Pakistan: Central Bank Reduces Policy Rate

The State Bank of Pakistan (SBP) announced its monetary policy statement today (September 12, 2024) decreasing the policy rate by 200bps to 17.5%. After the announcement, the SBP Governor made the following remarks in the analyst briefing:

The SBP's policy rate decision is influenced by a greater than expected decline in inflation and favorable trends in global oil and food prices. However, given the uncertain nature of these developments, the committee has adopted a cautious stance.

Real interest rates remain sufficiently positive to achieve the SBP's medium-term inflation target of up to 7%.

The SBP is not focused on a specific interest rate level but considers various factors, including the external account and future inflation, when making rate decisions.

Governor was hopeful that the IMF board will review Pakistan’s agenda for the approval of the 37-month Extended Fund Facility (EFF) program this month, as the government has secured all required external financing assurances.

Moving forward, the SBP will publish semi-annual data on central bank interventions in currency markets, as well as projections for foreign exchange reserves and upcoming debt obligations over the next six months.

Data on currency market interventions will be published with a three-month lag due to the sensitivity of the information.

In June 2024, the SBP purchased US$573 million from the open market.

By the end of March 2025, country’s foreign exchange reserves are projected to reach US$12.0 billion despite debt repayments.

The government is obligated to pay US$14.2 billion by March 2025, of which US$8.3 billion will be rolled over, while the remaining amount consists of debt repayments.

To date, the government has cleared US$4 billion in debt, including US$2.3 billion in rollovers. The remaining debt repayments of US$5.8 billion will be spread evenly until March 2025.

For FY24, the government has US$26 billion in debt obligations, including US$12 billion in rollovers and US$4 billion in commercial bilateral loans, which are also expected to be rolled over.

Of the US$8.3 billion repayments due this year, US$1.7 billion has already been settled.

According to audited accounts, the SBP earned a profit of PKR2.5 trillion in FY24 and is expected to disburse this amount as a dividend to the government in the coming days.

Non-oil imports are at levels seen in FY22 and early FY23, with the reduction primarily driven by a significant decline in oil imports.

 

 

Dr Shamshad Akhtar Prudent Choice as Caretaker Finance Minister

In the current economic landscape, it is evident that the role of the Caretaker Finance Minister is strategically important in the team of the Caretaker Prime Minister. While following the prudent decision making process, the appointment of Dr Shamshad Akhtar as the Caretaker Finance Minister is commendable.

Dr Akhtar's track record showcases her adroitness in handling intricate economic scenarios, demonstrated notably during the 2008 global financial crisis when she served as Governor State Bank of Pakistan (SBP) Governor, and again in 2018 during her tenure as the Caretaker Finance Minister.

As the Under-Secretary General of the Economic and Social Commission of the Asia and Pacific (UNESCAP) and the United Nations Secretary General’s Senior Special Advisor on Economics and Finance, Dr Akhtar oversaw the implementation of the sustainable development agenda including economic, social, and environmental and finance work of the UN Department of the Economic and Social Affairs.

During her term at UN, she was UN Secretary General’s Sherpa for Development and the Finance and Central Bank tracks. Among others, she was closely involved in the development and implementation of the 2030 Sustainable Development Agenda (SDG), the Addis Ababa Financing frameworks and work on the Paris Climate Accord and ensured closer alignment of G20 development agenda with the 2030 SDG agenda.

Dr Akhtar served as the Vice President, Middle East and North Africa at the World Bank, the Director General of Asian Development Bank (ADB) and served as the Special Senior Advisor to the President of ADB.

Dr Akhtar is recipient of Asia’s Best Central Bank Governor from Emerging Markets and the Banker’s Trust awards. In 2008, The Wall Street Journal Asia recognized her as one of Asia’s top ten professional women. Recently in 2020, she has been awarded the HUM Women’s Leadership Global Award.

Dr Akhtar in now serving as the Chairperson of few Boards in Pakistan: Chairperson of the Pakistan of Stock Exchange, Chairperson on the Board of Sui Sothern Gas Transmission and Distribution company, Chairperson of the Karandaaz – an innovative nonprofit company—grant funded by DFID/Bill Melinda to promote financial and digital inclusion, Chairperson, Pakistan Institute of Corporate Governance and as Independent Director, Engro Fertilizer Company and Advisor on Pakistan Environment Trust Fund.

Dr Akhtar is Member of the Advisory Council of the Sustainable Finance Centre at the SOAS at London University, Member of UN Global Women Leaders Group, served on G20 Task Force member of the Think Tank on Infrastructure during the Presidency of Japan, Saudi and Italian Government.

She served as an Advisor of SG Food Security and Financing for Development Group, one of the 12 Global Advisors to the Ministry of Foreign Affairs on China on Belt and Road, Council of Advisor and Policy Sherpa for the Boao Forum for Asia and Advisor to the Shanghai Forum.

She has conducted analytical work as Chair of the Pakistan Reform Insurance Committee, Capital Markets reforms and the Special Economic Zones etc. She serve as speaker on diverse set of international and national panel.