President acknowledges strengths of SBP
'Pakistan Times' Sindh Bureau

KARACHI: President Pervez Musharraf has acknowledged the strengths of the State Bank of Pakistan (SBP) as an institution, its policy advice and continued support in overall economic development of the country.

A SBP statement here on Saturday said the President visited the State Bank to seek a briefing on the state of the country’s economy from SBP Governor, Dr. Shamshad Akhtar.

In her presentation, the SBP Governor covered the areas of economic growth, inflation, monetary policy, fiscal and external imbalances, exchange rate and macroeconomic stability.

She underscored that Pakistan like other countries is facing economic stress and challenging policy scenarios.

International financial market turmoil starting in the US, has now caused a global economic slowdown, which in turn is adversely impacting the growth prospects of most Asian and Emerging Market Countries including Pakistan.

Dr. Akhtar said the rising international fuel and commodity prices have considerably increased the pressures on balance of payments, fiscal accounts and inflation outlook.

This is not only true for Pakistan but also for most of the emerging and developed economies.

The Governor SBP explained that high inflation is economically and socially costly.

It adversely affects investment and growth, creates uncertainty and erodes peoples’ purchasing power particularly of low income group.

In this context, she highlighted that Pakistan as well as a number of developing and developed countries are pursuing tight monetary policy to contain inflation and to mitigate its adverse impacts for long term growth prospects.

Referring to the key policy actions for restoring macroeconomic stability and sustaining growth, the SBP Governor stressed that the monetary tightening is essential to reduce demand pressures, which is to be supplemented by fiscal tightening.

Besides need for adherence to fiscal target for FY09, as enumerated in the budget, in coming years revenue deficit should be converted into a surplus as laid down in the Fiscal Responsibility and Debt Limitation Act 2005.

The Governor SBP added that the key concerns of the SBP are high stress of the Government borrowings and drain on foreign exchange reserves due to confluence of domestic and international developments highlighted earlier.

Dr. Akhtar complemented the Government for its decision to reduce the borrowings from SBP and she also valued the Government commitment to further work with SBP to reduce the existing stock of government borrowing from the central bank.

To finance the current account deficit, financing has to be secured through increase in domestic savings in order to reduce reliance on external financing, the Governor SBP and also pointed out the importance of restoring investors’ confidence with a view to encourage investment inflows and consistency and continuation of prudent policies.

President Musharraf discussed various issues related to food and oil price developments and appreciated the SBP’s briefing.

He also acknowledged the strengths of SBP as an institution, its policy advice and its continued support in overall economic development of the country.

The presentation ceremony was attended, among others by Sindh Governor, Dr. lshrat-ul- Ebad Khan and senior management of the State Bank of Pakistan. ●