It's a proud momentum for all of us to celebrate 70 years of the State Bank of Pakistan (SBP). Our central bank is a premier and prestigious institution of the country. Backed by a series of legislative reforms and implementation of a comprehensive, phased, program of modernization and capacity building, the central bank has undergone a substantial transformation under progressive regimes.
Recent amendments in SBPs Act, have well positioned the SBP to deliver on its core mandate of monetary and credit policy management keeping an eye on price and financial stability.
To its credit, SBP has incrementally strengthened its capacities as banking regulator supporting what since the 1990s is essentially a private banking industry. Like other central banks, SBP has been working with the Government to promote development finance to ensure improved access to banks through a combination of policies ranging from enhancement of financial inclusion (through promotion of microfinance industry and branchless banking) to the provision of priority credit, among others, for exports. In this context, SBP has further nurtured Islamic Finance industry backed by Shariah-compliant regulatory and supervision system.
Central bank's success in containing inflation however is critically linked to coherent and reinforcing monetary and fiscal policies - an area where there remains scope for better coordination between central bank and government. More significantly, SBP's achievements depend on political commitment and leadership and effective implementation of economic policy management and structural reforms.
Lack of effective domestic resource mobilization has, for long, forced successive governments to continue its recourse to central bank and commercial bank resources resulting in crowding out private credit and distorting financial intermediation process. Concurrently, Pakistan's low savings culture is constraining its capacity to promote sustainable investment. Structural problems of economy expose the country to internal and external vulnerabilities that have impacted its ability to rein in fiscal deficits that in turn have complicated monetary management and its outcome. Continued endeavours of policymakers to embrace high-quality economic management and coordination is critical for efficacy and credibility of all institutions but most of all for the economic stability of the country.
To the credit of successive central bank governors, SBP has invested substantially in strengthening its staff's analytical, research and policy implementation capacities. Among others, SBP's strategic move towards adoption of Flexible Inflation Targeting (FIT) monetary policy regime is notable and calls for the pursuance of a sustainable macroeconomic path. This calls for Government and SBP to work as a team to move coherently on effective interest rate and exchange rate management while pushing for formalization of the undocumented economy. Sound and coordinated monetary, fiscal and financial policies are critical to ensure that we promote a conducive business environment backed by well calibrated industrial, trade, and exchange policies. This is crucial for unlocking an economy's growth potential and hence I underscore enhanced institutional cooperation across policy makers and agencies for achieving goals of economic prosperity and development.