Pakistan sees 'light at the end of the tunnel’ as domestic activity indicators pickup: Baqir

Governor State Bank of Pakistan (SBP) Reza Baqir has said that the country’s economy is ‘beginning to see light at the end of the tunnel’ on account of pick up in domestic activity indicators, however, the threat of coronavirus remains.

“Overall we are beginning to see light at the end of the tunnel, the Monetary Policy Committee met and took stock of the last months it noticed that many of the domestic activity indicators are starting to picking up, for example, the automobile sales are above Pre-COVID level the cement sales are at a record level, so, on one hand, there is good momentum, on the other hand, there is an increase in the cases of COVID-19 both in Pakistan and worldwide,” said Baqir while talking to CNBC.

Talking about the recent MPC decision, Baqir said that the committee did not see signs of demand-side pressure on inflation so therefore decided to keep the interest rate unchanged.

SBP at its Monetary Policy Committee (MPC) convened on Monday decided to maintain the policy rate at 7 percent. The MPC noted that since the last meeting in September, the domestic recovery has gradually gained traction, in line with expectations for growth of slightly above 2 percent in FY21, and business sentiment has improved further. Nevertheless, there are risks to the outlook.

The Governor said that the committee kept unchanged its projection for growth this fiscal year at about 2 percent.

“Projection of around 2 percent for this fiscal year which ends in July is based upon continuous momentum in activity and as well as the fact that good news on vaccine will give a boost to aggregate demand particularly in our exports market so we are hoping that by December of the coming year we will see our exports beginning to exceed the pre COVID level,” said Baqir.

Talking about the sectors which would be driving the economy, Baqir highlighted that the recovery would be lead by the construction and housing sector, “for which the government has recently coordinated a consistent and holistic policy package to promote housing and construction.”

“At the central bank side we are working with the banks to help them and support this sector,” he said while sharing that the housing finance in Pakistan constitutes less than 1pc of GDP which is a lot less than our peers.

“Steel sales, cement sales all indicators of domestic construction activity are picking up and that is going to provide a big boost. Similarly one of the facilities that the central bank rolled out in the midst of COVID was TERF- Temporary Economic Refinance Facility that gives concessional financing targeted for investment, we are seeing a very healthy pickup in that with over a billion dollars that have been committed for new investment over the last four months,” stated the Governor.