The belated availability of the text of the amended State Bank bill shows that the noise in the system is more than the substance. The manner in which the bill was rushed through National Assembly was worse than the bill itself. An informed debate would have prevented the political hype. Hopefully, this error of judgement will be corrected in the Senate and the imagined challenge to sovereignty clarified. Opposition’s threat to change the law when in power shows where the ultimate power lies. The same is true of appointments, including the board, governor and his deputies. Information sharing is not specific to Pakistan and talking of national interest here is a bit of a stretch.
Now coming to the real issue — autonomy and its quantum. All institutions with their own boards should be autonomous in their decision-making. State Bank is no exception. It needs a little more, given the history of fiscal profligacy and anti-export meddling with the exchange rate. Those who failed to respect the fiscal responsibility law are challenging price stability as the main objective for lack of accountability. The point is that neither debt limitation, nor low inflation can be legislated. These require good policies and effective execution. Everywhere, the ideologues of inflation targeting are also on the retreat. Out here, prices for the most part are supply-driven. The drivers are the federal government in case of administered prices and the provincial misgovernance in the case of food items. State Bank comes in only when too much money is chasing too few goods. Even in the case of non-food, non-energy or so-called core inflation, the State Bank has its limitations. There is the large informal economy beyond its pail and the commonly experienced interest insensitivity of saving and investment in the developing economies. In these economies, inflation cannot be the sole concern of the State Bank, just as growth cannot be the sole concern of the fiscal policymakers, whatever the script says. Coordination is required here but not necessarily in a Coordination Board where the lone Governor, backed up by the best economic research team, is marginalised by the overwhelming presence of the ministers and bureaucrats with little access to good analysis. Signalling and sensible leadership on both sides work better. Fears about the State Bank looking the other way in a crisis are nonsensical. The recent Covid emergency is an example. It was the relief package initiated by the State Bank on its own that protected growth, jobs and investment. Its success was greater than the Federal Government package. For coordination, the Governor needs to be well-informed and his membership of the various cabinet committees does precisely that.
What the State Bank must do is to put a stopper on the currency printing press when it is not needed. This has already happened. However, the expected impact to force the government to collect more tax revenue is not there. The government has taken the easier course to borrow from commercial banks at higher costs. If this money is spent on the current needs of the government and not invested productively — which sadly is the case — then it is merely crowding out private investment against its own growth objective.
The bill allows two five-year tenures, incentivising lie-low strategies in the first tenure to secure the second. One, undisturbed, tenure works better for the exercise of autonomy. Islamabad High Court’s restoration of Tariq Banuri as HEC chairperson is a breath of fresh air. He had resigned from State Bank’s Board when Governor Yaqoob’s autonomy was threatened.