KARACHI, July 5: President Pervez Musharraf has acknowledged the strength of the State Bank of Pakistan (SBP) as an institution, its policy advice and continued support in overall economic development of the country.

According to a statement issued by the SBP here on Saturday, the president visited the State Bank to seek a briefing on the state of the economy from SBP Governor Dr Shamshad Akhtar.

The SBP governor in her presentation covered areas of economic growth, inflation, monetary policy, fiscal and external imbalances, exchange rate and macroeconomic stability.

She underscored that Pakistan, like other countries, was facing economic stress and challenging policy scenarios.

International financial market turmoil, starting in the US, has now caused a global economic slowdown, which in turn is adversely impacting the growth prospects of most Asian and emerging economies, including Pakistan.

Dr Akhtar further said the rising international fuel and commodity prices have considerably increased pressures on balance of payments, fiscal accounts and inflation outlook.

This is not only true for Pakistan but also for most of the emerging and developed economies.

The SBP governor explains that high inflation is economically and socially costly. It adversely affects investment and growth, creates uncertainty and erodes peoples’ purchasing power particularly of low income group.

In this context, she highlighted that Pakistan as well as a number of developing and developed countries are pursuing tight monetary policy to contain inflation and to mitigate its adverse impacts for long term growth prospects.

Referring to the key policy actions for restoring macroeconomic stability and sustaining growth, the SBP governor stressed that the monetary tightening is essential to reduce demand pressures, which is to be supplemented by fiscal tightening.

Besides need for adherence to fiscal target for FY09, as enumerated in the budget, in coming years revenue deficit should be converted into a surplus as laid down in the Fiscal Responsibility and Debt Limitation Act 2005.

The SBP governor added that key concerns of the SBP are high stress of the government borrowings and drain on foreign exchange reserves due to confluence of domestic and international developments highlighted earlier.

Dr Akhtar complemented the government for its decision to reduce borrowings from the SBP and she also valued the government’s commitment to further work with SBP to reduce the existing stock of government borrowing from the central bank.

To finance the current account deficit, financing has to be secured through increase in domestic savings to reduce reliance on external financing, the SBP governor said and also pointed out the importance of restoring investors’ confidence with a view to encouraging investment inflows and consistency and continuation of prudent policies.

President Musharraf discussed various issues related to food and oil price developments and appreciated the SBP’s briefing and acknowledged the strengths of SBP as an institution.

The presentation ceremony was attended, among others by Sindh Governor Dr lshratul Ibad Khan, and senior management of the State Bank of Pakistan.—APP