Despite Covid, Pakistan’s economic fundamentals remained stable, says Baqir

State Bank of Pakistan (SBP) Governor Dr Reza Baqir lauded on Wednesday Pakistan's performance during Covid-19, saying that despite the pandemic, the country's economic fundamentals remained stable.

Addressing a ceremony in Karachi, the SBP governor said, “Pakistan's experience during the Covid-19 pandemic stands out globally, and I, as a Pakistani, feel proud about the country’s coronavirus journey”.

“Coming to the economy, despite the Covid pandemic, our economic fundamentals remained stable,” he said.

“If we look at our historic economic challenges, due to which on several occasions we were compelled to go to international lenders for funds, they were led by two causes i.e. fiscal deficit and current account deficit,” said Baqir.

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He said Pakistan's debt to GDP ratio has reduced in the past two years despite the Covid pandemic.

“In comparison, if we look at advanced economies, their debt to GDP ratio increased by 18% on average, whereas, in emerging markets, the debt to GDP ratio hiked up by 10%, while we managed to reduce it,” he said.

“The indicator, which predicts pressure on the balance of payment or an exchange crisis, is our country’s reserves,” he said. “In 2019, Pakistan’s gross reserves were about the same as its negative forward position, meaning that we stood at net nil position. Currently, despite the Covid-19, we have increased our net foreign exchange buffers.”

Baqir said that in the last two and half years, improvements were seen in the economic fundamentals.

The central bank chief said that there are several factors behind Pakistan's improved showing during the pandemic, which he termed as the biggest global economic crisis since WWII.

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“Our GDP growth during Covid was negative 0.5%, as compared to other countries that saw GDP decline of negative 5-10%. The reason behind Pakistan's low decline was the proactive response of the government,” he said.

Talking about the ongoing rise in current account deficit, Baqir attributed the increase in CAD to an increase in commodity prices in the international markets.

Baqir said that the tools we can use to ensure the current account deficit at a ‘sustainable level’ are the exchange rate and policy rate.

“Since June 2019, we introduced a market-based exchange rate, which was done so because earlier when it was fixed the CAD was unsustainable and taking a toll on the reserves,” he said.

Baqir said that despite daily changes in the exchange rate from January 2020 to December 2021, the average exchange rate in 2021 has remained the same as compared to the previous year.

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“The advantage of having a responsive exchange rate is that it acts as a natural shock absorber, and CAD remains at a sustainable level,” said the SBP chief.

Baqir added that the rise in global commodity prices should be acknowledged as a challenge both globally and locally.