State Bank of Pakistan’s Governor Reza Baqir held a press conference on Monday regarding the country’s economic outlook and role of State Bank of Pakistan.
The governor expressed confidence in the country’s economic future. He described uncertainty as “the biggest challenge” facing the economy.
He stressed the need to, “Proceed in a way that eliminates this uncertainty, and our people get the confidence that we have in the SBP, and that I personally have in a positive future.”
The governor said that Pakistan has fulfilled all the commitments made with the IMF for a $6 billion loan program.
He informed that IMF will be holding a board meeting on July 3, 2019, following which all the important documents shall be made public as he is known for his long association as an IMF official in the past. The governor further stated the Fund’s executive board would take a decision on bailout package during a meeting scheduled next month.
In the past, the SBP had interference from the government in shape of taking loans from the central bank and that has an inflationary impact.
The government will not borrow funds from the State Bank of Pakistan (SBP) in the upcoming fiscal year 2019-2020, said Mr. Reza Baqir. Instead of borrowing from the SBP, the government will borrow directly from the market, he added.
“We have adopted a market-based policy and SBP will monitor the demand and supply within the economy,” he said.
He also stated that free float was not appropriated for the economy.
The approval, as mentioned in the agreement, is linked with prior actions by the government and that includes a market-based exchange rate.
“We are in a good position,” Baqir said, adding the exchange rate has come closer to market values since the IMF agreement. “Our exchange rate regime should be seen as a part of a broader package of economic reforms. There are a lot of influences on our country’s exchange rate policy,” Baqir told reporters.
He assured that Pakistan is heading towards stability as the economic team of the country, which includes the central bank, was striving hard to address and overcome the issue of twin deficit
It was not an appropriate policy to keep a fixed exchange rate for long, due to which our situation today has been created.
The market-based exchange rate is sustainable to enhance exports and import substations give local industries a competitive advantage.
The governor stated that the program remains good for the stock market. To a question, he said that Pakistan and Egypt have similarities as well as differences.
The exchange rate in Egypt before the IMF program was volatile, where informal and interbank rates had a difference of over 100 percent. Pakistan’s spread is quite narrow, while the fiscal deficit problem in both countries is the same.
He said that a lot of emerging markets have found financial stability even as their market-based exchange rate keeps moving around. SBP governor also vowed that any of IMF’s conditions that are not in Pakistan’s benefit would not be accepted.
Interest rates in Pakistan are set by an independent body called the monetary policy committee.
He also stated that it is one of the SBP’s key goals to fight inflation, and they will continue to use all the tools at their disposal to fight it.