We are not Sri Lanka: Governor, State Bank of Pakistan

4 June 2022

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KARACHI: We are not Sri Lanka neither we are close to it, in fact, the six per cent GDP growth for the last two years is amazing shocks for the entire world, Acting Governor State Bank of Pakistan (SBP) Dr Murtaza Syed said in a podcast.

“There is no doubt that the economy is facing challenges and the economies of many countries are in trouble due to commodity high prices after Covid. Sri Lank is one of them, but they did not manage well and took some wrong or late decisions that created problems for the country,” Dr Syed said in the SBP podcast.

“Pakistan is not Sri Lanka. The country was badly hit by Covid as their income from tourism dried up. The tourism-based economy failed to fight off the challenges. For two years, they allowed the budget deficit to increase, which brought pressure on the current account. They did not raise the interest rate for two years. For two years, Sri Lanka kept the exchange rate unchanged, which means they were using their reserves to keep the exchange rate at the desired level. It finally resulted in a large current account deficit and their foreign exchange reserves being depleted. The only way to plug the current account is to throw dollars in to the market which eroded the reserves; finally the exchange rate went by 50-60pc overnight.

The SBP official said Sri Lanka did not manage the public debt, which kept increasing for two years. “Their reserves fell sharply, the interest rate suddenly went up in a panic, and the economy failed to meet the basic requirements. The public debt became unmanageable,” he added.

Pakistan was extremely cautious after Covid-19. The State Bank provided stimulus while the government was more cautious and targeted.

“The public debt increased by up to 10pc in most countries, but in Pakistan it fell,” said the governor.

Our public debt to GDP, in fact, decreased from 77pc in 2019 to 71pc today, down by 6pc, he said.

“Indicators are much better than in most of the countries hit by Covid. Our growth was one of the best among the Covid-hit economies. It was an amazing shock for the world. Our economy recovered quickly, and for the last two years, the growth has been about 6pc,” Dr Syed said.

Reserves in 2019 were $7 billion while forward booking was $8bn which means our reserve was negative one billion dollars. Now we have $10bn reserves while the forward booking is $4bn which means we still have reserves of $6bn, he said.

“In all the main dimensions, we are in a much better position. Another important point is that we are in the IMF (International Monetary Fund) programme and they are supporting our reforms.”

Pakistanis never defaulted before and will not default, Dr Syed added.

He said that talks with IMF are in right direction. We should know that the IMF suggests what is good for an economy. What the IMF is saying about Pakistan is that the subsidy on oil was not affordable for the Pakistan economy as the country does not have enough resources. The deal with the IMF is very close, he said.

Talking about the Roshan Digital Accounts, the governor said inflows are intact. “Daily inflow is $8-10 million,” he said. “It is a product of the State Bank, while more products are in the pipeline to attract overseas Pakistanis,” he added.

Published in Dawn, June 3rd, 2022