SBP governor vies to erase the writing on the wall

Governor State Bank of Pakistan Yaseen Anwar Thursday said Pakistan would not face any risk in making repayments to the International Monetary Fund (IMF). Also, the governor said despite domestic challenges, key emerging market countries, like China and Turkey, are keen to open bank branches in the crises-hit Pakistan. The governor also said “additional” Foreign Direct Investment, including that from the US company investments in the power sector, was in the pipeline and that unlike the European Union, the banking system in Pakistan had been very resilient, profitable and robust, Anwar asserted.
“We face no risk in being able to make next year’s IMF payments from our adequate reserves,” the SBP governor said in a rebuttal in response to the misreporting of his interview to the Wall Street Journal (WSJ) and that was published on May 29.
In a letter published in the American daily (WSJ) Thursday, the SBP governor clarified that the decline in Pakistan’s projected reserves would be partially offset by an increase in the ballooning worker remittances. The receipts from overseas Pakistanis, he said, would exceed the record $13 billion mark this fiscal year.
He said the entry of new foreign banks, increased small- and medium-size enterprise lending to increase employment, huge potential for the agriculture sector and the export potential for dairy products as the fourth largest milk producer in the world, and the development of capital markets to support housing finance are the positive developments in the country’s economy.
He pointed out that Pakistan’s current banking restructuring and successful branchless banking strategy was bringing the “unbanked” into the banking sector to increase financial inclusion. The central bank had stated that Pakistan’s Gross Domestic Product (GDP) was expected to be closer to four percent this year than the three percent as reported by WSJ, he explained. “It would have been nice to see a more positive light on these factors which will, in my view, be a positive toward alleviating the manageable stresses going forward. I see the glass half full and am optimistic about the year ahead,” the SBP governor told the WSJ.
Adding: “The article “Pakistan Bank Sees Financial Challenges” (World News, May 29) doesn’t fully reflect the economic story I conveyed in my interview with the Journal.”
Separately, he said despite economic challenges, Pakistan was not facing a situation which required emergency external assistance. The fiscal deficit and the lack of external financing would continue to challenge Pakistan, especially the central bank, he said. “Let me assure you that Pakistan will not stumble into a situation that requires emergency external assistance,” he added. Dispelling the impression created by some foreign and local media reports regarding pressures on the country’s foreign exchange reserves and exchange rate, the SBP Governor said it would be challenging, but manageable.
He pointed out that the SBP, like most other central banks, was only undertaking calibrated interventions to diffuse volatility as appropriate.
In recent weeks, the movement in the exchange rate had been somewhat sentiment driven compounded by lumping up of some scheduled payments, rather than any excessive demand and supply mismatches prevailing in the market. “The State Bank is watching the situation closely and the recent exchange rate movements have been excessive with the market overreacting,” the governor added. He said during the first 10 months of FY12, worker remittances rose by 20.2 percent to $ 10.88 billion, which helped the Balance of Payments (BoP) despite widening of the trade deficit.
Pakistan’s fiscal challenges are well known and documented, he said, adding this spillover to the rest of the economy was equally clear.
He said at the start of the year (July 2011), external conditions appeared daunting due to rising oil prices and lack of external financing.
Despite all odds Pakistan had fared well in the first 11 months of the current FY with not only successfully paying back IMF obligations to the tune of $ 1.2 billion and other debt obligations equaling $ 1.7 billion to date, yet the SBP’s liquid reserves were at stable levels of around $ 11.5 billion, much better and contrary to most analysts’ earlier assessment at the beginning of the fiscal year.
Despite domestic challenges, key emerging market countries, like China and Turkey, have shown keen interest in opening bank branches in Pakistan, he said, adding unlike European Union (EU), Pakistan’s banking system had been very resilient, profitable and robust. As stated to the Wall Street Journal and repeated: “I see the glass half full and optimistic about the year ahead as Pakistan’s economy is projected to grow 4.3 percent in the next fiscal year (FY13)”, the SBP Governor concluded.