Pakistan Economic Difficulties

Pakistan Economic Difficulties

Monetary Policy of Pakistan for the Year 2008

The Main Difficulties Economy of Pakistan faced in the year 2008.

i) Hit by the sub prime mortgage crisis in U.S in 2007, the international financial markets have been in turmoil and whose impact is now felt across markets and continents;
ii) Rising global commodity prices, with crude oil and food staples prices skyrocketing;
iii) A gradual slide in the U.S dollar against major currencies.

During the course of FY08, the State Bank of Pakistan (SBP) had to take three rounds of corrective policy actions:

First, in July 07, SBP policy rate was raised by 50 bps to 10 percent simply to allow for sterilization of excessive foreign inflows,
Second in January 2008, viewing the developments in H1FY08 and outlook for future, SBP advocated the need for strengthening demand management and raised policy rate by another 50 bps to 10.5 percent.

Third, recognizing the scale and magnitude of unprecedented economy wide pressures and urgency of the situation, SBP introduced a host of emergency interim monetary policy measures in May 2008 to restore macroeconomic stability.

Economic Challenges Pakistan Faced during the year 2008
• Stock of government debt to SBP – MRTBs – had now reached to Rs1053 billion, almost 10 percent of GDP.
• Growing external current account deficit.
• Financial inflows met external current account deficit only partially.
• Pressures on foreign exchange reserves strained exchange markets.
• Stress on fiscal account has been of high order.
• Inflationary pressures are alarming
• Fiscal framework for FY09 will need to be dynamic to incorporate necessary adjustments as economic developments evolve.
• The balance of payment scenario for FY09 demands further policy action.
• The external current account deficit grew as Pakistan ended up paying on average US$86 per barrel for FY08
• The SBP raised its policy...

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