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Presentation to Senate Committee on Finance, Revenue, Economic Affairs, and
Statistics on
“State of Pakistan Economy”
By
Dr. Shamshad Akhtar
Governor
State Bank of Pakistan
Macroeconomic outcome in FY08
1.
Inflation shot up to 21.5% in June 08 from 7% in June 07 (CPI YoY),
further increasing to 25% in Oct 08.
2.
Real GDP growth decelerated to 5.8% from 6.8% in FY07.
3.
National savings declined to 13.3% GDP from 17.8% in FY07.
4.
Investment declined to 21.6% GDP from 22.9% in FY07.
5.
Fiscal deficit mounted to 7.4% GDP from 4.3% in FY07; Q1-FY09 deficit
is 1% of GDP (annualized).
6.
External current account deficit (CAD) widened to 8.4% GDP from 4.8%
in FY07; July-Oct 08 deficit is 11.2% GDP (annualized).
7.
Fiscal trends undermined monetary tightening on a regular basis.
8.
FX reserves declined to $11.4 bln in June 08 from $15.6 bln in June 07;
further depleting to $6.8 bln on November 25, 08. At the same time, Pak
Rupee depreciated to Rs68.19 in June 08 from Rs60.32 in June 07;
further depreciating to Rs78.71 on November 25, 08.
2
Key questions regarding FY08 outcome
1.
Why inflation shot up so rapidly? When will inflation come down?
2.
Why real GDP growth faltered? When will growth momentum be restored?
3.
Why national savings declined so abruptly? When will savings start
increasing?
4.
Why investment rate declined? When will it start increasing?
5.
Why fiscal deficit mounted so sharply? When will this become sustainable?
6.
Why current account deficit (CAD) widened so quickly? When will CAD
become sustainable?
7.
Why FX reserves depleted so rapidly? And why PkRs depreciated speedily?
How can it reserves be build and exchange rate stabilized?
8.
Rationale for monetary tightening?
9.
What measures SBP has taken for reducing inflation, promoting growth and
maintaining financial sector stability?
10. Is banking system resilient and sound?
3
Why inflation shot up so rapidly?
 History of inflation in Pakistan since 1970 depicts sharp swings marked by few
episodes of sharp uptrend with only a short phase of price stability.
Historical trends
 Domestic inflation has been fuelled by strong aggregate demand pressures because of
1. Higher than sustainable fiscal deficit --in absence of other sources of borrowings,
the Government uses SBP borrowings as a financing item;
Demand pressures
2. Widening of the CAD that has prompted sharp depreciation of Rupee and
declining forex inflows
Fiscal
3. Rise in global commodity prices in particular oil and food prices
deficit
4. Rising per capita incomes and remittances
5. Supply side constraints
International prices

Inflation is expected to come down on year on year basis, but average inflation for the
FY is estimated to be in the range of 20%.

Inflationary trends will settle as the global inflation has come
down and Government has reiterated its commitment to achieve
net zero borrowings from central bank.
4
Why real GDP growth faltered? When will
growth momentum be restored?
1.
GDP growth moderated significantly mainly due to a weak
performance by commodity producing sector.
2.
Fall in investment rate not only resulted in economic slowdown in
FY08 but it may also cause further deceleration in growth in current
year.
3.
In addition, structural weaknesses such as power shortages explain the
falling real GDP growth rate.
4.
High and rising inflation have contributed towards low economic
activity.
5.
Current high level of inflation is intolerable and is one of the major
risks to future growth prospects.
5
NATIONAL SAVINGS & INVESTMENT
6
Why national savings declined so abruptly in
FY08? When will savings start increasing?
1.
Private sector savings rate declined by 2.8%age points of GDP, mainly
due to:
Real return
• negative real rate of return on savings, including bank deposits,
• acceleration in inflation, particularly food inflation, that squeezed
surplus funds for savings.
2.
Public sector dis-saved during the year; as percent of GDP its savings
declined by 1.8%age points.
3.
Positive real return on savings can incentivise people to save more.
• Banks deposit to GDP ratio declined to 35.3% in FY08 from 36.9% in
FY07
4.
