Former SBP governor flags inflation as key hurdle for new administration

reza baqir urges new govt to take measures to tackle inflation

WEB DESK: Former Governor of the State Bank of Pakistan (SBP), Dr Reza Baqir, emphasised the need for the incoming government to engage in negotiations with the International Monetary Fund (IMF) and tackle the challenge of inflation.

Addressing the significant economic hurdles facing Pakistan, particularly its unsustainable debt and lack of access to capital markets, Baqir underscored the priority of restoring confidence in the country’s economy.

As Pakistan undergoes general elections marked by the suspension of cellular services due to’security concerns’ according to the interior ministry, Baqir outlined the key challenges for the incoming government. These challenges include navigating negotiations with the IMF and addressing the pressing issue of surging inflation.

Baqir, describing the historical relationship between the IMF and Pakistan as an “unhappy marriage,” highlighted the urgency of placing the economy on a sustainable path and managing ties with the IMF.

He noted that the pace of economic confidence restoration and the timely execution of the IMF deal would directly impact inflation levels over the next 12 months.

The former SBP governor acknowledged Pakistan’s current dependence on the IMF, stating that the country needs the IMF’s approval to continue borrowing from other sources, such as China and the Middle East.

With a looming repayment obligation of $7 billion to the IMF in the next five years and external reserves of $8 billion, Baqir raised the question of how Pakistan plans to secure the necessary funds without additional support from the IMF.

Under the existing $3-billion Stand-By Arrangement (SBA), set to expire in March-April, Baqir emphasised the need for the new government to take ownership of the reform programme to secure the next IMF ram.

He outlined key reform goals, including creating a more equitable tax system, bringing privileged classes into the tax net, and broadening the tax base. Baqir stressed that generating ownership around the reform agenda would enhance the programme’s sustainability.

Baqir also highlighted the top priorities for the incoming government to address the economic crisis. He emphasised the urgency of protecting the poor from high inflation through initiatives like a cash transfer programme or a social safety net.

Additionally, he called for efforts to establish an equitable tax system and laid the foundation for export-led growth as essential steps to meet financial obligations without accumulating more debt.

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