SBP decision making called into question

IMF confirms Pakistan has approached it for $1.4 billion financial support

ISLAMABAD: In a move that raises serious questions about its decision making process, the State Bank of Pakistan (SBP) has counted votes of two of its members, who did not attend Monetary Policy Committee (MPC) meeting that marginally reduced the interest rate on March 17.

Sources told The Express Tribune that out of nine members of the Monetary Policy Committee, two did not attend the meeting held on March 17.

The meeting was extremely crucial as businessmen and the government had expected steep cut in the interest rate in the aftermath of the novel coronavirus pandemic that has shaken the world economies, including Pakistan’s.

However, the Monetary Policy Committee decided to cut the policy rate by 75 bps to just 12.5% to the surprise of many. The sources said two external members of the MPC, Dr Naved Hamid and Dr Asad Zaman, did not attend the meeting but their votes were counted.

The central bank spokesman has confirmed this development but said the regulations allowed the MPC to count their votes. “Two of the external members were not present but voted,” said the SBP spokesperson Abid Qamar.

He said that “under the MPC regulations, any member unable to attend a meeting can convey his/her vote on the policy decision to the governor which will be counted as part of the decision voting.”

However, it seems that the members are not aware of any such regulations.

“To my knowledge a person who does not attend the MPC meeting cannot cast a vote,” said Naved Hamid. The Express Tribune had requested Dr Hamid to comment why he cast his vote when he was not present in the MPC meeting.

Dr Asad Zaman did not respond to the request.

This puts question marks on the working of the MPC and underscores the need for further transparency. The central bank makes the monetary policy committee minutes public with a significant time lag, which now needs to be released on priority basis to see the voting pattern by the members.

To a question, chief spokesman said all the MPC members from SBP staff attended the meeting held on March 17 and voted. The MPC comprises nine members and is headed by SBP Governor Dr Reza Baqir.

Out of the nine members, four are from the central bank including two deputy governors; two are from the SBP board and three are from the private sector.

The committee has the mandate to set the monetary policy of the country. Subsequently, the MPC met after one week and decided to further reduce the interest rates by 1.5% to 11%.

IMF bailout package

Some confusion also prevails over $1.4 billion additional financing that Pakistan requested from the International Monetary Fund (IMF) to cope with challenges being posed by the novel coronavirus.

IMF Managing Director Kristalina Georgieva on Friday issued a handout, confirming that Pakistan has approached it for financial support. “The Government of Pakistan has requested financial assistance under the Fund’s Rapid Financing Instrument (RFI),” she said in a statement.

“Our team was working expeditiously to respond to this request so that a proposal can be considered by the IMF’s Executive Board as soon as possible,” said Georgieva.

She said this emergency financing will allow the government to address additional and urgent balance of payments needs and support policies that would make it possible to direct funds swiftly to Pakistan’s most affected sectors, including social protection, daily wage earners, and the healthcare system.

However, Adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh said on Wednesday that an additional upfront financing of $1.4 billion has been requested under Extended Fund Facility that attracts relatively high interest rate compared with rapid financing instrument.

Shaikh clarified that the IMF would not disburse $1.4 billion out of its $50 billion emergency facility for COVID-19, which was only meant for countries whose economies were the worst hit by the pandemic.

The IMF said Pakistani authorities have continued their reform efforts to address the country’s economic challenges, but progress was being threatened by the devastating effects of the COVID-19 outbreak and the deterioration in global economic and financial conditions.

Prime Minister Imran Khan and his government have swiftly approved an economic stimulus package aimed at containing the spread of the virus and providing support to affected families and businesses.

Similarly, the SBP has adopted a timely set of measures, including a lowering of the policy rate, new refinancing facilities to support the flow of credit, and temporary regulatory relief measures, she added.

The MD said Pakistan has reaffirmed its commitment to the reform policies included in the current arrangement under the Extended Fund Facility (EFF).

These reforms are crucial to boost Pakistan’s growth potential to deliver broad based benefits for all Pakistanis, especially the most vulnerable segments of the population, she added.

She said the IMF stands ready to continue to support the authorities’ efforts to implement much-needed economic and structural reforms aimed at fostering strong and sustainable growth.