KARACHI: Governor, State Bank of Pakistan, Salim Raza, has said that the central bank strived to strike a balance between price stability and growth in a challenging economic environment and ensured a stable financial system by proactively responding to emerging risks and challenges to the banking system and taking appropriate corrective measures timely.
In his message for the Annual Report (Vol II) on State Bank’s Performance Review for the year 2008-09 (FY09) issued on Monday, Mr Raza said that the implementation of the macroeconomic stabilisation programme was primarily driven by tightening monetary and fiscal conditions to facilitate the resolution of structural problems.
‘These measures yielded results in subsequent months: fiscal deficit was substantially contained, from Rs777.2 billion in FY08 to Rs680.4 billion in FY09, at 5.2 per cent of GDP (down from 7.4 per cent in FY08), on the back of elimination of subsidies as well as a cut in development expenditure,’ he added.
He said that monetary tightening had a visible impact on CPI inflation which fell from its peak of 25.3 per cent in August FY09 to 13.1 per cent by June FY09; giving the SBP a much needed breathing space to switch the direction of its policy stance. Furthermore, after unabated expansion during the last four years, the current account deficit contracted considerably to 5.3 per cent of the GDP during FY09, from 8.4 per cent in FY08.
‘These positive developments need to be viewed with caution, however, given that the economy continues to be fragile, and an assessment of the balance of risks continues to present a mixed picture,’ he added.
Mr Raza said that as inflationary pressures began to ease, SBP reduced its policy rate by 100 bps each in April FY09 and August FY10, to 13 per cent. Notably, it was the consistent approach to curbing excessive demand pressures which helped subdue inflation.
He said that in response to changing economic and business cycle, the central bank also stepped in to facilitate the banking sector by rationalising the minimum capital requirements to Rs10 billion, to be implemented in a phased manner by December 2010, and allowing the use of 30 per cent of the Forced-Sale Value (FSV) of collateral in calculating provisioning requirements for the rising base of Non Performing Loans (NPLs).
In view of the complex regulatory requirements of large financial conglomerates, the SBP also signed a Memorandum of Understanding with the SECP to undertake consolidated supervision.
Similarly, progress on modernisation of the legislative framework, including revamping of SBP Act, 1956, and the Banking Companies’ Ordinance 1962 is under way, while efforts are also under way to introduce a Deposit Protection Scheme and a Consumer Protection Act, he said.
However, subsequent implementation of a macroeconomic stabilisation programme led to a marked improvement in the external account position in the ensuing months.
This also helped SBP build up foreign exchange reserves which had dropped to $6.7 billion in October FY09, back to the almost end June FY08 level of $11.4 billion, he added.
He said that in continuation of SBP’s efforts to strengthen its reserve management capabilities, substantial value was added to its profitability through active management of the investment portfolio in FY09.
On gross return basis, he said that the SBP managed to earn a return of 2.31 per cent, which while less than the 4.9 per cent return in FY08, is still significant given the situation in the global financial markets, he added.
No comments:
Post a Comment