This week’s press conference, the first by Pakistan’s newest central bank governor, shows that Reza Baqir has finally started to settle in his job. That the press moot left more questions than answers has been discussed in these pages earlier this week (See ‘Beyond Econ 101’, June 18, 2019). Moving on, what should be some of the top items on Baqir’s agenda before his term comes to an end?
Perhaps the most pressing challenge is to manage the transition to the new exchange-rate regime in a market that is largely marked by thin trade. Bank treasurers and corporate CFOs alike – the market wants a sense of clarity in so far as exchange-rate is concerned. Had Pakistan boasted a heavily-traded forex market, businesses would have used various instruments of forex trade to cover their positions. But ours is a thin market. And while a complete free-float isn’t on the cards; forex-related uncertainty looms large, hence the need for clarity.
The second item on the agenda relates to the overall theme that the current administration is relying upon: documentation. There is a need to move towards digital economy. That’s where, as Asad Umar maintains, the economic revolution will come from. The trick is to enforce digitisation and subsidise it at the same time – and fast.
Third is the overall National Financial Inclusion Strategy, including a focus on housing and SMEs. A host of reforms toward that end lie within the central bank’s domain, and it would be quite a challenge to kick-start growth in housing and SME in a high interest-rate scenario. To that end, stepping in private sector credit bureau is also critical.
Another key measure of Baqir’s success would be the central bank’s relationship with the Ministry of Finance. Sources close to Q-block say that during Hafeez Shaikh’s last stint as finance minister, the fiscal dominance was at its peak, whereas the meetings of Monetary & Fiscal Coordination Board were never given much weight.
Lastly, while the central bank’s research capacity is still best compared to other government institutions, sources in banking and public policy circles maintain by consensus that the SBP’s capacity seems to have eroded over the last five to seven years. Case in point: relying on flawed SME GDP estimates to boast rising SME financing (See Is SME finance really at historic high? Feb 22, 2019). Then there is the SBP’s failure to shed detailed light on labour exports and remittance when, in fact, remittance has been a saviour of Pakistan’s external accounts.
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