Mainly Driven by Global Commodity Prices: SBP Considers Fiscal Year 23 the Most Difficult for the Economy
ISLAMABAD: The current fiscal year 2022-23 is considered by the central bank as the most difficult for the country’s economy and even worse compared to the challenge of the Covid-19 pandemic due to global commodity prices and of the geopolitical situation.
According to an official from the State Bank of Pakistan (SBP), this shock the country is currently facing is worse than Covid-19 as it was fueled by various things i.e. global commodity prices, geopolitical tensions as to what Russia would do and high inflation in all countries. This is a tough year for the global economy and central banks are struggling to manage things, he added. He said that after February 2022, there was uncertainty because the then government had moved from the commitment made to the International Monetary Fund (IMF) regarding the tax on petroleum products.
He said it was very difficult to convince the Fund because his confidence was low and he wanted the government to take prior action to demonstrate that it was serious about implementing the program. Difficult decisions taken by the current government have led to an improvement in the level of confidence in the Fund and after the first two-week recess in August, the IMF Executive Board will consider the case of Pakistan at its meeting, it said. -he adds.
We have done all the hard stuff, he said, adding that uncertainty has risen again after the recent by-election results but is less compared to February as the IMF stands ready to work with n any government. He said Pakistan’s import bill and political instability are the main reasons for the rupiah’s depreciation. He said steps have been taken in the budget for much needed fiscal tightening as 6% growth is not sustainable and 3-4% growth would suffice in the current situation.
Inflation may stay on the rise: SBP
The official said that when it comes to the exchange rate, the last two or three days have been all about sentiment as no one was sure what would happen to the IMF program following political developments.
He said the perception that the central bank was not simply monitoring the situation and everything was left to market forces was not accurate as it intervened when necessary in terms of the exchange rate. We try to manage inflation, he said,
The official urged everyone to avoid using the default word for Pakistan and not to compare Pakistan’s economic situation with Sri Lanka’s as Pakistan’s debt-to-GDP ratio was lower than that of Pakistan. Sri Lanka and it had taken two years to make the necessary adjustments in terms of the balance of payments and the exchange rate.
Pakistan has made difficult decisions and there is a need for the reforms agreed with the IMF to be implemented as it is important for Pakistan to remain in the IMF program for the payment of external debts.
Copyright Business Recorder, 2022