Pakistan State Bank (SBP) suggested taking further interest rate moves. The central bank has revised its estimate for the country’s rising budget deficit to 9.2% of GDP equal to Rs.3.857 billion in post-COVID-19 situation against an earlier forecast of 7.2 or Rs. 3.170 billion for the current fiscal.
SBP Governor Dr. Reza Baqir and Deputy Governor Murtaza Syed briefed a detailed presentation to economic analysts predicted that GDP growth would decline and could be negative at 1.5% for the current fiscal year. The SBP has downgraded its GDP growth forecast entirely in line with the current IMF assessment.
State Bank of Pakistan highlighted that latest monthly figure for March 2020 point to noticeable slowdown in domestic economic activity as cement dispatches declined by negative 14.3%, auto sales -69.6%, POL sales -31.4%, highly value added textile exports -15.3 percent, IVA exports of textile -32.5 percent and food exports -25.7% in March 2020.
The SBP has predicted that GDP growth in the next fiscal year 2020-21 will turn into a positive 2% rise, as defined by the Fund staff in the latest staff report. The SBP high-ups showed in graphs. “Demand is expected to recover slowly although inflation remains low over the current fiscal year.”
However, the Planning Commission did not agree with this assessment of both the IMF and SBP as their latest projections indicate that GDP growth will hover about 1.8 to 2.5% of GDP compared with the previously envisioned target of 3.3 per cent of GDP for the current fiscal year.
In response to falling inflation and inflationary pressures, the SBP high-ups stated, “The monetary policy has been prudently loosened.” The SBP’s monetary policy committee had brought down discount rate by 4.25% from 13.25% to 9% in the duration of one month.
The SBP high-ups stated that inflation had fallen 450 basis points since January 2020 on the back of easing food and energy prices and further reduction was expected based on Sensitive Price Index (SPI).
SBP said in the presentation that Pakistan rupee has depreciated, though less so than many other emerging currencies as South African Rand, Mexican Peso, Russian Ruble, Turkish Lira and many other witnessed double digit depreciation and even Indian currency depreciated more than Pakistani rupee during Jan 17, 2020 to April 17, 2020. The SBP high-ups stated that the move to a market based exchange rate led to significant shrinking of the current account deficit and better fundamentals facilitated capital inflows.
They said that Pakistan’s sovereign bond spread had risen in line with other emerging markets. The recent situation has resulted into global flights to safety has caused substantial outflows from emerging markets including Pakistan, they stated without mentioning specifically about hot money that had flown out around 80% in recent weeks out of total $3 billion.
Furthermore, the SBP has predicted that the country’s gross external financing requirement might go up over $30 billion in next fiscal year 2020-21 in the post COVID-19 situation.