image source, Reuters
There is a lot of speculation about Pakistan’s economic situation. Sometimes there are declarations of default and sometimes there is the possibility of bankruptcy.
He had said: “The government’s claim that everything is fine and things are going well. All these things are false.”
However, later Zaidi also clarified this. At the same time, Pakistan’s Finance Minister had warned that if the oil subsidy is not reduced, Pakistan will become a defaulter and its condition will be like Sri Lanka.
Considering the current situation and political instability in Sri Lanka, concern was also raised about Pakistan.
Due to rising oil prices in the world market, there is tremendous pressure on Pakistan’s foreign exchange reserves, which is bringing it to the brink of crisis.
Pakistan’s foreign exchange reserves have fallen to $9.3 billion, which is not enough for even five weeks of imports.
The coronavirus affected the economy of Pakistan
Costs need to be cut quickly
The Pakistani rupee has weakened to an all-time low. Against a dollar, the Pakistani rupee has reached around 210.
Pakistan Prime Minister Shahbaz Sharif’s new government needs to cut spending fast as it spends 40 percent of its revenue on interest payments alone.
But in view of global projections, fake news and panic among people, now the Acting Governor and Deputy Governor of State Bank of Pakistan (SBP) have spoken in detail about the situation in Pakistan in a program.
Acting Governor Murtaza Sayed, Deputy Governor Inayat Hussain and Deputy Governor Seema Kamil were present in this SBP podcast on YouTube, who explained the country’s debt situation, foreign reserves and falling rupee in a positive light .
image source, Youtube/STATE BANK OF PAKISTAN
Dr. Mortaza, Acting Governor of Pakistan
How weak is Pakistan
Acting Governor Murtaza Sayed said the next 12 months will be very difficult for the global economy. As we emerge from Kovid, we are seeing global commodity prices rise. The Federal Reserve is tightening and there are also geopolitical tensions. Because of this, all the countries of the world are in trouble and inflation is increasing. The country that has the most debt is in a bad situation. But Pakistan is not as weak as people make it out to be. There are three basic reasons for this.
- First let’s talk about Pakistan’s current debt. This is the most important. Currently, 70 percent of the GDP stays in Pakistan. The kind of countries we are linked with like Ghana, Egypt, Zambia. Ghana accounts for 80% of GDP, Egypt 90%, Zambia 100% and Sri Lanka 120%. Pakistan’s debt level is very low.
- It also includes how much debt is from outside. In the case of Pakistan, 40% of GDP is external debt. Tunisia has more than 90%, Angola more than 120% and Zambia more than 150%. We have more domestic debt which is easy to handle because it is in our own currency.
- The second is short-term debt in external debt. That’s only seven percent of us, other countries like Turkey have 30 percent.
- The last thing that is seen is the conditions under which you have taken out an external loan. In our case only 20 percent is in commercial terms, the rest is based on exemptions that are taken from the IMF and the World Bank. Except from friendly countries. It’s easier for us to pay for it.
image source, Getty Images
IMF program like Sanjeevani
The acting governor said: “Our policies are such that we can slow down our economy a little. We have come out of Kovid well. Yes, the budget this year will be a little tight, but we are working on it. The most important thing is that in the next 12 months, countries that have IMF programs will survive and those that do not have much pressure. Ghana, Zambia, Tunisia and Angola do not have IMF programs. You Pakistan’s external debt, policies of the country And looking at the IMF deck, we’re not as weak as people think.”
Pakistan has a staff-level arrangement with the IMF, but the board level remains. For this, Pakistan will also have to fulfill certain conditions.
As for the difficulty involved, Murtaza Sayed said: “The staff-level agreement with the IMF is no small thing. It is a great achievement. It means that the IMF staff feels that what we had to do for this program has done it. After that. if you fulfill your commitments, it will be easy enough for you to come on board. After that, we will get the money. The world will see that Pakistan is on the right track.”
image source, Youtube/STATE BANK OF PAKISTAN
The Deputy Governor of Pakistan, Inayat Hussain
foreign exchange reserve position
Deputy Governor Inayat Hussain said: “Pakistan’s foreign reserves are close to $9.3 billion. These are not the levels we would be very happy with. We would like to improve that and it reaches the level of imports in three months. But , that’s also not the reserve level we should be too concerned about.There’s also fake stuff going around about it on social media.
The difference between a country’s imports and exports is called the foreign reserve. If a country does not have this reservation, it will not be able to import.
The deputy governor said: “We have enough reserves that can carry us through the next few months. Money will start flowing after the IMF program is approved. There are also some multilateral agencies, money will come from there as well. Our assessment is that we will easily meet the financial needs of Pakistan for next year, after that the budget will also increase.
Inayat Hussain also spoke about Pakistan’s gold reserve. He said that Pakistan has a gold reserve whose value is close to $3.8 billion. This is in addition to external reserves. There is no such situation that one has to take a loan against gold to increase foreign reserves.
Why does the government of Pakistan print so many notes?
The Deputy Governor also explained the reasons behind the decline in the Pakistani rupee.
He said the value of the Pakistani rupee has fallen by 18 percent since December. But, the 12 percent decrease is due to the increase in the value of the US dollar. The first of our reasons behind the fall of the rupee is that in Pakistan the demand is more than the supply of the dollar. Pakistan’s imports were very high in recent months. Our expectation is that imports will fall and the rupee will strengthen. At the same time, market sentiment also has an effect on the rupee.
“Mera Pakistan Mera Ghar” scheme is running in Pakistan for people to buy their house at affordable prices which has been stopped for now.
But, on what will happen after this scheme, Deputy Governor Seema Kamil said, “This is a scheme where the common man who cannot take the house will be able to take his house.” Your fee must be such that you can pay. That’s why the government used to give subsidies. Now this subsidy is becoming difficult for the economy. Therefore, Pakistan decided that it should be stopped for a while and it should be reconstituted. This scheme will come back and low income earners will definitely benefit from it.
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