Sees reasons to be optimistic about growth despite CAD
\nKARACHI
\nGovernor of the State Bank of Pakistan, Dr Reza Baqir has expressed hope that Pakistan\u2019s economy will witness continued recovery in the current fiscal year 2021-22 due the measures taken to digitalise the financial sector and improve ease of doing business.
\nThe governor was addressing an event titled \u2018Ensuring Sustainable Growth and Promoting Digitisation,\u2019 organised by the central bank in collaboration with the Federation of Pakistan Chambers of Commerce and Industry (FPCCI).
\nBaqir said that recovery could already be seen in the more than expected gross domestic product (GDP) growth during the last fiscal year. He said that facilitating the businesses remains a key priority for the State Bank.
\nHe encouraged businesses to take full advantage of the existing SBP refinance facilities, which offer loans at much lower markup rates than the market for targeted purposes to promote exports, financial inclusion, and other key goals. He went on to add that since the last meeting of SBP and FPCCI in August 2019, there has been a significant increase in the support provided by the SBP to the business community.
\nHe said the outstanding amount of exports refinance – working capital for exporters – has doubled from Rs278 billion at the end of August 2019 to Rs564 billion at the end of June 2021. The use of a long-term financing facility, long-term fixed concessional finance for any export-oriented business, increased by 53 percent, from Rs165 billion to Rs253 billion since the last meeting with FPCCI.
\nHe further said that concessional loans for renewable energy to promote green Pakistan increased more than five folds, from Rs9 billion to Rs51 billion. In addition to the above-mentioned support, financing disbursed under TERF, one of SBP\u2019s measures during Covid-19 to support investment, amounted to Rs151 billion, whereas the total approved amount has been Rs435 billion. Businesses also availed financing worth Rs213 billion under the Rozgar scheme in the above-mentioned period.
\nBaqir said that there are good reasons to be optimistic about continued sustainable growth. Referring to the current account deficit (CAD) in June 21, he said that the recent increase in CAD is in line with SBP\u2019s projections and, based on information available to date, not a worrisome development in itself. Elaborating further, he said that based on the international experience of emerging markets, a rising current account deficit may be a cause for concern when the following three symptoms emerge and in Pakistan\u2019s case none of these symptoms were present.
\nHe explained the first cause for concern would be if the level of the CAD in percent of GDP is very high; in Pakistan\u2019s case, SBP projects a CAD in the range of 2\u20133 percent of GDP for this fiscal year which is less than half the level of 6.1 percent in FY18 which led to sustainability.
\nThe second cause for concern would be if the exchange rate is not allowed to adjust in response to a rising CAD as that prevents the market\u2019s own mechanism to limit the CAD; in Pakistan\u2019s case the exchange rate, since its transition to a market-based system in June 2019 has continued to display orderly two-way movement and has demonstrated less volatility than more emerging markets with market-based exchange rates, he further said.
\nAnd the last worrisome symptom, based on international experience, would be if a rising CAD is accompanied by rapidly falling foreign exchange reserves that are reaching unsustainably low levels; in Pakistan\u2019s case, and on the contrary, reserves were around $18 as of end of July 2021, more than $10 billion higher than the low at end of FY2019. <\/p>\n","protected":false},"excerpt":{"rendered":"
Sees reasons to be optimistic about growth despite CAD KARACHI Governor of the State Bank of Pakistan, Dr Reza Baqir has expressed hope that Pakistan\u2019s economy will witness continued recovery in the current fiscal year 2021-22 due the measures taken to digitalise the financial sector and improve ease of doing business. The governor was addressing […]<\/p>\n","protected":false},"author":2,"featured_media":209318,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-209454","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business"],"yoast_head":"\n