• State Bank chief says lender’s condition for forward book target of $4.2bn already achieved
• Insists foreign exchange buffers improving as reserves rise, liabilities fall

KARACHI: The State Bank of Pakistan has not only surpassed its forward book target of $4.2 billion for end-September, as agreed upon with the IMF, but is also “very comfortably placed” to meet the other end-quarter targets, including net international reserves and net domestic assets, SBP Governor Jameel Ahmad has said.

Mr Ahmad’s remarks came during a series of meetings with international investors hosted by top-tier global banks like Barclays, JP Morgan, Standard Bank and Jefferies during the IMF-World Bank gatherings in Morocco, according to an SBP statement issued on Friday.

He briefed the investors about the recent macroeconomic developments, policy responses to current challenges and the outlook of Pakistan’s economy, and also answered their questions.

The SBP chief’s statement comes as Pakistan is trying to navigate a tricky path to economic recovery under a caretaker government in the wake of a $3bn IMF loan programme, approved in July, that helped avert a sovereign debt default.

Mr Ahmad told the investors that the foreign exchange buffers were improving with both build-up in reserves and reduction in forward foreign exchange liabilities.

Since January, SBP’s foreign exchange reserves improved from a low of $3.1bn to $7.6bn as of end-September, he said, adding that the reserves build-up was largely supported by non-debt creating inflows amid favourable market conditions.

The current account deficit (CAD) reduced to 0.7 per cent of GDP in FY23 from 4.7pc in FY22, he said. “The earlier administrative measures that had contributed to the lowering of CAD last year are now withdrawn,” he said.

He said the ongoing stabilisation measures and flexible exchange rate were expected to keep the current account deficit in the range of 0.5pc to 1.5pc of GDP in this fiscal year.

“The SBP’s forward foreign exchange liabilities have declined and the forward book target of $4.2bn for end-September 2023 agreed with the IMF has already been met by a wide margin,” he said. “Similarly, the SBP is also very comfortably placed to meet the other end-September IMF targets, including Net International Reserves (NIR) and Net Domestic Assets (NDA).”

He told the investors that Pakistan was on track to address the long-standing structural weaknesses, and with support from its multilateral and bilateral partners, it would be able to achieve sustainable and inclusive economic growth over the medium term.

Mr Ahmad said the SBP was among the first central banks that began to tighten monetary policy in the wake of the globally rising inflation. However, certain domestic challenges, most notably the unprecedented floods in the beginning of the previous fiscal year, complicated the central bank’s efforts to bring down inflation, he said. On a cumulative basis, the bank has increased the policy rate by 1,500 basis points over the last two years.

The SBP governor said the stabilisation measures had started yielding results. Inflation had come down to 31.4pc in September after peaking at 38pc in May and was expected to continue its downward trajectory over the coming months, whereas the external account had improved considerably and foreign exchange buffers are being built up, he said.

With the policy rate at 22pc, the SBP assessed the real interest rates turning substantially positive on a forward-looking basis, as inflation was expected to come down significantly during the second half of this fiscal year, he said.

He told the investors that the current policy mix adopted by the government and the central bank was aimed at achieving stabilisation by addressing macroeconomic imbalances. Likewise, the government had stepped up its fiscal consolidation efforts, he said.

“The Stand-By Arrangement with the IMF is expected to support the ongoing policy efforts to stabilise the economy,” said the SBP governor.

He also highlighted the shock-absorbing role of the market-determined exchange rate and the support from multilateral and bilateral lenders in addressing the external sector challenges.

Published in Dawn, October 14th, 2023

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