The Monetary and Fiscal Coordination Policy Board, which met after a break of three years has stressed on the need to reduce borrowing from the central bank and enhancing the level of foreign financing in the budget to provide more domestic resources to the private sector for investment. Finance Minister Dr Abdul Hafeez Shaikh chaired the meeting of the board and was attended by the Planning Commission deputy chairman, SBP governor, finance secretary, economic advisor and joint economic advisor.
The commerce minister, who is also member of the board, did not attend the meeting. Chairing the meeting, Sheikh expressed concerns that the meetings of the board were not held as frequently as stipulated and urged that in the future, meetings must be held in accordance with the SBP Act, 1956. It is important to note that the Senate Standing Committee on Finance had turned down the proposal of the State Bank of Pakistan (SBP) for the establishment of the Monetary Policy Committee. It has decided to retain the Monetary and Fiscal Policy Coordination Board for better coordination between the central bank’s monetary policy and the government’s fiscal policy.
A statement issued by Finance Ministry noted the minister said the board was an important institution for rationalising the monetary, fiscal and exchange rate policies and its meetings were required to be held regularly to ensure that all economic managers were working along a common set of objectives. He expressed hope that deliberations of the board would lead to better economic coordination and that the challenges facing the economy will be coped with in a coordinated manner by all institutions involved.
SBP governor briefed the meeting on the monetary side and pointed out that broad money growth was recorded 9.3 percent as compared to 5.5 percent last year. He said the inflationary pressure was persistent due to rising international commodity and oil prices. He underlined that government borrowing from the central bank had surged to an exceptionally high level of Rs 315 billion during December last year which had been brought down significantly. However, he cautioned that looking ahead, the deficit should be brought down and reliance on SBP borrowing be further reduced.
Importantly, he said the share of private sector in credit expansion needs to be increased to meet investment requirements of the country. He stressed that foreign financing in the budget required to be increased so that domestic resources can be freed for private sector financing. Finance secretary presented an overview of the economy and noted that revised growth target was 2.4 percent and that next year, growth has to be accelerated to make up for the loss sustained in the floods and the consequent slowdown in economic activity. He noted that external sectors had rendered extraordinary service both in terms of export growth of 27 percent and remittances growth of 22 percent so far this year.
Besides strengthening the current account and the level of reserves, these developments had a positive impact on the exchange rate that remained stable throughout the year. On the budgetary outlook, it was pointed out that fiscal position has improved considerably from the first half of the fiscal year and significant adjustment will take place relative to the level seen last year.
