Tussle: Federal government goes after State Bank

Published: December 3, 2013
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To defend the rupee, the SBP’s move to throw $3.3 billion in the market before the general elections ate a big chunk of reserves, a move that the economists had called naïve. PHOTO: FILE

To defend the rupee, the SBP’s move to throw $3.3 billion in the market before the general elections ate a big chunk of reserves, a move that the economists had called naïve. PHOTO: FILE

ISLAMABAD: 

The federal government has publicly debunked the State Bank of Pakistan (SBP) due to its failure to respond to the worsening currency crisis, directing its management to immediately take corrective measures.

In a statement that highlights the widening gulf between both pillars, the federal government crossed the delicate line between its authority and the operational independence of the central bank. The ministry of finance’s press note carried directions for the SBP and placed the entire responsibility of dollar-note shortage on it.

“Finance Minister Ishaq Dar has taken a serious note of the shortage at exchange companies and the scheduled banks,” read the handout. “He has issued orders to the State Bank to ensure that adequate supply of notes is made available in the market immediately.”

Under the SBP Act of 1956, the central bank enjoys complete operational independence, although the Ministry of Finance often calls the shots from the Q Block, but never publicly admitted its interference in the SBP affairs.

However, the administrative weaknesses of the SBP management, headed by its governor Yaseen Anwar, allowed the federal government to go public against the central bank for the first time in years.

Former SBP officials and independent analysts have interpreted it as a no-confidence against Anwar. However, Ministry of Finance sources said that the federal government has not yet decided to ask the governor to resign, though the issue came under consideration.

Meanwhile, the SBP did not respond to the question of whether the charges against the SBP were a no-confidence against the governor.

Last week, foreign exchange companies observed a token strike after scheduled banks refused to provide dollars. The situation was fully exploited by the speculators and the dollar’s exchange rate crossed Rs110, shedding value by Rs2 in one go.

With the devaluation of one rupee, an amount of Rs65 billion is added up in the country’s external debt even without any additional borrowing. Since the new government came into power, the rupee has shed its value by over 10% in the open market.

To defend the rupee, the SBP’s move to throw $3.3 billion in the market before the general elections ate a big chunk of reserves, a move that the economists had called naïve. Heavy international debt payments were also fast eating foreign currency reserves.

The Finance Ministry’s handout out stated that ‘the recent pressure on the exchange rate, particularly higher premium between inter-bank and open markets is primarily due to shortage of dollar notes for which timely arrangements of imports could not be made by relevant authorities’.

The International Monetary Fund has long advocated for the operational independence of the SBP and added conditions in the current and previous programmes. But the SBP’s lax management has weakened its case.

The finance ministry said that SBP authorities have that their will be no shortage of dollar notes in the interbank market, henceforth.

On Monday, in the inter-bank market, the dollar was traded at Rs108.5 a dollar while in the open market the rupee gained some value and remained at Rs109.80.

The SBP was approached for seeking reaction on the federal government’s move but no response was given till the filing of the story.

Published in The Express Tribune, December 3rd, 2013.

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Reader Comments (8)

  • MAD
    Dec 3, 2013 - 9:35AM

    The Minister of Finance has no right (Read again no right) to issue orders of any sort to the SBP. This is gross abuse of his powers.

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  • Mobin
    Dec 3, 2013 - 10:56AM

    Forget ensuring foreign currency supplies, the central bank cannot even maintain a properly functioning communications department anymore!
    All major SBP publications have been repeatedly delayed and confusing MPS signals over past few months have left many pvt businesses scratching their heads.
    You’d expect that someone who has performed as poorly as Yaseen Anwar in such a key position would just resign on his own.

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  • nha
    Dec 3, 2013 - 12:52PM

    This is so funny! An archaic Federal Ministry, and even more archaic Finance Minister whose centralized tendencies bring back memories of the 1990s. When will the Finance Ministry’s pledge of bringing inflows materialize? Basic economics: No central bank governor in the world can maintain a stable currency with decreasing reserves + low interest rates. Absolutely unrealistic demands from a Finance Ministry that does not understand Economics 101 and wants to take no responsibility. Centralized, archaic, bureaucrats whose mindset belongs to another era. This article is such a spin at the expense of Pakistan. It totally detracts from deeper structural issues concerning the Finance Ministry’s role and FX dealers who wreck havoc on the curb market because of their old linkages with the politicians. When is this dirty story going to be investigated???

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  • nha
    Dec 3, 2013 - 12:59PM

    This is such a spin! What about those nefarious dealings between certain FX dealers and PML-N politicians who quietly trade on the curb market? Convert rupees to dollars via these connections and illegally send out. Mr FM please wake up and take a deep look at what is happening in your own backyard. Stop making central bank into a scapegoat. ECONOMICS 101: No central bank in the world can manage a stable currency with depleting reserves and low interest rates. Moreover, where is the Finance Ministry’s pledge of US $1billion of inflows to prop up the reserves?

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  • Dec 3, 2013 - 5:26PM

    Eak second.. Eak second! 1st the article says

    “To defend the rupee, the SBP’s move to throw $3.3 billion in the market before the general elections ate a big chunk of reserves, a move that the economists had called naïve”

    Then it says
    “Finance Minister Ishaq Dar has taken a serious note of the shortage at exchange companies and the scheduled banks,” read the handout. “He has issued orders to the State Bank to ensure that adequate supply of notes is made available in the market immediately.”

    You want me to do a double palm-face now?

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  • Shabbir Tu DekheGa
    Dec 3, 2013 - 10:48PM

    How can you expect the “autonomous” central bank to defend PKR when it’s Governor is himself an American citizen??
    After all it’s in his personal benefit when the value of US Dollar shoots up !

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  • nomi
    Dec 3, 2013 - 11:31PM

    IMF programme assumes currency depreciation. On one hand FM sb has signed the programme which clearly states average rupee of Rs.110 to a $ (meaning around Rs.120 by June 2013), and on the other he is opposing this move and is heard saying today that the rupee would be appreciated to Rs.98 within the next few months??

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  • Sajjad Ashraf
    Dec 4, 2013 - 12:29AM

    Banana Republic

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