ISLAMABAD: There seems to be a communication gap between the Prime Minister’s Office and the Finance Ministry, as the State Bank of Pakistan (SBP) governor had informed the finance minister about rupee devaluation well before time, contrary to what Prime Minister Imran Khan claimed on Monday.
The miscommunication may now cost the central bank its independence. In an interaction with anchorpersons, the prime minister on Monday said he has now instructed the SBP not to take any decision on exchange rate without first informing him.
The PM’s decision to interfere in the affairs of the central bank could create more problems for the Finance Ministry during its next possible round of talks with the International Monitory Fund (IMF) for a bailout package.
Giving autonomy to the SBP is one of the conditions of last two IMF programmes. The SBP’s autonomy has also been at the centre during the staff-level talks between Pakistan and IMF that ended inconclusively last month.
The PM’s outburst against the central bank came amid rumours that Finance Minister Asad Umar has offered to resign from his post due to differences on policy issues with the party. However, the Finance Ministry strongly rejected the reports, terming them ‘fake’.
The SBP devalued the rupee by 3.8%, or Rs5.06, to an all-time low at Rs139.05 to the greenback in the inter-bank market on its last working day of the week, Friday.
It hit record intra-day low of Rs144 in the early hours of the day. On Monday, the rupee regained some of its lost value and closed at Rs137.69 to a dollar –an appreciation of 1%.
The premier said he only came to know about the sudden increase in dollar’s value through the television, adding that the SBP took the decision without taking the government into confidence.
“I did not like the SBP decision. It should have delayed the move or staggered the deprecation,” said Imran Khan. He said the currency devaluation diverted the public debate away from his government’s 100 day performance.
Khan said the currency decline was a temporary phenomenon and that the country’s economic indicators stayed positive. Pakistan’s exports are going to improve further. The single most important thing is investment and Pakistan is progressing towards that goal as per plan, he added.
“I have instructed the SBP that in future no decision shall be taken on currency movement without first informing me,” he said.
However, sources said the SBP Governor Tariq Bajwa took Finance Minister Asad Umar into confidence well in time. The understanding between them was that it would be gradual adjustment but the central bank could not execute the plan as per discussion, said the sources.
Neither the finance minister nor the SBP governor responded when contacted. The SBP also increased the interest rates by 1.50% in a single go to 10%, which would increase the government’s debt servicing cost besides making loans expensive for the private sector.
The PM’s desire to bring the central bank under his thumb is not only against the Pakistan Tehreek-e-Insaf’s (PTI) manifesto but also in violation of the SBP Act of 1956. The law gives autonomy to the central bank to determine the exchange rate policy.
However, historically the central bank governors have remained subservient to the finance ministers. During the past almost three years, the SBP injected $7 billion in the currency market to artificially defend the value of the rupees.
The incumbent SBP governor and his predecessor were pumping dollars in the market with the consent of the finance ministers to artificially defend the value of the rupee. The sources said there was a lack of transparency in the central bank on the issue of currency market interventions.
They said that all the transactions of the central bank were not transparent. The work has already begun to workout mechanism where the federal government may have formal role in determination of the exchange rate.