KARACHI, Dec 1: State Bank of Pakistan Governor Dr Shamshad Akhtar said on Monday that more tightening of monetary policy was needed despite a recent increase of policy interest rate to 15 per cent.

Giving a presentation on ‘State of Pakistan’s economy’ to the Senate’s standing committee on finance, revenue, economic affairs and statistics, she said that under the current situation further monetary tightening was necessary to ease demand pressures and ensure long-term growth on a sustainable basis.

She stated this in the context of interest rate of 15 per cent.

The governor stressed the need for aggressive implementation of anti-inflation policies to provide relief to the general public and restore investors’ confidence.

Dr Akhtar said fiscal sustainability is the key factor for macroeconomic stability which requires increase in tax-to-GDP ratio; containment in non-productive expenditures and expanding public-private partnership.

She said that there was also a need to increase exports through diversification of products and markets and enhancing productivity while imports need to be curtailed by containing aggregate demand.

Dr Akhtar said that inflationary trends in the country would settle as global inflation has come down and the government has reiterated its commitment to achieve net zero borrowing from the central bank.

Decline in fiscal deficit to sustainable level and low inflation can play an essential role in improving savings rate, she added.

The SBP governor said: “additional funding needs to be secured to meet the current account deficit which will require i) increase in savings to reduce reliance on external financing, ii) restoration of investor’s confidence to encourage investment inflows and restrict outflows and iii) consistency and continuation of prudent policies.

She said that with the inflow of $3.1 billion from the International Monetary Fund, the country’s foreign exchange reserves climbed back to $9.4 billion by Nov 26.

Dr Akhtar gave a detailed account of the country’s current economic situation in the backdrop of global financial crisis and highlighted issues, challenges faced by the economy.