Daily Times

It’s not surprising at all that the Monetary and Fiscal Policies Coordination Board (MFPCB) has voted overwhelmingly in support of continuing the low interest rate environment. The pandemic has pushed interest rates into the ground practically all over the world in a desperate attempt to keep credit markets solvent as countries move from one lockdown to another. In fact Pakistan’s benchmark policy rate, at seven percent, is still much higher than other countries in the region and beyond. That explains why the ministry of planning and development advocated further reduction, even though the finance ministry apparently sees things differently and wants the present rate to be maintained in January. That could be because it interacts more directly with the International Monetary Fund (IMF) and knows how eventually we will have to comply with its austerity measures which demand a high interest rate.

It is also encouraging that Large Scale Manufacturing is picking up and authorities are very right in trying to stimulate export oriented industries as best they can considering how desperate we are to increase our revenue. But at this time it is also extremely important to give more breathing space to small and medium industries since they are among the first to fold during the kind of contraction that we, like most other countries, are experiencing right now. And since the government is very serious about providing stimuli and subsides to a select group of industries in an attempt to jack up production and exports, it should also give SMEs and startups much more attention than it has done so far.

Interestingly, State Bank Governor Dr Reza Baqir didn’t speak much during the deliberations of the MFPCB. The press has so far taken this as a dignified silence, considering the independence of the central bank and all that, but why would such concerns keep him from commenting on the state of the economy especially when his institution’s impact on it is being discussed? For the world’s most independent and credible central banks routinely issue statements that give businesses and investors a feel of the direction to come. They don’t spell out exactly what they are going to do or even considering, of course, but there’s enough to provide an outline of the thinking. The state bank should also adopt such practices. *