Pakistan needs to finance budget deficit thru external borrowing, non-bank borrowing: study

08 Oct, 2024

ISLAMABAD: Pakistan needs to finance the budget deficit through external borrowing and non-bank borrowing as these sources are found to be least inflationary.

This was a crux of a research study shared during a seminar titled, “Insights from Research on Pakistan's Economy” organised by Pakistan Institute of Development Economics (PIDE), here on Monday.

Giving the insight of the research study titled, “Monetary Policy Crafting a Path for Pakistan’s Economic Stability” the author, PIDE Assistant Professor Hafsa Hina, also stressed the government to conduct further such studies to explicitly focus on the supply side factors as well as on low and high inflation regimes which may have different implications for the source of deficit financing.

Further sharing the findings of her research study, she said that inflation, more than a mere statistic, is the heartbeat of economic realities in Pakistan as its pervasive impact on purchasing power, investment decisions, and policy formulation necessitates a comprehensive understanding.

Hina said that that the monetary policy decisions, resonating in markets and homes, wield immense influence on interest rates, money supply, and economic growth. Understanding the intricacies of policy formulation and implementation is critical.

Moreover, the exchange rate regime holds a vital position in Pakistan's economic standing on the global stage. Beyond numerical indices, it signifies trade dynamics, market sentiments, and the nation's competitive edge, she added.

For Pakistan, economic stability is not a distant abstraction; it intricately intertwines with the daily lives, aspirations, and future of its populace. Monetary policy decisions, inflationary pressures, and exchange rate dynamics directly shape individual experiences, business trajectories, and national development.

The book sets the stage by highlighting the State Bank of Pakistan's evolution and the necessary legal changes to prioritise price stability and bolster decision-making capabilities.

However, the road to economic resilience requires multifaceted strategies. In the Exchange Rate section, maintaining an undervalued target rate emerges as crucial for stimulating growth and averting crises. Understanding its impact on monetary policy transmission is pivotal, requiring improvements in fiscal and monetary institutions to navigate challenges.

Inflation delves into the complexities of managing inflation, emphasising structural reforms and enhancing readiness for inflation targeting. Improvements in prioritisation, consistency, and accountability mechanisms are recommended for a successful transition. Interest Rate underscores the need for an integrated approach to managing inflation through monetary aggregates and interest rates. This nuanced perspective becomes essential for navigating the intricate economic landscape.

The collection, a reservoir of knowledge, serves as a compass guiding policymakers, economists, and stakeholders. Beyond information dissemination, it aims to spur dialogue, innovation, and collaboration. Policymakers must heed the insights offered, focusing on legislative reforms, institutional enhancements, and education to empower decision- makers within the State Bank of Pakistan.

Inaugurating the seminar, Vice Chancellor (VC) PIDE Dr Nadeemul Haque said that it is time to bridge the gap between academic insights and real world policy. Pakistan must critically review research in education, fiscal policy, and more to bring evidence-based solutions to the forefront.

PIDE Assistant Professor Fahd Zulfiqar, speaking on a session on “Social Capital” while stressing the need for exploring social capital in Pakistan, said that analysing online networks to gender dynamics, and political economy to education, social capital shapes trust, governance, and societal well-being is the need of the time. Bonding and bridging are strong, but linking capital remains a challenge, he said.

Copyright Business Recorder, 2024

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