Ishrat Husain teaches more than a thing or two about the economy

Former SBP governor shares ideas with ACCA professionals.

KARACHI: In a low-trust society like Pakistan’s, an extended spell in the public sector in a decision-making position bears an enormous cost for a professional. His integrity gets compromised in the eyes of the public that looks at him as a yes-man who got a chance and blew it.

Though Dr Ishrat Husain is one exception – the quintessential central banker who managed the overhaul of the country’s banking system as State Bank of Pakistan (SBP) Governor from 1999 to 2005.

Unlike most professionals who held policymaking positions in the past, Husain never makes excuses about his performance at the SBP for one simple reason:  he did a terrific job while he was at it.

“There is not much difference in the ideologies of political parties. The problem is lack of clarity, and lack of (policy) implementation,” Husain told a group of young professionals assembled by the Association of Chartered Certified Accountants (ACCA) for an interactive session on the economy of Pakistan on Thursday evening.



Husain’s clarity of vision and swift implementation indeed did wonders for the banking sector. Around 80% of banking assets were with public-sector banks in 2002 while the share of non-performing loans (NPLs) hovered about 25%. The trend now stands reversed, Husain said, with the private-sector banks controlling 80% banking assets and NPLs amounting to only 3% on a net basis.

And what’s the biggest testimonial to Husain’s work as the banking sector’s chief regulator in 1999-2005? Not a single commercial bank went under in the wake of the 2008-09 financial crisis.

No wonder Husain has acquired the status of a celebrated one-man think tank, a sought-after public intellectual of sorts. The sage is routinely invited for lectures by educational, trade and professional bodies where he explains big ideas in simple language. Thursday’s event was no different either, as the 73-year-old economist answered a lot of pointed questions from certified accountants.

One such question pertained to the ‘laxity’ the central bank displays by lending too much money to the government. “The SBP is independent, but its independence is within the government. All hell would break loose if the SBP stopped honouring the government’s cheques,” he said while explaining the central bank’s limitations.

Many accountants present in the audience stared at him in disbelief when he said the government’s heavy borrowing from the banking sector was a recent phenomenon. The share of the credit to the government sector in the total stock of outstanding loans was substantially smaller back in the day, he said.

“Get your facts right. Government borrowings from the banking sector were nowhere near the current level,” Husain said while referring to his six-year stint as the SBP governor during the Pervez Musharraf government.

Indeed, SBP data shows the share of credit to the government sector in the total outstanding stock of loans at the end of August was 60.8%. This ratio was only 27.8% at the end of the same month eight years ago.

Speaking about foreign direct investment, Husain said laying the entire blame for dwindling FDI on the security situation is wrong.

“Pakistan attracted FDI worth $5.8 billion in 2007, although the security situation then was the same as it is today,” he said, noting that India received FDI of roughly $12 billion in the same year despite having an economy that is eight times bigger than Pakistan’s.

Calling transparent and predictable economic policy the key reason for Pakistan’s disproportionately high FDI in 2007, Husain said foreign investors foresaw high rates of return in dollar terms back then.

As a strong proponent of regional trade, Husain also tried to dispel the myth that India would eat up the domestic economy in case cross-border trade restrictions were lifted. Citing the example of the North American Free Trade Agreement (NAFTA), he said studies show free trade invariably favours smaller economies. “NAFTA benefitted Mexico and Canada more than it benefitted the United States,” Husain said.

Published in The Express Tribune, November 15^th, 2014.

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