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Sunday, June 9, 2024

No comparison with Sri Lanka should be made, SBP says

The central bank was not sitting inactive but was acting cautiously to avoid disruptive fluctuation of the exchange rate.

Current scenario of Pakistan in terms of deteriorating economy and political uncertainty have caused a fear that Pakistan might become the next Sri Lanka. On Wednesday, official from State Bank of Pakistan (SBP) stated that the central bank was not sitting inactive but was acting cautiously to avoid disruptive fluctuation of the exchange rate.

However, the official was of the opinion that if the SBP intervened more regularly, the government would lose foreign exchange, which it cannot afford to keep due to already depleting reserves.

Read more: Pakistan is at risk of default: Bloomberg

The senior SBP official who wanted to stay anonymous, during a press conference considered the ongoing fiscal year 2022-23 as the most challenging fiscal year due to disrupted geo-political environment because of Russia-Ukraine conflict and super cycle of goods prices that had even created a difficult situation for Federal Reserve Bank of USA.

The official said that lack of political certainty and bad sentiments added to the challenges. The trust gap established with the IMF as a result of the previous government’s breach of agreement with the Fund exacerbated country’s challenges.

Read more: Sri Lankan Crisis: A lesson for Pakistan

The IMF was irked by the PTI government’s expansionary fiscal policy and subsidy distribution in the previous fiscal year. He stated that Pakistan reached a staff level agreement with the IMF after overcoming challenges.

According to him, Pakistan attained 6 percent GDP growth in the last two fiscal years, which generated imbalances, thus the country would have to reduce its GDP growth in the region of 3 to 4 percent. He emphasized that no comparison with Sri Lanka should be made.

Also, he advised that we should stop politics on economic front. In addition, all political parties had agreed on IMF program except the PTI but everyone knew that it was the party that had signed the EFF agreement with the IMF.

He highlighted that the country is in dire need of IMF program due to massive external financial requirements.  he said and added that it was a wrong impression that the central bank was lying idle and doing nothing on the exchange rate. “We moved to avoid disorderly movement in exchange rate. The IMF can deal with any government, including caretaker setup,” he said.

He stated that he did not want to remark on how the administration set the inflation target at 11.5 percent in the latest budget for 2022-23. The SBP’s aim, on the other hand, would be in the 18 to 20 percent range. He claimed that the dollars acquired through Roshan Digital Accounts (RDA) were less expensive than the bond yields seen in recent days.

The official restrained from commenting the way the inflation target was fixed for the current fiscal year. He stated that the SBP experienced inflation of 18 to 20 percent.

Furthermore, he believed that the IMF program was on track, and that the Fund’s Executive Board will meet in the first two weeks of August, after summer holidays.

According to official sources, the government is likely to nominate a permanent governor of the SBP, and a decision will be made soon. Under the SBP Amended Act 2022, the name of the acting governor SBP is also considered for permanent governor.