The

Improving Outlook for Pakistan’s Economy

Dr. Reza Baqir

Governor
State Bank of Pakistan
Presentation for investors
Dubai, 7th February 2022

1
Key messages

Compared to other countries, Pakistan successfully supported growth through the global
Covid shock while lowering public debt and increasing foreign exchange reserves

This was made possible by a sharp focus on public health and poverty reduction and
aggressive, timely, and targeted support from the government and the central bank

The current challenges of inflation and current account are primarily driven by a sharp
rise in global commodity prices; Pakistan is well-poised to address these challenges
through a more timely macroeconomic policy response than in the past

The central bank has taken key initiatives to address several longer-term challenges by
promoting (a) investment; (b) financial inclusion through affordable housing and
lending to SMEs; (c) digitization of the financial sector and (d) clean energy

2
 0.0
2.0
4.0

–12.0
–10.0
–8.0
–6.0
–4.0
–2.0
Egypt
Iran
China
Turkey
Low Inc. Dev Economies

Source: IMF WEO January 2022; MoF

Korea
Pakistan
-1.0

Nigeria
Emerging & Dev. Economies
Indonesia
Australia
Poland
Kazakhstan
Russia
US
Netherlands
Percent

Brazil
Saudi Arabia
Japan
Real GDP Growth in 2020

Advanced Economies
Germany
Canada
Malaysia
Thailand
South Africa
India
France
Mexico
Italy
Pakistan experienced a relatively mild contraction during the Covid shock

UK
Philippines
Argentina
Spain
3
 0.0
2.0
4.0
6.0
8.0
10.0
12.0
Turkey
Argentina
India
China
United Kingdom

Source: IMF WEO January 2022; MoF

France
Emerging & Dev. Economies
Italy
Pakistan
5.6

United States
Poland
Mexico
Advanced Economies
Spain
Brazil
Canada
Philippines
South Africa
Percent

Netherlands
Russia
Australia
Real GDP Growth in 2021

Korea
Kazakhstan
Malaysia
Egypt
Indonesia
Low Inc. Dev Economies
Nigeria
Saudi Arabia
Germany
Iran
Pakistan’s recovery from Covid has been strong and better than many countries

Japan
Thailand
4
 percentage points

-20
-10
0
10
20
30
Iran
Pakistan

-2.9
Brazil
Russia

Source: IMF WEO January 2022

Turkey
Kazakhstan
Low Inc. Dev Economies
Mexico
Nigeria
Saudi Arabia
Egypt
Korea
Emerging & Dev. Economies
Poland
Netherlands
Indonesia
China
South Africa
Change in 2021 over 2019

Germany
Malaysia
Australia
Change in Public Debt-to-GDP Ratios

India
Thailand
Advanced Economies
While supporting growth, Pakistan reduced its vulnerabilities - I

France
Italy
Japan
Philippines
Pakistan reduced its public debt to GDP despite Covid, unlike most countries

Canada
UK
Spain
US
5
While supporting growth, Pakistan reduced its vulnerabilities - II
Foreign exchange reserve buffers have continued to increase, despite Covid
SBP’s FX Reserve Buffers & Forward Liabilities
US$ billion
SBP Gross Reserves Forward Liabilities Net Reserves Buffers
20

15

10

-5

-10
Apr-17

Apr-18

Apr-19

Apr-20
Jun-16
Aug-16

Dec-16

Jun-17
Aug-17

Dec-17

Jun-18
Aug-18

Dec-18

Jun-19
Aug-19

Dec-19

Jun-20
Aug-20

Dec-20

Apr-21
Jun-21
Aug-21

Dec-21
Oct-16

Oct-17

Oct-18

Oct-19

Oct-20

Oct-21
Feb-17

Feb-18

Feb-19

Feb-20

Feb-21
Source: State Bank of Pakistan 6
Key messages

Compared to other countries, Pakistan successfully supported growth through the global
Covid shock while lowering public debt and increasing foreign exchange reserves

This was made possible by a sharp focus on public health and poverty reduction and
aggressive, timely, and targeted support from the government and the central bank

The current challenges of inflation and current account are primarily driven by a sharp
rise in global commodity prices; Pakistan is well-poised to address these challenges
through a more timely macroeconomic policy response than in the past.

