Pakistan’s Central Bank Governor Projects Inflation Surge but Assures Debt Crisis is Over

On Wednesday, Jameel Ahmad, the Governor of Pakistan’s central bank, addressed the National Assembly Standing Committee on Finance, providing a mixed outlook for the country’s economy. Ahmad projected that inflation might surge in the coming months due to recent budgetary measures, rising energy prices, and ongoing geopolitical tensions in the Middle East. Despite these challenges, he assured that the foreign debt repayment crisis has been effectively managed.

Ahmad highlighted that while Pakistan’s foreign exchange reserves have doubled over the past year, they still cover only 1.6 months of imports, remaining below the optimal threshold. The governor forecasted inflation to remain between 11.5% and 13.5%, acknowledging that recent developments could push prices higher. Core inflation, currently at 13.8%, remains a concern, prompting the central bank to maintain a cautious monetary policy.

The governor faced scrutiny from committee members regarding the central bank’s decision to keep interest rates at 19.5%, which they argued could stifle economic growth. With headline inflation at 11.1% in July, there were calls to reconsider the high interest rates. Ahmad defended the policy, stating that the higher rates are necessary to control currency circulation and bolster bank deposits. He emphasized the need for sustainable economic growth rather than short-term boosts.

On the topic of foreign debt, Ahmad disclosed that Pakistan is set to repay $26.3 billion in external debt for the current fiscal year, with $16.3 billion expected to be rolled over. The country is seeking $12 billion in cash deposit rollovers from China, Saudi Arabia, and the UAE, along with $4 billion in Chinese commercial bank loan rollovers. Despite these substantial repayments, Ahmad assured that the central bank’s reserves would increase from $9.1 billion to over $13 billion by June next year.

Ahmad also outlined four key areas for improvement to enhance stability in Pakistan’s external sector: implementing structural reforms to control inflation, improving the exports-to-GDP ratio, boosting labour productivity, and increasing government revenues and investment ratios. He noted that the current account deficit has become manageable, with non-oil imports slightly higher than last year and remittances remaining stable.

In conclusion, Ahmad’s remarks underscored both the challenges and progress in Pakistan’s economic landscape. While inflation and debt remain significant concerns, the central bank’s measures and the expected increase in foreign exchange reserves offer a glimmer of stability.