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TEXT: For more than 17 years, CFA Society Pakistan has been organizing CFA Excellence Awards where different industry professionals and companies are recognized for their work. In this year's CFA awards, SBP Governor Dr. Raza Baqir was the Chief Guest and gave a speech with detailed overview of economic trajectory post Covid-19.

Monetary policy stance will remain supportive as demand side pressures and risks are still limited. Policy makers are persistently engaged with IMF for returning to reforms path and SBP would avoid any premature tightening which could dent confidence building path. Focal point of IMF discussions is around fiscal reforms particularly higher tax/GDP ratio, resolution of circular debt and sustainable growth. Governor mentioned that Pakistan is expected to get back on pre-COVID path of growth and grow at 5% over the medium term. As per survey done by IBA, the business confidence has exceeded its previous pre-COVID peak while LSM growth has also turned positive in Jul-20 which would help achieve sustainable growth targets. On the external account front, current account has been brought into surplus as compared to historic highs of cUSD2bn a month in 2018. Fiscal stimulus was provided during COVID as it was necessary but the fiscal indicators are expected to return to pre-Covid path. It was also highlighted that net reserves buffer (SBP reserves net of forward liabilities) at Aug-20 is around USD7bn as compared to near 0 at Jul-19. The increase in SBP reserves from USD7.3bn at Jun-19 to USD12.1bn at Jun-20 is of high quality and not driven by more loans as net borrowing was actually negative during FY20.

Governor also expressed confidence on overall banking sector stability as overall asset indicators are quite good currently with net infection ratio less than 2%. However, timing on dividend resumption will be decided after considering the data on banks' asset quality, capital and other indicators. Governor also highlighted that currency in circulation (CIC) has increased (relative to overall money supply) over the years after tax was imposed on banking transactions. People have also shied away from formal economy due to increase in fears regarding accountability by law enforcement agencies. However, he suggested that digitization and Fintech would help in bringing CIC ratio down.

Two of the most needed initiatives, mortgage financing and roshan digital accounts, are currently the focus of Central bank as well as Prime Minister Imran Khan. Prime Minister is focused on developing construction sector, where SBP's role is to ensure that financing is not a constraint. SBP has set targets for banks to achieve 5% of lending portfolio to housing financing by Dec-21. On the digital side, on average 1000 accounts are being opened every day under Roshan digital accounts while Banks are also allocating more resources after looking at rising demand. This initiative would also enable investment in Naya Pakistan certificates and other investment avenues like stock market. Resident Pakistanis who have declared foreign assets can also invest in Naya Pakistan Certificates which would also attract investment. Shariah version of certificates is also going to be released soon.

Overall, Governor reiterated to be cautiously optimistic and highlighted that economic activity indicators are picking up, banking sector is likely to remain resilient and macros balances are expected to improve.

SATEESH BALANI, CFA | DIRECTOR, CFA SOCIETY PAKISTAN

Copyright Business Recorder, 2020