Decline in fiscal deficit to sustainable level and low inflation can play an
essential role in improving saving rate.
7
Why investment rate declined in FY08? When
will it start increasing?
1.
The entire decline was attributed to fall in private sector investment
to GDP ratio by 1.3%age points; FDI to GDP ratio declined by
0.5%age points.
2.
Political uncertainty and unclear policy objectives during most of
FY08; and worsening law and order conditions played a major role.
3.
Also, rising inflation, widening macroeconomic imbalances,
downgrading in credit rating of the country, falling reserves and
pressures on rupee parity made foreign investment unattractive.
4.
Macroeconomic stability with clear long-term policies and their
objectives and improvement in law and order conditions is essential
to raise investment in the country.
8
FISCAL DEFICIT
9
Why fiscal deficit mounted so sharply in FY08?
1.
2.
3.
4.
5.
Fiscal Indicators as % of
Expenditures on subsidies surged GDP
to 3.8% of GDP (Rs395 bln) from
FY08 FY07
0.9% in FY07 (Rs76 bln).
Total Expenditure of which: 21.7 19.2
Interest expenditures increased
to 4.7% of GDP (Rs490 bln) from Subsidies
3.8
0.9
4.2% (Rs369 bln) in FY07.
Interest expenses
4.7
4.2
Non-interest expenditures shot
17.1 15.0
up to 17.1% of GDP from 15.0%. Non-interest expenses
Tax revenue stagnated to around Total Revenue of which:
10% of GDP.
Tax revenue
Total revenue declined to 14.3%
Budget deficit
of GDP from 14.9% in FY07.
14.3
14.9
10.0
10.2
-7.4
-4.3
10
How was fiscal deficit financed in FY08?
billion Rs
Fiscal Deficit
Financing
External
Non-bank
Scheduled banks
SBP
Privatization receipts
External
Non-bank
Scheduled banks
SBP
Privatization receipts
FY08 B.E
FY08 p
FY07
-399
-777
-378
193
151
50
104
143
-157
-62
677
75
2
As % of fiscal deficit
48.4
19.5
12.5
13.4
35.9
-20.2
-15.6
87.1
18.8
0.2
147
57
159
-57
71
39.0
15.1
42.1
-15.1
11 18.9
BALANCE OF PAYMENT
12
Why CAD widened so quickly and when will
CAD become sustainable?
1.
2.
CAD in FY08 reached an all
time high of US$ 14.0 billionmore than double of US$ 6.8
billion recorded in FY07.
In terms of GDP, CAD
reached
8.4
percent
compared to 4.8 percent last
year.
Real GDP Growth
CA Deficit Percent of GDP
11.00
8.00
5.00
2.00
-1.00
-4.00
-7.00
FY08
FY07
FY06
FY05
-10.00
FY04
Jul-Oct FY09 data shows
continuation of deteriorating
trend in the external
accounts - Jul-Oct FY09
CAD is up almost 100
percent compared to same
period last year.
FY03
3.
13
Why CAD widened so quickly ?
1. Surge in the international commodity prices: In FY08, 70% of rise in import
value reflects the impact of imported inflation and oil price alone account for
45% of this increase. Notably, oil bill was equivalent to 80% of CAD and 2.1%
of GDP.
2. Food imports were close to $3.5 billion – original BOP projection limited food
imports, shortfall in domestic production called for imports.
3. Import demand pressures stoked by fiscal stimulus.
4. Portfolio flows declined sharply and illustrated their expected volatility.
5. Services account deficit rose due to increase in freight and insurance charges.
6. FDI of previous years led to increase in repatriation of profits and dividends.
7. Logistic support to US troops was half the FY07 level.
8. External assistance from donors was less than expected.
Note:
Sustained rise in remittances -- increase by 17 %
FDI was close to $5 billion, and
36.4 % rise in non-textile exports.
14
Growing vulnerability in trade account since FY04
Exports (SBP)
Exports and Imports Trends
Imports (SBP)
Exports per Capita
Imports per Capita
Exports/GDP (lhs)
Imports/GDP (lhs)
10.0
10
100
0.0
5
50
-10.0
0
0
FY08
150
FY07
15
FY06
20.0
FY05
200
FY04
20
FY03
30.0
FY02
250
FY01
25
FY00
40.0
FY08
FY07
FY06
FY05
FY04
FY03
-20.0
FY02
Billion US $
Trade Balance (SBP)
15
For sustainability of CAD aside from narrowing trade deficit,
strengthening of financial account would be critical
1.
