KARACHI: The State Bank of Pakistan (SBP) provided liquidity support equal to 5 per cent of GDP to help the economy to rebound in FY21 amid challenges posed by the Covid-19, said Annual Performance Review for 2020-21 issued on Friday.

“The SBP’s quantitative measures were well targeted, well diversified across beneficiaries and temporary in nature; and in aggregate provided liquidity support of around 5pc of GDP,” said the SBP report. The economy rebounded strongly in FY21 despite Covid-related challenges which was well supported by the SBP’s monetary policy stance including quantitative measures to inject liquidity in a timely manner, supplemented by fiscal policy measures, provided a targeted, dynamic and well-coordinated policy to response the weakening economic indicator, said the SBP report.

The report said Pakistan’s economic growth rebounded to 3.94pc well above the 2.1pc target set for the FY21 and Covid-induced contraction of 0.47pc in FY20.

Inflation also moderated to 8.9pc in FY21 — well within the target range of 7-9pc announced by the SBP. Similarly, other key macroeconomic balances including current account, fiscal balance and the country’s foreign reserves improved during the FY21, said the report.

Furthermore, the anchoring of inflation expectations, despite some upward pressures from supply management issues and surge in international commodity prices, allowed the Monetary Policy Committee (MPC) to keep the policy rate unchanged throughout the year.

For easing off the challenging business environment, the SBP swiftly introduced concessional refinance schemes to prevent layoffs, facilitate healthcare institutions to upscale their facilities to combat Covid and encourage firms to undertake long-term investments under the temporary economic refinance facility.

In addition, the SBP allowed bank’s loan restructuring and loan deferment for firms including SMEs and households, said the report.

“The adoption of forward guidance on Monetary Policy by SBP since January 2021 played a major role in reducing short-term policy uncertainty for stakeholders,” said the report.

“Pakistan’s external indicators also improved significantly in FY21 as SBP’s foreign exchange reserves grew more than 40pc and the country’s current account deficit plummeted to a 10-year low — mainly because of record high worker’s remittances and export receipts,” said the report.

The central bank, in collaboration with government and commercial banks, launched Rohan Digital Account (RDA), allowing non-resident Pakistanis to open and operate bank accounts remotely with banks in Pakistan, invest in Naya Pakistan Certificates (NPCs), stock market, mutual funds, real estate and to purchase cars for their family members.

The SBP said $1.56bn had been received via 181,556 RDAs by June 30. This influx of foreign exchange has positively supported the country’s balance of payments position.

The SBP’s second major undertaking in the payments sphere, is the launch of first use case of Raast — a state-of-the-art, interoperable and secure payment platform that enables consumers, merchants and government entities to exchange funds in a seamless, instant and cost-effective manner.

“Both the developments in the payment systems domain will have a lasting impact on Pakistan’s banking landscape as well as external account,” said the SBP.

Moreover, the third five-year strategic plan for the Islamic banking industry was issued by SBP in April 2021 to set a strategic direction and strengthen the existing growth momentum of industry.

SBP profit falls

The SBP earned a profit of Rs760.859bn (consolidated) in FY21 as compared to a profit of Rs1163.433bn in FY20. The decline in profit is primarily attributed to lower income from lending to the government.

Pakistan Investment Bonds (PIBs) worth Rs569bn matured during the year and no fresh lending was made by the Bank to the Federal Government, resulting in lower income under this head.

Moreover, decrease in average interest rate during FY21 also impacted adversely on income from lending to Government.

The SBP group also earned higher net exchange gain during FY21 as compared to the previous year due to appreciation of the rupee against other currencies particularly US dollar during the year.

“The bank earned a net exchange gain of Rs135.3bn during FY21 compared to an exchange gain of Rs66.4bn during FY20,” said the report.

Published in Dawn, October 30th, 2021