Policy coordination and consistency
Public sector borrowing be reduced by 23 per cent and should be shifted to foreign lenders to free up domestic credit.
Two reports published in The Express Tribune on May 11 bring out an interesting contradiction in the making of macroeconomic policies. One relates to the meeting of the Monetary and Fiscal Coordination Board (MFCB) held in Islamabad and the other to the forthcoming meeting of the Annual Plan Coordination Committee (APCC). At the MFCB, the State Bank governor urged the ministry of finance to do two things in the next fiscal year. The first was that the public sector borrowing requirement be reduced by at least 23 per cent. The second was that public sector borrowing should shift to foreign lenders so that domestic credit can be freed for the private sector. These steps are considered necessary to contain inflation and revive growth. The APCC is considering today, a working paper asking for a 12 per cent increase in the development budget from the size of Rs710 billion indicated by the ministry of finance. This will add Rs85 billion to an already high fiscal deficit of over a trillion rupees. Presumably this level of deficit allows for the provincial contribution to the Public Sector Development Programme.
Its excess over the development budget means that revenues will, yet again, fail to meet the current expenditure by a wide margin. The working paper also warns that Rs40 billion of foreign funding will remain unutilised if matching rupee allocations are not made, making the shift proposed by the governor that much harder.
It should be obvious that the governor of the State Bank can do no more than tender polite advice. From day one, the MFCB was meant to reign in the State Bank. In its meetings, the governor is just one voice against the heavyweights of the ministry of finance, the ministry of commerce and the planning commission. The finance minister is the chair. The MFCB must meet every quarter, most importantly before the budget, to coordinate next year’s targets and harmonise policies. That was the law. For the past four years, no meeting was held. Even the ministry of finance had begun to see its anachronism. For the State Bank governors, it was good riddance. A formal announcement about the funeral was made in November last year, when the National Assembly passed the State Bank of Pakistan (Amendment) Bill 2010. It was expected that the Senate, reputed to be the more professional of the two houses, would pass it quickly to bring the State Bank at par with the best international practice in terms of autonomy. On the contrary, the deliberations of the Standing Committee on Finance took longer than was necessary. In February this year, the committee surprised everyone by admonishing the State Bank for not holding the meetings of the MFCB. Not just that, it also removed the clause of limiting budgetary support to a fixed percentage of the previous year’s tax collection, before sending the bill back to the National Assembly. Members on both sides of the aisle joined hands to ensure the sovereign right to borrow. If the National Assembly disagrees, which seems unlikely in view of the consensus in the Senate, the bill must follow the difficult path of a joint session of parliament.
In the meantime, senators on both sides of the aisle again got together recently to protest against the delay in the release of constituency development funds, while the agenda called for a serious debate on the humiliation brought upon the nation by the Obama-gets-Osama operation. Keeping control over the State Bank’s printing press makes sense if wasteful expenditures like constituency development funds and the distaste for serious tax legislation are to continue. There is policy coordination and consistency, but of a different kind.
Published in The Express Tribune, May 13th, 2011.
Its excess over the development budget means that revenues will, yet again, fail to meet the current expenditure by a wide margin. The working paper also warns that Rs40 billion of foreign funding will remain unutilised if matching rupee allocations are not made, making the shift proposed by the governor that much harder.
It should be obvious that the governor of the State Bank can do no more than tender polite advice. From day one, the MFCB was meant to reign in the State Bank. In its meetings, the governor is just one voice against the heavyweights of the ministry of finance, the ministry of commerce and the planning commission. The finance minister is the chair. The MFCB must meet every quarter, most importantly before the budget, to coordinate next year’s targets and harmonise policies. That was the law. For the past four years, no meeting was held. Even the ministry of finance had begun to see its anachronism. For the State Bank governors, it was good riddance. A formal announcement about the funeral was made in November last year, when the National Assembly passed the State Bank of Pakistan (Amendment) Bill 2010. It was expected that the Senate, reputed to be the more professional of the two houses, would pass it quickly to bring the State Bank at par with the best international practice in terms of autonomy. On the contrary, the deliberations of the Standing Committee on Finance took longer than was necessary. In February this year, the committee surprised everyone by admonishing the State Bank for not holding the meetings of the MFCB. Not just that, it also removed the clause of limiting budgetary support to a fixed percentage of the previous year’s tax collection, before sending the bill back to the National Assembly. Members on both sides of the aisle joined hands to ensure the sovereign right to borrow. If the National Assembly disagrees, which seems unlikely in view of the consensus in the Senate, the bill must follow the difficult path of a joint session of parliament.
In the meantime, senators on both sides of the aisle again got together recently to protest against the delay in the release of constituency development funds, while the agenda called for a serious debate on the humiliation brought upon the nation by the Obama-gets-Osama operation. Keeping control over the State Bank’s printing press makes sense if wasteful expenditures like constituency development funds and the distaste for serious tax legislation are to continue. There is policy coordination and consistency, but of a different kind.
Published in The Express Tribune, May 13th, 2011.