LAHORE: State Bank of Pakistan (SBP) Governor Dr Reza Baqir expects the economy to grow 3.5 per cent in spite of an unprecedented slowdown that has seen the manufacturing output decline sharply and private investment dry up at the cost of substantial job losses.

The government is targeting economic output to increase by 2.4pc, the slowest in many years whereas multilateral lenders anticipate the GDP to grow at 2.8pc.

His optimism stems from his reading of the economic stabilisation achieved during the recent months in the wake of fiscal and monetary reforms implemented under the $6 billion loan deal with the International Monetary Fund.

“The tough part [of stabilisation programme] is over and we are out of the crisis ... Now, we have space to execute structural reforms [to support long-term growth],” he told a gathering organised by the American Business Forum (ABF).

“We have managed to fix the economy and our foreign currency reserves are increasing; we no longer need [to] worry about the [balance of payments] crisis.”

Baqir said the government had already implemented tough and unpopular decisions. He said the government’s strategy was to front load the bad news. Giving bad news in piecemeal infuses pessimism about future among people, he said, referring to exchange rate and inflation adjustments made over the last year and a half.

He said the stabilisation of the external account and increase in foreign exchange reserves has created space for the SBP to focus on structural reforms, push exports and increase financial inclusion, particularly through Fintech.

“Our top priority is to support exports and find new exporting sectors other than the traditional ones. We have schemes where we can offer credit to exporters like Long-Term Financing Facility and Export Financing Facility. We are looking to transforming and expanding their scope since these schemes have historically been monopolised by a few exporting sectors,” he said.

“We are keenly looking for new sectors to enhance exports and devising a mechanism to reward innovation and incentivise new sectors, which can also benefit from our cheap credit schemes.”

Baqir lamented the fact that country’s saving rate is the lowest in region.”The real rate of return on savings accounts at present is zero; anyone who possesses saving accounts is getting 11-12pc return whereas inflation right now is 12pc. How can you expect people to save when the return is zero? That’s why they tend to invest in real estate,” he pointed out.

He said savings are important for the country because it is a major reason why Pakistan has faced chronic problem of balance of payments. “Low saving rate is the reason why we have borrowed heavily to invest and this recurring balance of payment crises.”

Published in Dawn, December 17th, 2019