The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) maintained its policy rate at 15 percent during its latest review of the Country’s economic outlook on Monday. According to the details, the MPC took stock of the recent temporary economic and administrative measures taken by the government to curtail imports and consolidate the national economy. Although the rupee gained appreciation in the current month but inflation continue to climb high throughout the past weeks. Therefore, the MPC decided to take a pause by maintaining the policy rate at 15 percent to cool the overheating economy and contain the current account deficit during the next quarter of the year.
The global economy is passing through a critical phase due to multiple phenomena ranging from the unprecedented repercussion of the COVID-19 pandemic to war in Ukraine as well as US-China rivalry over the Taiwan issue to aggravating food and energy crisis in most parts of the world. All these actors have put devastating effects on the already struggling economy of the country. Although Pakistan successfully sailed through the global impact of the pandemic, however the recent spike in energy prices and politically motivated economic policies of the successive governments had brought the national economy to the brink of collapse.
Due to the prevailing uncertain geopolitical and economic landscapes in the world, the central banks across the globe had raised interest rates and tightened their regulatory policies to support their economies. The State Bank of Pakistan had continuously raised its policy rate by a cumulative 800 basis points since last September. The Central Bank was of the view that the recent ban on unessential luxurious items, appreciation in currency value, and other fiscal and administrative measures including high-interest rates supported the national economy and the central bank intends to maintain this momentum by keeping the same policy rate in the coming days.
According to the monetary regulator, the country will have to face fiscal challenges throughout the current year because of the reversal of subsidies on energy products including oil, gas, and electricity, inflation has raised up to 24.9 percent and this upward trend is likely to continue during the current year, while the trade balance fell sharply in the last month.
However, the Central Bank hopes that a tranche of $1.2 billion is likely to be released by the International Monetary Fund (IMF) after the board meeting of the global lender on August 29, whereas the expected availability of an additional $4 billion from some friendly countries will help Pakistan to maintain a balance of inflows vis-a-vis it’s external expenditures and debt service in the coming months.
The Monetary Policy Committee was of the view that these actions are expected to work their way through the system over the coming months and the recent inflation is in line with expectations. The domestic demand is likely to be moderate while the external position will improve gradually in the coming months and Pakistan’s economy will survive through this hard time successfully.
In fact, it is a very challenging time for countries with weak economies like Pakistan and several nations are facing a real threat of economic default during this ongoing global economic crisis. However, our political leaders should be careful in fiscal spending and avoid their kingly habits and authoritative behavior to make the country independent and sovereign in the economic field.
