Dr Reza Baqir, Governor of the State Bank of Pakistan (SBP), has urged Pakistan’s exporters to compete with global players and raise the country’s export-to-GDP ratio to “far above” its present level.
“I’d like to see our exporters take on this challenge since the exchange rate is competitive and the government is providing them with subsidies and other incentives.” Exporters should demonstrate their ability to compete on a global scale,” he said at a business conference on Wednesday.
Dr Baqir said three macroeconomic areas need special focus going forward. One of these challenges is the export performance. “Last year, our exports started rising, which is a welcome development. But it’s a challenge in the sense that our export-to-GDP ratio of 8-10 per cent is still lower than [those of] most comparable countries,” he said.
The second challenge facing the economy emanates from the rising global commodity prices, which have sent the inflation rate in the United States to a 40-year high. One-third of Pakistan’s import bill payments are for oil, he said, adding that strong economic fundamentals will help the country overcome this challenge.
Lastly, said Dr Baqir, the economy suffers from a low savings rate, which represents the part of GDP that’s saved rather than spent. It was 17pc in 2020 against India’s 31pc and Bangladesh’s 36pc, according to the World Bank.
A country with a low savings rate ends up borrowing from international sources, which increases its current account deficit. “The SBP is taking measures to promote financial inclusion in order to increase the savings rate,” he said.
Roshan Digital Accounts (RDAs) have helped the country mobilise savings through overseas Pakistanis. In the last one and a half years, RDAs attracted more than $3 billion, which is higher than the total foreign direct investment of $2.6bn that the country received over the same period, he said.
Noting that economic fundamentals improved despite the pandemic, the SBP governor referred to two indicators to illustrate his point. “The country knocks on the door of international financial institutions for two reasons. The first is the fiscal deficit and the second is the current account deficit,” he said.
From 2019 to 2021, the country’s debt-to-GDP ratio, which measures the fiscal health of a country, shrank 2.4pc in contrast to India where it went up 16pc. The average increase in the same ratio for all low-income developing countries was 6pc, he added.
As for the current account balance, he said the country strengthened its net foreign exchange buffers over the same period, which shows that “our fundamentals have improved”.