Central bank autonomy

LAHORE: In the current political uncertainty, the role of the central bank has assumed importance, which is watching the rupee decline without taking steps to stop the rot.

The State Bank of Pakistan was granted autonomy that even the central banks in European and American countries do not enjoy. These banks are independent within the government. This is deemed essential because there is no way to separate the fiscal and monetary policy, as one affects the other.

Fiscal policy is determined by the federal government and monetary policy comes under the domain of the central bank. The economic targets are fixed by the federal government, and the central bank regulates its policy in such a manner that facilitates the government to achieve those targets.

The central bank must give priority to exports and keep an eye on inflation, but at the same time it cannot ignore the importers as many of them import inputs for the exporters. Government has no say in the policies adopted by the central bank.

At a time when the government is busy on the political front, the economy is on the back burner. Rupee is falling, inflation is on the rise and the current account deficit is widening.

Our reserves are hardly enough to finance two months of imports. The central bank that is independent must intervene immediately to bring sanity in the economic affairs.

We cannot afford to allow the forex reserves to further deplete. The central bank should take steps to stabilise the currency and put stringent curbs on unnecessary imports. The bitter pill of increasing policy rates has become a necessity.

Wasteful consumption hurts economies that are starved of resources. We are acutely short of resources, still wasteful consumption is high.

The 50 million middle class of Pakistan should refrain from wasteful spending. They should save in the national interest.

Only the upper middle income group can increase the national savings rates. The poor do not have resources even to make both ends meet, while the lower middle income group hardly pulls on what they earn monthly. These middle income families usually lack resources to buy a house or a car on cash.

Almost 40 percent of their monthly income is consumed for housing and transport. These families can be facilitated to own their house through mortgage finance and consumer financing.

Monthly instalments for these loans must not exceed 40 percent of their monthly income. There would be a surge in housing projects that in turn would facilitate 27 industries related to the construction sector.

It would accelerate growth. Consumer financing in Malaysia is 50 percent of its GDP, it is 15 percent of GDP in India and only five percent in Pakistan.

We cannot embark on consumerism seen in developed economies. The policies of developed economies are based on full employment.

High consumption creates demand that is usually catered from cheaper imports. A product or service produced in China is available in the United States at half the price. We need growth to empower these people with higher earnings.