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ISLAMABAD: The government must retain the power to borrow at least one percent of GDP, Rs 550 billion, from central bank each fiscal year. This was stated by Hafiz Pasha, former Finance Minister, while talking to Business Recorder.

He further stated that increase in discount rate will increase the cost of debt servicing for the current fiscal year. He expressed serious concern over granting absolute autonomy to the State Bank of Pakistan through SBP amendment Bill 2021. He said that the government would no longer be able to borrow from the SBP and financing packages would be withdrawn – decisions taken on International Monetary Fund (IMF) pressure.

However, he said that some positive things during the 2021 calendar year included increase in credit to the farm sector and small loans for businesses. Pasha further contended that measures taken with respect to foreign exchange regulation have not strengthened the rupee and instead have created a market perception that the central bank was running out of foreign exchange reserves.

Pasha said that banks have made considerable profit due to restriction on government borrowing from the SBP and stated that it was inappropriate to disallow any borrowing to the federal government. He emphasized that due to lack of balance between fiscal and monetary policies, some banks made record profits last year by lending to the government.

However, Dr Ashfaque Hassan Khan, former Economic Advisor Ministry of Finance, pointed out that rupee depreciated by 11.25 percent and discount rate increased by 275 basis points in 2021 calendar year.

He maintained that the business community was upbeat after the announcement of the budget but subsequent monetary policy decisions have dampened their earlier enthusiasm.

On fiscal side, he said that one budget was presented in June 2021 and another one is looming on the horizon with the money bill tabled in parliament. The focus of this bill is higher indirect taxes which will be passed on to the consumers with a consequent impact on inflation.

Dr Nadeemul Haque, Vice Chancellor PIDE, and retired IMF staffer, said that fiscal and monetary policies are being coordinated through the IMF programme and depreciation of rupee against dollar and increase in discount rate, would raise the cost of debt servicing for the current fiscal year, as well as, overall debt. He said that tightening of monetary policy is necessary to suppress demand.

Copyright Business Recorder, 2021

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