Post-Baqir, IMF loan may be tougher to renegotiate

KARACHI: Dr Reza Baqir, whose term as Governor State Bank of Pakistan (SBP) ended on May 4, has been denied a second shot as the country struggles to renegotiate an IMF loan programme, which could not have reached this far without his pivotal role, analysts said wondering if his successor would be able to fill his shoes.

Most analysts see the SBP to take on a more important role in the economy, by increasing efforts to bolster foreign inflows, while some expect it will stick to its hawkish monetary stance, paying attention to cooling down inflation and maintaining financial and exchange rate stability.

Dr Murtaza Syed, the deputy governor of the SBP, has been named as the central bank acting governor. He will head the SBP until the government picks a new name for the same permanent position. Whoever this government picks as the next central bank chief will face tough challenges —how to facilitate talks with the IMF on a stalled loan programme, and other economic problems, including soaring budget and current account deficits and eroded foreign exchange inflows.

The government has restarted negotiations with the IMF on Extended Fund Facility, seeking an extension in the duration of the bailout up to one year and an increase in the loan size to $8 billion.

Dr Salman Shah, the former finance minister, said the then SBP boss Dr Reza Baqir played a crucial role in introducing new reforms and initiatives with regard to attracting foreign inflows such as Roshan Digital Account scheme for the non-resident Pakistanis.

“Baqir took major steps to boost housing and SME finance in the country, and the central bank’s performance in the pandemic crisis exceptionally well,” Shah said.

He also mentioned that it was during Baqir's tenure that the SBP adopted a market-based exchange rate system.

“I think the SBP's former governor should have been given a second chance. Now the coming governor must have extensive knowledge and the capabilities of central banking,” Shah said.

The new governor will have to make efforts to boost the country’s financial credibility among the international community.

He or she must have skills to tap debt markets for new dollar and Sukuk bonds issuance and will need to give local and foreign investors a signal of stability, according to Shah.

Pakistan has been driven into an internal and external debt trap by reckless economic policies of the past governments so the debt crisis and the balance of payments will also be the major challenges for the next SBP governor.

Analysts say the new governor will need to tackle major questions about monetary policy and the exchange rate system, while striking a balance between an independent central bank and the Ministry of Finance.

The SBP was given more autonomy after the government approved the SBP amendment bill in January 2022 allowing it to operate without the control of the government.

“In Dr Murtaza Syed we have a seasoned professional who is capable of handling the present challenges,” said Ehsan Malik, CEO Pakistan Business Council.

“Additionally his leadership of the central bank will ensure continuity of policies - he has, as the Deputy Governor Policy since 2000, worked closely with the former governor in making SBP the strong institution it is today,” Malik added.

Therefore, the government can take time to select a successor, if indeed it feels that Dr Murtaza Syed cannot be one, according to Malik.

Saad Hashemy, an executive director at BMA Capital, said the primary challenge for the governor would be to ensure both currency and price stability, that was, reining inflation in a time of a stretched out commodity super cycle. “Internationally oil prices continue to hover 100 dollars and the impact of this on the external account and inflation will be profound,” Hashemy added.