State Bank of Pakistan : The Outlook for Pakistan's Economy by Governor SBP, Dr Reza Baqir at Pakistan Banking Awards 2019 (11.01.2020)

The Outlook for Pakistan's Economy

Dr. Reza Baqir

Governor

Pakistan Banking Awards

Karachi, January 10, 2020

I.

Economic policies are addressing previously accumulated macroeconomic imbalances

A fixed exchange rate (ER) widened the current account deficit; ER flexibility has improved the current account

Current account and exchange rate

US$ billion										3-month rolling averages							PKR/USD
1.5							Current account																		170
1.0							Non-oil current account														160
0.5							PKR/US$ (RHS)																		150
0.0																														140
-0.5																														130
-1.0																														120
-1.5																														110
-2.0																														100
15 15 15 15 16 16 16 16 17 17 17 17 18 18 18 18 19 19 1919	90
--2.5 -	- - - - --	- --	- --	-
Jan Jul- Jan Jul- Jan Jul- Jan Jul- Jan Jul-
Apr	Oct Apr Oct	Apr	Oct Apr	Oct Apr	Oct

Source: SBP	3

SBP Source:	Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
	Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
	Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
	Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
	Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
4

Amount in US$ billion	notableA
15 10 5 0 (5) (10)
Forward Reserves Fx SBP's	reserves FX in improvement
Transactions

Reserves Net

Source:	Jun-95
Aug-96
SBP	Oct-97
Dec-98
	Feb-00
Apr-01
	Jun-02
Aug-03
	Oct-04
Dec-05
	Feb-07
Apr-08
	Jun-09
Aug-10
	Oct-11
Dec-12
	Feb-14
Apr-15
	Jun-16
Aug-17
	Oct-18
Dec-19
5

46 2 0	Reserves1820 16 14 12 10
8			(billions
	5 IMF programs back to back			US$)
		Sep 1993 to Dec 2004

SBA: Nov2008 to Nov 2010

EFF: Sep 2013 to Sep 2016

EFF: July 2019

programs IMF repeated to led have reserves low and Falling

Fiscal reforms are beginning to bear fruit with revenues growing significantly

25.0										FBR revenues
								% growth, contribution in ppt.
20.0						Direct Taxes			Sales Tax (Import)
					Sales Tax (Domestic)			FED
15.0						Customs
10.0
5.0
0.0
-5.0
-10.0
-15.0

1818	18 1818	1919	19	1919	19 19
- - 18- - - - -19 - - -19 19-	- 19- - -
Aug	Nov		Mar	May		Aug		Nov
	Oct	Jan		-	Jul-	Oct
Jul Sep	Dec	Feb Apr Jun	Sep
Source: Planning Commission; FBR								6

Real interest rate on forward-lookingbasis

Policy interest rate is appropriate to reduce inflation and the real interest rate is less than in many other countries

Ukraine, Argentina,

5.0In percent9.6% 19.0%

4.0

3.0

2.0

1.0

0.0

Thailand

Malaysia

Turkey

Indonesia

Pakistan

Vietnam

Sri

Ukraine

Korea,

South

China

Philippines

Bangladesh

Argentina

Rep.

Africa

Egypt

Mexico

India

Lanka

Notes: 1. Inflation projections made by the IMF in October 2019; For Pakistan, SBP's inflation projections are used. 2. Real interest
rate is the difference of nominal interest rate and projected inflation.	7
Source: SBP; IMF

II.

The outlook for the real economy is

improving

The move to a market-based exchange rate system has made the rupee competitive and will support exports

Index, inverted scale				↑ in REER = depreciation
								Real exchange rate (REER)
70									2013=100
					REER range of major competitors
80						Pakistan
90
100
110
120
130-13
- 14- - - -15 - - -16 - - -17 - - -18 - - -19-19-
1313	1414	1515	1616	1717	1818	19
May	May	May	May	May	May	May
- Jan Jan Jan Jan Jan Jan	Sep
Jan	Sep	Sep	Sep	Sep		Sep	Sep
Note: Competitors' include India, China, Malaysia, Thailand, Sri Lanka, Philippines, Indonesia, Mexico		9
Source: SBP

Increased development spending will support the real economy

Federal Public-Sector Developing Program Releases

300										Rs billion
			FY19		FY20
250
200
150
100
50
0
	July			Aug		Sep		Oct		Nov		10
Source: Planning Commission; FBR

Business confidence indicators have risen in the latest survey after six months

 The colors signify the current level of confidence relative to the historical median, i.e. green
 (red) means current level is better(worse) than historical median.
The arrows signify change from the previous wave of the Business Confidence Survey (BCS)
i.e. upwards (downwards) arrow signify improvement (deterioration) between any two
waves.
Note: CBCI, EBCI and BCI stands for Current, Expected and Overall Business Confidence, while PMI stands for
Purchasing Managers Index	11
Source: SBP onhttp://www.sbp.org.pk/research/BCS.asp

III.

A few key priorities

I. We need to re-grow our exports and join the rest of the countries in the world

Pakistan's Export Performance

Countries in red have export-to-GDP ratio of less than 10 percent, 2015-18 includes Pakistan, Afghanistan, Yemen, Sudan & Ethiopia

Source: World Bank

13

1. We need to raise our savings rate to finance higher investment without recurring current account deficits

45.0						1980s		Savings-to-GDP
						In percent
40.0						1990s
					2000s
35.0					2010-2018
30.0
25.0
20.0
15.0
10.0
5.0
0.0
			Pakistan			Bangladesh			Sri Lanka		India			South		Developing		E & D		World
																		Asia		Asia	Economies	14
Source: IMF-WEO

1. We need to enhance financial inclusion so that the benefits of prosperity are more widely shared

80%	A/C Ownership (%) and Comparison
with South Asia and Worldwide
70%
60%
50%
40%
30%
20%
10%	Total # of	Male Accounts	Female Accounts
0%
	Accounts (in % of	(in % of adult	(in % of adult
	adult population) male population) femal population)
	Pakistan	South Asia Average	World Average

Sources: * Pakistan's data is supply side data showing unique active accounts.

The Global Findex Database 2017 (WBG)

SME Credit as % of GDP

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

Argentina		Mexico Turkey		Korea
Bangladesh		Thailand
Pakistan	Indonesia		Malaysia
India		Ukraine		China

Source: IMF Financial Access Survey (FAS) 2018

15

Thank you

Questions: [e-mail]