The Governor of the State Bank of Pakistan (SBP), Dr. Reza Baqir, has declared that inflation and the current account deficit are two major challenges for the economy which is influenced by higher global commodities prices.
He mentioned this when he recently addressed an event on the economy of Pakistan organized by the Embassy of Switzerland, and highlighted how Pakistan has dealt with the pandemic, economic challenges (inflation and the current account deficit) in the wake of the global commodity price increase, and whether the country can deal with its economic challenges.
Dr. Baqir said that the current account deficit is also driven by the global commodities prices and the policy tools adopted by the central bank, and the current account deficit is projected to be in surplus if the import of oil is excluded from the import bill.
He mentioned that policy measures had been taken to reduce the trade deficit and arrest the increase in the current account deficit. Continuous support is being provided on the fiscal side with a continuous decline in the primary deficit, he added.
The SBP Governor affirmed that the policies are geared to deal with the challenge of the current account deficit.
Regarding the Chinese liabilities, he said that ‘a loan is a loan and any creditor first and foremost is a creditor, and all the loans taken by Pakistan are reflected in the public debt’. He added that Pakistan had reduced its debt during the pandemic.
“We have been able to reduce the debt-to-GDP ratio and going forward increasing the tax-to-GDP ratio is a committed priority of the government,” Dr. Baqir stated.
He said the SBP introduced the refinance facility, the Rozgar scheme to prevent lay off, provided relief for loan restructuring, introduced principal loan extension, reduced the policy rate by 625 basis points, and the total amount that was injected was five percent of the GDP, all as policy support measures.
As for the structural system, the governor said that the TERF has been very successful and has allowed moderation, expansion, and financial inclusion is another area, and the government is now giving subsidies on interest rates to the low-income group on the mortgage.
