Baqir highlights SBP measures amid COVD pandemic

Governor State Bank of Pakistan (SBP) on Monday has said Pakistan's economic fundamentals were in a better position during the COVID pandemic as the country has started to address its external imbalances.

“Whenever we think about the future of the developing countries, we first need to see the experience of developing countries with respect to economic growth. If you look at history then we would see that the countries which were considered as the most advanced changed throughout history. For example, at present USA, China, European countries and Japan will be considered as economically advanced, but if we analyze the data compiled by economics historians one will be surprised that Argentina was once considered an economically advanced country some decades ago,” said Dr. Reza Baqir, in his address during the CFO Conference 2021 on 'Economic Dimension - The Future of Developing Countries'.

Giving an example of China, Governor State Bank of Pakistan said that if we look at China three decades back its economy was not as strong as it is today. “With these examples, I would like to convey that when we talked about the economic future of the developing countries we must keep in mind that our future is in our own hands,” he said.

He said, “in Pakistan context, we faced a number of challenges throughout our history. One such challenge was the regular occurrence of boom and bust cycles, we needed to approach IMF on several occasions. However, we should be hopeful that our future is not constrained by our past and we can also achieve the same level of growth as other countries did by controlling the persistent economic challenges and can change our future.”

“Secondly, if you look at all the developing countries and their experiences during the coronavirus pandemic, the one important point that we all agree on is that the coronavirus crisis was an external shock. However despite this external shock, some countries were in a better position than the others,” said SBP Baqir.

He said that the developing countries whose macroeconomic indicators were in better shape in particular addressing their external and fiscal imbalances before the crisis emerged in a stronger position than others.

“If we see that the countries which were facing high current account deficit before the coronavirus pandemic such as Turkey, Brazil, and South Africa have witnessed volatility during the pandemic. On the other hand, the countries which have strong economic fundamentals in these areas prior to the coronavirus pandemic have managed to give a better economic response and their financial markets are not facing the same challenges,” he said.

Governor State Bank said that the same applies to Pakistan as well. He said that Pakistan's economic fundamentals were in a better position during the coronavirus pandemic as the country has already started to address its external imbalances since early 2020.

Baqir informed that Pakistan's current account deficit stood at $19 billion two-three years ago, which was an outflow on State Bank reserves and on the country's foreign exchange balance sheet. “Before Covid, we were able to control this current account deficit meaning that during the pandemic Pakistan had already demonstrated that it was able to improve its fundamentals.”

“Whereas on the fiscal side Pakistan primary deficit witness a turnaround after five years and during the nine months of the fiscal year it was in surplus,” he said. A similar increase was witnessed in the tax revenue as well, said Baqir.

Baqir also lauded the Ehsaas cash transfer program in its role in alleviating poverty in the country, especially during the Covid pandemic. On policy rate, Baqir informed that Pakistan reduced its interest rate by 625 basis points since 1st February 2020 to provide interest expense relief for borrowers. The central bank chief said that about Rs 2 trillion liquidity or five percent of the GDP was injected through SBP’s economic policy support measures during COVID.