SBP governor says import restrictions will be eased after completion of IMF review

During a briefing to the Senate Standing Committee on Finance, State Bank of Pakistan (SBP) Governor Jameel Ahmed projected that the current account deficit for the ongoing fiscal year would be $7 billion, which is lower than the budgetary target of $10 billion. He attributed the lower deficit to measures taken to control imports, which he said could not continue for a longer period of time. Ahmed stated that import compression would ease after the completion of the International Monetary Fund (IMF) review.

Ahmed also mentioned that the low inflows due to the delay in the IMF review, higher commodity prices in the international market, and the Ukraine-Russia war are major reasons behind pressure on the external account and an increase in inflation. However, he clarified that an increase of 300 per cent basis points in the policy rate was not made on the demand of the International Monetary Fund (IMF), and that the Staff Level Agreement (SLA) is close to being finalized with the Fund.

Regarding the outflow of $2.4 billion on account of debt repayment in the first half of the current fiscal year compared to $6.3 billion inflow for the same period a year ago, Ahmed said that the decline in inflows was due to the pending review of the IMF program. He hoped that budgeted inflow would materialize after the completion of the review in the second half, thereby increasing foreign exchange reserves.

Ahmed also mentioned that the pressure of inflation will remain for two to three months and the average inflation this year will be 26.5 per cent. He added that remittances have decreased by $2 billion and are projected at $29 billion for the ongoing fiscal year against over $31 billion for the last fiscal year. There was also a decline of 7.4 per cent in exports as the country did not have exportable goods due to flood and a decrease in the export of rice. Vegetables and fruit exports have also declined by 48 and 37 per cent respectively.

According to The News, the committee expressed concern over the fluctuation of the dollar and said that it was the responsibility of the regulator to maintain the actual price of the dollar and take measures against black marketing and smuggling. The committee sought details of the amount of dollars smuggled to Afghanistan in the recent period. The committee members recommended seriously addressing the issue of the difference between the dollar rate in the open market and the inter-bank. The chairman of the committee recommended that instead of rupee trade with Afghanistan, either be replaced with the dollar or barter trade because trade with Afghanistan in rupee is also contributing to the external account pressure.

Senator Mohsin Aziz highlighted that the remittances, the FDI, and the exports have been on a decline, whereas the country’s debt was increasing. He also said that imports compression and policy rate were hurting the industry and exports, and exporters are unable to compete in the global market with regional players due to government policies.

In response to the issue of refusal of LCs to importers of pharmaceutical ingredients, the SBP said it was fully supporting the import of above articles and imports of pharma industry have considerably increased in the month of February and the first seven days of March 2023.