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KARACHI: The State Bank of Pakistan (SBP) has introduced a framework to grant licences for setting up wholly digital banks that will provide all the banking services, from account opening to deposit and lending, through digital means and the customers will not need to visit any branch physically.

“The SBP has set the stage for the dawn of a new era for banking in Pakistan with the introduction of a Licensing and Regulatory Framework for digital banks in line with international best practices,” said the central bank in a statement on Monday.

The framework for digital banks is the latest in a series of recent initiatives by the SBP towards the digitalisation of banking and payment solutions in the country.

Other recent digitalisation initiatives introduced by the SBP, which are gaining traction and have opened new avenues for introducing innovative solutions, include customers’ digital on-boarding, Roshan Digital Account, Raast — instant payment system, electronic money institutions licences, Asaan Mobile Accounts.

The framework mainly aims to enhance financial inclusion through affordable and cost-effective digital financial services and is part of SBP’s efforts to promote digital financial services in Pakistan.

Initially five banks will be awarded licences
It includes guidance regarding licensing requirements, potential sponsors and permissible use-cases during different phases. It also sets an expectation from applicants to have sound digital governance, robust, secure and resilient technology infrastructure, effective data management strategy and practices.

As per the framework, digital banks are required to maintain a principal place of business in Pakistan to house the offices of their management, staff, other support operations and serve as the main hub/ point of contact for various stakeholders including SBP and other regulators.

In line with international best practices and assessment of the overall banking situation in Pakistan, the SBP has decided to initially issue up to five digital banks’ licences, which essentially means that the SBP is looking to attract players with a strong value proposition, a robust technological infrastructure, sufficient financial strength, technical expertise and effective risk management culture.

Applications, in this regard, will be accepted till March 31, 2022 and applicants intending to apply for a digital bank’s licence under this framework may submit their requests along with all the requisite documents at digitalbanksapplications@sbp.org.pk.

The newly issued licensing and regulatory framework provides complete procedure for setting up digital banks as a separate and distinct category in Pakistan. A digital bank is defined as a bank that offers all kinds of financial products and services primarily through digital platforms or electronic channels instead of physical branches.

Under this framework, the SBP may grant two types of digital bank licences, Digital Retail Bank (DRB) or Digital Full Bank (DFB). DRBs will primarily focus on retail customers while DFBs can deal with retail customers as well as business and corporate entities.

The licences for DRBs and DFBs may be obtained for both conventional and Islamic variants. Further, conventional variants of DRBs and DFBs may also offer Islamic banking services through Islamic windows as per existing practice. Setting up digital banks will also require less capital relative to the brick-and-mortar banks currently in existence, encouraging new technology-oriented entrepreneurs to enter this new realm of business.

The minimum capital requirement for DRBs is set at Rs1.5 billion during the pilot phase that will gradually increase to Rs4bn over a transition period of three years. The SBP expects that a few digital banks will be operational this calendar year, and is confident that these will play an important role in an inclusive and efficient expansion of the financial ecosystem in Pakistan.

Published in Dawn, January 4th, 2022
Financing by banks to construction sector jumps 85pc in 2021

Shahid Iqbal
January 7, 2022 -

KARACHI: Bank lending to the housing and construction sector increased by an unprecedented 85 per cent during the calendar year 2021 while the loan disbursements under the Prime Minister’s low-cost housing scheme also rose to Rs38 billion.

The State Bank of Pakistan (SBP) on Thursday reported very high growth in financing to the housing and construction sector but it was still not up to the mark as the government wants to build 5 million houses during its tenure ending next year.

“Recording an unprecedented growth of 85pc, banks’ outstanding credit for the housing and construction sector increased by Rs163bn to Rs355bn during 2021,” said the central bank in a circular.

In October 2020, the government introduced a Markup Subsidy Scheme, commonly known as Mera Pakistan Mera Ghar (MPMG), aiming to boost the housing sector by extending cheaper loans to low-income families to build their homes.
Disbursements under Mera Pakistan Mera Ghar surge to Rs38bn
“Within the housing and construction portfolio, disbursements under the MPMG increased by Rs38bn,” said the SBP.

Since the end of the amnesty scheme on June 30, 2021, the inflow of investment in the housing and construction sector has significantly reduced. Builders have been demanding to extend the amnesty scheme but the government looks determined not to extend it. The amnesty scheme allowed black money to join the industry which artificially increased the property prices manifold across the country.

