Qudsia Bano

In a turn-up for the books, the State Bank of Pakistan (SBP) has achieved the desired foreign exchange reserves, surpassing the targets set by the International Monetary Fund (IMF). This pleasant development on the economic landscape signals a significant milestone in Pakistan's ongoing efforts to stabilize its economy and build resilience against global economic challenges, reports WealthPK. SBP Governor Jameel Ahmad recently made the announcement, emphasizing remarkable progress Pakistan has made in addressing the macroeconomic imbalances and ensuring economic stability. One of the key achievements highlighted by Mr. Ahmad was successful reduction of inflation. In May 2023, Pakistan witnessed a peak inflation rate of 38.0 percent – a matter of concern for the policymakers. However, the concerted efforts of the central bank and government led to a substantial decrease, with inflation standing at 31.4 percent in September 2023.

This reduction reflects the proactive steps taken by Pakistan to tackle the rising inflation. Talking to WealthPK, Hamid Haroon, former economist at the World Bank, said Pakistan's recent achievement of favorable foreign exchange reserves, coupled with surpassing the IMF targets, was a commendable milestone underscoring its dedication to economic stability and resilience. The SBP and the government have exhibited a proactive approach towards addressing the pressing macroeconomic challenges, resulting in a positive turnaround that deserves recognition, he said. The key to this success, Hamid said, was effective management of inflation – a challenge that was tackled head-on with a cumulative increase of 1500 basis points in the policy rate over the past two years. The quick response to the rising inflation showcased the commitment of Pakistan's central bank to maintaining price stability. “The reduction in the current account deficit (CAD) from 4.7 percent of GDP in FY22 to a mere 0.7 percent of GDP in FY23 is a significant achievement.

This was made possible through a combination of administrative measures and a flexible exchange rate policy, which allowed Pakistan to maintain a more balanced external account. “The most striking aspect of this announcement is the impressive growth in the foreign exchange reserves. Rebounding from a low of $3.1 billion in January 2023 to $7.6 billion as of September 2023, this development testifies to the country's resilience and effective management of its external financial position. The buildup in reserves was driven by non-debt-creating inflows, reflecting investor confidence in the economic prospects,” said Hamid. For Pakistan, this achievement represents a significant step towards addressing the long-standing structural weaknesses and fostering a sustainable and inclusive economic growth with the continued support of its international partners. It is a testament to the nation's commitment to financial stability and a bright sign for the country's economic future.

Credit: INP-WealthPk