SBP and the centre

The PTI government has taken another U-turn: this time on its declared policy that the State Bank of Pakistan would operate independently of the wishes of the federal government. Finance Minister Asad Umar has repeated this claim a number of times. However, it seems the government has decided to let politics play a role in determining monetary policy once again, with reports in that the government wants the State Bank to consult with the centre regarding the exchange rate. The trouble is that the PTI government has been coming up with declarations of economic policy from neoliberal economics textbooks without understanding the political nature of fiscal decision-making. When the SBP decided – ostensibly independently – to devalue the exchange rate, it coincided with the PTI’s 100 days of ‘miracle work’ celebrations. The falling exchange rate coincided with a sharp fall in the stock markets, leaving the government looking like it was completely clueless about the economy.

Now, there are two issues with the PTI’s original declaration regarding the ‘complete autonomy’ of the SBP. First, that economic decisions are inherently political. Second, that the SBP’s decisions on the exchange rate and monetary policy had no small part to do with the IMF’s proposals to Pakistan on ‘what is to be done’ with the economy. Succumbing to international pressure does not equal an ‘autonomous’ monetary policy.

The trouble is that the ruling party’s own team appears so confused on what approach it wants to take that one could argue it would be better for the SBP to take the decisions it feels are needed. If anything, there is need for clarity over what direction economic policies are going to take in the coming future. The answer is to ask the SBP to work out a mechanism to ‘consult’ the government on the exchange rate. Consultation translates into obeying the federal government, and this is exactly repeating one of the ‘economic sins’ that the PTI accuses the PML-N government of doing. The finance minister reportedly questioned the ‘timing’ of the recent changes in the monetary. This is his right as minister, but it is also a right that Asad Umar has claimed he does not have. It would also appear to be his job to ensure that the government remains apprised of what the SBP is planning to do, vis-a-vis the monetary policy, to allow it to decide the larger economic policy framework for the country. But most importantly, the current government needs to get a grip on the very real economic challenges before it. The economic situation in the country needs proactive policymaking, rather than a reactive government that only responds to the decisions of other bodies