Governor of the State Bank of Pakistan (SBP), Mr. Jameel Ahmad, met with key international investors and fund managers in an event organized by Barclays on April 13th, 2023, in Washington DC. The purpose of the event was to discuss Pakistan’s economic challenges and the way forward.

During the meeting, Governor Ahmad outlined the difficulties Pakistan is facing, including high inflation and external balance of payments pressures. He explained that these issues are primarily due to adverse global shocks and domestic developments. The country’s foreign exchange reserves and exchange rate have come under stress, exacerbated by devastating floods during July-August 2023.

Despite these challenges, Governor Ahmad reassured the participants that Pakistan has met all its obligations in a timely manner. The country has received fresh financing, and the State Bank’s foreign exchange reserves have recovered from a low of $2.9 billion to $4.2 billion by March 31st.

Governor Ahmad also discussed the policy response in Pakistan. The State Bank has raised the policy rate by 1400 basis points, to 21 percent, and implemented other measures to reduce demand-side pressures on inflation and the current account. The government is pursuing a contractionary fiscal policy, with the fiscal deficit during July-January FY23 lower than last year, despite the flood-related rehabilitation and reconstruction expenses.

Governor Ahmad expressed optimism that Pakistan is on its way to achieving macroeconomic stability, as the impact of policy measures is already playing out in the economy. The current account deficit has narrowed, and foreign exchange reserves, although low, are increasing. While inflation is currently high, it is expected to start decelerating over the next few months. With the revival of the IMF program, the uncertainty regarding external financing will also fade away.

Finally, Governor Ahmad highlighted the series of reform measures undertaken by Pakistan, including strengthening the central bank’s operational autonomy, prohibiting government borrowing from the central bank, AML/CFT-related regulatory interventions, and measures to increase digitalization in the economy. These measures have addressed many structural weaknesses and will allow the economy to pick up sharply once the country is through the current challenges.

Governor Ahmad concluded by emphasizing that Pakistan’s economy has always rebounded strongly after undergoing severe shocks. Despite facing a series of domestic and global shocks, the country strives to rebound strongly from the current challenges as well.