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State Bank of Pakistan on Thursday termed the prevailing political uncertainty a threat to the country''s gradually improving economy. "The recent political uncertainly has impacted negatively on the economic front particularly stock market and exchange rate," said Hamza Malik, Director Monetary Policy Department. Talking to newsmen here on Thursday at State Bank head office, Malik, who is also acting chief spokesman for SBP, said that recent depreciation of Pak rupee against dollar is due to political turmoil in the country.

"The prevailing political uncertainty has directly affected the economic parameters and stock market and dollar has directly reacted to the current situation," he added. The sudden and unexpected changes in exchange rate also forced the central bank to intervene to help stabilise the market, he added. The inflows and outflows are normal and no major changes have been witnessed during the last few weeks, but the crisis on the political front has caused huge panic in the money market, he mentioned.

The role of central bank is crucial for exchange rates stability as any major change directly puts pressure on debt values, director SBP said. The federal government is expecting billion of dollars of foreign inflows that relate to privatisation and issuance of Eurobonds and Sukuk. The government has estimated $500 through the auction of Eurobond, some $500 million against the sale of Sukuk and some $750-800 million inflows are expected to arrive on account of OGDLC privatisation," he added.

With the arrival of expected foreign inflows exchange rate is likely to be comfortable as it will improve the level of foreign reserves and help stabilise Pak Rupee against the greenback, he said. Talking about the IMF conditions, he said that the government has already initiated to fulfil IMF''s demands. "An amendment in the SBP Act has already been sent for appropriate approval from the National Assembly; Risk Management Committee and MPS advisory committee have also been formed and minutes of Monetary Policy Meeting are being published as per IMF requirements," director SBP said.

He said that presently, the country''s debt to ratio is some 64 percent and it should be reduced to 60 percent for a better economic growth. There are two reasons behind a higher debt: first less than target revenue and secondly, higher expenditures resulted in higher fiscal deficit, he added. He dispelled the impression that the tightening of the discount rates enhances debt burden, saying the discount rate is set on the extensive calculation which does not push up debt values as it has different compositions. During the last one year, debt growth has reduced but still on the higher side and some steps are needed to curtail the higher borrowing, he added.

"Pakistan''s tax to GDP ratio is 10 percent and needs to improve with new tax measures and tax reforms to enhance the collection," Malik said. He said the role of central bank is very crucial in maintaining price stability and financial stability in order to keep the economy towards growth. "Pakistan''s 50 percent exports go to the European countries, which are also facing a financial crisis. Pakistan is needed to create opportunities to attract new foreign investment," he added.

Copyright Business Recorder, 2014

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