CAD has for sometime breached
sustainability limits but the risks
was mitigated by a favorable
external
environment
and
improvements
in
Pakistan’s
raised sovereign rating which
made external financing cheap
and easy.
US$ million
FY06
FY07
FY08
FDI- equity flows
2925
4229
4144
of which: privatization
proceeds
1540
266
133
986
3283
36
Public long term loans (net)
1010
1413
1441
Public Short term loans (net)
-218
-83
367
231
459
697
5830 10145
7657
Portfolio Investment
2.
In FY08 country’s ability to tap
the international capital markets
was impaired – privatization deals
and sovereign debt had to be
deferred and portfolio investment
plunged
Private sector loans (net)
3.
Jul-Oct FY09 external CAD at
US$ 5.1 bln is exceptionally high.
Total Financial Account
Surplus
16
FX RESERVES & EXCHANGE RATE
17
Impact on FX Reserves & Exchange Rate
3.
In the absence of matching
inflows, deficit had to be financed
though short-term borrowings
and drawdown in reserves
accumulated over past few years.
Fall in country’s reserves along
with
deterioration
of
macroeconomic
indicators,
political
instability
and
speculative activity in the forex
market
resulted
in
sharp
depreciation of the rupee.
FDI
FPI
Other Investment
CAD
Reserves (RHS)
16.0
18.0
14.0
16.0
14.0
12.0
12.0
10.0
10.0
8.0
8.0
6.0
6.0
4.0
4.0
2.0
2.0
0.0
0.0
FY06
FY07
FY08
18
US$ billion
2.
Combination of developments
discussed in previous slide
resulted in significant rise in
dollar outflows to finance CAD,
while the inflows have declined as
the financial account surplus fell.
US$ billion
1.
Foreign Exchange Reserves
4.
During July-October FY09, the
reserves
position
further
deteriorated, reaching $6.8 billion
and import coverage declining to
mere 9.2 weeks.
However, with inflow of $3.1 bln
from the IMF, reserves climbed back
to US$ 9.4 billion by 26th November
2008.
Weeks of Imports (LHS)
18.0
35.0
16.0
30.0
14.0
25.0
12.0
10.0
20.0
8.0
15.0
6.0
10.0
4.0
5.0
2.0
0.0
0.0
19
Weeks of Imports
3.
As a result, import coverage ratio
declined to 16.8 weeks in Jun FY08
from 30.7 weeks in July FY07.
Reserves
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
26-Nov-08
2.
Total foreign exchange reserves of
the country declined to $11.3 billion
by end-Jun08 from $15.6 billion at
end-June 07.
US$ billion
1.
Exchange Rate
1. Pak rupee remained fairly stable up to
October 07 in FY08, but in the following
months, PKRs lost significant value against
US dollar depreciating by 11.5 percent
during Jul-Jun FY08.
2. The depreciating trend continued in FY09,
with Pak rupee depreciating further by 16.3
percent during Jul-Oct FY09.
Exchange Rate PKE/US$
90
85
80
75
70
65
4. With adjustment in interest rates and other
policy measures, since end Oct-2008 upto
Nov 25 rupee had appreciated by 3.6
percent, thus Jul- 20 Nov depreciation
stands at 13.4 percent.
60
55
50
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
26-Nov-08
3. The loss in the value of rupee is attributable
to a combination of rise in the CAD, fall in
the financial inflows, increase in political
noise and speculative activities in the FX
market.
