A frank assessment

The tone adopted by the State Bank of Pakistan in its annual report is cause for optimism in itself.

For all its pessimism, the tone adopted by the State Bank of Pakistan (SBP) in its annual report is cause for optimism in itself. In an attitude that has become characteristic of the central bank in recent months, there was not even the remotest attempt to justify the actions (or rather the lack thereof) of the current administration in economic management. The SBP openly criticised the Federal Board of Revenue and the finance ministry for their failure to broaden the tax base and controlling the deficit. It was brutally honest in outlining the unacceptability of the fact that the government spends more in propping up loss-making state-owned enterprises than it does on education and health combined. The piece de resistance was easily the following sentence: “there appears little evidence of efforts to contain the growth in even the discretionary [spending] components.” Can anyone remember the last time the central bank so plainly called the government lethargic and incompetent? We certainly cannot and we are delighted that the SBP seems to have found its voice.

But the report was not all criticism. The central bank laid out a clear path for the government to follow if inflation is to be curbed and economic growth revived. In the spirit of supporting free enterprise which SBP Governor Shahid Kardar had promised, there seems to be an emphasis on ensuring that government profligacy does not crowd out the private sector. Yet while much is praiseworthy in the central bank’s candour, one cannot help but notice that the report made little mention of preventing the government from monetising the national debt. Indeed, just this past week, the SBP lent money to the government in order to tide it over while it waits for Coalition Support Funds from the US. Tough talk, it seems, comes easier to the central bank than taking decisive action. A firm limit on SBP borrowing and a refusal to give such ad hoc loans would be the next logical step for the SBP governor. We hope the courage of his words will eventually be matched by actions on the part of the government which, for now, seems to be doing as it pleases on this front.

Published in The Express Tribune, October 27^th, 2010.