SBP autonomy and Pakistan’s sovereignty

Pakistan has already lost economic sovereignty to international lenders like IMF and World Bank who have been dictating policies from budgetary allocations, which laws to adopt and to even choose their small prints.

But for the first time, we have lost sovereignty over our monetary policy: the IMF will be controlling the State Bank. Government will no longer be able to borrow from State Bank without stringent procedures and cannot dictate printing money or ‘quantitative easing’ even in the worst of contraction or recession.

Autonomy of state banks around the world is a standard economic prescription but even autonomous banks have to take into account a country's fiscal policies. The classic theory of economics i.e. loose fiscal policy correlates with tight monetary policy, for example, or setting interest rate decisions to control inflation and unemployment, do not envisage approval from supranational bodies like IMF.

Countries like Pakistan have to yield to IMF’s dictates on accountability of State Bank, fiscal considerations, interest rate decisions and money supply. The latest decision of the government to accept IMF's harsh conditionality on State Bank's autonomy is in line with the defunct ‘Washington Consensus’ thesis subscribed by IMF, World Bank and US Treasury, long abandoned even in Africa.

According to this school, developing countries were advised that they could only experience growth through deregulation, privatisation and liberalisation, including autonomous monetary policy via an independent state bank.

But, later many of the countries across Latin America and Sub-Saharan Africa that followed this advice, continued to struggle under fragile and underdeveloped political and economic systems.

Interestingly, the ‘Washington Consensus’ was replaced by the ‘Post-Washington Consensus’ and a parallel school called ‘Beijing Consensus’ emerged. Paradoxically, the countries under ‘Washington Consensus’ stood in stark comparison to China which, while following a different development path, has averaged GDP growth of almost 10 percent per year and lifted more than 850 million people out of poverty since 1978.

No IMF can dare poke its noose in debt-laden European countries’ internal economic/fiscal policies like Greece, France and UK. Their state banks and European Bank deal with debt limits, monetary cushions and support for the govt’s spending and borrowing. Whereas, Pakistan is firmly in the hands of IMF who is not only an economic institution but also a geopolitical lever used in the economic domain by western nations. Their outlook towards a particular country is in many instances coloured by geopolitical considerations: interests of the western world towards that particular nation.

Another Pakistan-specific dimension is that major western institutions from FB, Twitter, Amazon to FATF are heavily influenced by Indian-origin executives. They have a bias towards Pakistan. The Indian diplomatic outreach, its lobbying prowess and admission by India’s external affairs minister leveraging FATF against Pakistan’s listing performance, is a case in point. In many instances, NRIs’ (Non-Resident Indians) ingress in these institutions is a handy support for India’s coercive policy of Pakistan.

The IMF is no exception: It’s Deputy Director Githa Gopinath will be indirectly controlling our State Bank and Pakistan’s monetary policy, provided the new bill is passed by the parliament. Opposition, particularly PPP’s Chairman Bilawal Bhutto, has threatened to challenge this legislation if passed by the PTI govt. Many constitutional experts believe that the Supreme Court may strike down this bill as ‘ultra vires’ since it compromises the sovereignty of Pakistan. The dictates of IMF on State Bank’s autonomy is not a new issue. In the past, govts resisted IMF’s pressures and secured better deals. This is why the PTI govt is now facing a strong reaction even from its own ranks.

The outburst of PTI’s Punjab Governor Chaudhry Mohammad Sarwar against the IMF deal is a tell-tale sign of major revolt brewing within the party’s top echelons. Already allies i.e. MQM and PMLQ have distanced themselves from the govt’s deal with the IMF on State Bank. The PTI govt is fast losing trust in its handling of IMF talks and negotiating harsh conditionalities at the cost of its unity, political standing, welfare of ordinary Pakistanis, and above all, the country’s sovereignty.

Jan Achakzai is a geopolitical analyst, a politician from Balochistan and an ex-adviser to the Balochistan Government on media and strategic communication. He remained associated with BBC World Service. He is also Chairman of the Institute of New Horizons (INH) & Balochistan. He tweets @Jan_Achakzai