Federal Finance Minister Muhammad Aurangzeb stated on Sunday that the State Bank of Pakistan (SBP) is actively managing both the exchange rate and interest rates, signaling an expectation of further improvement as economic stability strengthens. These remarks were made during the inauguration of the Job and Education Expo at the Expo Centre in Karachi, organized by the Pakistan Hindu Council.

The minister emphasized that "technology is the path to the future," urging the youth to engage with both "heart and mind" and to "always strive for excellence." Aurangzeb highlighted the need for the corporate sector to step forward, adding that "the interest rate should not be made the single-point agenda." To foster working capital, he suggested that Pakistan should look beyond traditional banking and incorporate capital markets, advocating for the shift of the debt capital market to the Pakistan Stock Exchange mechanism for enhanced efficiency.

Regarding monetary policy, Aurangzeb clarified that "the government has no role in setting interest rates, as this falls under the mandate of the State Bank of Pakistan." He further stated that "the exchange rate would continue to be determined by the market." He expressed optimism that "by 2047 Pakistan's economic situation would be that of a developed nation." He also commended efforts in population control and underscored the importance of women's economic participation as a key driver in poverty reduction, confirming that discussions with the World Bank for supporting such initiatives are underway.

Aurangzeb further mentioned that the International Monetary Fund's (IMF) review mission would soon arrive under the ongoing 37-month program, emphasizing the government's constant communication with the Fund. He noted that Pakistan's three major global credit rating agencies – Fitch, S&P, and Moody's – have upgraded the country's rating and are aligned in their assessments for the first time in years, describing this as a "vote of confidence." He explained that stability has been achieved through joint efforts, with the government exercising fiscal responsibility and the State Bank implementing a prudent monetary policy.

Key Indicators

The minister's statement indicates that the SBP's management of exchange and interest rates is contributing to economic stability, potentially attracting increased domestic and foreign investment.
The projected 4.2% GDP growth for FY2025-26 surpasses the growth of previous years (2.7% in FY2024-25 and 2.5% in FY2023-24), signaling a positive trajectory.
Positive assessments from major credit rating agencies reflect growing confidence in the Pakistani economy, which could facilitate easier access to international capital markets.

Regional Perspective

Pakistan's Finance Minister Muhammad Aurangzeb's statements highlight a strategic shift in economic management, with a focus on the State Bank of Pakistan's role in achieving financial stability through exchange rate and interest rate management. This approach, aimed at fostering a stable economic environment, aligns with the government's efforts to boost economic growth, control debt, and attract investment. The declaration that "economic stability has now been achieved," coupled with positive ratings from major international credit rating agencies, suggests that Pakistan may be on the cusp of a period of sustainable growth, underpinned by structural reforms and disciplined fiscal and monetary policies.

Analysis

The minister's emphasis on the dual role of the State Bank of Pakistan in managing the exchange rate and interest rates is a crucial step towards macroeconomic stability. By allowing the market to determine the exchange rate, Pakistan aims to enhance export competitiveness and attract remittances. Simultaneously, interest rate management, including the 50% cut over the past year, is intended to stimulate investment and working capital. The minister's acknowledgment of the joint efforts between the government and the SBP in achieving stability, along with positive signals from rating agencies, indicates a rise in investor confidence. However, the primary challenge lies in translating this stability into broad-based and sustainable economic growth, focusing on productive sectors, boosting exports, and implementing structural reforms to improve the business environment.