirus] The wave of shock that affected the world and we succeeded in doing so because of our policies.

He said that many people were worried about why Pakistan had to go to the IMF for help but he clarified that during his experience of working there for nearly two decades, he had observed that any country is happy. Did not go to the International Monetary Fund.

“Countries go to the IMF only when there is no other option,” he said, adding that Pakistan needed to reduce the “19 19 billion trade deficit we inherited”. And that number is now 800 800 million.

Pakistan will take ‘all possible concessions’

In response to another question as to why Pakistan failed to negotiate better with the IMF, the current situation in which an increase in electricity tariffs has been stipulated, with a tax rebate of Rs 160 billion next year , And possibly new tax exemptions worth Rs 700-800 billion. It will likely stifle demand in the economy – he said “better negotiations have already taken place” and more will be done in the future.

“We will take whatever concessions we get. For example, when there was a fear of a rise in interest rates, when the market knew that Pakistan would have to go back to the IMF. However, we have monetary policy. Guided further during the Committee (MPC).) Meeting two months ago.

“But we emphasize that we see that the monetary policy framework will remain the same in the near future. The current economic policy is a great help to our economy.

“In one of our COVID-19 initiatives, the Interim Economic Refinancing Facility (TERF), an investment of Rs 400-400 billion has been made and it could bring another momentum to the economy. This has never happened before.

In addition, during the Corona virus epidemic, the debt mark and payments of Rs 900 billion were postponed. The SBP provided cheap loans of Rs. 250 billion to retaining companies, which was a condition.

“We have given enough impetus to the economy to get out of this COVID-19 epidemic successfully. There is a lot of momentum towards demand.

“In future negotiations with the IMF, our primary focus will be on job security and we will continue to do so in the future.”

Supply factors ‘causing inflation’

In a recent SBP report, Pakistan’s Consumer Price Index (CPI) was recorded at 9.1 per cent in March, money supply at 18 per cent and basic inflation in rural and urban areas at 7.3 per cent and 6.3 per cent, respectively.

In this regard, Iqbal asked whether the SBP would be able to uphold its decisions and policies.

Baqir responded by saying that the central bank has provided guidance and in the near future “monetary policy arrangements will remain the same as they are now.”

“However, if change is needed, it will be slow and measurable,” he said. At the moment, he added, MPC policymakers believe that supply factors are causing inflation.

“The best response to these supply factors is administrative measures, which pay less attention to policy rates.”

Asked why Baqir was so reassured that the policy rate would not hit more than 13 per cent as before, the SBP governor said it was not the first instance of a higher mark-up rate.

The first example was from July 2008 to November 2009 and the second example was from August 2010 to October 2011 but, at that time, Imran Khan was not in government.

“We had to do this because our economy was going through a challenge, in which Pakistan was facing a huge current account deficit. The solution had to be such that the situation could not be repeated.

“We ended the policy rate for only 7-8 months but since then, we have reduced it at a pace never seen before in the world.”

Market-based exchange rate ‘significant’

Asked if his growth would be sustainable this time around, Dr Baqir said he was “absolutely confident”.

“Last time, when GDP [gross domestic product] Growing up, it was artificial growth because interest rates were kept at artificial levels, our exports were not growing, and imports and consumption increased significantly.

“In June 2019, our reforms made the exchange rate market-based, so it is determined by a variety of supply and demand factors. It is important for future economic growth and development. The exchange rate plays a good role. And the current account deficit will not increase as it did before.

“Never before in the history of Pakistan has the account deficit been so high and now the trade balance deficit is widening, which is a good reason.”

The SBP will definitely have the capacity to lend in a war-like situation

Talking about possible amendments to the State Bank of Pakistan Act, 1956, the SBP said that there was no mention of the central bank’s objectives at present. “The language of the league has been used in the legislative proposal,” he said.

“The current bill focuses on domestic price stability, financial stability, and their support for government growth and development policies,” he said, adding that central banks around the world had key targets.

“If domestic price stability and financial stability are prioritized, the benefit will be that future growth will be sustainable, not artificial.”

“Financing facilities such as [aforementioned] TERF, export financing, long term financing facilities [LTFF] Baqir said the new act would be retained.

“This is an important way for the SBP to support development. God forbid, however, if there is a war, the central bank will definitely have the capacity. [to lend] Because it can inject liquidity into the secondary market where government bonds are traded, it can buy these bonds, and commercial banks can lend to the government in an emergency. “

In response to another question about Prime Minister Imran Khan’s economic team and the fact that finance ministers from Asat Umar to Abdul Hafeez Sheikh and now Hamad Azhar are constantly being changed – Shaukat Tareen’s assistant in this regard. However, the SBP said it believed it was “inappropriate” to comment.

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