KARACHI: International Monetary Fund (IMF ) on Thursday proposed Pakistan to extend the central bank governor’s term up to five years from three to strengthen the institution’s independence, which has been questioned in past owing to repeated political interference in monetary and exchange rate policies.
“The tenure of the governor needs to be lengthened from present three years to some international standard like 4 or 5 years,” said Jihad Azour, IMF director for Middle East and Central Asia.
“We think this change will help in future to prevent leakages in policies.” Azour told a group of journalist that the government had agreed to bring necessary legislations to protect the independence of the State Bank of Pakistan (SBP) under the IMF’s $6 billion bailout package, aimed at shoring up fragile public finances and speeding up a slowing economy.
Pakistan in July finalised a three-year IMF bailout program, its 13th since the late 1980s, and also appointed a fund economist Reza Baqir as its new central bank governor.
“The government has agreed on a timeline of end December for new legislations on central bank… and to give autonomy on (SBP) budget, operational autonomy, and autonomy on objectives,” the IMF official said.
“Central bank should not be in the business to lend money to the government. It should focus on reducing inflation and safeguarding financial stability.”
Azour said Pakistan was edging towards macro-economic stability after putting in place tough structural adjustments and measures and “early signs are showing things are responding positively to the first set of measures”.
“There are some encouraging signs. The ability of response in Pakistan is encouraging…, (it) is bit faster than what we saw in other programs, but it’s very early to assess,” he added. Azour , along with an IMF team arrived in Pakistan earlier this week to review progress on the reforms agreed as part of the package, including a cut in the fiscal deficit to 0.6 percent of gross domestic product from a record 8.9 percent in the year to June. He held series of meetings with senior government functionaries, including the central bank officials.
Governor Baqir told the IMF officials that the transition to a market-based exchange rate system, building foreign exchange reserves, and bringing down inflation were key elements of the SBP's reform program to restore financial stability and lay the foundations for sustainable and shared growth.
“Pakistan has embarked on its homegrown economic reform program and I look forward to a continuing fruitful partnership with the IMF and other stakeholders in the international financial community to support this reform program,” a statement quoted the governor as saying. Baqir said the earlier volatility in the exchange market and associated uncertainty had subsided and confidence was slowly improving.
“Inflation had risen due to the economic imbalances, accumulated from previous years, but inflationary pressures were expected to recede in the second half of the current fiscal year.”
The country has been struggling to avert a balance of payments crisis and to prevent its debt from spiraling out of control.
The budget deficit, at 8.9 percent of GDP - well above an estimate of 7.1 percent given by the government in June, and 6.6 percent seen in the year ending June 2018 - underlines the severe economic crisis facing the country. Azour told newsmen that the current visit was not to review the program and currently the IMF was “observing the situation”. “This visit for me is to meet authorities and also stakeholders, get a first hand impression how the situation is as Pakistan is an important country.”
He said the first review of the program would take place by end of the October and early November. “A mission will come here to look at all the numbers, to look at the first quarter implementation of the program, and to assess how the situation has evolved in terms of fiscal, monetary as well as other aspects,” the IMF director said. “The first review time will be the opportunity to see if, based on the targets we set for the program, we are on the right track or not.”