The minister in-charge of the finance, revenue and economic affairs said that it has been anticipated that the depreciation of the rupee against the US dollar will help reduce external account vulnerabilities. He said that exports are expected to increase beyond USD 25 billion while imports will be contained as imported goods become expensive in comparison to local products.
He said that according to the recent PBS data, exports witnessed an increase of 1.85 percent during the first eight months of FY19. He said that this increase is entirely driven by higher export quantum (positive impact of US $ 990 million), which was largely offset by negative price effect of US $776.0 million during the same period. He said that in case of imports, the impact of PKR depreciation is more pronounced. Specifically, imports saw a reduction of 6.13 percent (or US $2.4 billion) during Jul-Feb FY19, he said.
The minister said that average Consumer Price Index (CPI) inflation stood at 3.9 percent in FY18, which was slightly lower than 4.2 percent in FY17. However, inflationary pressure started to emerge in the year 201819 and average CPI inflation stood at 6.8 % during July-Mar FY19.
He said that tightening of monetary policy, as evident from 500 basis points increase in the policy rate during January 2018 to March 2019, would help contain inflationary impact of the recent PKR depreciation.
He said that the State Bank of Pakistan (SBP) has assessed market dynamics, demand and supply of foreign currency, and position of the current account before taking a decision of depreciation of Pakistani rupee against the US dollar. He said that the current account deficit deteriorated from USD 4.8 billion in FY16 to USD 12.6 billion in FY17 and further to USD 19 billion in FY18. This deterioration has been due to increase in GDP growth rate, low policy rate of 5.75 percent and an overvalued Pak rupee against the US dollar (i.e. Rs 105=$1) he said.
He said that the depreciation of the PKR against the USD is expected to reduce demand for consumption goods that are mainly sourced from imports. He said that State Bank of Pakistan has withdrawn the facility of advance payments against imports with a few exceptions and has imposed 100% cash margin requirement on import of various non-essential items. The government has imposed customs duties on luxury and non-essential items, he said.
He said the SBP is pursuing concretionary monetary policy to curb growth in aggregate demand which would reduce demand for imports and hence current account deficit.
He said that depreciation of PKR against USD would contain external current account deficit through increasing export competitiveness. With healthy global demand, improving domestic energy supply conditions, continuation of GSP plus status by EU, and the recent PKR depreciation would continue the momentum in exports, he said.
