Financial Credibility
The enactment of the State Bank of Pakistan (SBP) Ordinance of October 5, 1993 by the Moeen Qureshi Administration giving the SBP considerable powers of autonomy with respect to monetary policy and the subsequent repeal by the present Ms Benazir regime as well as a fresh Ordinance replacing it thereof on Jan 1, 1994 has aroused quite a level of intellectual discourse within the economically knowledgeable both within and outside the country. The question of the impact on economic management has become of topical content and needless to say, well-wishers are looking forward to some kind of equitable working arrangement separating fiscal policy from monetary policy which would be in the best interest of the country’s economy.
The principal question to answer is what should be the level of autonomy of a Central Bank in a country like Pakistan? It is commonly believed that in developing countries Central Banks are (and must be) universally subordinated to the Government in the overall economic interest. The factual relationship could be the other way around, mainly that Third World countries have remained backward because among other things they have not allowed the development of various institutions vitally necessary for the emancipation of the economy. This is not much unlike the process of democracy building its roots in a country, dependant mostly on strong policies rather than the frequent holding of elections or number of political parties, etc. It is extremely important that developing countries promote institutions like the Central Bank, the various planning agencies and related financial institutions so that they can graduate into financial maturity. It is a tragedy that in Pakistan there is no tradition of commercial banks or other financial institutions having full-fledged Policy and Research Departments. Therefore, our Economic Analysis is generally very poor and usually not backed up by the information data that is the prime pre-requisite of carrying out such evaluation e.g. credit rating and project appraisal agencies in the private sector, it being understood that public institutions will always be under pressure to produce favourable data for the government in power. The aforementioned must constitute the backbone of correct decision-making for resource allocation by the government.