“Financing to housing and construction and particularly under the MPMG has witnessed impressive growth on the back of many enabling regulatory measures introduced after extensive consultation with stakeholders,” said the SBP.

The SBP said it advised the banks to increase their housing and construction finance portfolios to at least 5pc of their domestic private sector advances till December 2021. The central bank has also introduced a set of incentives and penalties to ensure compliance.

Habib Bank, Meezan Bank and Bank AL Habib were the top three contributors to the significant growth in housing and construction financing. These banks also made significant progress in the provision of financing under the MPMG.

Financing under MPMG picked up momentum in 2021 as approvals for financing by banks grew from near zero to Rs117bn in 2021.

“The banks have received requests of financing of Rs276bn from potential customers, which indicates that approvals and disbursements will keep growing in coming months,” said the SBP.

Bank Alfalah emerged as the leading bank with the highest disbursement of Rs3.3bn followed by nine banks with disbursements of over Rs2bn each. These include Meezan Bank, BankIslami, National Bank, Standard Chartered Bank, HBFCL, United Bank, MCB Bank, Bank of Punjab and Habib Bank.

The SBP said it has taken a number of steps to create an enabling regulatory environment for banks to increase financing to the housing sector. Key initiatives include allowing acceptance of third-party guarantees during the construction period, waiver of Debt Burden Ratio (DBR) in case of informal income and the introduction of standard facility offer letters by the banks.

The SBP has also advised banks to develop and deploy income estimation models for borrowers with informal sources of income.
Moreover, the construction sector has been declared an industry. This brings tax relief to firms in the industry through the amendments to the tax ordinance. Reforms to tax policies provide numerous incentives to builders and developers as well as contractors. These include lower tax rates and the removal of numerous taxes previously hampering the ease of doing business in the sector.

Published in Dawn, January 7th, 2022
The state — and the State Bank’s autonomy

Mohiuddin Aazim
January 10, 2022

The tabling of the State Bank of Pakistan (SBP)Amendment Bill 2021 in the parliament has brought to the fore the main disagreement between the International Monetary Fund (IMF) and the Pakistan government. It’s all about permitting the State Bank of Pakistan to pursue inflation targeting.

Central banks that make inflation targeting the anchor of their monetary policy don’t have to bother about economic growth. The aforementioned bill proposed exactly that. Section 4B of the bill is about the objectives of the central bank. Sub-section 1 of this section maintains that “the primary objective of the Bank shall be to achieve and maintain price stability.” Sub-section 2 says: “Without prejudice to the Bank’s primary objective, the Bank shall contribute to the stability of the financial system of Pakistan.” And, sub-Section 3 says: “Subject to sub-Sections (1) and (2), the Bank shall support the Government’s general economic policies with a view to contributing to fostering the development and fuller utilization of Pakistan’s productive resources.”

In simpler words, if the parliament adopts the proposed bill as an act, the SBP will be free to focus exclusively on “price stability”. This means it won’t necessarily have to ensure the stability of the financial system of Pakistan if that comes into the prejudice of its main objective. And, it will also not have to contribute to fostering the development and fuller utilisation of Pakistan’s productive resources. This is exactly inflation targeting.

The bill proposes changes that will leave no room for the government of the day to ask the central bank to intervene or not to intervene in the foreign exchange market
The promises and perils of inflation targeting are many — and its success or failure in achieving price stability in Pakistan depends upon various “ifs” and “buts”. But one of the prerequisites of inflation targeting is a level of independence of the central bank in the formulation and execution of monetary policy.

The bill seeks to achieve that very independence by amending the very objectives of the SBP. The IMF is pressing Pakistan to get the SBP Amendment Bill 2021 passed from the parliament. And, it has even made it a precondition for the release of the next tranche of its $6 billion lending programme. But chances for the approval of the bill from both houses of the parliament in its present form are slim.

Not only the opposition parties but many from within the PTI-ruling coalition fear that the adoption of the bill would mean compromising Pakistan’s sovereignty.

If the proposed bill is passed into law the SBP will not have to bother about ensuring price stability, ensuring the stability of the financial system and assisting the government in achieving economic and development goals — all at the same time. As explained earlier, ensuring price stability will have primacy over everything else. The central bank would still be charging its other obligations only if in so doing its chief aim of ensuring price stability is not hurt. That would deprive the government of the legal cover for insisting upon the central bank to be supportive of economic growth and development.

