PSDTF for greater autonomy to SBP

Private Sector Development Task Force (PSDTF) of Planning Commission has recommended the government to grant greater autonomy to the State Bank of Pakistan (SBP) and encourage it to further strengthen its regulatory and supervisory functions.
In its report launched on Monday, PSDTF observed that the government's financial sector reforms had stalled since the drive to privatise the nationalised banks was launched in the early 1990s. While the weight of the public sector banking system has declined, the government continues to mobilise the resources it needs from the banking sector.
"Also, the availability of cheap credit in the early 2000s led to some reckless lending by the banking sector in particular for consumption. There are some worrying signs including an increase in the NPLs," the report observes.
Accordingly, the government needs to undertake a number of steps including the following; (i) grant greater autonomy to the State Bank of Pakistan and encourage it to further strengthen its regulatory and supervisory functions;(ii) introduce competition in the insurance sector by privatising the State Life Insurance Company (SLIC), and encourage the entry of corporate firms;(ii) an effort should be made to design capital market reform through the formulation of a strategy and an action programme for the development of private insurance industry-a part of the financial sector that can play an important role in increasing domestic savings;(iii) develop a regulatory framework for encouraging the growth of the private pension fund industry;(iv) encourage larger roles for private equity and venture capital funds by introducing appropriate regulatory mechanisms;(v) encourage the development of secondary markets in housing and consumer finance; and (vi) the government should continue to increase its participation in the bond markets and provide guidance to the provinces and large credit-worthy cities to move in that direction as well.
The Director of Economic Analysis Department presented a snapshot of the macroeconomic indicators for the current fiscal year. The State Bank expects the FY09 real GDP growth to be lower than expected earlier as large scale manufacturing growth has dropped. Double digit inflation remains a problem, with overall inflation remaining stuck at around 20 percent.
M2 growth has been contained largely due to a decline in Net Foreign Assets; however government borrowing from Net Development Assistance remains large. The monetary policy requires continued vigilance amidst large fiscal and current account deficits. Although the fiscal balances have improved due to reduction in oil subsidies and cut in development spending, the slowing economy and weakening import growth will make it hard for the government to finance even a lower (target) deficit.
On the external side, the IMF programme has enabled an improvement in the BoP position, along with a decline in oil prices, a slowdown in the demand for imports, and a sustained inflow of remittances. However, the SBP remains cautious of significant risks to the BoP position in the coming months. Mohammad Mansoor, Briefing to Task Force on Private Sector Development, A Presentation to the Planning Commission's Task Force on Private Sector Development, February 28, 2009.