EDITORIAL: Governor State Bank of Pakistan, Jameel Ahmed, while addressing the opening session of the Pakistan Business Council’s “Dialogue on the Economy” emphasised the country’s need to move beyond temporary measures and adopt a more durable, sustainable and outward looking growth model.
Sage advice indeed but ironical coming from one of the two signatories (the other being Minister of Finance Muhammad Aurangzeb) to the Letter of Intent (LoI) submitted to the International Monetary Fund (IMF), signalling agreement to implement harsh upfront conditions as incorporated in the October 2024 loan agreement as well as the staff-level agreement reached on the subsequent two reviews — 26 March and 15 October — of the ongoing 7 billion-dollar Extended Fund Facility programme.
Monetary Policy Committee (MPC) chaired by Governor SBP has kept the discount rate at 11 percent since 5 May which begs the question as to what rationale is being employed to determine the discount rate: the monthly consumer price index jumped from 3.5 percent in May 2025 to 6.2 percent in October and sensitive weekly price index combined rose from 0.12 percent on 30 October 2025 to 3.53 percent on 20 November 2025.
Core inflation was 7.3 percent in May and declined to 6.9 percent in August, with the MPC meeting on 15 September and 27 October leaving the discount rate unchanged. The prevailing rate is more than double the rates prevalent in our regional competitors and act as a deterrent to output.
The Monetary Policy Statements, however, continue to cite surveys, perceptions, that claimed reflected an uptick in productivity. The last MPS dated 27 October noted yet again “robust growth in high frequency indicators — such as sales of automobiles, cement, fertilisers, and POL products alongside stronger credit demand from private sector and positive business sentiments.”
This claim is baffling because a rise in sales is associated mainly with a draw-down in inventories and while credit demand by the private sector has increased yet reports suggest that it was diverted to speculative activities rather than towards the objective of attaining higher output.
The government remains by far the largest borrower from the commercial banking sector for meeting its budgeted current expenditure, and routinely crowds out private sector activity. In addition, in recent months, there have been a number of exits by multinationals attributed to a fragile economy that is unable to provide the necessary environment to enable competition with other regional countries in terms of higher borrowing costs but also higher taxes, electricity rates as well transport costs.
The MPC decisions relating to the discount rate can be sourced to the IMF insistence, upfront conditions, to maintain an appropriately tight and data dependent monetary policy — with a warning couched as a reminder uploaded on its website on 15 October 2025 that “SBP remains committed to a prudent monetary policy stance, guided by incoming data…to ensure inflation remains durably within its target range of 5-7 percent… While the sustained buildup of international reserves is welcome, further steps are needed to deepen the foreign exchange market to facilitate transactions, support price discovery, and cushion external shocks.”
The Fund noted “important shortcomings” in data in the loan documents last year and the emphasis on deepening the international reserves indicates an acknowledgement that the reserves are all debt-based which can be withdrawn if the government fails to implement the agreed conditions.
To conclude, the Governor would be well advised to take cognizance of the policy actions he has committed to implementing, which are clearly anti-growth and, instead of giving policy advice that the country is not embarked on due to the IMF conditions, he must seek to increase leverage with the Fund to phase out the anti-growth conditions that the institution he heads remains engaged in.
Copyright Business Recorder, 2025
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