THE State Bank’s decision to keep an easy monetary policy in place is a clear sign that it doesn’t want to upset the ongoing economic recovery. The decision signals the bank’s willingness to hold steady interest rates in the near term to support recovery until it becomes “more durable” and the economy returns to full capacity. Yet the bank has kept its doors open for “measured and gradual adjustments” to achieve mildly positive real interest rates going forward.
The State Bank’s dovish monetary stance is in line with broader market expectations, and the global trend of central banks supporting recovery from the effects of the coronavirus. It is, therefore, safe to assume that the low-interest-rate environment will continue for a while despite revival of the IMF programme and higher world oil and food prices fuelled by stronger global growth projections that could feed into domestic inflation.
In a departure from its pre-virus, contractionary monetary policy stance and with the average headline inflation expected to remain close to the upper end of the projected range of 7pc to 9pc this fiscal, the bank is maintaining interest rates in a negative territory at 7pc for the past nine months to help businesses fight the adverse impact of the pandemic, boost industrial output and avoid cancelling investment plans. Another major reason for the bank to maintain this policy is to offset the potential impact of the contractionary fiscal policy on economic growth and investment. “…[G]iven that fiscal policy is expected to remain contractionary to reduce public debt, it is important for monetary policy to be supportive [of growth and investment] as long as the second-round effects of recent increases in the administered prices and other one-off supply shocks do not materialise, and inflation expectations remain well anchored,” the bank noted.
Indeed, this response to the pandemic has played a key role in the economic recovery under way since last year. LSM has expanded by 7.9pc in the first seven months of the fiscal compared to a 3.2pc contraction during the same period the previous year. Yet output gap remains negative as LSM recovery is narrowly based. The external sector also appears stable and in spite of the rising trade deficit, the current account deficit is still projected to remain below 1pc of GDP. Encouraged by these developments, the bank has revised upwards its growth projection for the financial year to 3pc against the government’s target of 2.1pc on improved prospects for manufacturing output and stimulus to counter the effects of Covid-19.
However, risks remain because of the emergence of a virulent third wave of Covid-19, plus uncertainty regarding inflation and growth outlook. So far, inflationary risks have been outweighed by the uncertainty spawned by the pandemic in monetary policy determination. But for how long? The government’s failure to tackle the supply-side factors fuelling inflation could compel the bank to reverse its accommodative stance.
Surveillance state
THERE is a long record of ‘known unknowns’ in Pakistan keeping tabs on individuals for purposes not consistent with fundamental rights guaranteed under the Constitution. On Friday, the PML-N blasted the Intelligence Bureau, the premier civilian spy agency, for “targeting it at the behest of Prime Minister Imran Khan”. The party’s secretary general Ahsan Iqbal accused the IB, which reports directly to the premier, of being instrumental in harassing and concocting false cases against the PML-N leadership. He reminded the agency that it was the PML-N that had strengthened the IB’s capabilities for fighting terrorism and urged it “not to pursue the political agenda of the PTI government as they are not bound by the Constitution to accept any such unlawful orders”.
Such accusations are not new. Successive governments in the past arbitrarily expanded the role of the agencies into domestic politics to keep the opposition in check. The task was made simpler by the fact that there is no law defining the jurisdiction of the three key agencies. Meanwhile, unelected forces have used some of these organisations to maintain an upper hand over politicians across the spectrum. In 2011, then prime minister Yousuf Raza Gilani referred to one particular agency as a “state within a state”. Ironically, it was a civilian premier, Zulfiqar Ali Bhutto who created the political cell in the ISI. The purpose of the cell was a departure from the agency’s focus on monitoring threats to the country’s territorial integrity and the security of its people. It took the premature end of several elected governments through the 1990s for politicians to realise that using intelligence agencies against each other is a double-edged sword that renders the democratic process perennially unstable. By 2006, Benazir Bhutto and Nawaz Sharif had agreed in the Charter of Democracy to curb these organisations’ influence and powers. During the PTI government’s tenure, however, the opposition has repeatedly denounced intelligence agencies as being part of a witch-hunt against them by NAB and other law-enforcement agencies. PML-N vice president Maryam Nawaz has also held the IB responsible for electoral malpractices in the recent Daska by-election. In his judgement on the Faizabad dharna in 2017, Justice Qazi Faez Isa wrote: “To best ensure transparency and the rule of law, it would be appropriate to enact laws which clearly stipulate the respective mandates of the intelligence agencies.” There is certainly some merit to that. But who will bell the cat?
Cricket tour risks
THE Covid-19 challenge looms large for the Pakistan cricket team as it prepares to embark on its tour of South Africa and Zimbabwe later this week, with the players hopefully mindful of the risk of infection that resulted in the postponement of the Pakistan Super League early this month. The 35-member squad is led by batsman Babar Azam and will play three ODIs and four T20s in South Africa before travelling to Zimbabwe for two Tests and three T20s. From a purely cricketing perspective, the visitors may feel more confident about performing well having secured handsome wins over South Africa in Tests as well as the T20 series at home last month. Though the opponents are unlikely to be timid on their own turf, they are no longer the formidable unit they once were. However, the pandemic could well overtake on-field action. For the Pakistan players, who would have had several Covid tests prior to their flight, the strict adherence to a bio-secure environment on tour remains a daunting task indeed.
The players’ reckless attitude in New Zealand and during the cash-rich PSL at home was lamentable. Besides, it reflected poorly on the Pakistan Cricket Board that was unable to ensure that Covid-19 protocols were followed properly. South African players, too, will be under the spotlight during the upcoming series, having fallen well short of maintaining the desired safety standards for touring teams recently. It was just last month that Australia were forced to call off their tour of South Africa at the last minute citing unacceptable public health conditions there. That came as a major financial blow to Cricket South Africa, the game’s governing body in the region, that had already lost money after England pulled out of the ODI series last November. The Pakistan tour is a hurriedly arranged venture to compensate for some of the losses incurred by CSA. However, the respective boards must ensure strict safety standards so that the health of the players is not compromised.
