Undermining talent

Central banks’ swaying powers fe w other institutions can rival, given their mandate to issue currency, set interest rates, ensure price stability and regulate banks (in countries where the regulatory authority is vested in a central bank, as in Pakistan). Unsurprisingly, central bankers are among the most potent of non-elected bureaucrats. They are, as Paul Tucker, a former deputy governor of the Bank of England (BOE) put it, the ‘overmighty citizens’.

So the appointment of a central bank governor is bound to turn heads. The selection of new SBP governor, Dr Reza Baqir, has, however, stirred a raging debate for all the wrong reasons. Many, including some prominent politicians, have censured his past affiliation with the IMF, even terming his appointment as ‘the colonization of Pakistan by the international financial imperialists’.

That scale of repugnance for the IMF is particularly puzzling in a country that has been perpetually at the doorstep of the global lender, on 18 occasions since 1972, and every time with a deeper economic malaise to cure. Even at present, among 189 members countries of the IMF, Pakistan is the fifth largest recipient of general resource account credit. Why we keep compromising on our dignity by so regularly approaching the ‘new East India Company’, as it has been indignantly labeled, is hard to fathom.

Equally bizarre is our reaction to the new governor’s past association with the IMF. Contrary to the stigma that we in Pakistan have attached, working for the Fund is generally a strong selling point. In many central banks, it is not uncommon to find senior leadership with some experience at the Fund. Just next door, Raghuram Rajan, a former IMF chief economist, has served as the governor of the Reserve Bank of India between 2013 and 2016. Likewise, current central bank governors of Germany, Denmark, Sweden, Malaysia, Indonesia, Bulgaria, Georgia and Kenya as well as deputy governors of Australia, Canada, Jordan, Switzerland and New Zealand have all served the Fund in the past in varying capacities. Yet there is little evidence of an outcry in those countries upon the appointment of former IMF staff.

Notwithstanding the issues one would have with the Fund’s policy advice, there are few better places for a macroeconomist to gain valuable hands-on experience in policy oriented research. While merely a lending agency to most Pakistani observers, the Fund has two other key roles that are particularly relevant for an economist, viz surveillance and capacity building. The IMF’s flagship semi-annual World Economic Outlook, Financial Stability Report and Fiscal Monitor are highly regarded and closely followed, given the rigour of their analysis of global economic, financial and fiscal developments. In 2018 alone, Fund economists published macro-financial assessments (Article IV reports) of 129 countries, covering a whole slew of economic issues in all types of economies.

Cognizant of the value of such work, government of Japan runs a dedicated Japan-IMF Scholarship programme to help its nationals obtain PhD degrees in macroeconomics and work for the Fund. It would have been helpful if our government too, instead of interminably seeking financial assistance, had thought of building similar capacity in macroeconomic analysis.

Our gush of fury and vitriol towards the new governor is also unfortunate on another count. While we are questioning a ‘son of the soil’, as the foreign minister rightly put it, other countries are hunting for talent from across the globe. The BOE has recently put out an ad to find its next governor; Raghuram Rajan, an Indian, is being tipped as a key contender. Even the current BOE governor, Mark Carney, is a non-British citizen, a Canadian national to be precise.

Notice the stark difference between Pakistan and the UK: they are open to accepting superior foreign talent amid an abundant supply of economists from their own best schools like Oxbridge and LSE. We, on the other hand, are furious over the appointment of an accomplished economist, while our own universities (none among the top 500 anyway) largely fail to train competent professionals.

Given our ‘warm welcome’ to a qualified Pakistani professional, one can imagine our reaction to expats if the government somehow pulls off the highly unlikely feat of creating jobs that might lure foreigners. We constantly fume over the poor treatment of our unskilled labour in other countries, yet incessantly undermine our own talent. With that attitude, it should not be a surprise why our best excel abroad but wither back home.

Equally strange is the fact that past appointments of career commercial bankers as SBP governors, a more questionable practice, barely ever raised an eyebrow. While there certainly are some capable individuals in the banking industry, commercial banking, all by itself, is too narrow and fundamentally different a field to help befittingly groom a central bank governor. Commercial banking, in essence, is about profit making; but that is hardly a consideration in central banking. And more critically, while the economic conditions are exogenous to a commercial banker, a central bank governor must have the competence to comprehend and shape those very conditions through the adroit use of monetary policy tools and prudential measures. It was probably under such considerations that Dr Muhammad Yaqub, a former SBP governor, once opined that picking a commercial banker as the governor was like appointing the head of a private security firm as the army chief.

Going forward, one hopes the new governor lives up to his strong credentials and helps steer the economy out of its current quagmire. Instead of questioning his loyalty, politicians can do something more productive; constructively debating the policies that the SBP adopts. A good starting point might be to dust off all those reports on the state of our economy that the SBP regularly submits to parliament. A critical debate about SBP’s analysis of our economic slide and the potential measures to reverse that would be more valuable, for both the institution as well as the country.

The writer is a career central banker, currently serving as an adviser to the governor at the Central Bank of Kuwait. These views are personal.

Email: na2236@caa.columbia.edu