Pakistan’s Economic Situation Much Different from Sri Lanka: SBP Chief

The Acting Governor of the State Bank of Pakistan (SBP), Dr. Murtaza Syed, said in a podcast that Pakistan is neither Sri Lanka nor close to it, adding that Pakistan’s impressive six percent GDP growth over the last two years is a shock to the world.

“There is no doubt that the economy is facing challenges and the economies of many countries are in trouble due to commodity high prices after COVID. Sri Lanka is one of them, but they did not manage well and made some wrong or late decisions that created problems for the country,” Dr. Syed remarked in the SBP podcast.

He said, “Pakistan is not Sri Lanka. The country was badly hit by COVID as their income from tourism dried up. The tourism-based economy failed to fight off the challenges. For two years, they allowed the budget deficit to increase, which brought pressure on the current account. They did not raise the interest rate for two years. For two years, Sri Lanka kept the exchange rate unchanged, which means they were using their reserves to keep the exchange rate at the desired level. It finally resulted in a large current account deficit and their foreign exchange reserves being depleted”.

He continued, “The only way to plug the current account is to throw dollars into the market, which eroded the reserves; finally, the exchange rate went by 50-60pc overnight”.

Dr. Syed also pointed out that Sri Lanka had failed to manage its public debt which had kept accumulating for two years.

“Their reserves fell sharply, the interest rate suddenly went up in a panic, and the economy failed to meet the basic requirements. The public debt became unmanageable,” he said.

He added that Pakistan has been extremely cautious after the pandemic and the SBP had provided stimulus while the government was more cautious and targeted.

Microeconomic Indicators

Dr. Syed mentioned that “the public debt increased by up to 10 percent in most countries, but in Pakistan, it fell”.

He highlighted that Pakistan’s public debt to GDP has decreased from 77 percent in 2019 to 71 percent today, down by six percent.

“Indicators are much better than in most of the countries hit by COVID. Our growth was one of the best among the COVID-hit economies. It was an amazing shock for the world. Our economy recovered quickly, and for the last two years, the growth has been about six percent,” Dr. Syed said.

He also stated that Pakistan’s reserves in 2019 were $7 billion while forward booking was $8 billion. “In contrast, now we have $10 billion in reserves while the forward booking is $4 billion, which means we have reserves of $6 billion,” he commented.

Dr. Syed explained, “In all the main dimensions, we are in a much better position. Another important point is that we are in the International Monetary Fund program and they are supporting our reforms”.

He said that Pakistan should realize that what the IMF suggests is good for the economy and that the talks with it are headed in the right direction.

“What the IMF is saying about Pakistan is that the subsidy on oil was not affordable for the Pakistan economy as the country does not have enough resources. The deal with the IMF is very close,” he said.

Talking about the Roshan Digital Accounts, the Acting Governor affirmed that the inflows are intact.

“Daily inflow is $8-10 million,” he said and added, “It is a product of the State Bank, while more products are in the pipeline to attract overseas Pakistanis”.