ISLAMABAD: Forecasting a strong current account surplus this year, Finance Minister Mohammad Aurangzeb on Monday ruled out any desperate measures that risked undue external pressure, thereby preserving hard-won economic gains.
“Three years ago, the government stepped on the growth accelerator, putting a strain on the balance of payments,” Aurangzeb remarked during a meeting of the Senate Standing Committee on Finance, Revenue and Economic Affairs , held on Monday under the chairmanship of Senator Saleem Mandviwalla.
“But no matter how much pressure there is now, we will not repeat this mistake.”
Addressing liquidity issues, he clarified that there have been no complaints regarding non-opening of letters of credit (LC) in the last 10 months.
“No foreign companies have been stopped from sending profits abroad, which shows that there is no pressure on the currency,” the finance czar added.
He also highlighted foreign interest in Pakistan’s economy, mentioning investment commitments from Saudi Aramco, China’s Norinco and electric auto giant BYD.
“We are finally implementing the reforms proposed by Dr Ishrat Husain in 2019 to strengthen institutions and improve governance,” noted the Finance Minister.
With challenges such as inflation and external vulnerabilities still looming, Aurangzeb expressed confidence in the government’s ability to weather economic headwinds.
“The economy is on the right track,” the finance minister said, adding: “Our commitment to reforms and prudent management will steer us towards stability and growth.”
State Bank of Pakistan (SBP) Governor Jameel Ahmed echoed the Finance Minister’s optimism, forecasting GDP growth of 2.5-3.5 per cent for the current financial year.
“Exports grew by 10-12% and we expect remittances to reach $35 billion this year,” he said.
Ahmed, however, acknowledged a temporary drop in remittances from foreign workers, which he attributed to a crackdown on currency smuggling and irregular currency exchange companies.
“These measures will ultimately lead to more formal capital flows and stabilize the market,” he added.
The governor also highlighted the situation of foreign exchange reserves.
“Reserves reached $11.7 billion, enough to cover 2.5 months of imports and are fully owned by the government,” he said.
The governor informed the meeting that global oil prices had fallen to $70-75 per barrel. “Imports declined in November and the oil division postponed its LNG purchases,” he added.
Meanwhile, Senator Mandviwalla raised concerns over the central bank’s interventions in the foreign exchange market, urging it to stop its dollar purchases.
“If the central bank stops buying dollars, the exchange rate will stabilize further,” he argued.
In response, the SBP governor defended the bank’s market-based approach. “The central bank acts based on market conditions,” he explained, adding: “The IMF closely monitors Pakistan’s economic framework, and if the exchange rate was not market-based, the IMF reportedly raised objections. »
Taking stock of Pakistan’s external debt obligations, the central bank governor said this financial year, $5.7 billion worth of loans had been repaid, with another $10 billion due and $16 billion due. additional dollars to roll over.
While Senator Shibli Faraz, leader of the opposition in the Senate, highlighted a shortfall of Rs400 billion in tax collection. Responding to this, the SBP governor said that a reduction in interest rates would save the government Rs 1.5 trillion, which could offset this deficit.
An incredulous Shibli, however, doubted the sustainability of the current measures, declaring: “Our foreign exchange reserves are still borrowed.”
Contrary to Shibli’s claims, the SBP governor assured that Pakistan’s foreign exchange reserves belonged entirely to the government.
“Our reserves have increased without increasing the debt burden,” he said, denying that the reserves were borrowed.
Economic growth for the fiscal year is expected to be between 2.5% and 3.5%, but the governor stressed that inefficiencies in the mining and minerals sector are a drag on growth.