KARACHI: State Bank of Pakistan (SBP) Acting Governor Dr Murtaza Syed has dispelled the perception that the country is headed towards an economic catastrophe, saying “Pakistan is not vulnerable as was being assumed” despite burgeoning global inflation.

As the world was still overcoming the impact of the Covid-19 pandemic, the next 12 months will be challenging for the global economy, Dr Syed said, adding that Pakistan’s economy was recovering well, achieving 6pc growth last year and hopefully this year as well.

“We can afford to slow down our economy a little bit, so we have started working on adjusting our policies according to this strategy,” he said.

Dr Syed made this observation during a podcast conducted by the SBP on Saturday discussing the overall economic situation. SBP’s deputy governors Dr Inayat Hussain and Sima Kamil were also among the participants.

This was the second time within a span of 24 hours that the SBP acting governor addressed the economic situation.

Country’s debt levels not too high; only 20pc borrowings on commercial terms; says Islamabad can afford to slow economy since growth rate doing well

Fears have risen about Pakistan’s stuttering economy as the rupee fell nearly eight per cent against the dollar in the last trading week, while forex reserves stood below $10bn with inflation at the highest in more than a decade.

On Saturday, Dr Syed told Reuters that Pakistan’s $33.5bn external financing needs were fully met for the ongoing fiscal year and that “unwarranted” market concerns about its financial position will dissipate in weeks.

In the podcast, the SBP governor underlined that Pakistan was not vulnerable “because it has the International Monetary Fund (IMF) cover” and “its citizens do not need to panic”.

Highlighting the factors behind his optimism, he said Pakistan had a reasonable debt level of 70pc of its GDP. Therefore, it’s unfair to categorise the country with Ghana (with 80pc ratio), Egypt (90pc), Zambia (100pc) and Sri Lanka (120pc).

Moreover, Pakistan’s external debt is 40pc of GDP compared to Tunisia’s 90pc, Angola’s 120pc and Zambia’s over 150pc.

Dr Syed said Pakistan was relying more on its domestic debts, “which are payable in our own currency and are easier to manage compared to external loans, which are payable in foreign currencies”.

He noted that only 7pc of Pakistan’s external debts are for the short term, whereas other countries had taken much higher short-term external loans; for instance, the figure is 30pc in the case of Turkiye.

Besides, Pakistan has taken only 20pc of its borrowings on commercial terms, while the rest are concessional loans mostly taken from the IMF, World Bank or friendly countries and thus easier to return. “So, it is easier for us to return these loans and all the debt indicators of Pakistan are much better than the countries who have done more commercial borrowings,” he said.

Countries having no IMF cover will suffer badly over the next 12 months due to rising global inflation, he said and insisted that Pakistan’s IMF programme was on track.

In response to a question, he said the acting governor has all authorities as that of a governor, except “signing currency notes”.

‘Sufficient reserves’

Talking about the country’s foreign exchange reserves, SBP Deputy Governor Dr Inayat Hussain said the country’s reserves at around $9.3bn were sufficient enough to carry it through the next few months.

While he conceded that the level was not ideal and “we would like to increase it to equalise three months of Pakistan’s import bill”, the reserves are not too low and should not be a cause of concern for the nation.

He also informed the host that the country had gold reserves worth $3.8bn, which were in addition to the overall forex reserves and not pledged.

On the rupee’s slide, Dr Inayat said the local currency had depreciated sharply, around 18pc, since December. However, 12pc of this depreciation was caused as the US Fed Reserve increased its interest rates aggressively while domestic factors include Pakistan’s rising imports and low supply of dollars.

Mera Ghar scheme

Discussing the ‘Mera Pakistan Mera Ghar’, Ms Kamil said the affordable financing scheme was designed to facilitate the lower-income segment in buying their own house.

However, it had been temporarily halted, as the economic pressures were mounting and the present government needed to make some alterations in the financial model of this large-scale initiative, she said.

She said the finance minister has now decided that the beneficiaries who have completed all the formalities would be granted these house loans soon.

Published in Dawn, July 25th, 2022