SBP's priorities need not be aligned with MoF's

According to a newspaper report, exporters are not being paid duty drawbacks and compensated against R&D claims by the State Bank of Pakistan because of unavailability of funds from the government on the score.
Holding back on exporters' claims for fiscal reasons has been the normal practice without any realisation of the fact that such a step greatly adds to the liquidity problems of exporters, who are already finding it extremely difficult to carry on their businesses at a desired pace, necessitated by overseas orders, in the presence of severe shortages and high borrowing costs.
Holding back sales tax and income tax refunds and taking advance tax not due until next year in June to keep the budgetary deficit in check may look good on paper! But these numbers are a trick or a deception intended to dodge the truth.
The government's over-reliance on the banking system to meet its budgetary shortfalls lies at the root of our numerous economic weaknesses, resulting in low growth and high inflation. The government will continue to face serious liquidity issues unless it makes some serious efforts towards enhancing revenue and curbing expenditure. Since there is no likelihood of this happening anytime soon, the SBP would be well advised to put the needs of the exporters ahead of the government's. Since the central bank's profits form part of government budget receipts, the SBP must not wait for the government to release 75 percent of over Rs 15 billion duty drawback claims; if the central bank should promptly make payment to exporters what is rightly due and debit the same to the government account.
Besides containing inflation, another primary responsibility of the SBP is the management and oversight of the country's balance of payments position. The central bank, therefore, should do whatever is in its power to help the struggling export sector as they earn the dollars for the country.
Another crucial area requiring the SBP focus is home remittances. The government reportedly owes over Rs 4 billion to banks as a fee for boosting home remittances, under a formula in vogue since 1985, which stipulates 25 Saudi riyal fee for every 1,000 US dollar equivalent home remittance. The momentum generated by Pakistan Remittance Initiative (PRI) needs to be maintained. The SBP needs to take full ownership of PRI and make the payment to banks from its own resources. The aggregate of what the government owes to the exporters as well as the banks is a fraction of what the SBP gives as a dividend to the government. In FY 2010, the SBP provided around Rs 210 billion of profit to the Ministry of Finance (MoF). In FY 2011, the estimate was Rs 150 billion and the actual is Rs 172 billion. The SBP should have used the surplus to pay the refund claims of exporters and the banks.
The SBP must use its autonomy for the overall good of the economy. If the government sensitivities lie in trying to meet its budgetary targets for expenditure and revenue, the SBP's priorities need to be different. It should keep the momentum going to boost exports and home remittances with a view to relieving pressure on the balance of payment (BoP). However, the current account deficit will continue to remain a formidable challenge as empirical evidence suggests that no country can bring it under control, unless its exports exceed its imports. Both foreign direct investment and home remittance do help. However, sustainability is only achieved if we can produce an exportable surplus and simultaneously enhance trade with our neighbours.