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KARACHI, Oct 18 (APP):The State Bank of Pakistan (SBP), in Governor’s Annual Report (GAR) for fiscal year 2023-24 released here on Friday, highlighted improvements across key macroeconomic indicators during FY24 after two challenging years.
Fiscal consolidation, tight monetary policy, softer global commodity prices, and better agricultural production together with easing of external account pressure contributed in inflation deceleration, build-up of forex reserves and stability in the market, improvement in current account, moderate GDP growth and recovery of LSM production during the FY 24, the GAR stated.
The GAR is published under the SBP Act that requires the Governor to submit annual report to the Parliament regarding the Bank’s objectives, conduct of monetary policy, the state of the economy and the financial system, said a statement issued here.
The Report highlighted decrease in National CPI inflation in FY24, amid continued tight monetary policy stance, fiscal consolidation, and softer global commodity prices and noted that these trends came alongside the easing of external account pressures, contributing to a build-up of foreign exchange reserves, which together with FX market reforms including in exchange companies instilled stability in the foreign exchange market.
The year also witnessed a moderate agriculture-led GDP growth that was supported by a small but gradual recovery in large scale manufacturing against a sharp contraction in FY23, it added.
The Report also highlighted the cautious approach in monetary easing by the central bank that despite positive early signs kept the policy rate unchanged at 22% until nearly the end of FY24, to eliminate the risks of deep entrenchment of inflationary pressures. Later, owing to consistent decline in both headline and core inflation the monetary policy committee started gradual easing by reducing the policy rate to 20.5% in June 2024.
“This stance was supplemented by the alignment of fiscal policy with the tight monetary policy stance, where the year saw the first primary surplus in 17 years that also contributed to a notable decline in public debt in terms of GDP,” the Report noted.
The GAR also mentioned the narrowing of current account deficit to a 13-year low and US$ 3.0 billion Stand-By Agreement (SBA) with the International Monetary Fund (IMF) and subsequent official inflows those contributed to improvements in overall macroeconomic environment since June 2023.
“The official inflows from multilateral and bilateral external creditors following the SBA, alongside the mobilization of deposits from friendly countries; and the government’s decision to approach the IMF for an Extended Fund Facility program buoyed market sentiments and contributed to the stability in exchange rate,” the Report said adding that the economy also benefitted from the positive spillovers of a favorable global economic environment, especially lower commodity prices and marginally higher global GDP growth.
The overall financial sector showed resilience and continued the provision of credit and financial services while total banking sector deposits saw a notable growth on account of elevated interest rates and SBP’s efforts towards financial inclusion and digitalization of payments, the Report highlighted adding that growth in banking sector’s loan delinquencies remained contained and capital adequacy ratio, assets quality, and liquidity indicators improved.
The GAR FY24 also highlighted several measures taken by the SBP as part of its tertiary objective to support the government’s economic policies, complementing the Bank’s efforts towards achieving price and financial stability.
The Report pointed to the successful implementation of the National Financial Inclusion Strategy 2018-2023 and the development of its next version, aimed at further enhancing financial inclusion and digital financial services by 2028.
The SBP is facilitating gender inclusion within the financial sector through its continued focus on Banking on Equality (BoE) policy, which is now tracked via a BoE Scorecard while the SBP is also developing a Financial Inclusion index to ensure better and informed policy making, the Report stated.
Reflecting on the continued progress on the development of Islamic banking and its growing assets and deposits in FY24, the Report informed that the SBP has taken a host of measures to further advance Islamic banking in line with the Federal Shariat Court’s ruling on Riba and also adopted 12 additional Shariah standards to strengthen compliance framework and harmonize Shariah practices in domestic Islamic banking segment.
From the perspective of financial sector’s digitization, the Report highlighted the launch of SBP’s Raast ‘Person-to-Merchant’ service, which is set to accelerate the digitization of business transactions across Pakistan, by enabling payments via QR Codes, Raast Alias, IBAN and Request to Pay.
The Report also noted the key achievement of signing an MoU with Arab Monetary Fund (AMF) to integrate the Raast payment system with Buna, AMF’s cross-border payment system.