The central bank has taken key initiatives to address several longer-term challenges by
promoting (a) investment; (b) financial inclusion through affordable housing and
lending to SMEs; (c) digitization of the financial sector and (d) clean energy

7
 0
100
200
300
400
500
10-Mar-20
25-Mar-20
09-Apr-20
pandemic

24-Apr-20

As of January 29, 2022

09-May-20

Source: Our World in Data

24-May-20
08-Jun-20
23-Jun-20
08-Jul-20
23-Jul-20
07-Aug-20
22-Aug-20
World

06-Sep-20
21-Sep-20
06-Oct-20
21-Oct-20
05-Nov-20
20-Nov-20
LMICs

05-Dec-20
20-Dec-20
04-Jan-21
19-Jan-21
03-Feb-21
18-Feb-21
Pakistan

05-Mar-21
20-Mar-21
04-Apr-21
7-day moving average

19-Apr-21
04-May-21
India

19-May-21
03-Jun-21
18-Jun-21
03-Jul-21
Daily Covid-19 Cases per Million Population

18-Jul-21
02-Aug-21
17-Aug-21
01-Sep-21
Bangladesh

16-Sep-21
01-Oct-21
16-Oct-21
31-Oct-21
Pakistan, 32
Bangladesh, 85

15-Nov-21
LMICs, 123
Public health: Pakistan has successfully managed multiple waves of the Covid

30-Nov-21
India, 190

15-Dec-21
World, 422

30-Dec-21
14-Jan-22
29-Jan-22
8
Public health: Pakistan compares favorably to most other countries on different
Covid metrics
New Cases per Million Population New Deaths per Million Population Positivity ratio
7-day moving average 7-day moving average
1,592 0.35
8
1,600 7.2
0.3 0.29

6 0.25 0.24
1,200

0.2
4 0.16
800
0.15
0.12
422 0.1
400 2
1.2
190 0.05
85 0.5
32 0.1 0.1
0 0 0
Pakistan

US

Pakistan
World
Bangladesh

Bangladesh
India

US

Pakistan
World
India

US

Bangladesh
India
Source: www.ourworldindata.org; as on January 29, 2022 9
Poverty reduction: Under Ehsaas program, the most vulnerable segments of
society received cash payments to help them weather the Covid shock
Ehsaas Emergency Cash Payments
since April 2020
Total households Households covered Total budget Amount disbursed

35 32* 203
200
30 179

25

billion Rs
150
millions

20
Rs12,000 per
15 100
15 household
Around 46%
10 of total
households 50
5 covered

- 0

Source: Govt of Pakistan (www.pass.gov.pk); * based on 2017 population census 10

Central bank response: Timely and innovative measures from State Bank
helped save jobs and lives and revived investment
SBP’s Policy Support Measures
Billion rupees & as % of FY20 GDP

Introduced refinance facility new industrial

investments (TERF) and hospitals
Rs 2,073
454;1.1%
Introduced a Rozgar scheme to prevent layoffs billion
by financing wages and salaries of employees 5.0% of
238; 0.6%
GDP
Provided relief for loan restructuring to 254; 0.6%
borrowers to combat economic disruptions
657;
Introduced principal loan extension program 1.6%
to ease cash constraints of borrowers

SBP reduced the policy rate by 625 basis Rs 470 billion

1.1% of GDP
points in a short span of time
Interest rate Loan Support for Total
benefit Loan deferment rescheduling Rozgar scheme hospitals & new
investment/BMR

11
Source: State Bank of Pakistan
SBP’s policy response during Covid was more proactive and pronounced than
during the previous Global Financial Crisis of 2008
Impact of Policy Interventions* by the SBP during GFC and COVID
% of GDP
5 5
TERF & support for
Hospitals, 1.1
4
Rozgar scheme, 0.6

3 Loan rescheduling, 0.6

2 Loan deferment, 1.6

1.5

1 CRR, 0.9
Interest rate, 1.1
Interest rate, 0.6
0
GFC 2008 COVID-19
* This includes the impact of policy rate reduction, cut in cash reserves requirement, relaxation in prudential measures and increase in refinance
activities.
Source: SBP 12
 0
2
4
6
8
10
12
14
16
Jan-07
Jun-07
Nov-07
Apr-08
Sep-08

GFC
Feb-09
Jul-09
Dec-09
May-10
Oct-10
Mar-11
Aug-11
Global Financial Crisis of 2008

Jan-12
Jun-12
Nov-12
SBP Reverse Repo

Apr-13
Sep-13
Feb-14
Jul-14
Dec-14
SBP Repo

May-15
Oct-15
Mar-16
Aug-16
Jan-17
Jun-17
SBP Target Rate

Nov-17
Apr-18
Sep-18
Feb-19
Jul-19
Dec-19
May-20
SBP reduced the policy rate aggressively during Covid-19 compared to the

Oct-20
Mar-21
COVID

Aug-21
Jan-22
13
Key messages

Compared to other countries, Pakistan successfully supported growth through the global
Covid shock while lowering public debt and increasing foreign exchange reserves

This was made possible by a sharp focus on public health and poverty reduction and
aggressive, timely, and targeted support from the government and the central bank

