SBP’s Performance Since 2018 The state of public finances had also worsened. The budget deficit had reached 6.6 percent of the GDP as compared to 5.8 percent of the GDP in 2016-17, due largely to a rise in current expenditure. The Government debt to GDP ratio had risen to 66.9 percent of the GDP. This represented a major violation of the ceiling on the ratio at 60 percent of the GDP, imposed by the Fiscal Responsibility and Debt Limitation act of 2005. 2.2 SBP Policies for Stabilizing the Balance of Payments The low reserves position at the end of 2017-18 prompted the SBP to pursue an aggressive monetary policy in 2018-19 to reduce the current account deficit, generate a surplus in the balance of payments and thereby build-up reserves once again. Table 2.2 shows the monthly movement in the two instruments of monetary policy, namely the policy rate and the exchange rate, in 2018-19. The cumulative magnitude of the moves was very large. They led to depreciation in the rupee by almost 31 percent and a rise in the SBP policy rate by as much as 575 basis points. Table 2.2: Monthly Policy Rate and Exchange Rate, 2018-19 POLICY RATE (%) 28 th May 2018 6.50 June 2018 EXCHANGE RATE (Rs/$) 118.90 2018-19 16 th July 2018 1 st October 2018 3 rd December 2018 1 st February 2019 1 st April 2019 21 st May 2019 7.50 8.50 10.00 10.25 10.75 12.25 2018-19 July August September October December January 124.35 123.78 124.08 130.38 138.47 138.69 Cumulative Change 5.75 February 138.53 Average 9.12 March 139.17 April 141.16 May 145.69 June 155.24 Cumulative Change 30.6% Source: SBP The basic question is what impact did these moves have on the balance of payments in 2018-19? A comparison is made of 2018-19 figures with 2017-18 in Table 2.3. 27