Potential turnaround

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The recently unveiled “Governor’s Annual Report 2022-23” by the State Bank of Pakistan (SBP) presents a meticulous examination of the economic challenges faced by the country, along with robust strategies to foster resilience. SBP Governor Jameel Ahmad strikes a cautiously optimistic tone, signaling a potential turnaround in economic activities since July 2023.
Key pillars of the SBP’s strategy, highlighted in the report, include a data-dependent approach and a commitment to monitoring high-frequency inflation data. With a GDP (Gross Domestic Product) growth projection of 2-3 per cent, underpinned by a rebound in agriculture output, the report anticipates positive trajectories for export earnings and foreign exchange reserves, expected to exceed $9 billion by June 30, 2024.
Addressing inflation remains a focal point, with the SBP emphasizing its commitment to a data-dependent approach in the face of global uncertainties. The average monthly inflation is forecasted to range between 20-22 per cent for Financial Year 2023-24, maintaining the policy rate at a record high of 22 per cent.
The report acknowledges challenges such as monsoon floods, elevated global commodity prices, fiscal consolidation issues and delays in the International Monetary Fund (IMF) program. The average National Consumer Price Index (NCPI) inflation surged to 29.2 per cent in FY2023, attributing it to aggressive monetary policies globally, costlier fuel and food prices, exchange rate depreciation and internal factors.
Political uncertainty is identified as a factor impacting business and consumer sentiments, contributing to a 0.2 per cent contraction in real GDP. The SBP responded with a contractionary policy stance, raising the policy rate by 825 basis points throughout the fiscal year to meet external debt obligations and ensure macroeconomic stability.
Stability in the financial system is a key focus, with the report acknowledging steady growth in the banking sector. Islamic Banking Institutions outperformed their conventional counterparts, showcasing a 17 per cent growth in total assets.
The SBP’s commitment to maintaining price stability is underscored, emphasizing the role of fiscal policy and effective administration. The aim is to anchor inflation expectations and achieve a medium-term target of 5-7 per cent by the end of FY2025. The outlook for FY2024 anticipates a moderation in inflation to 20-22 per cent, driven by contractionary monetary policy, improved domestic supplies, softer global commodity prices and the high base effect.
While challenges persist, the SBP’s comprehensive strategies outlined in the report signal a determined effort to navigate economic uncertainties, ensuring stability and fostering growth in the economic landscape.