20
Exchange Rate Appreciation (+) and Depreciation (-)
10
5
-5
Average
depreciation of
42 percent per
annum
-10
-15
Average depreciation of 8.2 percent per annum
-20
FY82
FY83
FY84
FY85
FY86
FY87
FY88
FY89
FY90
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09*
percent
0
*Up to 24th November 2008
21
Change in REER, NEER & RPI Indices (2000=100)
20.0
REER
15.0
NEER
RPI
10.0
0.0
-5.0
-10.0
-15.0
FY09*
FY08
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY98
FY97
FY96
FY95
FY94
FY93
FY92
-20.0
FY91
percent
5.0
*Jul-Sep; Note: REER (real effective exchange rate), NEER (nominal effective exchange rate), RPI (relative price index )
22
MONETRAY TIGHTENING
23
Rationale for Monetary tightening?
1.Unabated rise in inflationary pressures – in particular core inflation
which rose to 18.3% in October 2008
Inflation Indicators –
current month over same month last year
Jun-06
Jun-07
Jun-08
Oct-08
CPI
7.6
7.0
21.5
25.0
Food
7.8
9.7
32.0
31.7
Non-food
7.5
5.1
13.8
19.7
Core (20% trim)
6.5
6.5
17.2
18.3
Core (NFNE)*
6.5
5.7
13.0
21.7
24
2. Monetary tightening is pursued as high
inflation is detrimental to economic growth
Long-term Inflation and Growth Trends (percent)
GDP
14
Inflation
High
12
10
8
6
Low growth
4
2
FY08
FY05
FY02
FY99
FY96
FY93
FY90
FY87
FY84
FY81
FY78
FY75
FY72
FY69
FY66
FY63
FY60
FY57
FY54
FY51
0
25
3.High budget recourse to SBP borrowings which are
inflationary as evident from trends in core inflation
Cumulative Government Borrowings from SBP
Cumulative Budgetary Borrowings from SBP
billion Rupees
FY07
FY09
700
Stock of
MRTBs
∆ in
MRTBs
∆ in net
borrowing
2002
195.8
-274.9
-112.0
2003
104.6
-91.2
-249.2
2004
128.0
23.4
60.0
2005
333.0
204.9
155.6
200
2006
508.1
175.1
135.1
100
2007
452.1
-56.0
-58.6
0
2008
1053.1
601.1
688.7
-100
2009*
1373.3
320.2
329.0
600
500
400
300
1
4
7
10
13
16
19
22
25
28
31
34
37
40
43
46
49
52
billion Rupees
End June
FY08
weeks
Source: SBP
*: up to November 21, 2008
Up to week ending 8th November 2008
26
3.Declining Investment (I) and Saving (S) trend
and widening I-S Gap
Savings - Investment Gap (As % of GDP)
S-I gap (RHS)
Nati onal savi ngs
Investment
25
6
4
20
2
0
15
-2
10
-4
-6
5
-8
FY08
FY07
FY06
FY05
FY04
FY03
FY02
FY01
-10
FY00
0
27
3.Rising aggregate demand pressures caused
high inflation
Inflation (rhs)
-3
8
-4
4
-5
0
FY09
12
FY08
-2
FY07
16
FY06
-1
FY05
20
FY04
0
FY03
24
FY02
1
FY01
28
percent
32
2
FY00
as % of GDP
Demand Pressures & Inflation
Demand pressures*
3
*Deviation of domestic demand (real GDP less net exports) from real GDP
Back
28
Pakistan Monetary Tightening stance because of country’s exceptional
macroeconomic imbalances & resultant inflation
International Comparison – Key macroeconomic indicators
Economic Indicators of Selected Economies (Q2-2008)
Fiscal
CAB1
balance1 GDP Growth CPI (yoy)2
US
-4.9
-3.0 3
0.8 3
4.9
UK
-2.9
-1.8
0.3 3
5.2
Euro Area
-1.1
0.4
1.8
3.6
Canada
0.9
1.4 5
0.7
3.4
Australia
-6.2
1.6 5
2.7
5.0
Switzerland
10
2.5 5
2.4
2.9
Sweden
7.8
3.4 5
0.7
4.2
China
11.3 5
0.7 5
9.0 3
4.6
India
-1.4 5
-2.3
7.9
9.8
Korea
0.2
3.8 5
3.9 3
4.8 4
Pakistan
-8.4 6
-7.4 6
5.8 6
25.0 4
Source: Bloomberg, WEO-Oct 08 & Central Bank Websites
1% of GDP; 2 September 2008; 3 Q3-2008; 4 Oct-08; 5 2007; 6 FY08.
