Pakistan’s fiscal standing has been at a crucial stand-point ever since the current democratic government came into power. Even though foreign reserves have increased stably, partly due to record remittances, the rupee still fights a depreciating trend and the country faces a huge fiscal deficit, largely on the back of excessive government borrowing.
The government’s domestic debt has jumped by 67 per cent to 5.462 trillion rupees since the PPP government assumed power in early 2008. According to the SBP figures, the country’s total debt and liabilities now stand at a whopping 68.3 per cent of the gross domestic product (GDP). Record government borrowing has left little room for corporate sector credit, causing a hindrance to industrial expansion.
In the midst of all this, we witness the appointment of Yasin Anwar as SBP governor, the fourth office holder under the tenure of the current elected government. Anwar holds 33 years of experience in the banking and finance industry and has worked with major institutions such as Merril Lynch, JP Morgan, etc. and held his last corporate position as an executive vice-president with the Kraken Financial Group. Anwar has served the State Bank as its Deputy Governor since March 2007, and managed all the four clusters of the Central Bank i.e. Banking, Reserve Management, Monetary Policy and Operations. Therefore, he is not expected to take much time to settle into the post, as he was acting governor prior to his final appointment which would cut out the bureaucratic delay.
His experience aside, economists consider the appointment more as a political decision as opposed to one made purely on the basis of merit, considering his personal rapport with the president. While acknowledging his banking experience, many economists consider him short-handed to handle major macro-economic issues. All assumptions aside, Anwar’s main challenge would be to contain the widening current account deficit, ahead of the loan repayments to the IMF in 2011.
Would Yasin Anwar’s appointment bring stability in the economic policy-making of the government? Would he be able to steer SBP as an independent institution or would he be willing to compromise in the face of political pressure to appease the ruling government?
Dawn.com invites its readers to give their views and suggestions.
From the perspective of economics, the sharp cut (by any standards) in the policy rate is good as well as bad. since the composition of our GDP is sharply changing with major income coming for services so from that perpective, business will be encouraged to borrow at lower rate hence economy will pick pace as business thrive. Lower rates would discourage bank from lending to government and banks would be looking to extend credit to private sector who would boost demand. Having said that, we shall also keep in mind that government is the major beneficiary of this cut in policy rate as their mark up which previously was accruing at a higher rate would now be accruding at relatively lower rate hence government is in a position to repay the loan at lower markup and borrower more which would widen the domestic fiscal deficit resulting in inflation hence forcing central bank to increase the policy rate again. In economics, you cannot have one absolute answers to a specific problem, a lot of other problems pop up simultaneously therefor the decision making has to be optimal to strike the right balance.
All of above is said on the economics theory that policy rate is key to controlling inflation (inflating targeting) but recent nobel laureate for economics has come up with tools which would unentangle the effects of policy rate on inflation. If that happens to be true, there would be enormous changes in the way economic decision are taken at central bank. I am curious to see though.
P.S. I personally feel the governor of the central bank shall be an economist. Mr. Yaseen would not be the right choice for the elite position from that perspective, neverthless he’s got a team of economists who actually design policy and they are fully capable.
Argument well taken, Lowering of the policy rate has got a welcome sign in the market and the business. Since, Keynesian do believe that reducing the cost of borrowing will bring a boost in the business activity in times of recession. But other variables should also be taken care of. the situation is kind of Deja vu. The same happened earlier in the times of Mr. Shokat Aziz. the cheap money may land in the wrong hands which will spiral up the cost push inflation through speculative spending and investments. Previously, the demand booster was introduced in the market by Mr. Shokat Aziz at the whims of businessmen and the same cultus which was sold at Rs. 630,000 was repriced at 830,000 within 3 years.
Now, the banks ouwld surely be looking for to lend to the business, but all wont be given to the productive purposes. Nor do we have a mechanism to ensure that the borrowing has been utilized for which it was meant to be.
I believe, the Governor should be an economist as well an expert in public policy and management, because SBP had a bitter experience with accountants.
