And the extent of its autonomy
Going by the State Bank’s third quarterly report – its sense of facts and appreciation for the N league’s ‘economic consolidation’ – it seemed as if the document was prepared in Ishaq Dar’s finance ministry as an extension of the budget, not in the autonomous offices of the central bank. It is strange, to say the least, that the bank would especially appreciate ‘a rise in private sector credit, a contained fiscal deficit, (and) a subdued inflation outlook’ when credit off-take was very limited and very controlled (to benefit very few friends), deficit/reserve position was affected exogenously (not by economic fundamentals) and it just didn’t pay any attention to the reaction of the man on the street to official claims of controlling inflation.
It is even stranger that the report continued to praise the official 4.1 per cent growth in the last fiscal as highest in five years, even though the number was wrong and deliberately misleading. Now, as the government faces embarrassment by admitting to the IMF that the real number was around 3.3 per cent (lowest in three years, actually) the bank, too, will lose credibility for playing along. When the central bank is so tightly in line with the finance ministry’s line, there can be hardly anything left of its autonomy, which might not be a novelty considering Pakistan’s past, but it very quickly dispels any notions of ‘turnaround’, etc.
There are other, more serious spillovers of the central bank playing second fiddle to the finance ministry. Above everything else, it implies that the monetary policy is compromised. In Pakistan’s case, of course, it means that money supply is still for the sitting government to toggle at whim. Small wonder, then, that Dar sb’s boys speak of an entirely different economy than facts on the ground reflect, and the pillar of monetary stability, the state bank, simply plays along. Just as lying about the growth rate implied, the government is more concerned about its outlook – numbers, projects, etc – than the real state of the economy. A more responsible central bank would have been more prudent.
