Pakistani economy faced serious imbalances in 2022, says country's central bank

Pakistan's central bank, the State Bank of Pakistan (SBP) has said that the country’s economy experienced serious imbalances in 2022. While issuing the annual Financial Stability Review for 2022 on Friday, SBP stated that the existing troubles were compounded by an unfavourable external environment.

However, it maintained that the financial system performance and resilience remained firm during the year. The annual report said that 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.

GDP growth at 0.29%

According to the Financial Stability Review, the SBP and the government have taken several policy steps to address widening imbalances. The measures include further increases in the policy rate and macro-prudential policies pertaining to consumer financing and administrative measures to contain external imbalance. Since there was a notable slowdown in deposits, the central banks’ dependence on borrowings remained substantial, the report added.

“Resultantly, the current account deficit improved towards the year-end while economic momentum weakened. Against this backdrop, the gross domestic product (GDP) grew only by a meagre 0.29% in FY23,” it stated

Some sectors under stress

The stability review said that microfinance banks remained under stress as the asset quality indicators deteriorated along with after-tax losses. The report reveals that the non-financial corporate sector posted a moderate decline in earnings due to elevated economic stress and an increase in taxation and financing costs.

However the report said that the overall financial standing of top 100 listed companies "remained steady and the corporate sector in general continued to serve its obligations to financial institutions.”