George Bernard Shaw once said, “When a stupid man is doing something he is ashamed of, he always declares that it is his duty.”
Let’s refer this to our Board of State Bank and their monetary policy. Only in this case – they are not ashamed.
“The economy basically needs fundamental reforms to engineer a turnaround in its performance,” the SBP said on Friday in its monetary policy statement, which is released after every two months.
The size of the external current account deficit for FY13 as percent of GDP is projected to be approximately the same as in FY12. ‘However, due to anticipated rise in debt payments in FY13, the economy would need substantial external inflows to preserve our foreign exchange reserves.
Suffering Private Sector and Inflationary Pressures
‘While managing the external and fiscal pressures remain more of an immediate concern, the real challenge lies in reviving private investment in the economy.
Inflationary pressures have not subsided either despite sluggish GDP growth.
At the same time, the scheduled banks continue to avoid extending credit to private businesses, which are already suffering from energy shortages.
Fiscal authority, on the other hand, is accumulating short term domestic debt at a rapid pace. The impact of SBP’s monetary policy, in these circumstances, is less effective.
Dollar’s strength and oil prices
The US dollar, being a safe haven for investors, has strengthened significantly in the past few weeks against almost all currencies, especially the euro, and Pakistani rupee is no exception.
On the other hand, appreciation of the US dollar in international markets is probably one explanation why oil prices have eased somewhat, dropping from a peak of $130 per barrel (Saudi Arabian light crude) on April 3 to $97 per barrel on June 1.
“This, together with expected global slowdown, may keep oil prices softer compared to earlier projections. Given that almost one-third of Pakistan’s total import bill comprises oil payments, this would be a positive development,” the SBP commented.
Citing an example, it said that keeping in view the current quantum of crude and petroleum product imports at 21 million tons, a decline of $5 per barrel in international oil prices could save up to $700 million (Almost Rs 70 Billion) in import payments in 2013.
- Vampires Looming Over Pakistan’s Marco-economic Stability
- Impossible Food Basket: Double Digit inflation fuelling Poverty
- Pakistan Rated B Minus by Standard and Poor with Stable Outlook
- Governor State Bank to Announce New Monetary Policy on 11th February
- 3G Auction Can Attract Rs 90 Billion: Governor SBP