Looking at the track record of high position appointments by the present government does not give us any hope that the things will improve. Look what happened at PCB, Pakistan Railways, PIA and many many others.
A great banker of great integrity, with much to offer to the nation. Right man at the right time. Good luck to him.
Lets try to understand the culprits of Inflation.
1. Budget Deficit due to corruption, subsidies and lack of vision.
2. Trade Deficit (US$9.261 billion in 2009 and $3.946 billion in 2010.
3. Imported Inflation as BoP are settled in US$.
No are less than 0 chances that the Govt will fix this before the rupee collapses. Pakistanis should shun the Rupee before the Govt trashes it.
Look around the world how central bankers have succumbed to the politicians and have contributed to the current financial and economic mess. In Pakistan the situation is worse. They looked for a replacement for three months and could not find one, not because none is available, because given the nodus operandi of the govt no one wants to step up to the plate. Look how the finance minister has been tamed.
Given that the larger part of the economy is undocumented and underground all the text book “scientific” ad hoc fixes are not likely to work. The results are there for us to see. Simple things like determine the size of your resources and learn to live within your means would go a long way. We can blame every one but we are the ones who vote these thugs into power. The disconnect between the elected and the electorate has reached a point where the electorate needs to take back the power it wested in them. Hold them accountable before the rot consumes the nation. Any takers. Maybe in a different political environment Yaseen or three predecessors would have performed up to expectations. We have no one to blame except ourselves for abdicating our responsibility to vote and elect the right people. We were busy doing whatever we were and look who snuck in and brought us to this stage. Ther is still time may be not much. TLA
Let him work!
His actions will speak what he can do for his country.
Don’t live in fools paradise and understand the ground realities. This is not a one mans show as policies are made in coordination with other stakeholders.
Syed says dual nationals should not be allowed. Current govt/cabinet most have dual nationality. Most emerging/successful governments/ countries encourage reverse brain drain. But Pakistan for some reason is not keen particular under the current regime. Why?
These people were economic migrants. They would have stayed if there were opportunities. So it is not correct to say what do they have. These people helped Pakistan by remitting foreign exchange, more than any industry in the country. I could go on and on. Such short sighted views are damaging the country. Learn to recognize talent. There are unsavory people in all categories.
TLA
Completely agree. There are many sectors in Pakistan with severe skill gaps. I will refrain from commenting on the the competence of the current SBP Governor (because I do not know enough about him) but Pakistan’s economy could get a serious boost from the expertise gained by its expat workers. Pakistan, a country with a negligibly small investment banking sector has produced top notch investment bankers. If some of them are attracted back to Pakistan they could work miracles by channeling internal and external investment in the right sectors. The Pakistani management consultants working in the UK, USA and the ME region create value for global companies by organizing their structures, operations and investments. Accountants and consultants in Pakistan regard this as wastage of resources only because of their lack of experience and knowledge. SBP and SECP are held back in improving the governance in the corporate sector because of lack of appropriately experienced professionals in the country. Pakistani stocks, bonds and commodities traders make billions of dollars for their employers around the world. But people with vested interests are worried about dual nationalities. Obviously, the government should ensure that its functionaries do not have any conflicts of interest when performing their duties but barring all dual nationals from state service would mean depriving the country of an exceptional talent pool. Merit and nothing else should be the criteria for appointing state functionaries.
I would go to the extent of saying why doesn’t Pakistan employ a gora Auditor General. After all the money is also coming the west. And a non-Pakistani is less likely to have conflicts of interest in certain positions in Pakistan.
Well,
This Governor , including the last one i.e. Shahid Kadar, is a misfit for this position of repute and rapport. The Government takes on board the guy which is unquestionably the ‘yes-man’ when it comes to surrendering to the government policies and its interest. The Government no doubt will hold on to a man like yasin anwar who keeps his eyes open but do not take cognizance of anything happening at the printing press of currency notes.
