EDITORIAL: It’s easy to lose one’s way in the complex and sometimes deliberately vague language of financial markets. Therefore, the SBP (State Bank of Pakistan) will have to do a better job of explaining its recently released “strategic plan (2023-28)” to the Pakistani public, even the business sector that is usually familiar with industry jargon.
The plan, which spells out the Bank’s mission and vision statements and “key goals” to be pursued over the next five years, “represents SBP’s commitment to foster price and financial stability and to contribute to sustainable economic development of the country”.
This much is easily understandable. But since it most likely means that it will toggle interest rates and money supply to control prices and stimulate economic activity, which is the basic day job of all central banks, it is more a reiteration of its existing duties than part of a new strategic plan. Perhaps this line was added to the document in light of its poor track record over the last few fiscals, when it failed to arrest inflation or promote growth.
Regardless, the new vision revolves around six strategic goals that include “maintaining inflation within the medium-term target range, enhancing efficiency, effectiveness, fairness and stability of the financial system, promoting inclusive and sustainable access to financial services, transforming to a shariah-compliant banking system, building an innovative and inclusive digital financial services system, and transforming SBP into a high-tech, people-centric organisation”.
Interpreting these is a little tricky.
An inflation target range makes sense, even if interest rates remain a controversial way of dealing with the kind of cost-push inflation that economies like Pakistan’s suffer from. Even now, with the benchmark rate at the highest-ever recorded level of 22 percent, October’s CPI (consumer price index) reading clocked in at 26.9pc – that too after a significant drop in food inflation – which means inflation is still out of control and real rates remain in negative territory. And how efficiency and effectiveness of the financial system will be enhanced, even what it really means, is open to interpretation, or whether or not it overlaps with inclusive and sustainable access to financial services.
Also, just mentioning the expected transformation into a shariah-compliant banking system does not add any value to the debate already raging in financial circles, nor does it provide many answers to questions stakeholders are asking.
For, everybody wants to know how this will be done, and how the country is supposed to interact with the outside financial world when we are going to completely transform into Islamic banking while others, especially lenders that issue debt with interest, will stick to traditional banking models. This particular mystery remains unsolved.
It’s also been reported that these goals are built to cover five cross-cutting themes, including strategic communication, climate change, technological innovation, diversity and innovation, and productivity and competitiveness. While these are mostly generic terms, the bit about climate change is very interesting.
Governments have indeed incorporated climate-related issues into their financial policies. This started with Scandinavian countries, but with their sovereign wealth funds instead of central banks, and that too to prohibit investments in countries that did not comply with Scandinavian climate regulations. How SBP will embed climate change into its working needs to be explained.
There’s also the fact that much, if not all, of the five years covered by the vision will see the economy on life support, mainly through IMF (International Monetary Fund) bailout programmes. And, as we saw with the SBA (Stand-By Arrangement), when SBP had to increase rates in the middle of the night just to conform to the lender’s strict, contractionary monetary policy prescription, the Fund advocates central bank independence then also twists its arms for the manner in which funds are to be loaned to the government. Therefore, how much freedom SBP is going to enjoy, especially when it comes to implementing its new, vague vision and mission remains to be seen.
Copyright Business Recorder, 2023
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