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KARACHI: Pakistan’s central bank on Friday described fiscal year 2023 as “extraordinarily challenging” for national economy, saying it brought a number of domestic and external shocks for the country in which the financial well-being of the people was compromised by structural weaknesses and spiraling inflation.

The State Bank of Pakistan (SBP) presented a mixed economic report card in the Governor’s Annual Report (GAR) for the last fiscal year which it is legally require to prepare and submit to the national parliament, specifying its economic objectives, monetary policy conduct and the overall health of the economy and financial system.

The report said despite the economic hardships, the bank had focused on financial inclusion by facilitating the digitization of services which had led significant growth within the sector.

However, price stability and inflation remained major concerns for the country, with the average headline national consumer price index rising up to 29.2 percent. The bank noted this situation could only be addressed through tough measures that it was willing to take in the coming months.

“The SBP responded to these challenges by maintaining a contractionary policy stance, raising the policy rate by a cumulative 825 basis points during FY23, in addition to the 675 basis points increase in FY22,” the central bank said in a statement that detailed the contours of the annual report.

“The GAR FY23 asserts that the central bank will continue to take decisions to prevent high inflation from becoming entrenched and keep inflation expectations anchored to achieve the medium term target of 5-7 percent by the end of FY25, with FY24 inflation moderating to 20-22 percent on account of the impact of contractionary monetary policy, improvements in domestic supplies, softer non-energy global commodity prices, and the high base effect,” it added.

The report complained that political uncertainty in the country weighed on business and consumer sentiments, generating a negative impact on the overall economy.

The real GDP contracted by 0.2 percent, it said, and budgetary targets for the government’s fiscal and primary balances were missed by large margins amid less than planned tax revenues and lower than budgeted reduction in subsidies.

However, the central bank continued to emphasize its objective of maintaining stability of the financial system while reporting it had achieved considerable progress in the area.

“The country’s financial sector grew steadily and continued to meet the economy’s needs of credit and financial services,” the SBP statement added. “Total assets of the banking sector grew by 17 percent in FY23.”

“Within the banking sector,” it continued, “Islamic Banking Institutions (IBIs) performed well during the review period and outperformed their conventional counterparts on several fronts, such as financing and investments along with a double-digit growth in deposit mobilization.”

It may be recalled that Pakistan suffered devastating impact of monsoon floods during the last fiscal year along with elevated global commodity prices and the delay in the ninth review of the International Monetary Fund (IMF) loan program.

The SBP said all these factors added pressure on the country’s external account and created a tough situation for the economy.