Monetary and Fiscal Policies Coordination Board: No meeting convened despite worry over external accounts

SBP Act 1956 binds ministry to hold meeting every quarter, last one was held in Sept 2016

ISLAMABAD: Despite grave challenges posed by the external sector to economic stability, it seems that the Ministry of Finance does not believe in collective intelligence, as it has not convened a meeting of the Monetary and Fiscal Policies Coordination Board for the last nine months.

By not calling the board meeting, the federal government has also breached a law approved by parliament. The State Bank of Pakistan (SBP) Act, 1956, binds the finance ministry to call a meeting of the coordination board every quarter. But the last meeting of the board was held in September last year.



The urgency of calling the meeting has intensified as Pakistan faces serious problems on the external front due to steep fall in exports, skyrocketing imports and decreasing foreign remittances. This has led to a situation where the current account deficit is expected to widen to over $9 billion by end June this year - double than the $4.5 billion official target.

Monetary and Fiscal Policies Coordination Board is tasked with setting the direction of economic policies. Its importance can be gauged from its membership. The board is chaired by the finance minister, with other members being the commerce minister responsible for trade sector, deputy chairman of the Planning Commission, the State Bank of Pakistan (SBP) governor, finance secretary and two eminent economists from the private sector.

Despite gravity of the situation, there is no permanent SBP governor and the government is running the central bank on an ad-hoc basis. The last governor retired on April 28.

The delay in calling the board meeting also suggests that the Ministry of Finance has finalised new fiscal year 2017-18’s macroeconomic framework including exports target without holding formal discussions with key players. This suggests that the finance ministry does not believe in collective intelligence and the result is continuous deterioration on the external front.

Shahid Mehmood, Special Secretary Finance, insists that the federal government gives due importance to the board and it will call its meeting very soon. Mehmood is tipped as new finance secretary after retirement of the incumbent secretary early next week.

Federal Commerce Minister Khurram Dastgir Khan, whose ministry is overshadowed by the finance ministry, did not respond to the questions.

In its last board meeting, the board members had shown concerns about falling exports but nothing has been done to reverse the trend. In the previous meeting, some members cautioned that if the trend of declining  exports and increasing imports continued the country’s balance of payments position would come under pressure in the medium-term.  However, as usual in the previous meeting, the Ministry of Finance had contended that there were no signs of deterioration and some segments were unnecessarily trying to portray a negative picture on the external accounts front.

And the nightmare has become a reality.

For the first time in its history, Pakistan posted a trade deficit of $30 billion in the first eleven months of the fiscal year - higher by $8.9 billion or over 42% over the same period of the last fiscal year. This was the result of a steep decline in exports and double-digit growth in imports. Pakistan’s exports have been constantly falling for the last four years. The imports in eleven months were 260% more than the exports.

Worker remittances also contracted 3% in the July-May period to $15.6 billion, indicating problems in managing the accounts. The federal government is trying to keep official foreign currency reserves around $16 billion by borrowing from domestic and international players. The forex reserves hollowness was again exposed last month when Pakistan had to borrow more to retire the $750 million Eurobond debt.

In the second last meeting of the Monetary Policy Committee, six out of eight members had voted to maintain key interest rate at 5.75% mainly because of the challenges posed by the external account and the need to maintain stability, according to MPC minutes.



However, this ‘acclaimed’ stability is now under serious threat due to external sector problems, according to independent economists and as indicated by the International Monetary Fund in its last handout.

The fiscal sector has also started showing weaknesses. The budget deficit in the first nine months was already equal to the annual target of 3.8% of the GDP and indications are it will be close to 4.5%, said sources in the finance ministry.

The tax revenues have again started falling below the targets and the government has already revised its annual target downwards to Rs3.621 trillion. As of June 13, the Federal Board of Revenue had pooled Rs2.96 trillion.

This is despite the fact that during its four-year tenure, the PML-N government has imposed over Rs1.3 trillion in taxes with most of them being indirect in nature which has significantly increased the cost of doing business.

Published in The Express Tribune, June 15^th, 2017.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.