Current economic turnaround sustainable, says SBP’s Reza Baqir

State Bank of Pakistan (SBP) Governor Dr Reza Baqir has said that chances of sustaining the current economic growth momentum are higher than in the past. His remarks come as concerns remain over Pakistan’s ability to sustain economic growth and its persistent boom-and-bust cycles.

Baqir expressed these views while talking to a private television news channel on Friday night, saying that the current momentum in economic growth is different from the ones experienced before due to the surplus in the current account deficit. “If you look at past years when our growth rate was at 4%, for example in FY12, FY14 and FY15, the current account deficit then was recorded at $4.7 bn, $3.1bn, and $2.8bn, respectively,” he said.

The Monetary Policy Committee (MPC) of the central bank too noted that unlike several previous growth upturns in Pakistan, the current economic recovery has been achieved without compromising external stability.

Talking about the decisions made during the MPC, he said that the stance on the monetary policy is very accommodative and supportive of growth. “The policy rate remains unchanged at 7pc while inflation rate rose to 11pc.”

He said that inflation could be limited to 9pc for the entire financial year. The real interest rate is negative if inflation is taken into account, said Baqir.

Baqir said that the supply-side shocks are the major reason behind the rise in inflation. He was of the view that the rise in electricity rate, chicken, and dairy products cannot be brought down through interest rate.

He said that the SBP injected Rs 2 trillion in financial packages during the coronavirus pandemic, which amounts to 5pc of the GDP, whereas a number of packages still remain in the pipeline. “The SBP is among those central banks that are of the view that the cost of withdrawing stimulus too soon are higher than withdrawing stimulus too late,” he said.

Talking about the IMF program, the SBP governor said that the objective of every IMF program is economic stability and development. “If there is no development in the country, how will the IMF get its loan back”, he said.

He said that despite COVID-19, the growth in the debt-to-equity ratio was negligible.

Talking about the recent auction of Wapda green bond, Baqir said that the auction is a testament to Pakistan’s positive image in the global capital market.

Wapda successfully raised $500 million from the international markets at 7.5% on Thursday, completing a landmark deal not just for Pakistan’s power sector, but also the country’s first green bond issuance. It was learned that the bond issue was also oversubscribed by over 4 times, attracting $2.2 billion, and bringing down the initial guidance level that suggested a rate close to 8%.

He said that the performance of Eurobonds issued earlier also showed the confidence of international investors in the local economy.