As long as the policy matters are concerned, the monetary policy is sometimes used to appease and sometime to oppose the IMF influence and used as a threat to bring the IMF to the negotiating table for the benefit of the governement as in to delay the payment of the debt.
Secondly, the previous Governor was more adamant on adding this experience onto his CV for minting more money as a consultant than working for the betterment of the country. The sequential resignitions of 3 Governors place a big question mark on the relations between them and the government.
I believe that a Central Banker should be one who is trained in this science. A lot of investment bankers, and people from related institutions end up at Central Banks, obviously with a mindset derived from their previous experiences.
Managing a Central Bank is indeed a science and only those people who have had the adequate academic training and relevant experience should be brought in !
I am in favor of his decision of reducing the discount rate by 150bps. Whilst inflation plays a key role it will provide much needed support to cash strapped small businesses. Only reduced government borrowing can help local businesses get credit however in the current climate it seems banks are more than happy to lend it to the government considering it as safe haven.
Needless to say ann independent central bank can take us out of this mess otherwise get ready for another resignation.
Usually this appointment is made of someone who is academically sound as well as with someone with experience. This individual does not have even a Masters degree let alone a PhD in Economics to give hom a good grasp of monetary policy. He is probably one of the least education Governor of a central bank in the world right now …
This isn’t an amazingly difficult task. If you have 2 years to study this subject in your spare time, I promise you would have more solutions than the Pak Govt faces today.
I think we need to limit government borrowing through proper legislation like the US, that is the only solution. However, if any government want to cross the borrowing limit that must be allowed by absolute majority of NA and senate. Moreover, we need to reorganize the state bank and give complete independence to the state bank through legislation. The structure of the state bank should be like Federal Reserve(FED) of the US, for example every province should have their own state bank (i.e. have input of the regional banks and business community in the monetary policy etc.) and those regional state banks are then govern by the main state bank in the center. This structure of the state bank system would provide more checks and balances and would come up with more harmonized monetary policy. Additionally, it will reduce the pressure on the state bank governor from federal government.
Of course, solutions are there but who is gonna move this idea in NA or Senate a big question mark?
The country is passing through a very difficult rather turbulent economic situation. Inflation is continuously on the rise, deficit financing has become an easy method to finance budgetary deficit, value of the currency is fast depreciating and current account deficit is worsening. It can only be tackled with proper fiscal and monetary policies. Fiscal policy is pursued by the political government and we have the results before us, hence no comments. Monetary policy is decided and implemented by the State Bank which has an autonomous status. We can now rely only on monetary policy. If this policy is also allowed to run as the fiscal policy then Allah he hafiz. SBP should not succumb to any pressure.
The competence of the new Governor, SBP would be judged by the facts as to what extent he faces the pressure of the Government in saying No to them in providing deficit financing. If deficit financing is curbed then the government will have to step up its own efforts to resource mobilisation i.e collection of taxes, tackling of evasion of taxes and controlling of corruption in tax collection and cutting heavily its non development expenditure. Once deficit financing is curbed inflation would be greatly controlled.
There is a need to review the Credit Plan for the current year and allocation of credit should be increased to the manufacturing and energy sectors. Governor SBP should see that no credit is disbursed to the dubious persons or firms. Any request for leniency for these firms/persons should be declined. Infact, the amount in billions of rupees given in the past should be brought back and cases filed against the defaulters, no matter how big or mighty they are. State bank should rather print a booklet with the names of such borrowers, the amount of loans taken, mark-up on these loans and circulate so that their true picture is seen by the general public.
For improving the current account, the Governor should discuss the situation with the FPCCI, leading exporters and businessmen and an Action Plan devised to give incentives so that they could compete in the international markets. When exports are increased the rupee would gain strength and its falling value would be greatly tackled. While it would take some time, immediate measures should be devised in consultation with the business community to halt further depreciation of the currency as it is another cause of rise in the general price level.
