ISLAMABAD: The caretaker finance minister Dr Shamshad Akhtar has said that the government will deliver on the International Monetary Fund (IMF) programme to secure $700 million, under the Standby Arrangement (SBA) of the IMF.
Briefing the Senate Standing Committee on Finance and Revenue, caretaker finance minister said that the government will deliver on the IMF programme to secure US$700 million under SBA.
In addition, the government is also expecting $450 million from World Bank and $250 million from IDB.
She further said that the government targets an increase in SBP FX Reserves to US$ 12 billion (3 months of import cover) by June 2024, based on higher official inflows and pick up in FDI under the SIFC.
She said that the key risk to external stability comes from the rise in international commodity prices. She said that Brent crude prices have jumped to $ 95/bbl in Sept, an increase of 27% from $ 74 /bbl in June 2023.
Finance minister said that the caretaker government has taken proactive measures to stabilize the economy and build market confidence.
The government’s stabilization efforts are anchored around the IMF stabilization package, she added.
The good news is that the IMF disbursed $1.2bn in July 2023 and this has also led to the disbursement of $ 3bn in bilateral assistance (KSA’s $ 2bn and UAE’s $ 1bn).
As a result, the SBP FX reserves have increased to $ 7.6bn (1.5 months of import cover) in September, from $ 4.5bn (1 month of import) in June.
The second good news is the normalization of trade and investment flows especially since the import ban has been lifted. The ban badly impacted the availability of raw materials for the industry stifling trade flow and growth.
The government has relaxed import restrictions, leading to the opening of L/Cs for imports. The backlog of import payments (Jan-Jul) has now been cleared.
Similarly, foreign investors have been allowed to repatriate profits (withheld since 2022), with $ 49.2 million repatriated during Jul-Aug, an increase of 74%, she informed the committee members.
She also said that the caretaker government has taken appropriate actions to stabilize the volatility and speculation in the exchange rate market. Actions taken by SBP on exchange companies and crackdown against illegal transactions have helped to reduce the spreads between interbank and open market.
As a result, the PKR has strengthened to 289 against the USD in the interbank market, an appreciation of 6.4% from 307.1 (05th Sep). In the open market, PKR has strengthened by 13% to 290. The spread between the interbank and open market has declined to less than 1% (from over 9%).
She said that the government is working to bring back remittances through the banking channels and have launched the Sohni Dharti initiative, providing Rs 80bn budget allocation to banks to increase remittances, of which Rs 20bn has been disbursed.
We are targeting $ 32bn in remittances in FY24 (from $ 27bn in FY23), she informed.
She stated that steps are being taken to tackle inflation, with the government not passing the entire burden of increase in power and gas tariffs to the public. around Rs 1 trillion in subsidies is budgeted in FY2024.
Inflation has declined to 27.3% in August, down from peak levels of 38% in May 2023. SBP forecasts inflation to decline sharply in 2024 due to the improved agricultural output, and administrative measures taken to curb volatility in the FX markets. SBP has projected 20-22% average inflation for FY24 from 29.2% in FY23.
Replying to one query of committee members, Dr Shamshad Said that it’s the central bank’s domain to talk about the exchange rate. As an economist I can tell you that the exchange rate is linked with demand and supply and this moves naturally.