The governor of the Central Bank of Pakistan told CNBC on Tuesday that it is expected that the Pakistani economy will grow by approximately 5% in the current fiscal year ending in June 2022.
“This is a four-year high, and this growth is reflected in strong and active demand from Pakistan and even non-energy imports,” Reza Baqir told CNBC. “Street Sign Asia.”
What needs to be clear is that Pakistan’s economy is still on the verge of crisis-the country is facing record inflation, which has pushed up the prices of daily commodities as the threat of unrest approaches. According to media reports.
The International Monetary Fund said on Monday Reach an agreement with Pakistan Regarding the measures needed to rejuvenate $6 billion financing plan, Which stalled earlier this year due to issues surrounding necessary reforms.
It may release US$1 billion in funds to Pakistan, which will bring the total expenditure of the program to date to approximately US$3 billion.
The International Monetary Fund approved a funding plan in 2019 to help Pakistan avoid a potential balance of payments crisis, which occurs when a country cannot finance its import bills or repay its foreign debts. In exchange, Pakistan had to stabilize the economy through structural reforms and reduction of public debt.
South Asian countries face The economic crisis of 2018 Its foreign exchange reserves have fallen to multi-year lows, putting pressure on the Pakistani rupee.
The annual economic growth rate in the 2018 calendar year was 5.8%, but that number plummeted to 0.99% a year later. According to data from the World BankThe coronavirus pandemic has dealt yet another blow to the economy, and the growth rate in 2020 has fallen further to 0.53%.
The central bank and many economists agree The current global price increase is temporary and will eventually ease. But some people, like the International Monetary Fund, Warn the central bank to be prepared Tighten monetary policy when inflation is out of control.
Analysts say that easy access to funds may contribute to inflation. Last year, most central banks introduced stimulus plans to reduce the economic impact of the coronavirus pandemic by putting more money into people’s pockets.
Baqir told CNBC that the Pakistani government is trying to reduce inflation and ensure that there is no hoarding of basic commodities or price speculation.
“Part of inflation is due to issues related to food supply, where the government has taken a very active and coordinated stance, trying to ease supply bottlenecks and get agricultural products from farms to markets in time,” he said.
October 16, 2020, the market in Islamabad, the capital of Pakistan.
Muhammed Semih Ugurlu | Anadolu Agency | Getty Images
The governor of the central bank said that inflation is also driven by international commodity prices, and countries such as Pakistan can hardly control these prices.
“For example, failure to pass international oil price fluctuations will only lead to increased fiscal or external imbalances,” he said, adding that policymakers are focusing on easing domestic demand to control the situation.
Pakistan raised its cash reserve requirement this month To slow down currency growth. The cash reserve represents the percentage of the amount that a bank must hold in its treasury to its total deposits. When more funds are needed in the reserves, the amount of funds that can be loaned to individuals and businesses will decrease, which in turn will tighten the money supply in the economy.
National Bank of Pakistan Friday Increase the policy rate by 150 basis points to 8.75%, Pointed out that “risks related to inflation and balance of payments have increased, while growth prospects continue to improve.”
Baqir told CNBC that monetary policy decisions are influenced by three factors: first, the pandemic in Pakistan seems to be relatively controlled; second, the growth prospects are stronger than expected; and finally, the current account deficit has expanded slightly more than expected.
Current account capture The difference between a country’s imports and exports of goods and services includes net income and net transfers within a certain period of time, such as foreign aid.
The deficit means that the country buys more goods from the world than it sells abroad. It may lead to an oversupply of the country’s currency in the foreign exchange market, ultimately depressing the value of the currency.
“The weakening of the current account deficit and other factors have put undue pressure on the exchange rate,” he said, adding that the Monetary Policy Committee is concerned about the impact of exchange rates on inflation.
So far this year, the exchange rate of the Pakistani rupee against the US dollar has fallen by more than 9%.
— Jeff Cox of CNBC contributed to this report.