KARACHI: The State Bank of Pakistan (SBP) listed political uncertainty, foreign exchange rate, inflation, energy crisis, commodity prices in international markets and monetary tightening by major central banks in advanced economies as the reasons behind the economic downturn in 2022.
In its annual Financial Stability Review for 2022, the central bank also noted that the government should take appropriate policy measures for improving productivity, export competitiveness and debt sustainability to ensure economic revival.
“The domestic headwinds including the twin deficits, high inflation, catastrophic flooding, delay in the completion of IMF programme reviews as well as the global challenges such as a fast-paced increase in commodity prices and monetary tightening by major central banks in advanced economies, manifested in the deteriorating macroeconomic conditions.”
When it comes to the record-high interest rate, the central bank said the prevailing high return on government securities and strong financing needs could boost banks’ earnings, the resultant increased public sector exposure had several implications, including crowding out of private sector credit.
The SBP’s annual report notes that the banking sector is facing various challenges and the repayment capacity of borrowers [amid record-high inflation and interest rates] might come under stress.
However, it mentioned that the banking sector witnessed a strong growth of 19.1 per cent in assets – chiefly due to investments while advances decelerated.
It says although the current account deficit has narrowed as a result of sizable import compression, the overall external account position continues to remain under stress.
At the same time, the pace of economic activities has decelerated as reflected in the lower estimated growth rate of 0.29 per cent in the financial year 2022-23.