The current challenges of inflation and current account are primarily driven by a sharp
rise in global commodity prices; Pakistan is well-poised to address these challenges
through a more timely macroeconomic policy response than in the past

The central bank has taken key initiatives to address several longer-term challenges by
promoting (a) investment; (b) financial inclusion through affordable housing and
lending to SMEs; (c) digitization of the financial sector and (d) clean energy

14
Like in most of the world, the post-Covid surge in global commodity prices
has contributed to a rise in import prices
Rise in Global Commodity Prices during 2021
percent change over 2020
125
111

100 92
83
75 65 67

48 50
50 41
38
24 27
25 22

0
0
-8
-25

Urea
Wheat

Soybean oil
Palm oil

Crude oil
Soy. meal

DAP fert.
Tea
Rice

Iron ore
LNG

Sugar

Coal
Cotton

Source: World Bank Commodity Prices

15
-
10
15
20
25

-10
0
5

-5
Iran
Saudi Arabia
Nigeria
Philippines
Indonesia
Egypt
India
China
Kazakhstan
Japan
Thailand
Australia
South Africa
France
South Korea
Russia

Source: International Financial Statistics; tradingeconomics.com; and Haver

Canada
Italy
been broadly in line with that in other countries

Mexico
percentage points

United Kingdom
Malaysia
Netherlands
Emerging Economies
Advanced Economies (G7)
Pakistan
5.0

European Union
Change in Inflation - Latest Month over December 2020
The rise in inflation in Pakistan since the commodity price hike has

Germany
Brazil
United States
Poland
Spain
Argentina
Turkey
The current account deficit is primarily driven by commodity prices: non-oil balance is projected
to remain in surplus, in response to coordinated monetary and fiscal policies

Breakdown of Current Account Balance: Total & Non-Oil

billion US$
10
Non-oil CAB CAB 7.6

5 4.5
2.9

0
-0.2
-2.1 -1.9
-5
-5.0 -4.4
-6.5
-10

-12.3
-15 -13.4

-19.2
-20
FY16 FY17 FY18 FY19 FY20 FY21 FY22
17
Compared to the previous experience of rising current account deficit, a flexible exchange rate,
proactive monetary policy and continued fiscal prudence will help avoid a boom-bust cycle

Average PKR/USD Exchange Rate SBP's Policy Rate Primary Balance

PKR/US$ percent percent of GDP
15 0.0
200
Vertical lines indicate June 2021
monthly current account
180 -0.5
balance exceeding US$ 700
million for 1st time
160
-1.0
December
140 10 2015

120 December June -1.5

2015 2021

100
-2.0
80
5 Vertical lines indicate
60 -2.5
monthly current account
balance exceeding US$ 700
40 million for 1st time
-3.0
20

0 0 -3.5

FY22*
Jul-15
Dec-15
May-16
Oct-16
Mar-17
Aug-17
Jan-18
Jun-18
Nov-18

Jul-20
Dec-20
May-21
Oct-21
Apr-19
Sep-19

FY16

FY17

FY18

FY19

FY20

FY21
Feb-20

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19

Jul-20

Jul-21
Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

Jan-21

Jan-22
Source: SBP Source: MoF; Budget FY22 estimate
Source: IMF, SBP
Key messages

Compared to other countries, Pakistan successfully supported growth through the global
Covid shock while lowering public debt and increasing foreign exchange reserves

This was made possible by a sharp focus on public health and poverty reduction and
aggressive, timely, and targeted support from the government and the central bank

The current challenges of inflation and current account are primarily driven by a sharp
rise in global commodity prices; Pakistan is well-poised to address these challenges
through a more timely macroeconomic policy response than in the past

The central bank has taken key initiatives to address several longer-term challenges by
promoting (a) investment; (b) financial inclusion through affordable housing and
lending to SMEs; (c) digitization of the financial sector and (d) clean energy

19
During Covid, SBP launched TERF: a new concessional refinance scheme to
promote investment and strengthen Pakistan’s productive capacity
Sectoral Breakdown of TERF Borrowers
share in approved financing in %
Max rate of
5%, for up to
10yrs Textile
41%
SMEs: 50% Construction-
Rs 435.7
approvals for allied
billion
financing 14%
approved
<Rs200mn
Temporary
Economic
Refinance
Facility (TERF)
Export- &
domestic- 628 projects
oriented are
sectors beneficiaries
covered Positive
implications Others Auto-allied
for business 36% 9%
expansion,
efficiency
gains, and
employment Source: State Bank of Pakistan
20
Disbursements under TERF are helping to unleash a new wave of
industrialization and investment in the country
Cumulative Disbursed Financing under TERF Breakdown of Machinery Imports in Pakistan*
billion Rupees values in billion US$
300 Power gen. Electrical Textile Others
Rs 282.7 billion
250 disbursed by January
20, 2022
7,500
200
4,053
150
5,000 3,484 3,102
3,499
100 615 2,636
652 855 1,571
50 2,500 1,801 654
1,317 588 676
1,457
1,287 1,135
0 1,577 1,143
1,337 930
732 734 429
24-Sep-20