Mr Yasin has been appointment and has accepted the position based on him knowing that he will not get independence in doing his job and the Govt knowing that they will be able to control him in their efforts to monetize the debt.
No self respecting economist, whether academic or a lifetime policy maker, would be willing to accept a job where all he will do is listen and implement policies that people with absolutely no knowledge of economics would demand. Mr Yasin’s acceptance and the fact that he has been in the system for a long time, tells me he has no professional pride in what he does.
Our economy will continue to go down the drain until politicians realize that if there is one thing that they should leave to intelligent and educated people, its economics and policy making.
The only useful question about senior official’s credentials is ” what have they done for Pakistan in the area of their specialty?”. There is also little information available about the education of the Governor. With trillions of debt garnered by the SBP/PPP government and resignation of governors immaturely an in-house appointment is suspicious.
I have respect for yameen sahib’s point of view, but i am opinion that as a nation now we should adapt friendly behaviour for our govt because mistrust in govt can creat more problems foe us. asking this that what is the educational qualification of our newly appointed SBP Governor is just like the kid joke, because how it is possible for govt to assign a big job to a person who has no qualification? Opposition for govt is the best mirror for its good performance but it should be based on universal truth otherwise people will say that anti-govt elements are throwing stones in the air. at present when we are facing many blames in respect of Taliban, it should be the duty of every pakistani to support our govt only to show unity at broad scale.
Since the days of Bhutto, the PPP governments have always done popularity politics and have interfered and destroyed economic institutions. One can easily witness the list of Finance Ministers during Mr Bhutto and Ms Bhutto regimes… All were no-economists, lawyers, and engineers… Even Bhutto’s first Finance Minister was a Civil Engineer… They actually can’t afford a true and honest economist at such a post… First time, PPP govt tried few economists and financial experts, but they all left, because they want them to work according to their ‘terms.’ So all will run…
Pakistan should stop appoining people with dual nationality in any Government position. In fact hey should not allow dual passports. If some one wants a foreign passport he should surrender his Pakistani passport. What interest these people have in Pakistan??
In fact most Pakistanis that I have met overseas seem to be more concerned with the state of affairs in Pakistan versus the Pakistanis living in Pakistan. Not only this, most of the charitable donations to Pakistani NGOs come from overseas Pakistanis, whether single or dual nationality holders. Anyone who is born in Pakistan has the right to be called Pakistani and no one can deny this right by insisting that they give up their nationality.
Unfortunately several Pakistanis get hung up on issues of dual nationality or non-residency rather than looking at the qualifications and capabilities of individuals. In fact countries like the US and Canada have progressed because they have allowed talented people of all nationalities to migrate and contribute to the economy and society.
And what would you say about Pakistanis working abroad in very important Government positions. There is no bar at workers across the globe however, there must be a bar on MPAs/MNAs, as this is a global phenomenon.
Why does it matter what passport the person carries? What does it have to do with the ability of the person to perform a duty? Please stop this nonsense. I do not care what passport someone carries, which religion hes from, and which country he has lived in. I care about the education of the person and the experience because those are things that are relevant, not any of this conspiracy stuff about foreign passport holders are less patriotic and hence would do a worse job than someone with only a Pakistani passport.
If passport does not matter, then would you accept an Indian as SBP governor ?
please read the sentence from news item above:
Even though foreign reserves have increased stably, partly due to record remittances,….
Pakistanis with dual nationality are not the cause of Pakistan’s problems. They are the ones helping prop up the eceonomy by sending their hard earned mony back home.
Now can you please tell us all readers as to what interest ,any Pakistani who is a not a dual citizen , is showing showing for his /her country.
We are a nation of dead people. We should be declared a “Dead Nation”, rather tahn a “Failed Nation”.
We just worry about the lengths of our beard and Pajama’s . Keep those two lengths right and all our problems will be gone.
extremely well put. Our people seem to be died.
The ones who got out have managed at least to keep their self respect and achieve something in life.
Governers? No stamps of the government.
I don’t keep high hopes from political appointees.