KARACHI: Savings from oil imports have more than compensated for the decline in exports and remittances, State Bank of Pakistan (SBP) Governor Reza Baqir said on Wednesday during an address at the Institute of Chartered Accountants of Pakistan (ICAP).

He went over the pre-Covid-19 economic situation and analysed the impact of the pandemic on the economy. Economic conditions were improving significantly before the coronavirus, both financially and in terms of real economy, he said.

In the middle of 2018, “Pakistan witnessed unprecedented current account deficit” and since then significant improvement has been seen.

He said the net reserves went down to almost zero (gross reserves minus forward liabilities), but they have recovered since by almost $10 billion. Another problem was the primary fiscal deficit, which has also seen a remarkable turnaround, he added.

Real improvement was visible in sectors like construction, exports, stock market and business confidence indices also showed significant improvement, he added. However, the impact of Covid-19 has driven inflation down allowing for what he said was “the highest cut in interest rates among emerging markets.”

The SBP has taken many policy decisions other than rate cuts, he said adding that around Rs500bn loans have been deferred and Rs71bn restructured.

Total liquidity injection by the SBP has been Rs971bn and the government has injected Rs1.2 trillion to mitigate the impact of Covid-19. The GDP growth mark down in Pakistan has been less than other countries, he said, adding that the outlook remains better than other economies.

He said that the available resources are sufficient to meet all external financing requirements and Pakistan remains well funded. He said the SBP has very little concern on inflation and the policy emphasis can now shift towards promoting growth.

If inflation goes up because of food, experience shows it is reversible. Petrol and diesel price cuts will also affect inflation. “Overall, inflation on average will do down,” he said.

Key priority for the central bank is to inject liquidity into the small and medium enterprises, he said while adding that that as new data comes in, the Monetary Policy Committee is ready to take action if necessary.

Day to day and month to month movements in exchange rate are normal, however, we are well funded, he emphasised, adding “it is a market-based exchange rate.”

“There should not be many disorderly movements and the SBP will only intervene when this happens.”

The SBP is close to launching a scheme for digital accounts for overseas Pakistanis; no need for them to be present physically or visit an embassy to open an account.

The SBP is also looking to include investment in treasury bills, govt savings scheme, stock market through these accounts.

Published in Dawn, June 4th, 2020