17-Dec-20
14-Jan-21

11-Mar-21
19-Nov-20

8-Apr-21

23-Sep-21

16-Dec-21
13-Jan-22
18-Nov-21
2-Jul-20
30-Jul-20

22-Oct-20

11-Feb-21

6-May-21
27-Aug-20

1-Jul-21
29-Jul-21

21-Oct-21
26-Aug-21

0
FY17 FY18 FY19 FY20 FY21 H1-FY22

*excluding cell phones

Source: State Bank of Pakistan Source: State Bank of Pakistan
21
To increase financial inclusion, SBP is promoting affordable housing under
the Mera Pakistan Mera Ghar (MPMG) scheme

Cumulative Approved Financing under MPMG Cumulative Disbursed Financing under MPMG
150 billion Rupees 50 billion Rupees
131 44
125 117 40 38
100
100
84 30 29
72
75 22
59
20 17
49
50 39 11
22 10 8
25 16 5
4 6 11 1 2
0 2 0 0 0 0 1
0 0
29-Dec-20
26-Jan-21

30-Mar-21

26-Jan-21
27-Apr-21

30-Jun-21

30-Sep-21

31-Dec-21
31-Jan-22

29-Dec-20

23-Feb-21
30-Mar-21

30-Jun-21

30-Sep-21
31-Oct-21

31-Dec-21
31-Jan-22
31-Aug-21

30-Nov-21

27-Apr-21
25-May-21

31-Jul-21
31-Aug-21

30-Nov-21
30-Jun-1960*
23-Feb-21

25-May-21

31-Jul-21

31-Oct-21
30-Jun-1960*

22
Source: State Bank of Pakistan. * Housing finance for underserved by commercial banks.
A new innovative scheme has also been launched to increase SME financing by
introducing collateral free lending for SMEs
Financing under SME Asaan Finance (SAAF) Scheme from August 2021
no. of applications; amount sanctioned & cumulative disbursement in million Rupees, as of end-Jan 2022
700
618
600

500
409
400

300 279

200

100

0
Applications Received Amount Sanctioned Cumulative Disbursement
Source: State Bank of Pakistan 23
SBP has undertaken landmark efforts to digitize the economy that will also
boost financial inclusion

Licensing Framework for Digital Banks

• New detailed regulatory framework for two types of licenses: Digital Retail Bank (DRB) and Digital Full Bank (DFB)
• Minimum capital requirement for DRBs set at Rs1.5 billion during pilot phase, and will gradually increase to Rs 4 billion
over three years. After successful completion of transition, DRBs may qualify for a DFB license, subject to certain
requirement

Launch of RAAST
• Pakistan’s 1st real-time & secure electronic payment system for retail payments. Real-time payments of salaries & pensions;
payments to and from small vendors & merchants; and person-to-person transfers
• Developed in coordination with Bill & Melinda Gates Foundation and Karandaaz Pakistan

Digital Onboarding Framework for Customers

• Simplified and convenient option for Pakistanis to digitally open bank accounts
• 4 account types: Asaan Digital Account, Asaan Digital Remittance Account, Freelancer Digital Account & Digital Account

24
To help combat climate change, the SBP has launched a concessional
refinance scheme promoting investment in renewable energy

Financing Scheme Category I Category II Category III

for Renewable • Medium- to large- • Small projects (up to • For Renewable
Energy (RE) sized renewable 1MW) Energy Investment
• Max mark-up rate of energy projects (1- • Max financing of Entities (RE-IEs)
6% 50MW) Rs400 million, for • Invest in RE
• Encourage adoption of • Max financing of Rs 6 10yrs with 3-month solutions (<5MW)
RE solutions billion, for 12yrs with grace period for onward
2yrs grace period • For own use, selling to selling/renting to
• 3 categories under the
scheme • For own use, selling to national grid, or both customers/grid
national grid, or both • Max financing of Rs
• Rs 74 billion
outstanding (end- 2bn, for 10yrs
Dec)

25
The scheme is helping fund a large number of renewable energy projects

Data as of end-Dec 2021

• A total of 1,175 projects have obtained refinancing

Numbers

• These projects have a combined capacity of 1,375 MW

Capacity

• These projects have obtained financing of Rs74 billion

Financing

26
Thank you

27