‘Financing schemes after COVID-19 largely benefited big corporate entities’

Islamabad : A higher interest rate and a higher exchange rate depreciation lead to higher inequality and poverty, said Dr. Hafiz A Pasha, former finance minister.

Dr. Pasha was speaking at a webinar on ‘Understanding the social implications of monetary policy in Pakistan’ organised here by Sustainable Development Policy Institute (SDPI).

Dr. Pasha said that there is a low share of priority sectors such as agriculture, SMEs, and housing in terms of credit to the private sector. Moreover, the financing schemes put in place after COVID-9 have largely benefited big corporate entities. It is crucial to evaluate the social implications of monetary policies, such as inequality, but these have been rarely touched upon in Pakistan, he added.

M Ali Kemal, Chief, Sustainable Developments Goals Ministry of Planning & Special Initiatives was of the view that inequality in Pakistan is a part of the system which has not changed much in the last few years. In Pakistan, the policies made by the powerful are generating inequalities in the system. However, the green financing mechanisms are playing a key role by reducing inequalities and building back in a more resilient way, he observed.

Earlier, Dr. Abid Qaiyum Suleri, Executive Director, SDPI emphasised the need for extensive research on the social impacts of monetary policy which should be disseminated to all relevant departments.

Country Director, Friedrich-Ebert-Stiftung, Dr Jochen Hippler, was of the view that analysing the social implications of Monetary policies is extremely critical. He added that a general avoidance to evaluate monetary policies leads to significant ignorance towards the developmental role of monetary policy such as reducing inequality.

Dr. Aliya Hashmi Khan, Former Member Economic Advisory Council opined that any economic policy should have horizontal linkages with social policies such as inequality, health, and education.

Dr. Waseem Shahid Malik, Professor of Economics, highlighted that we do not have much evidence on how monetary policies affect the economic activities in the informal sector.

Dr. Hamza Ali Malik, from ESCAP, suggested that there should be a focus on broader central bank policies, rather than just monetary policy while assessing social implications.

Senior economist Dr. Ahmed Jamal Pirzada explained that the objectives of monetary policy and role of the State Bank have not been defined in Pakistan. Dr. Waqas Ahmed, Additional Director, State Bank of Pakistan highlighted that exchange rate management is a critical factor and around 90% of money spent in social sectors such as education or health is spent on creating infrastructure and not on quality improvement.