Acting cautiously to avoid disorderly movement of exchange rate: SBP

• State Bank of Pakistan says it is acting cautiously to avoid disorderly movement of exchange rate.
• If SBP intervened more frequently, country would lose foreign exchange, say experts.
• Political uncertainty and negative sentiments exacerbated difficulties, say SBP.

ISLAMABAD: A State Bank of Pakistan (SBP) official said Thursday that the central bank is not sitting idle, but is acting cautiously to avoid disorderly movement of the exchange rate.

However, the official believes that if the SBP intervened more frequently, the country would lose foreign exchange, which it cannot afford to keep due to depleting reserve positions.

In a press briefing, a senior SBP official, who did not want to be identified, described the current fiscal year 2022-23 as the most difficult fiscal year on the economic front, owing to the geopolitical environment in the aftermath of the ongoing Russia-Ukraine war and the super cycle of commodity prices, which had even created a difficult situation for the Federal Reserve Bank of the United States. 

Domestically, the official stated that political uncertainty and negative sentiments exacerbated difficulties. The trust deficit struck with the IMF as a result of the previous government's breach of agreement with the Fund exacerbated Pakistan's problems. The IMF was irritated by the PTI government's expansionary fiscal policies and the distribution of subsidies in the previous fiscal year. He stated that Pakistan reached a staff-level agreement with the IMF after overcoming difficulties.

"Pakistan achieved 6% GDP growth in the last two fiscal years, which created imbalances, so the country would have to moderate its GDP growth in the range of 3 to 4%," he said, adding that no comparisons with Sri Lanka should be made."We should stop politics on the economic front," he advised and added that all political parties had agreed on an IMF programme except the PTI, but everyone knew that it was the party that had signed the EFF agreement with the IMF. "We will have to remain under the IMF programme keeping in view the massive external financing requirements," he said, and added that it was a mistake that the central bank was lying idle and doing nothing on the exchange rate. "We moved to avoid disorderly movement in the exchange rate. The IMF can deal with any government, including caretaker setups," he said.

He said that he did not want to comment how the inflation target was fixed at 11.5 percent by the government on the occasion of the last budget for 2022-23. However, the SBP’s target would be hovering around 18 to 20 percent. He said the dollars received through Roshan Digital Accounts (RDA) were cheaper than the bond yields witnessed in recent days.

The official distanced himself from the inflation target of 11.5% in budget 2022-23 and said that he did not want to comment on how the inflation target was fixed for the current fiscal year. He said the SBP saw inflation of around 18 to 20%.  Further, he was of the view that the IMF programme was on track and the Fund’s Executive Board would meet on the first available date after summer vacations in the first two weeks of August. The official said that all political parties had agreed on fulfilling the IMF conditions except for PTI, but it was also a fact that the ongoing Extended Fund Facility (EFF) was signed by the PTI-led government.

Official sources said that the government is likely to appoint a permanent governor for SBP and a decision to this effect will be taken by the government soon. The name of the acting governor of SBP is also considered for permanent governor under the SBP Amended Act 2022.