ISLAMABAD: At the time when the headline inflation has dropped in February 2020, the Monetary and Fiscal Policies Coordination Board (MFPCB) has been rescheduled again to meet next week on March 9, 2020 for suggesting reduction in policy rate.
The headline inflation has come down from 14.6 percent in January to 12.4 percent in February 2020. The MFPCB will meet under the chairmanship of Adviser to PM on Finance Dr Abdul Hafeez Shaikh next week for suggesting measures aimed at improved coordination between the monetary and fiscal policies.
The fiscal policy is the domain of the federal government and monetary policy is the jurisdiction of the State Bank of Pakistan. The MFPCB was constituted for the purpose of placing institutional mechanism for ensuring coordination between the fiscal and monetary policies. The higher policy rate had a devastating impact on the fiscal side as it caused an unprecedented hike in interest payments on loans and further worsened the fiscal situation of the federal government. The debt servicing payment has become the single largest ticket item of the expenditure side and surpassed defence, development, running of the government and subsidies.
Adviser to Prime Minister on Finance and Revenues Dr Abdul Hafeez Shaikh had postponed the meeting of MFPCB last week on the eve of US secretary commerce's visit to Islamabad but now the meeting was re-convened for the coming Monday on March 9, 2020 at 11am here at Islamabad.
"It was the mandate of the Monetary Policy Committee of State Bank of Pakistan (SBP) for taking a decision on the policy rate as it was kept at 13.25 percent for last several months. But the MFPCB is the right forum where the federal government through representation of different ministries can speak up and share their minds at institutional levels with the State Bank of Pakistan (SBP) because continuous higher policy rates have really choked the economic activities,” said a top official of the government while talking to The News here on Monday. The last meeting of MFPCB was held in August 2019, so no meeting could take place afterwards in more than six months period.
Another top official of the government argued that on the eve of the last monetary policy that was announced in January 2020, it was not possible for the MPC of the SBP to reduce the policy rate, keeping in view the spike in headline in inflationary pressures. "When the SPI figures were showing upward trends on that occasion, it was not appropriate to reduce the policy rate at that point of time," he added. Now the MPC of the SBP was expected to meet anytime by the end of the ongoing month and the headline CPI based inflation receded from 14.6 in January 2020 to 12.4 percent for Feb 2020 whereas the SPI nosedived from an average 20 percent to 15 percent in the last five weeks while the Wholesale Price Index (WPI) was reduced from 15.4 percent in January 2020 to 12.6 percent in February 2020.
"The Planning Commission and Ministry of Commerce are going to suggest during the MFPCB meeting a reduction in policy rate in the range of 25 to 50 basis points to the SBP in order to give signal to the markets that the economy is on the path of revival," said the official sources.
One important topic that was expected to come under discussion in the coming MFPCB meeting would be the negative impact on Coronavirus and its spillover effects on Pakistan’s economy. Pakistan’s economic ministries are silent despite the fact that Islamabad's reliance on China in the aftermath of China Pakistan Economic Corridor (CPEC) has increased manifold but different neighbouring countries were giving stimulus packages to industries and some others were issuing notifications to deal with their trade and commercial ties with China after the emergence of the deadly virus.