If the parliament adopts the proposed bill as an act, the SBP will be free to focus exclusively on “price stability”.
In an extreme eventuality, the government would also not be able to require the central bank to ensure the stability of the financial system. In case the proposed bill is adopted as law, all the central bank would be legally required to do is to contribute to the stability of the financial system and that, too, without prejudice to its main objective ie achieving and maintaining price stability.

The SBP Amendment Bill 2021 also seeks to abolish the Fiscal and Monetary policies Coordination Board — an advisory body created in the Ministry of Finance during the Musharaff era.

The board was supposed to ensure that the fiscal and monetary authorities do not act in ways that hamper the achievement of the macroeconomic goals of the country. But the post-Musharraf democratic government, particularly that of PML N, rather misused it for dictating the central bank. One most notorious example of this attitude is that the then Finance Minister Ishaq Dar kept the rupee overvalued and changed the SBP’s then acting governor when he let the rupee fall in the interbank market without Mr Dar’s approval.
The most audacious of all the amendments that the bill proposes is written down in sub-section C of Section 9. It states: “The Bank shall not extend any direct credits to or guarantee any obligations of the government or any government-owned entity or any other public entity.” This is just unacceptable to the government — as well as for Pakistan’s powerful establishment. If this sub-Section of the proposed law becomes law,
running its day to day affairs will become too difficult for the government — and pursuing geostrategic goals through economic diplomacy will become too difficult for the establishment.

But the IMF and the SBP both love this proposed change in the SBP law and don’t want the parliamentarians to drop it while approving SBP Amendment Bill 2021. One win-win solution could be to link government borrowing from the central bank to the parliament’s approval. That will open a window for the government’s direct borrowing from SBP only under “special circumstances” — and that, too, after seeking the parliament’s approval for that.

The bill also proposes changes that will leave no room for the government of the day to ask the central bank to intervene or not to intervene in the foreign exchange market. Just like the proposed discontinuation of the government’s borrowing from the SBP, this proposal also can be approved with some “ifs” and “buts”.
Because, whereas the government’s intervention in the forex market is not desirable, a window must be kept open — if not for the government of the day, certainly for the parliament— to make a final call on the management of the external economy in critical times.

After all, it’s the state of Pakistan — and not the State Bank of Pakistan —on whose shoulders lie the ultimate responsibility of safeguarding the overall interests of Pakistan under all circumstances.

Published in Dawn, The Business and Finance Weekly, January 10th, 2022
Finance Minister Shaukat Tarin said on Monday that the government will retain control over the State Bank of Pakistan (SBP), as it seeks to pass the SBP Amendment Bill, 2021 from parliament, a statement that comes amid widespread criticism that the move is aimed at limiting powers of the state over the central bank.

Briefing a meeting of the National Assembly's Standing Committee on Finance, chaired by Faiz Ullah Kamoka, Tarin said that the impression that it will curtail powers of the government is not correct.

6th review: IMF accepts Pakistan's request to reschedule, says finance ministry

"The government will nominate names of the board of directors of the central bank and will also have the power to approve their appointment," said Tarin during a heated standing committee session in which he traded barbs with the opposition leaders including Pakistan Muslim League-Nawaz (PML-N) Ahsan Iqbal.

The finance minister informed the committee that the International Monetary Fund (IMF) has told the government not to borrow from the central bank.

"The government has borrowed no loans from the SBP for the last two and a half years," he said.

“Instead of State Bank, the government would borrow from commercial banks."

The State Bank of Pakistan (SBP) Amendment Bill, 2021 alongside the Finance (supplementary) Bill are prior conditions needed for the sixth review of the $6 billion EFF to get cleared by the International Monetary Fund’s (IMF) executive board.

Completion of the review would make available SDR 750 million (about $1,059 million), bringing total disbursements under the EFF to about $3,027 million.

