Deficit may be over $2b, but SBP governor remains a calm man

Says there is no need to panic even as foreign exchange reserves fall below $15b

KARACHI: The stock market and analysts may be fretting over Pakistan’s balance of payments position, but the central bank governor was a calm man as he addressed a bunch of journalists on Tuesday.

In July 2017, Pakistan’s current account deficit widened by a massive 210%, standing at $2.05 billion compared to $662 million in the previous year.

Foreign exchange reserves have fallen below $15 billion and the key index of the stock market is at a 10-month low.



Yet Tariq Bajwa, governor of the State Bank of Pakistan (SBP), believes the growing current account deficit is “manageable and there is no need of panic for the country”.

“The deficit is a challenge but it is happening because of a faster economic growth in recent years,” Bajwa said in reply to a question during his visit to the Karachi Chamber of Commerce and Industry (KCCI) on Tuesday.

Citing 5.3% growth in fiscal year 2017, he said all major international institutions predict 5.5% to 6% growth rate for Pakistan in the coming years.

Bajwa said a large part of Pakistan’s imports constitute of machinery which is good for the future economic growth of the country.

Earlier, while talking to KCCI members, he said the business community is taking part in economic growth, which is evident from the growth in private sector borrowing that grew 68% last year while fixed assets investments also jumped 42% in the same year.

However, due to a growing deficit, analysts believe Pakistan needs to immediately devalue the rupee against the dollar to support its exports while minimise imports.

With the difference between exports and imports being the biggest determinant of the current account balance, a deficit or surplus reflects whether a country is a net borrower or net lender with respect to the rest of the world.

Some of the measures that the government could take immediately include rupee devaluation, regulatory duty on non-essential imports, export promotion, dollar bonds, bilateral borrowing among others.

Pakistan had already posted a much higher than expected current account deficit of $12.1 billion (4.0% of GDP) in fiscal year 2017. If the current situation persists, some analysts believe this year’s deficit may reach $16 billion (5.0% of GDP), highest since fiscal year 2008.

But the SBP governor said that Small and Medium Enterprises (SMEs) need support and the central bank wants to bring new policies to ease the financing needs of SMEs.

“SMEs play a pivotal role in any economy, but due to documentation challenges many SMEs in Pakistan fail to meet the requirements of commercial banks. This is a big challenge and the central bank is cognizant of these problems,” he added.



KCCI representatives urged the SBP governor to prioritise trade with Iran because Pakistan has lost a big market.

In reply to a question, Bajwa said that the central banks of both Iran and Pakistan are trying to remove trade hurdles.

He said that he has asked the Iranian diplomats in Pakistan to try and speed up the implementation of recent agreements so that the two countries can increase formal trade.

KCCI President Shahim Ahmed Firpo said since most of the export is conducted through Karachi, the newly established EXIM Bank head office should also be moved to Karachi to facilitate the majority of exporters, which are more concentrated in the city.

Published in The Express Tribune, August 30^th, 2017.

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