In recent testimony before the Senate Standing Committee on Finance and Revenue, Jameel Ahmad, governor of the State Bank of Pakistan, revealed that the recent 300 basis point increase in the policy rate was a decision of the Monetary Policy Committee rather than a request from the International Monetary Fund.
The governor also stated that the most recent foreign exchange reserves currently stand at $4.3 billion, with inflows totaling roughly $1.5 billion over the previous 1.5 weeks.
During the meeting, the SBP governor revealed that the country’s economy has been under pressure since the start of the current fiscal year. The major challenges faced by Pakistan include high inflation rates and external financing.
The average inflation rate for the current fiscal year is projected to be 26.5 percent, and Ahmad admitted that exports and remittances have fallen in recent months due to the challenging economic environment.
One of the main demands of the IMF was the immediate increase in the policy rate of the central bank in line with the headline inflation. The Monetary Policy Committee meeting had been scheduled for March 16 but had to be moved up by two weeks to March 2 in order for the central bank to raise its policy rate by 300 basis points to 20 percent.
At the meeting, senators raised the issues of dollar smuggling and black marketing. They demanded that the SBP governor take decisive action to end these practices completely and emphasised that it was his duty to maintain and control the real dollar rate.
They also emphasised that there were rumours that large amounts of foreign currency were being smuggled each year and asked for information on how much money had recently been transported illegally to Afghanistan.
The SBP representatives also informed the committee that exports were down 7.4 percent overall and significantly for food exports, particularly rice, which saw a reduction of 12 percent. Exports of fruits and vegetables fell by 37% and 48%, respectively.
The committee also spoke about the refusal of letters of credit (LCs) to importers of pharmaceutical ingredients with a focus on a packaging-related issue. They learned that the majority of the LCs were being opened in this discussion.
In general, the meeting highlighted Pakistan’s current economic difficulties, such as its high rate of inflation and reliance on foreign aid, and the need for strong action to stop the smuggling and underground trade in dollars.
The SBP governor gave the committee his word that banks would be better equipped to handle full import transactions as soon as the balance of payments situation improved.