The IMF approval is crucial for Pakistan's economy, which battles a rise in current account deficit amid widening of the import bill. Experts say that the IMF approval would pave way for Pakistan to approach other international lenders i.e. the World Bank and Asian Development Bank (ADB) to meet its funding needs.
PRINTForeign exchange dealers, companies: All transactions to be monitored by FBR
  • Board has included foreign exchange dealers/exchange companies in the list of the businesses that are required to online integrate their businesses

Sohail Sarfraz
15 Jan, 2022


ISLAMABAD: The Federal Board of Revenue (FBR) has decided to document transactions of the foreign exchange dealers/exchange companies, and directed them to online integrate with the FBR’s computerised system.
The FBR has notified SRO50(I)/2022 to draft amendments in the Income Tax Rules, 2002, here on Friday.

In this connection, the FBR has issued instructions to the foreign exchange dealers/exchange companies.

According to the FBR, the board has included foreign exchange dealers/exchange companies in the list of the businesses that are required to online integrate their businesses.

Under the FBR’s rules, the Board shall ensure to provide a facility on its website to a customer of an integrated enterprise person to verify and ensure that the invoice or bill issued to him has been duly communicated to the Board’s Computerized System and in case of non-verification, he may upload the image of invoice or bill to the Board’s portal.

The foreign exchange dealers/exchange companies shall install such fiscal electronic device and software, as approved by the board, available on its website with complete technical instructions for installation, configuration and integration.

The person shall notify to the Board, through the Computerized System, of all the establishments, hereinafter referred to as notified establishments, from which they intend to carry on business and shall register each point of sale(POS) to activate the integration duly providing the following information, namely: POS Registration Number (to be provided by the System); name of business; branch name; branch address; POS identification number, and registration date.

No sale or service from the notified establishment shall be rendered without being recorded by the duly-accredited electronic fiscal device (EFD), which means a system composed of one Sale Data Controller (SDC) and at least one Point of Sale (POS) connected together, that has the following characteristics and requirements, the FBR added.

Copyright Business Recorder, 2022

Governor State Bank of Pakistan (SBP) Dr Reza Baqir has recently asserted that Pakistan could ride out rising external account pressures.

This essentially means that this crisis too shall pass. This is not the first external account crisis the Pakistan’s economy is facing and probably not the last one. Like every previous crisis, this would also end. The worrisome fact is that the boom-bust cycle is becoming more frequent.

This potentially is the fourth crisis in twenty-odd years. Dr Baqir is right in a way that the ongoing crisis is due to higher commodity prices. One can link this to post-Covid recovery. However, by the same token, last year’s better performance in the external account was due to the first leg of the pandemic.

In the initial days, prices went down quickly, and due to smart lockdown policies at home, exports soared. Then due to severely reduced travel and global stimuli, home remittances attained a new high.

It is important to recall that the current account was in surplus for a couple of quarters before turning into red again. The deficit in recent months is at uncomfortable levels; but considering the surplus earlier, the impact is smothered. The fact of the matter is that the average monthly current account deficit in the last 24 months is similar to the one 12 months prior to it. It is the inertia of good days amid government (and SBP’s) generous stimuli that are resulting in the higher deficit lately.

Commodity prices, in the meantime, appear to be reverting to their normal level. Once that happens, the import bill in Pakistan would see a decline. Plus, the stimuli taper (including increase in the interest rates) is expected to decelerate the demand momentum too. These two factors would help in lowering the deficit.

Dr Baqir also gave the comfort to the audience that there are enough inflow buffers to finance the external imbalance. He is certainly assuming the resumption of the IMF programme.

The finance (supplementary) bill (mini-budget) and amendments to the SBP Act are awaiting the parliamentary sanction and the government is confident that the IMF Board will have the sixth review on its agenda within this month, which will not only help in getting $1 billion from the IMF but also facilitate inflows from other sources. The government could fetch better pricing on raising money from the international debt markets.

Arguably, our external account is the weakest link in our macroeconomic environment.

The question is about the sustainability of the external account. The question is how to get out of the boom and bust cycle that has unfortunately become a recurrent theme of our economy. This is what was assured by the Governor when the flexible exchange rate regime was announced. This is what was assured by the prime minister when the focus was on export-oriented industrial revival. The key is to boost exports. In the last decade, exports stagnated but remittances moved up. There is not much left to extract from remittances coming from the Middle East in particular.

Traditional exporting sectors such as textiles have a lot of potential but the industry asks for too many subsidies. The real game changer could be service exports, which are an important emerging trend in the global trade. And for that the need is to help our ICT graduates generate exportable work hours. The government needs to focus on both traditional and services exports to grow. That can allow the economy to grow beyond 4 percent on a sustainable basis.

