The Outlook for Pakistan’s Economy
Dr. Reza BaqirGovernor
Pakistan Banking AwardsKarachi, January 10, 2020
I.Economic policies are addressing previously
accumulated macroeconomic imbalances
3
A fixed exchange rate (ER) widened the current account deficit; ER flexibility has improved the current account
Current account and exchange rate3-month rolling averages
Source: SBP
US$ billion PKR/USD
90
100
110
120
130
140
150
160
170
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Jan-
15
Apr-
15
Jul-1
5
Oct-
15
Jan-
16
Apr-
16
Jul-1
6
Oct-
16
Jan-
17
Apr-
17
Jul-1
7
Oct-
17
Jan-
18
Apr-
18
Jul-1
8
Oct-
18
Jan-
19
Apr-
19
Jul-1
9
Oct-
19
Current accountNon-oil current accountPKR/US$ (RHS)
4
A notable improvement in FX reserves
Source: SBP
(10)
(5)
0
5
10
15Ju
l-17
Aug-
17Se
p-17
Oct-
17N
ov-1
7De
c-17
Jan-
18Fe
b-18
Mar
-18
Apr-
18M
ay-1
8Ju
n-18
Jul-1
8Au
g-18
Sep-
18Oc
t-18
Nov
-18
Dec-
18Ja
n-19
Feb-
19M
ar-1
9Ap
r-19
May
-19
Jun-
19Ju
l-19
Aug-
19Se
p-19
Oct-
19N
ov-1
9
SBP's Fx Reserves Forward Transactions Net Reserves
Amou
nt i
n US
$ bi
llion
5
Falling and low reserves have led to repeated IMF programs
Source: SBP
0
2
4
6
8
10
12
14
16
18
20
Jun-
95
Aug-
96
Oct-
97
Dec-
98
Feb-
00
Apr-
01
Jun-
02
Aug-
03
Oct-
04
Dec-
05
Feb-
07
Apr-
08
Jun-
09
Aug-
10
Oct-
11
Dec-
12
Feb-
14
Apr-
15
Jun-
16
Aug-
17
Oct-
18
Dec-
19
Reserves (billions US$)
5 IM
F pr
ogra
ms
back
to b
ack
Sep
1993
to D
ec 2
004
SBA:
Nov
2008
to N
ov 2
010
EFF:
Sep
201
3 to
Sep
201
6
EFF:
July
201
9
6
Fiscal reforms are beginning to bear fruit with revenues growing significantly
Source: Planning Commission; FBR
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
Jul-1
8
Aug-
18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Jan-
19
Feb-
19
Mar
-19
Apr-
19
May
-19
Jun-
19
Jul-1
9
Aug-
19
Sep-
19
Oct-
19
Nov
-19
Direct Taxes Sales Tax (Import)Sales Tax (Domestic) FEDCustoms
FBR revenues% growth, contribution in ppt.
7
Policy interest rate is appropriate to reduce inflation and the real interest rate is less than in many other countries
Real interest rate on forward-looking basisIn percent
Source: SBP; IMF
0.0
1.0
2.0
3.0
4.0
5.0
Thai
land
Kore
a, R
ep.
Mal
aysi
a
Indi
a
Sout
h Af
rica
Turk
ey
Chin
a
Indo
nesi
a
Phili
ppin
es
Paki
stan
Bang
lade
sh
Viet
nam
Egyp
t
Sri L
anka
Mex
ico
Ukra
ine
Arge
ntin
a
Notes: 1. Inflation projections made by the IMF in October 2019; For Pakistan, SBP’s inflation projections are used. 2. Real interest rate is the difference of nominal interest rate and projected inflation.
Ukraine, 9.6%
Argentina, 19.0%
II.The outlook for the real economy is
improving
9
The move to a market-based exchange rate system has made the rupee competitive and will support exports
Real exchange rate (REER)2013=100
Source: SBP
70
80
90
100
110
120
130
Jan-
13
May
-13
Sep-
13
Jan-
14
May
-14
Sep-
14
Jan-
15
May
-15
Sep-
15
Jan-
16
May
-16
Sep-
16
Jan-
17
May
-17
Sep-
17
Jan-
18
May
-18
Sep-
18
Jan-
19
May
-19
Sep-
19
REER range of major competitorsPakistan
Note: Competitors’ include India, China, Malaysia, Thailand, Sri Lanka, Philippines, Indonesia, Mexico
Index, inverted scale
↑ in REER = depreciation
10
Increased development spending will support the real economy
Source: Planning Commission; FBR
Federal Public-Sector Developing Program ReleasesRs billion
0
50
100
150
200
250
300
July Aug Sep Oct Nov
FY19 FY20
11
Business confidence indicators have risen in the latest survey after six months
Source: SBP on http://www.sbp.org.pk/research/BCS.asp
The colors signify the current level of confidence relative to the historical median, i.e. green(red) means current level is better(worse) than historical median.
The arrows signify change from the previous wave of the Business Confidence Survey (BCS) i.e. upwards (downwards) arrow signify improvement (deterioration) between any two waves.
Note: CBCI, EBCI and BCI stands for Current, Expected and Overall Business Confidence, while PMI stands for Purchasing Managers Index
III.A few key priorities
13
I. We need to re-grow our exports and join the rest of the countries in the world
Countries in red have export-to-GDP ratio of less than 10 percent, 2015-18 includes Pakistan, Afghanistan, Yemen, Sudan & Ethiopia
Source: World Bank
Pakistan’s Export Performance
14
II. We need to raise our savings rate to finance higher investment without recurring current account deficits
Source: IMF-WEO
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Pakistan Bangladesh Sri Lanka India SouthAsia
DevelopingAsia
E & DEconomies
World
1980s1990s2000s2010-2018
Savings-to-GDPIn percent
15
III. We need to enhance financial inclusion so that the benefits of prosperity are more widely shared
Sources: * Pakistan’s data is supply side data showing unique active accounts. The Global Findex Database 2017 (WBG)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Paki
stan
Arge
ntin
aIn
dia
Indo
nesi
aBa
ngla
desh
Mex
ico
Ukra
ine
Turk
eyM
alay
sia
Thai
land
Chin
aKo
rea
SME Credit as % of GDP
Source: IMF Financial Access Survey (FAS) 2018
0%
10%
20%
30%
40%
50%
60%
70%
80%
Total # ofAccounts (in % ofadult population)
Male Accounts(in % of adult
male population)
Female Accounts(in % of adult
femal population)
A/C Ownership (%) and Comparison with South Asia and Worldwide
Pakistan South Asia Average World Average