ISLAMABAD: Former finance minister Dr Hafeez Pasha has said that withdrawal of Fiscal and Monetary Policy Coordination Board from the SBP Amendment Bill, 2021 was a disappointment, and liaison between the finance minister and the SBP governor is not the way institutions are run.
Speaking at a webinar on, “How ready SBP is to deliver in its new role, particularly on low and stable inflation” organised by the SDPI, Dr Pasha said that there was a need for the autonomy of the SBP as during the tenure of the previous government the SBP had become an extension of the Finance Ministry and there has been far too much intervention in matters related to monetary policy from Islamabad.
The other problem, he said was that there was an accumulation of net borrowing of the SBP by the governments of Rs6,000 billion over the last many years.
He said that when he was in the government, he was a proponent of the autonomy of the SBP and in fact, the first real amendment was made in the late‘90s with the provision of Fiscal and Monetary Policy Coordination Board.
In this regard, representation of the SBP governor and the finance minister, as well as, the commerce minister and the deputy chairman Planning Commission was ensured.
He said that inflation target which is core objective of the central bank must not happen at the cost of development and growth objective.
He said that the International Monetary Fund (IMF) in its most recent sixth review staff report said a number of things with clear indication that housing finance should not be increased. This is contrary to Pakistan’s development objectives because Pakistan has been the country with very low share for the housing sector, and the SBP raised the lending by the banks to five percent, which was a very reasonable action. And now we are told by the Fund to restrict this, he added.
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Pasha also referred to the low stable inflation in Pakistan.
While referring to a model, he said that the last three-year results reflect that every year systematically monetary component in inflation ranges between 30 to 35 percent in the model and other two dominant variables are of course supply side, imported inflation and very importantly administered price and as of now electricity tariff is the largest single contributor to inflation in the country
Dr Shamshad Akhtar, former governor SBP said that core of the SBP Act 1956 remains at place despite, four rounds of amendments, and added that it is encouraging that the amendment bill has been approved both by the National Assembly and the Senate but regrettably the IMF introduced strong conditionality for the passage of SBP Amendment Bill 2021 as the Fund is supposed to provide technical assistance and not to interfere, unfortunately, in the sovereignty to this level that it did in the current case.
She said it is unfortunate that the IMF does not educate the Ministry of Finance on the need of strengthening of the SBP.
Dr Hamza Malik, director Microeconomic Policy UNESCAP said that formal institutional mechanisms between the SBP, the Finance Ministry, and the Planning Commission are important for communication on matters related to interest rate, inflation.
Dr Hamza said that the SBP needed to communicate with regard to inflation target and the measures being taken to realise it.
He also said that exclusion of Fiscal and Monetary Policy Board was inappropriate and one does not know what communication mechanism of the SBP would be with the Ministry of Planning that sets target of inflation.
Dr Hamza said perception is increasing that the SBP is working for the IMF and there is a need for the central bank to effectively counter this perception.
SBP Deputy Governor Dr Murtaza Syed said that this is not the first time to amend the SBP Act and the entire purpose behind the latest amendments was to increase the operational capacity of the central bank besides making it accountable.
He said that inflation is huge tax on the most disadvantage population. He said that the SBP would not forget growth as apart from inflation, financial stability growth is also its objective; however, there might be some time trade-off between them, if the situation warrants. He said that refinance schemes would not being killed and would not provide it privileged financing to any financial institution.
He said even though the IMF do have difference of opinion in terms of housing finance but it is not part of the conditionalities and is just an advice to us and we can agree to disagree to this.
He said that in terms of collaboration to fiscal policy and there was a sense that it was being replaced formal structure with an informal arrangement and the IMF had strong view partly for the reason that unfortunately, the board was beginning to impinge upon the autonomy of the Monetary Policy Committee to make interest rate decisions.
We still want coordination, he said, adding already, there are coordination mechanisms between the ECC and the EC.
Copyright Business Recorder, 2022
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