The equation is simple. Exports are down from 12 percent in early 2000s to 9 percent by now. While the imports at 19 percent of GDP last year exceed the past 20 years’ average of 18 percent. The problem of Pakistan is not higher imports; the fault lies in falling exports. That is why the balance of constrained growth (as computed by the Asian Development Bank) has declined from 5 percent to 3.8 percent.

Copyright Business Recorder, 2022
The State Bank of Pakistan (SBP) has recommended a complete ban on all cryptocurrencies, expressing concerns that trading of the digital currency would cause an outflow of foreign exchange from the country.

The central bank made the recommendations in a report submitted to the Sindh High Court on Wednesday.

Last year, the high court ordered the government to form a high-level committee to determine the legal status of cryptocurrencies where Pakistanis are investing millions of rupees due to absence of a clear rules and regulations.

The court had issued the order while hearing a petition against a SBP order dated April 6, 2018, in which it advised banks and payment system operators to “refrain from processing, using, trading, holding, transferring value, promoting and investing in virtual currencies/tokens.”
Pakistan Blockchain Summit 2022

Minister for Science and Technology Shibli Faraz on Wednesday said that the Pakistan Tehreek-e-Insaf (PTI) led federal government intends to regularize cryptocurrency in Pakistan.

He was addressing the first Pakistan Blockchain Summit 2022, in Islamabad.

Shibli Faraz said the State Bank of Pakistan, Securities and Exchange Commission and Finance Division are already working on the plan, reported Radio Pakistan.

The minister said blockchain will become a 20-billion market by 2024 and about 200 countries have somehow incorporated it into their systems.

He said people are turning to cryptocurrency without proper planning, therefore, the government’s control is essential for prevention from loss and ensuring transparency in it.

Shibli Faraz said banks can save eight to ten billion rupees annually by using blockchain.

He said the Ministry of Science and Technology is also launching blockchain technology pilot projects in its three universities.
Should Pakistan ban cryptocurrency?

Pakistani investors injected $20 bn into cryptocurrency while SBP’s foreign exchange reserves stood at $17.68 bn

Hamza Kamal
January 18, 2022

The popularity of cryptocurrency has grown rapidly in recent years, particularly in 2021, as a result of landmark decisions such as El Salvador adopting Bitcoin – the gold standard of cryptocurrency – as its legal tender, and the launch of the first Bitcoin-linked exchange traded fund (ETF) in the United States. These developments have pumped investor optimism to new heights. Moreover, the infamous digital coin was able to break through its historical peak and reach nearly $69,000 in value. On the other hand, China, the second biggest economy in the world, imposed a complete ban on cryptocurrency, sparking a debate about whether other countries should follow suit.

This debate has sparked interest among Pakistani authorities over the last few days following the discovery of an online fraud by the Federal Investigation Agency (FIA) involving approximately Rs17.7 billion (USD100 million). According to market reports, investors in Pakistan were using mobile applications that allowed them to trade cryptocurrency, but these applications mysteriously vanished, wreaking havoc among investors. These applications were allegedly linked to Binance, one of the world’s largest cryptocurrency exchanges. The FIA has initiated an investigation into the matter and summoned a local Binance representative for questioning.

Responding to the situation, the State Bank of Pakistan (SBP) submitted a report to the Sindh High Court (SHC) calling for a complete ban on cryptocurrency. Consequently, the SHC has ordered the report to be reviewed by the law and finance ministries before a final decision can be made on whether to make the use and trading of cryptocurrency illegal within Pakistan. The SHC also added that the law and finance ministries should carry out their own research on whether a potential ban on cryptocurrency is in the best interest of the nation. The ultimate goal is to finally put this issue to rest and move forward with a solid framework in place to tackle any further problems.

In 2021, interest in cryptocurrency among Pakistani investors grew rapidly, and the crypto sector, along with real estate, was among the best performing assets in the country. According to a report published by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Pakistani investors injected an incredible $20 billion into the digital asset. This is truly surprising given that the SBP’s foreign exchange reserves stood at nearly $17.68 billion as of December 31, 2021, which is less than the amount invested in cryptocurrency. Besides that, it was also found that Binance is the most popular tool used to exchange cryptocurrency in Pakistan.

