LAHORE: The government of Pakistan must not restrict State Bank of Pakistan’s (SBP) autonomy as a lack of respect for institutions harms the economy, a fact sheet issued by the Institute of Policy Reforms said on Thursday.
“These actions also defy economic logic. The state of the economy is testimony to our contempt for institutions and for economic rationale,” it added.
The report also stated that SBP’s autonomy is protected by the constitution through the SBP Act, which forbids any outside interference or influence on the bank’s operations or decision-making.
It mandates the SBP to ensure economic growth and stability and also keep a check on the value of the rupee, ensure foreign exchange stability and facilitate export competitiveness, the fact sheet said, deploring that interference in the SBP’s decision-making and poor economic indicators are going hand-in-hand.
The report also highlighted missed economic targets in consecutive years, excessive fiscal deficit and excessive government borrowing, which led to a lack of access to credit for the private sector.
The report noted that low oil prices and an overvalued rupee have kept inflation in check rather than fiscal or monetary prudence.
It was also critical of low savings and investments in the country, which are exacerbating Pakistan’s vulnerability to external shocks and stifling economic growth.
“The SBP has not played its due role,” the fact sheet said. “These are not minor gaps in performance, their most serious effect lies in letting a profligate government avoid reforms. Rather than allow government easy access to credit, with long-term economic consequences, the SBP must limit borrowing.”
Expressing concern over the worsening external account, the IPR’s report said the current government has increased foreign debt by $35 billion during its four years.
“CPEC projects will add to liabilities. Consequently, the government of Pakistan’s preference for high rupee value is hazardous. At some point, the rupee may decline suddenly. If this happens, it will leave the economy in long-term disequilibrium,” it said.
Hinting at finance ministry’s constant interference for the past four years, the IPR emphasised that the SBP governor’s appointment should be made by the president.
“The new (SBP) governor’s appointment is under scrutiny. It is critical for him and the board to prove their bona fide. The law gives SBP autonomy. It is for the bank to put it in practice and reduce the gap between formal and actual autonomy, so that they meet their mandate of economic growth and stability,” the fact sheet said.
Published in The Express Tribune, August 25th, 2017.