IN his policy statement before a parliamentary panel, State Bank governor Jameel Ahmad on Wednesday spelled out the central bank’s views on risks to inflation, monetary policy stance, growth outlook, and external sector sustainability. Much of what he told the parliamentarians is part of the latest monetary policy statement. In spite of criticism from the panel against the tight monetary policy and its impact on growth, he said the bank would continue to pursue a tight stance and maintain its policy rate in positive territory to tackle risks to inflation. Though he projected inflation to remain in the range of 11.5-13.5pc, he elaborated that prices might surge in the coming months because of inflationary budgetary measures and potential increases in global energy prices emanating from the Middle East crisis.

Though these developments have been factored in the projected range of inflation for the present year, he noted, the pursuit by the government of expansionary fiscal policies and unmet foreign loans could push inflation higher than anticipated levels, putting pressure on our meagre reserves. Hence, the bank would follow a cautious monetary policy stance, at least in the near term. Nonetheless, he reassured lawmakers, the foreign debt repayment crisis was over. This assertion can be questioned. Mr Ahmad’s overly optimistic view stems from recent debt rollovers secured from China, Saudi Arabia and the UAE, and the anticipated approval of a new IMF deal this month, which still hinges on the extension in the maturity periods of Chinese bank loans of $4.4bn. He is also hopeful of reserves rising from around $9bn to $13bn at the end of this fiscal, even after meeting all debt payments. This talk betrays the grim reality that economic recovery remains fragile and the medium-term growth outlook subdued. It is going to be a long journey. Any push to accelerate growth without controlling the fiscal deficit and curbing public debt will only deepen the crisis.

Published in Dawn, August 9th, 2024