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Friday March 29, 2024

Will our economic policies be decided by global players?

April 18, 2021

Mostly in the developed countries, making state institutions autonomous is indeed a goal for attaining prosperity. Pakistan is also aiming towards this aspect and making institutions independent, including the State Bank of Pakistan (SBP).

Though Pakistan has become independent and sovereign but it is still in a colonial mode. Hence, limited autonomy to the institutions may work well, as one cannot have a country which is in the colonial mode but whose institutions are fully autonomous and sovereign.

Indeed, there are three characteristics which distinguish a sovereign country from one in the colonial mode. One, its policies are made abroad. Two, those who implement these policies are imported. Three, colonial transfers from the colony to the colonial power take place. In the light of these three characteristics, Pakistan is still in the colonial mode. Its policies are believed to be made abroad, its ministers and advisers are often foreign and dual nationals, a phenomenon which has increased considerably during the last decade.

Let us talk about two most recent events, one involving the award of £24 million to Broadsheet by a UK court, which was facilitated unfortunately by government officials by transferring the amount from its diplomatic account, which enjoyed immunity, to a commercial account which did not enjoy any immunity. The second one was the award of a staggering amount of $5.9 billion to Tethyan Copper Company. People viewed that concerned officials exhibited obedience and loyalty to the World Bank panel, in spite of the fact that the arbitration was seriously flawed on many accounts.

The corruption and conflict of interest in the ICSID panel was also pointed out by international experts, but concerned officials did not make any dedicated effort to get resolved the issue. So, on all three accounts, Pakistan is still in the colonial mode, with no justification for autonomous status of its central bank and other institutions, till such time the country becomes independent.

The recent upcoming SBP Act will make the SBP autonomous, but making the Government of Pakistan (GoP) subservient not only to the SBP but to the IMF as well. This is because Section 46 B, Sub-section 8, makes it mandatory for the government to consult the SBP for any legislation related with the SBP, which will convey its decision after consulting the IMF. It is firmly believed that the GoP’s powers are being eroded completely by removing the federal finance secretary from the SBP board. But the provinces are going to have a representation on the SBP board. It seems rather a political move to have the provinces represented on the SBP board, but not the federal government. The IMF is considered an extended arm of the global power; the SBP will therefore get subordinated to the foreign powers on account of its subordination to the IMF. Will this arrangement not provide a perfect opportunity to the global powers to further their political agendas related with Baluchistan, KPK and Kashmir through the SBP?

The governor SBP will be the chairman of the SBP board. This is contrary to the SBP’s own corporate governance regulations to commercial banks’ presidents not to chair their boards. The new SBP Act envisages no rollover of public debt by the GOP. This means that if the FBR is unable to meet its revenue targets, GOP will have to borrow money to pay its debts, which will increase the markup and the debt/GDP ratio further. The debt/GDP ratio is already 110pc, which is much higher than the 60pc allowed in the Fiscal Responsibility Law.

The proposed SBP Act forbids the GoP from providing guarantees for short term relief to commercial banks facing financial distress, thus paving the way for total collapse of Pakistan’s financial sector and its replacement by foreign banks. From where will Pakistan meet its industrial, strategic and defence needs, expenditures related with China Pakistan Economic Corridor (CPEC), especially since there is so much antagonism in the US to CPEC and Pakistan’s integration in the region. The SBP is abdicating itself from Pakistan’s needs and requirements. Pakistani commercial banks may collapse and replacement by foreign banks will create a vacuum for the supply of money for defence, strategic and industrial needs.

The present SBP objectives include both the monitoring of the rate of inflation and the rate of growth. But the SBP is abdicating its role in promoting the growth rate and will be concentrating on the rate of inflation only. Those supporting the SBP autonomy Act have tried to solicit the support through the use of deception. They are stating that the SBP’s autonomy will make defense expenditures available to the army. This is just the opposite of what is stated in the proposed SBP Act, which clearly states that the first priority will be debt servicing. If after meeting debt servicing needs, there is any available money, it will be made available for defence and development.

It is further highlighted that governor SBP will be appointed by the President of Pakistan for a period of five years, extended for another five years, instead of the present 3-year tenure. Similarly, the SBP board will determine the salary and benefits of the governor, which will be headed by the governor. So the governor himself will determine his and the deputy governor’s salary and perks. The salary of the governor will be as per the current market rate, which comes to Rs one crore and thirty lakh per month plus benefits. It is very shocking that the cabinet has approved such a hefty package for governor SBP, which at the moment the country cannot afford.

To summarize, I must say that the proposed act is not just about the autonomy of the SBP, but is also about subordination of the GoP to the IMF. Pakistan will be maintaining this white elephant, which will not pursue any objectives that promote the well-being and prosperity of the country. Its main interest would be to ensure servicing of debts, especially foreign debts. The Act will collapse the financial sector of Pakistan, which will create a void in meeting the industrial, defence, strategic, CPEC and regional integration financial needs of the country. Foreign powers will be able to use the SBP to further their agendas. It is believed that the proposed amendments in the SBP Act will have very grave consequences for Pakistan’s economic, financial, strategic, political and social aspects. I hope that the urgency with which the cabinet passed the amendments to the SBP Act will be replaced by a more mature and serious analysis and considerations of what all is entailed in the proposals.

Haisum Bukhari is a student of Defence and Strategic Studies at Quaid-e-Azam University, Islamabad