ISLAMABAD: State Bank of Pakistan Governor Dr Reza Baqir on Friday said Pakistan’s foreign exchange reserves would make a new record of $19.5 billion in a few days — beating the previous peak of about $18bn in October 2016 — and the current account, though in deficit, would be talked about ‘with happiness’ as the country moves towards higher growth.

At a news conference hurriedly organised by the Ministry of Finance, the SBP governor said net international reserves (NIRs) had also increased significantly but reluctantly conceded that these became negative after adjusting for short-term debt obligations. He said current account deficit (CAD) was estimated to be 2-3 per cent of GDP — roughly $6.5bn to $9.5bn — unlike 6-7pc of GDP two-three years ago.

Prime Minister Imran Khan has been claiming credit for achieving current account surplus as one of the key successes of his economic policies over the past two years that started turning negative about three months ago.

Says current account will be talked about ‘with happiness’ as country moves towards higher growth

The SBP governor said that $2.77bn additional allocation by the International Monetary Fund (IMF) would enhance foreign exchange reserves to a record level, besides having positive impact on other economic indicators because these became available when imports started increasing.

He said it was important that while the economy was moving towards recovery mode, the reserves coverage of imports would increase or stay stable. “Also, NIRs would increase by that amount. NIRs may not have increased due to net-off or declined,” he said.

Dr Baqir said the CAD would have been problematic if the exchange rate was not adjusting both ways, but since its fluctuation was market based, it was a good sign. Also, the CAD was not resulting in depletion of foreign exchange reserves as was happening two or two-and-a-half years ago. He said the CAD was in a sustainable level. “A moderate level of CAD is a good news for emerging markets.”

The SBP governor said all short-term economic indicators showed that stabilisation had been achieved and the economy was now firmly in the growth mode.

Responding to question, he said the CAD would now be talked about with happiness as a sign of economic growth as imports increased compared to two years ago when discussions revolved around economic recession and low GDP growth. “Three months ago, you were saying GDP growth would be two per cent, but it came in at 4pc. The estimate this year is of 4-5pc growth.”

Dr Baqir said Pakistan had achieved stabilisation and showed the international community that it had controlled two major challenges — current account deficit and fiscal deficit. “After stabilisation, the country shifted towards growth and proof is in front of you in the form of 4pc growth. All short-term indicators — auto sales, cement sales, electricity consumption and fast-moving consumer goods — are showing that we are firmly in the stage of growth,” he added.

The SBP governor said the international experience showed that there were three alarm bells that “caused worry”, adding that not even one of those alarm bells was ringing in Pakistan’s case.

Pakistan faced difficulty in the past when CAD reached 6pc of GDP and reserves losses were so big that the IMF had to be approached.

Responding to a question, Dr Baqir said Pakistan had gone through a boom-and-bust cycle in the past — an indicator of unsustainable growth — because of which the country had to approach the IMF more than 20 times. “We should discuss how to keep the growth sustainable this time around. Our last year’s growth and estimates for this year’s growth are sustainable.”

He said that some factors, which had prevented the growth from being sustainable in the past, were also absent now and credited the market-based exchange rate system for the prevention of a rapid increase in current account deficit.

The SBP governor noted that the debt-to-GDP ratio had increased by up to 10pc in developing countries in 2020 as compared to 2019, but Pakistan had managed to keep it on the lower side. “We expect that the market will also get confidence that despite Covid-19, we did not let the economic fundamentals deteriorate,” he said.

Published in Dawn, August 14th, 2021