Pakistan facing no risks in repaying IMF: SBP chief
May 31, 2012
"We face no risk in being able to make next year's IMF payments from our adequate reserves," he said in a rebuttal to a story published in The Wall Street Journal on May 29, 2012. In his letter, published Thursday in WSJ, he clarified that "decline in our projected reserves will be partially offset by an increase in remittances which will exceed $13 billion this fiscal year 2011-12, and additional foreign direct investment in the pipeline that includes United States company investments in the power sector."
Anwar said the entry of new foreign banks, increased small- and medium-size enterprise lending to increase employment, huge potential for agriculture sector and for dairy products as the fourth largest milk producer in the world, and the development of capital markets to support housing finance are the positive developments in the country’s economy.
He pointed out that Pakistan's current banking restructuring and "our successful branchless banking strategy is bringing the "unbanked" into banking sector to increase financial inclusion. SBP had stated that gross domestic product is expected to be closer to 4% this year than 3% as reported by WSJ, he explained.
"It would have been nice to see a more positive light on these factors which will, in my view, be a positive toward alleviating manageable stresses going forward. I see the glass half full and am optimistic about the year ahead as Pakistan's economy is projected to grow 4.3 percent in the next fiscal year 2012-13," his letter to WSJ said and added: "The article "Pakistan Bank Sees Financial Challenges" (World News, May 29) doesn't fully reflect the economic story I conveyed in my interview with the WSJ."
Separately, he said despite economic challenges, Pakistan is not facing a situation which, requires emergency external assistance. The fiscal deficit and lack of external financing will continue to challenge Pakistan, especially the central bank. "Let me assure you that Pakistan will not stumble into a situation that requires emergency external assistance."
Dispelling impression created by some foreign and local media reports regarding pressures on the country’s foreign exchange reserves and exchange rate, SBP Governor said: "It will be challenging, but manageable. Like most other central banks, SBP only undertakes calibrated interventions to diffuse volatility as appropriate. In recent weeks, movement in the exchange rate has been somewhat sentiment driven compounded by lumping up of some scheduled payments, rather than any excessive demand and supply mismatches prevailing in the market. "SBP is watching the situation closely and recent exchange rate movements have been excessive with the market overreacting," Anwar added.
He said during first ten months of FY2011/12, remittances from overseas Pakistanis rose by 20.2% to $10.88 billion, which helped Balance of Payments (BoP) despite widening of trade deficit. Pakistan’s fiscal challenges are well known and documented. This spillover to the rest of economy is equally clear. He explained that at start of year (July 2011), external conditions appeared daunting due to rising oil prices and lack of external financing.
Despite all odds Pakistan has fared well in first eleven months of current FY with not only successfully paying back IMF obligations to the tune of $1.2 billion and other debt obligations equaling $1.7 billion to date, yet SBP’s Liquid Reserves are at stable levels of around $11.5 billion, much better and contrary to most analysts’ earlier assessment at the beginning of fiscal year, he noted.
Despite domestic challenges, key emerging market countries (China & Turkey) have shown keen interest in opening bank branches in Pakistan, he said. Unlike European Union (EU), Pakistan’s banking system has been very resilient, profitable and robust.
