Karachi - State Bank of Pakistan Governor Reza Baqir said on Monday that the government’s team was executing a plan to resolve economic issues.

Addressing a press conference, the governor SBP said: “The country is moving towards stability and has a prosperous outlook. The IMF package will help bring economic stability to the country.”

He continued: “Excessive loans borrowed by the previous rulers had forced the present government to refrain from spending on social sectors. The austerity campaign being launched by the government will be helpful in controlling the fiscal deficit,” he said.

Pointing out uncertainty as major opposition to national growth, he said economic team would take all steps to allay uncertainty and bring confidence that the country’s economic future is prosperous.

Exchange Rate

He said that exchange rate regime of the government is aimed at broader package of reforms and one of the key factors influencing it is dealt as the government would be borrowing from market rather than the State Bank.

He said that in past, the SBP faces interference from the government especially at the time of borrowing that has an inflationary effect and puts pressure on the exchange rate.

IMF package will help bring in economic stability

“This decision will have a positive impact on the exchange rate,” he said.

Explaining from a chart, Baqir said current situation faced by the country was due to fixing exchange rate for a long time which was inappropriate as it causes the external deficit to creep up along with depleting reserves.

While opposing both fixed exchange rate policy and free float policy, he said the government had adopted a market-based exchange rate system.

“In the market-based system, you consider supply and demand factors, what side they are pulling the exchange rate, and you don’t suppress them. And this is fundamental ─ we keep a close eye on the market, and if there is excessive volatility or special pressures, the SBP intervenes. And we will continue to do so to make sure that there isn’t excessive volatility or ‘disorderly market conditions’, as economists say,” he added.

He said that the current policy would also help improve export as higher rates had already lowered the imports and increased export volumes in he country, easing pressure on the exchange rate.

“This policy will also help the local industry of the country that would have a better competitive atmosphere with imported items,” he said.

He further said that a seasonal pattern of outflows is observed due to yearly closures of companies’ accounts that also put pressure on the exchange rate. “There is a noticeable change in it also after imposition of the market-based rate,” he said.

Interest Rate

“Interest rates in Pakistan are set by an independent body called the monetary policy committee,” he said.

 “The mandate is to fight inflation ─ that’s their number one consideration. Along with that, we have a forward-looking manner, which helps the government forecast what inflation is going to be like in future.

“It is one of the SBP’s key goals to fight inflation, and we will continue to use all the tools at our disposal to fight it,” he added.

IMF loan

The former IMF employee said that his experience with the fund would be helpful for the country and the loan approved by them would be helpful in bringing stability on the economic front of the country.

He said the IMF loan programme signals that reform programme is supported by international community and the international creditors also follow them.

“This agreement is in our favour as it sends positive signal of financial stability to the entire world community.”

He also said board meeting of IMF is on July 3 and they had fulfilled all the requirements and hoped that all details are published soon so that it could be publicized in the country.

“This is the beginning of the process with IMF and during the course of negotiations with them, the only principle to be followed by us is not to implement anything that is against the interest of the country,” he said.

He further said that the historical experience has proved that IMF programme has bring improvement in stock exchange and real estate and also improved remittances from Pakistanis abroad.