By Staff Reporter
KARACHI: Pakistan’s central bank said on Friday it has met an end-September deadline for a forward book target of $4.2 billion agreed with the IMF and is comfortably placed to meet others on net international reserves and net domestic assets.
The country is trying to navigate a tricky path to economic stability and growth, currently under a caretaker government, after securing a $3-billion IMF loan programme in July that helped avert a sovereign debt default.
The loan programme, which is subject to quarterly reviews, requires Pakistan to implement tough fiscal and monetary reforms, such as reducing subsidies, increasing tax revenues, and raising interest rates.
The State Bank of Pakistan (SBP) said it had met the IMF targets by building up its foreign exchange reserves and reducing its forward foreign exchange liabilities.
“At the same time, SBP’s forward foreign exchange liabilities have declined and the forward book target of $4.2 billion for end-September 2023 agreed with the IMF has already been met by a wide margin,” the bank said in a statement.
The bank’s foreign exchange reserves have improved from a low of $3.1 billion in January to $7.6 billion by the end of September, it said. The reserve build-up was largely supported by non-debt-creating inflows and timed deposits from Gulf countries.
At the same time, the bank’s forward foreign exchange liabilities have declined and the forward book target of $4.2 billion for end-September agreed with the IMF has already been met by a wide margin, it said.
“The foreign exchange buffers are improving, with both build-up in reserves and reduction in forward foreign exchange liabilities,” the central bank said. “SBP is also very comfortably placed to meet the other end-September IMF targets, including Net International Reserves (NIR) and Net Domestic Assets (NDA).”
The statement was based on comments made by Jameel Ahmad, governor of the SBP, at events held on the sidelines of the International Monetary Fund (IMF) and World Bank meetings in Morocco.
Ahmad said the current policy mix adopted by the government and the central bank is geared towards achieving stabilization through addressing macroeconomic imbalances.
“The SBP is among the first central banks that began to tighten monetary policy in the wake of the rising inflation globally. However, certain domestic challenges, most notably the unprecedented floods at the beginning of the previous fiscal year, complicated the SBP’s efforts to bring down inflation,” Ahmad was quoted as saying in the statement.
“On a cumulative basis, the SBP has increased the policy rate by 1,500 basis points over the last two years. Likewise, the government has also stepped up its fiscal consolidation efforts.”
Governor Ahmad said the stabilisation measures have started yielding results. Inflation has come down to 31.4 percent in September after peaking at 38.0 percent in May and is expected to continue its downward trajectory over the coming months, whereas the external account has improved considerably, and foreign exchange buffers are being built up.
He also highlighted the shock-absorbing role of the market-determined exchange rate and the support from multilateral and bilateral lenders in addressing the balance of payments pressures.
“With the policy rate at 22 percent, the SBP assesses the real interest rates turning substantially positive on a forward-looking basis, as inflation is expected to come down significantly during the second half of this fiscal year,” the central bank chief said.
Going forward, Ahmad added that the Stand-By arrangement with the IMF is expected to support the ongoing policy efforts to stabilise the economy and pave the way for sustainable growth.
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