Despite rising traction in the digital sector, it is important to answer whether cryptocurrency should be completely barred in an era where digitisation is in full swing and consumers prefer using digital applications to perform so many tasks. Furthermore, we are living in the midst of a pandemic due to which many people prefer online modes of payment instead of the physical exchange of money. Based on current events, it is clear that this digital presence will likely dominate the future, with companies and individuals alike shifting their work online, eventually reaching a point when virtual reality could potentially rival physical presence.

In such an environment, traditional finance models must evolve since online applications require secure and efficient payment systems to be in place. This is precisely what cryptocurrency provides: a decentralised means of making payments that is, by design, much more secure and efficient than the traditional banking services we are accustomed to.

However, the decentralised nature of blockchain technology has made it extremely difficult for governments all over the world to protect their citizens from fraud, money laundering and terrorist financing. This is why countries such as China have outrightly prohibited the use and trading of digital currencies. Similarly, officials in India are working to have the asset class banned in coming months. The main issue that authorities face when attempting to create a regulatory framework is determining how to classify cryptocurrency i.e. whether digital coins should be treated as a currency or an asset. If governments were to classify cryptocurrency as assets, compliance and market risks would be taken care of. However, countries will continue to face significant risks from capital flight, illicit activity funding and financial instability.

Considering that Pakistan remains on the Financial Action Task Force’s (FATF) grey list and that Pakistan’s currency has been rapidly depreciating under Prime Minster Imran Khan’s administration, the SBP’s recommendation to ban cryptocurrency appears to be a sound strategy. It is worth noting that the FATF has stated that Pakistan has “structural deficiencies” in implementing procedures to prevent money laundering and terrorism financing. Both of these shortcomings are at further risk of being aggravated if cryptocurrency is wholeheartedly adopted without any restrictions.

All in all, the SBP’s recommendation to ban cryptocurrency seems like the right strategy for the time being. This is because we still do not have any case studies to look at in order to understand how to develop an effective strategy that allows Pakistan to reap the benefits of the digital currency sector while avoiding its potential dangers. As we are still in the early stages of cryptocurrency adoption, it is prudent to adopt a ‘wait and see’ approach since we cannot afford to be associated with facilitating illicit activities or any type of capital flight during our current economic crisis.

Hamza Kamal
The writer is currently working as a senior business analyst at MCB Bank Limited’s strategic acquisitions and investments department. He has a bachelors degree in accounting and finance from the Lahore University of Management Sciences (LUMS).
ISLAMABAD: Pakistan has revised its economic growth rate for 2020-21 to 5.37% from 3.9%, Minister for Planning, Development, and Special Initiatives Asad Umar announced on Thursday.

"The growth in 2020-21 was 5.37%," minister Asad Umar said in a tweet, adding that the National Accounts Committee (NAC), a government body that reviews the economic indicators, had approved the revised estimate of GDP growth.

This is the second time the GDP growth rate for 2020-21 has been revised. It was set at 2.3% in the 2020 federal budget announcement, and then recorded at 3.9%.

The country's statistics bureau also shifted its economy's baseline, which pushed the figure up further to 5.57%, a statement from the planning ministry said.

The new baseline also increased Pakistan's contraction in 2019-20 to 1%, from the earlier 0.4%. It increased the GDP growth rate for 2017-18 to 6.1% as well.

Pakistan's revised growth rates with both base years

With the new 2015-16 baseline, it said, Pakistani total GDP has now reached $346.76 billion with a per capita income of $1,666.

For the ongoing fiscal year (2021-22), Pakistan has set a target of 4.8%, but policymakers are hopeful growth will cross 5%.

Umar said the revised number showed the second-highest growth in the last 14 years. The higher growth was mainly due to strong industrial growth between April and June, he said.

With inflation at 12.3%, surging food and energy prices have put Prime Minister Imran Khan under increasing pressure.

The government presented a mid-year budget this month to end tax exemptions on a variety of sectors to raise close to Rs350 billion for the current fiscal year. The mini-budget is a key condition ahead of the 6th review of the International Monetary Fund's (IMF) Extended Fund Facility.

The IMF board will meet on January 28 to look into reviving the stalled $6-billion funding programme.

The PTI government on Thursday approved the re-basing of national accounts, resulting in jacking up of GDP growth rate from provisional 3.94 percent to 5.57 percent for the last fiscal year 2020-21.