29
Real interest are low in Pakistan compared with
many other regional countries
Lending Rates and Inflation in Regional Countries
percent
Inflation (12-month
Lending rates
MA)
Nominal
Real
India
6.9
13.0
6.1
Indonesia
9.2
12.9
3.7
Philippines
6.9
9.0
2.1
Malaysia1
3.4
6.0
2.6
Bangladesh
10.0
12.3
2.3
Sri Lanka3
23.4
20.3
-3.1
Vietnam2
20.0
14
-6.0
Pakistan3
16.4
13.3
-3.1
Source: SBP, Central banks' websites for other countries, Bloomberg.
Data is for August 2008 unless specified otherwise; 1 July 2008;
;2 September 2008; 3 October 2008
Note: Nominal lending rate for Indonesia is the simple average of commercial
banks' lending rates on loans for working capital and investment purposes
30
May-08
Oct-07
Mar-07
Aug-06
Jan-06
Jun-05
Nov-04
Apr-04
Sep-03
Feb-03
Jul-02
Dec-01
May-01
Oct-00
Mar-00
Aug-99
Jan-99
Jun-98
Nov-97
Apr-97
Sep-96
percent
History of SBP’s policy rates…
SBP Policy rate
24
20
16
12
8
4
0
31
Further monetary tightening was inevitable
 Effective November 13, 2008, SBP raised its policy rate by 200 bps to 15
percent.
 This increase in policy rate was necessary to:
1. ease demand pressures causing inflation
2. ensure long-term growth on sustainable basis; high inflation, if
continues, raise future cost of production significantly more than
the current rise in interest rate.
Share of financial cost
3. create room for government to borrow from market sources
4. Improve rate of return on savings
5. control inflationary expectations and stem second round effect of
inflation
6. check depletion of forex reserve and depreciation of exchange rate
7. Even after this 200 bps increase in policy rate, current real interest
Inflation & Real rates
rates are negative.
8. Credit to private sector private sector remained strong. CPS
32
SBP measures to promote growth
1.
Measures for agriculture sector
• Agriculture credit disbursement indicative target for FY09 has been enhanced by
25% to Rs 250 billion, which is 18.0% higher than disbursement in FY08.
• SBP developed/launched Crop Loan Insurance Scheme- Under the scheme the
government has agreed to share premium cost of subsistence farmers.
• The State Bank has enhanced the indicative per acre credit limit for major and
minor crops, livestock, orchards, fishing and forestry by an average 70 percent
2.
Measures for Export and Industrial Investment
• To promote real investment in the country and to mitigate the impact of higher
interest rate SBP has restored 100 % refinancing under EFS and LTFF
• Overall quantum of limits for banks under EFS for FY09 has been enhanced by
25% of the amount outstanding as on 30th June 2008.
• Under these Schemes borrower have to pay max of 7.5 % mark-up against 14.4 %
prevailing rate (weighted average)
33
SBP measures to maintain financial sector
stability
1.
SBP provided on a timely basis over Rs350 billion liquidity support
besides the regular injection of liquidity thru open market operations -liquidity constraints emerged as a result of excessive public sector
borrowings, deposit withdrawal and eid cash withdrawal.
2.
SBP launched liquidity support for small banks which provides
maximum 3 months liquidity for small banks willing to
restructure/inject new capital. This facility is available at SBP policy
discount plus 3% and is supported by Government guarantee.
3.
To encourage more sustainable growth in deposit mobilization, SBP
impose minimum deposit rate and exempted long tenor deposits from
reserve ratios.
4.
Steps to stabilize and curb excessive volatility in foreign exchange
markets.
34
Despite high economic stress banking system
and its policies were sound?
1.
2.
3.
4.
Banking System is well capitalized: CAR at 12.1% is well above the
minimum threshold CAR
Asset quality is good: NPLs to loan ratio increased slightly during CY07 &
9M-CY08, at 8.4% by the end of September 2008
Net NPLs
ratio
 NPLs to loans ratio (net) is at 1.9% as of end September 2008
 Provisions to NPLs ratio is 79.1% for H1-CY08: banks have already
catered for any potential losses
Liquidity
indicators
Some liquidity issues emerged in recent past
• Excess liquidity held by the banking system witnessed visible decline since
May 2008
• Trends in O/N rates indicate temporary liquidity strains, more so for some
small banks. The situation has improved with quick implementation of SBP
policy actions.
