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

Thank you

Questions: investor.relations@sbp.org.pk