By Muhammad Soban

ISLAMABAD, July 26: Acting Governor of the State Bank of Pakistan (SBP) Dr. Murtaza Syed said the country is not on the brink of an economic catastrophe.

He said in a video podcast of the central bank that despite global upward trends in prices, Pakistan is not among the most vulnerable countries, and not heading towards economic collapse.

Dr. Murtaza predicted that the next 12 months would be very tough for the global economies. He said global commodity prices are rising as world economies emerge from Covid-19 sluggishness. He pointed out that the federal reserves are tightening policies, and global geopolitical tensions are adding to price hike.

“The hike in commodity prices has put extra pressure on countries with high debt levels. Markets are in panic situations in these countries, unable to differentiate, leading to vulnerability,” he said.

The governor said the country's situation is entirely different from Sri Lanka, Ghana, Egypt, and other developing nations that are currently facing economic crisis.

“Pakistan is not vulnerable like these countries due to three major reasons,” the SBP acting governor mentioned.

“First is the debt level. It is the most important indicator of the country. Pakistan's debt-to-GDP is 70%, which is less than Ghana, which has 80%, Egypt 90%, and Sri Lank 120%,” he pointed out.

Secondly, he said, an important indicator is how much a country owns the foreign debt. Pakistan's foreign debt is 40% of GDP, which is way less than that of other countries which have their external debt over 100%.

“The third is the maturity of short-term debt. Pakistan has only 7% of the debt that will be matured in the short term. Pakistan has taken long-term loans from friendly countries on relatively concessional conditions, which are relatively easy to return. Pakistan has only 20% of debt from the foreign commercial market,” he said.

Dr. Murtaza said that tightening monetary policy and cutting in the budget are also working for Pakistan.

“Pakistan is expected to grow by 6% this year. So, Pakistan can afford to slow down its economy as the SBP has already taken measures by increasing the monetary policy rate,” he said.

Furthermore, he said the countries in the IMF program would be less vulnerable in the next 12 months. He pointed out that Pakistan has revived the IMF bailout package, and a staff-level agreement has been made. Pakistan is hoping that in August, the IMF board will also approve the package.

Dr. Murtaza said the staff level agreement with IMF indicates that Pakistan’s policies are in accordance with the IMF requirements. “The staff level agreement would help the board to accept Pakistan's loan request easily,” he said.

Credits: INP-WealthPk