Governor SBP Reveals When Commodity Prices Will Come Down in Pakistan

Pakistan has enough capacity and financial resources to tackle the rising external account pressure which is fueled by an increase in commodity prices worldwide, Governor State Bank of Pakistan (SBP), Dr. Reza Baqir, has claimed.

In an interview with Reuters, Governor SBP said that the external account pressure will decrease as soon as the central banks across the world enact stern monetary policies which are expected to curb the surging global demand. This will in turn reduce commodity prices in Pakistan as well as across the world.

Dr. Reza Baqir explained that the commodity prices worldwide have been increasing continuously for the past few months due to a strong recovery in demand as countries have started to overcome the financial crunch induced by the Coronavirus pandemic.

He added that more than two-thirds of Pakistan’s existing trade deficit is due to the increased global commodity prices witnessed over the past few months. Out of the total trade deficit, one-third is on the account of payment for importing oil, whose price has surged significantly in the last several months. Note here that the price of Brent crude oil increased by more than 50% in 2021 and continues to surge in 2022.

Due to the increase in global commodity prices, Pakistan’s import bill has witnessed an unprecedented surge which has put additional pressure on the country’s foreign exchange reserves. However, Pakistan has just enough foreign exchange reserves to weather the current storm in commodity prices worldwide.

In H1 of FY 2021-22, Pakistan’s imports recorded a year-on-year increase of 65% and reached $40 billion while the exports increased by 25% and touched $15.1 billion. On the other hand, the trade deficit doubled from $12.3 billion to $25.4 billion in the same period.

Meanwhile, the country’s current account balance turned into a deficit in the ongoing fiscal year. It stood at $7.1 billion during July-November FY 2021-22 against the $1.9 billion surplus in the same period last year.

Whereas, Pakistan’s foreign exchange reserves stand at $24 billion at the moment, up from the $7.2 billion recorded at the start of FY 2018-19 when the incumbent government assumed power. Out of the $24 billion foreign exchange reserves, SBP holds $17.6 billion.

Where the consumer price index of the country is concerned, it surged by 12.28% in December FY 2021-22 as compared to the same period last fiscal year. December’s consumer price index is more than the 9-11% target fixed by the SBP for the ongoing financial year.

Lastly, the Pakistani Rupee has depreciated about 10% against the US Dollar since the start of FY 2021-22. To tackle the depreciating Rupee, inflation, and current account deficit, the SBP has increased the policy rate by 275 basis points to 9.75% since September 2021. Last month, the SBP had indicated that it is close to stopping increasing rates on a short-term basis.

Via: Reuters

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