Risk absorption capacity of the banking system remained strong
Profitability
35
Key policy actions for restoring macroeconomic
stability and sustaining growth…
1.
2.
3.
4.
5.
6.
Aggressive implementation of anti-inflation policies are needed to provide
relief to masses and to restore investors confidence.
Fiscal sustainability is a key factor for macroeconomic stability, which
requires: increase in tax-to-GDP ratio; containment in non-productive
expenditures; public-private partnership
Increasing exports through diversification of products and markets and
increasing productivity
Import compression through curtailing aggregate demand; not insulating
domestic consumption from the impact of rising international prices
Financing has to be secured for the CAD which requires:
• Increase in domestic savings to reduce reliance on external financing
• Restoration of investor’s confidence to encourage investment inflows
and restrict outflows
• Consistency and continuation of prudent policies
To curb budget recourse to SBP financing there is need to now legislate strict
limits on central borrowings and to launch a program to phase out the
outstanding stock of central bank borrowing.
36
Link slides
37
Back
12 ma inflation
Mar-08
May-06
Jul-04
Sep-02
Nov-00
Jan-99
Mar-97
May-95
Food inflation
Jul-93
Sep-91
Nov-89
Jan-88
Mar-86
May-84
Headline inflation
Jul-82
Sep-80
Nov-78
Jan-77
Mar-75
May-73
Jul-71
percent
CPI YoY inflation
Non-food inflation
50
45
40
35
30
25
20
15
10
5
0
-5
38
Mar-08
May-06
Jul-04
Sep-02
Nov-00
Jan-99
Mar-97
May-95
Food inflation
Jul-93
Sep-91
Nov-89
Jan-88
Mar-86
Headline inflation
May-84
Jul-82
Sep-80
Nov-78
Jan-77
Mar-75
May-73
Jul-71
percent
CPI 12 month moving average inflation
Non-food inflation
40
35
30
25
20
15
10
5
0
Back
39
Widening fiscal deficit to unsustainable level contributed in fueling aggregate
demand
Revenue balance
3
Primary balance
Overall (fiscal) balance
2
1
as percent of GDP
0
-1
-2
-3
-4
-5
-6
-7
-8
FY04
FY05
FY06
FY07
FY08
Back
40
Surge in international oil and food prices also contributed to domestic
inflation
300
-50
Index
Jul-06
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Sep-08
-50
0
Jul-05
0
Jul-08
-30
May-08
0
50
Mar-08
-10
100
Jan-08
50
100
Nov-07
10
Sep-07
100
150
Jul-07
30
May-07
150
Mar-07
200
Jan-07
50
Nov-06
200
150
50
70
250
Sep-06
200
US$ per barrel
Wheat, Rice and Sugar Prices (YoY changes)
Wheat
Rice
Sugar (RHS)
250
IMF energy index (RHS)
percent
Crude oil*
250
Back
41
percent
International Oil Prices
Rise in interest rates is necessary for long-term gains
Financial Expense to Total Expense Ratio
2001
2002
2003
2004
2005
2006
2007 Q1-08*
All companies (non-financial)
listed at KSE
4.74
4.10
2.45
1.59
1.59
2.07
2.44
3.28
Textile
6.61
5.58
3.78
2.47
3.62
5.57
6.25
6.95
Cement
9.24
8.74
6.26
3.59
3.74
4.82
6.95
10.06
Engineering
3.24
2.60
1.63
0.77
0.79
1.16
1.50
2.03
Chemicals
8.85
5.16
2.20
1.81
2.00
2.66
3.06
3.92
Yearly ratios are based on data from annual audited accounts of all the companies listed at KSE.
* The Q1-2008 data is based on partial set of information.