However, this exercise has led the total debt and liabilities in the percentage of GDP ratio improving by 14 percent but the tax to GDP ratio declining. With the approval of re-basing of national accounts from 2005-6 to 2015-16, Pakistan’s social sector spending on education and health in the percentage of GDP worsened, so Islamabad would have to work hard to convince the international community for complying to increase spending on the neglected social sector.

The country’s investment and savings in the percentage of GDP also slashed. However, the government preferred to release re-basing of National Accounts figures and update the whole series of macroeconomic figures without getting approval from the Governing Council of Pakistan Bureau of Statistics (PBS).
The State Bank of Pakistan (SBP) on Tuesday that it was keeping the policy rate unchanged at 9.75 per cent.

“There's no need for further tightening at the moment because of the government's fiscal policy,” SBP Governor Reza Baqir said at a news conference in Karachi.

Last month, the central bank had increased the policy interest rate by 100 basis points from 8.75pc and revised targets for inflation, current account deficit and growth rate and changed perception about the rising import bill.

The bank had previously lifted rates by 275 basis points since September to tackle a falling rupee, high inflation and a current account deficit. However, in December it had indicated that it expected the monetary policy setting to remain "broadly unchanged" in the near-term.

Addressing the press conference today, Baqir said that the central bank's Monetary Policy Committee (MPC) had taken several measures recently in an effort to reduce inflation and to make gross domestic product (GDP) growth more sustainable.

"These measures include raising the interest rate by 2.75pc since September while the cash reserve requirement for banks was also increased. In addition, measures were also taken to moderate consumer finance," he said.

He said that at the December meeting, the MPC wanted to see the effect of these measures before taking a decision on the policy rate.

Commenting on Pakistan's economic outlook, Baqir said that there was some moderation in demand growth. He said that headline inflation (year-on-year) would continue to remain high for now due to the prices of commodities in the international market.

"But if we look forward, we are seeing that the inflation projection has reduced," he said.

The central bank governor pointed out that there had been some moderation in the indicators for economic activity such as large-scale manufacturing.

"LSM growth was 2.5pc in September and was 0pc in November. In the same way, if you look at other indicators, you will see that there has been some moderation as compared to the way they were increasing."

The SBP governor said that this was "good news" and it illustrated that growth was sustainable.

Commenting on inflation, he said that the latest headline number was 12.3pc year-on-year. "But if you compare it to the previous months, then it shows that the momentum of inflation is decreasing."

He went on to say that the current account deficit (CAD) was also witnessing stabilisation, adding that it would now begin to reduce due to this reason. "In the past two months, the CAD remained at $1.9 billion and did not increase further."

He said that the CAD for the current fiscal year remained projected at around 4pc of the GDP.

Baqir said that the recently passed Finance (Supplementary) Bill would reduce the fiscal deficit and moderate demand growth.
The proposed State Bank of Pakistan (Amendment) Bill 2022 has successfully gone through the Senate of Pakistan on Friday with a majority vote amid hue, and cries of the opposition.

According to the treasury, the bill aims at providing for the constitution of the SBP to achieve domestic price stability by regulating the monetary and credit system of Pakistan and, without prejudice to this primary objective.

The government claims that the law will contribute to the stability of the financial system of Pakistan and will support the general economic policies of the Federal Government to foster development and fuller utilization of the country’s productive resources while barring the government to achieve its political goals through destabilizing and non judicial actions such as printing excessive currency bills and surrendering of the personal loans of influential.

While the opposition was of the view that the government has opened a window for the International Monetary Fund (IMF) to access the internal affairs of Pakistan’s central bank and national economy including sensitive information relating to the Nation’s defense and nuclear program.

The opposition parties had said that after imposition of the new law, the governor State Bank of Pakistan will act as the IMF’s viceroy in the country while the government will drop its control in the Bank’s affairs. In fact, the move of the incumbent government was prompted by the IMF’s demands before the issuance of another tranche of monetary funds under its Extended Fund Facility (EFF) to Pakistan.

The government of Pakistan failed to achieve the goals set by the IMF with respect to the program dated back in July 2019. Pakistan’s financial team could not satisfy IMF staff after months-long negotiation for the continuation of EFF, instead, the global financial institution handed over a list suggesting the strictest measures for implementation before handing over the funds to Pakistan.

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