Indecent haste

So eager is the government to take credit for any small bit of good news that it flouted all conventions in preempting the State Bank of Pakistan and announcing a one percentage point decrease in interest rates. In a breach of protocol Finance Minister Ishaq Dar gave a press conference about the decision before SBP Governor Ashraf Mehmood Wathra could do so. Dar’s decision to preempt the governor will call into question the independence of the state bank and lead many to wonder if its decisions are taken to provide respite to a beleaguered government rather than on the basis of sound policy. A clearly embarrassed Wathra tried to play down the incident by claiming the fault was his own for announcing the decision later than he normally would – the implication being that Dar thought the SBP had already released its report. This incident took the gloss off the interest rate cut which comes at a time when our economy has performed better than expected, largely due to the drop in international oil prices. Thanks to oil being cheaper inflation has not increased at the rate the SBP expected. The central bank’s projections estimated an 8 percent rate of inflation but it turned out to be 5.5 percent. The interest rate drop, the SBP hopes, will spur greater spending in the economy.
Not all of the news in the SBP report was positive. The central bank’s foreign exchange reserves fell to a meagre $10,331 million, largely due to external debt repayments we had to make. This is also far below the amount the SBP estimated to have, largely because the privatisation process has not brought in anywhere near as much money as expected. The SBP and the government should also be wary of taking too much credit for the fall in the rate of inflation since it was caused entirely by factors beyond their control. Should the international price of oil start increasing again we could very soon find ourselves facing extreme inflation and it would further deplete our foreign exchange reserves. Relying on outside reasons for good economic news is never healthy. The SBP also claims we are on track to meet IMF conditions for its loans but the public has paid a heavy price for that in the form of higher prices for gas and electricity. We are also no closer to being self-sufficient and will continue to need outside help. As much as we try to gloss over the fact, our economy is still precariously weak.