In FY21, SBP Injected Significant Liquidity To Restart The Economy: A Study

On Friday, The State Bank of Pakistan (SBP) has offered liquidity assistance worth 5% of GDP to assist the economy recover in FY21.

The SBP’s quantitative measures were well-targeted, well-diversified across beneficiaries, and temporary; and together provided liquidity support of roughly 5% of GDP, according to the report. Despite Covid-related difficulties, the country experienced a strong recovery in FY21 despite robust economic growth that was well assisted by the SBP’s monetary policy stance

According to the publication, Pakistan’s economic expansion rebounded to 3.94 percent in FY21, well above the 2.1 percent goal set for FY21, and a Covid-induced dip of 0.47 percent in FY20.

Consumer price inflation fell to 8.9 percent in FY21, within the SBP’s 7-9 percent target range. Similarly, other key macroeconomic parameters such as the current account, fiscal balance, and foreign reserves all improved during FY21, according to the report.

Furthermore, despite some upward pressure from supply management issues and an increase in global commodity prices, inflation expectations have been successfully anchored.

To alleviate the stringent business climate, the SBP rapidly introduced tax-free refinance programs to prevent job cuts, allow healthcare institutions to expand their facilities to combat Covid, and encourage businesses to make long-term investments under the emergency economic refinance scheme.

In addition, the SBP enabled banks to restructure and defer loans for small and medium-sized enterprises (SMEs) as well as individuals, according to the source.

“The adoption of forwarding guidance on monetary policy by SBP since January 2021 has helped to decrease short-term policy uncertainty for investors,” it added.

According to the publication, “Pakistan’s external measures also improved considerably in FY 21, with the country’s foreign exchange reserves rising more than 40 percent and the current account deficit falling to a 10-year low largely owing to record high worker remittances and export receipts.”

In collaboration with the government and commercial banks, the central bank launched Rohan Digital Account (RDA), which allows non-resident Pakistanis to open and manage bank accounts remotely from Pakistan, invest in Naya Pakistan Certificates (NPCs), the stock market, mutual funds, real estate, and purchase automobiles for their family members.

By the end of June, $1.56 billion in foreign currency had been received through 181,556 Recovery Deposits Accounts (RDAs). The country’s balance of payments position has benefited significantly as a result of this foreign currency influx.

The SBP’s second major payments project is the introduction of Raast, a state-of-the-art, an interoperable and secure payment system that enables consumers, businesses, and government agencies to exchange money in a simple, immediate, and inexpensive manner.

“The developments in the payment systems field will have a long-term influence on Pakistan’s banking sector and external account landscape,” stated the SBP.

Furthermore, in April 2021, SBP published the third five-year strategic plan for the Islamic finance sector to define a long-term strategy and build on its present growth momentum.

SBP Profit margins shrink.

In FY21, the SBP made a profit of Rs760.859 billion (consolidated), which is less than in the previous year when it made a profit of Rs1163.433 billion. The fall in earnings is largely due to decreased government lending income.

The Bank of China made no new loans to the Federal Government during the year, resulting in a fall in income under this heading.

Furthermore, the reduction in average interest rates during FY 2021 hurt government lending income.

The SBP group also saw a higher net exchange gain in FY 21 as compared to the previous year, owing to the rupee’s appreciation against other currencies particularly the US dollar during the year.

According to a report, the bank made a net exchange profit of Rs135.3 billion in FY21 compared to an exchange gain of Rs66.4 billion in FY20.

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