- Official says Pakistan’s import bill and political instability are main reasons for depreciation of the rupee
ISLAMABAD: The ongoing fiscal year 2022-23 is being viewed by the central bank as the most challenging for the country’s economy and even worse compared to the challenge of the Covid-19 pandemic because of the global commodity prices and the geopolitical situation.
According to an official of the State Bank of Pakistan (SBP), this shock that the country is facing right now is worse than Covid-19 because it was being fuelled by various things ie global prices of commodities, geopolitical tensions as to what Russia would do and high inflation in every country. This year is difficult for the global economy and the central banks are struggling to manage things, he added. He said that after February 2022, there was uncertainty because the then government budged from the commitment made to the International Monetary Fund (IMF) regarding the levy on petroleum products.
He said that it was very difficult to convince the Fund because its trust was low and it wanted the government to take some prior actions to demonstrate that it was serious about implementing the programme. Difficult decisions taken by the present government led to improvement in the trust level of the Fund and after first two-week holidays in August, the Executive Board of the IMF would consider Pakistan’s case in its meeting, he added.
We have done all the difficult things, he said, adding that uncertainty has once again increased after the recent by-election results but it is lesser compared to February because the IMF is ready to work with any government. He said that Pakistan’s import bill and political instability are the main reasons for the depreciation of the rupee. He said that measures have been taken in the budget for much-needed fiscal tightening as six percent growth is not sustainable and 3-4 percent growth would suffice in the current situation.
The official said that as far as the exchange rate is concerned, the last two to three days have been about sentiments because no one was sure as to what would happen to the IMF programme following the political development.
He said that the perception that the central bank is not simply watching the situation and everything was being left on the market forces was not accurate as it has been intervening where necessary in terms of the exchange rate. We are trying to manage the inflation, he said,
The official urged everyone to avoid using the word default for Pakistan and not compare the economic situation of Pakistan with Sri Lanka because Pakistan’s debt-to-GDP ratio was less compared to Sri Lanka and it had taken two years to make necessary adjustment in terms of the balance of payment and the exchange rate.
Pakistan has taken difficult decisions and there is a need that reforms agreed with the IMF are implemented because it is important for Pakistan to remain in the IMF programme for payment of external liabilities.
Copyright Business Recorder, 2022