Back
42
Current level of major nominal and real interest rates
Almost with all inflation measures, key real interest rates are negative
(percent per annum)
SBP Policy
rate
Nominal rate
WA lending WA deposit
rate
rate
15.0
15.5
9.5
-10.0
-9.5
-15.5
NFNE core inflation
-3.3
-2.7
-8.7
20% trimmed core inflation
-6.7
-6.2
-12.2
-2.8
-2.2
-8.2
NFNE core inflation
3.1
3.6
-2.4
20% trimmed core inflation
0.3
0.9
-5.2
Real rate adjusted for YoY inflation:
CPI Inflation
Real rate adjusted for 12 ma inflation:
CPI Inflation
Back
Regional Comparison
43
Lending rates in Regional countries
Lending Rates and Inflation in Regional Countries
percent
Inflation (12-month
Lending rates
MA)
Nominal
India
6.9
13.0
Indonesia
9.2
12.9
Philippines
6.9
9.0
Malaysia1
3.4
6.0
Bangladesh
10.0
12.3
Sri Lanka3
23.4
20.3
Vietnam2
20.0
14.0
Pakistan3
17.7
15.5
Source: SBP, Central banks' websites for other countries, Bloomberg.
Data is for August 2008 unless specified otherwise; 1 July 2008;
;2 September 2008; 3 October 2008
Real
6.1
3.7
2.1
2.6
2.3
-3.1
-6.0
-2.2
Note: Nominal lending rate for Indonesia is the simple average of commercial
banks' lending rates on loans for working capital and investment purposes
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44
Credit to private sector remained strong
1. During July 1- November 15, FY09 credit to private sector increased by Rs137 bln
against Rs87 bln in the corresponding period of FY08.
•
Manufacturing sector received Rs77 bln credit during July-October FY09 against only
Rs6 bln in the same period of FY08.
2. This increase in CPS was despite Rs255 billion decline in banks’ deposits.
Credit to Private Sector -- Flows since End June
FY08
FY09
400
billion Rupees
300
200
100
0
52
49
46
43
40
37
34
31
28
25
22
19
16
13
10
7
4
1
-100
weeks
Back
45
Capital adequacy ratio
Tier 1 Capital to RWA
CAR
14
13
12
10
9
8
7
Back
Sep-CY08
CY07
CY06
CY05
CY04
6
CY03
percent
11
46
Asset quality indicator
Net NPLs-LHS
NPLs to Loan (net)-RHS
140
18
16
120
14
80
10
60
8
percent
12
6
40
4
20
2
Back
Sep-CY08
CY07
CY06
CY05
CY04
CY03
CY02
CY01
0
CY00
0
CY99
billion Rupee
100
47
Liquidity risk
Loans to Deposits
Liquid to Total Assets
80
70
60
50
40
30
Back
Excess liquidity
Sep-CY08
CY07
CY06
CY05
CY04
CY03
CY02
CY01
CY00
20
48
Back
07-Nov-08
07-Oct-08
07-Sep-08
07-Aug-08
07-Jul-08
07-Jun-08
07-May-08
07-Apr-08
Required
07-Mar-08
07-Feb-08
07-Jan-08
Excess-RHS
07-Dec-07
07-Nov-07
07-Oct-07
07-Sep-07
07-Aug-07
07-Jul-07
percent of DTL
Excess liquidity held by the banking system
Maintained
40
14.0
35
12.0
30
10.0
25
8.0
20
15
6.0
10
4.0
5
2.0
0
0.0
49
Profitability of the banking sector
After Tax ROA of the Banking System
2.5
2.0
1.5
0.5
0.0
-0.5
-1.0
Back
Sep-CY08
CY07
CY06
CY05
CY04
CY03
CY02
CY01
-1.5
CY97
percent
1.0
50
Mar-92
Sep-92
Mar-93
Sep-93
Mar-94
Sep-94
Mar-95
Sep-95
Mar-96
Sep-96
Mar-97
Sep-97
Mar-98
Sep-98
Mar-99
Sep-99
Mar-00
Sep-00
Mar-01
Sep-01
Mar-02
Sep-02
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
percent
Low real interest rates correspond to high inflation
Inflation and Interest Rates
Real Lending Rates
Real Deposit Rates
Inflation (12 month MA)
Discount rate
25
20
15
10
5
0
-5
-10
-15
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51