In a damning report, the Policy Research Institute of Market Economy (PRIME) reveals how the State Bank of Pakistan’s purported reforms fail to curb its indirect lending to the federal government, exacerbating economic woes.
The State Bank-Ministry of Finance Nexus:
PRIME’s report, “Pakistan Economic Freedom Audit: The Sound Money,” sheds light on the detrimental impact of the State Bank’s collaboration with the Ministry of Finance. This collusion fuels inflation and escalates national debt, despite amendments aimed at curbing such practices.
Persistent Financial Intervention:
Despite regulatory amendments, the State Bank’s financial interventions persist. By providing liquidity to commercial banks via open market operations, the State Bank indirectly facilitates government borrowing, totaling Rs 10.3 trillion.
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Counterproductive Policies:
The report underscores the paradoxical nature of policy decisions. While policy rates are adjusted to control inflation, the State Bank’s indirect lending inflates the money supply. Consequently, rather than curbing inflation, these actions amplify the government’s interest obligations.
Printing Press Woes:
Critically, the State Bank’s strategy involves printing currency notes, which are then funneled to commercial banks. These banks, in turn, extend high-interest loans to the government, exacerbating fiscal challenges.
Indirect lending mechanism:
PRIME’s revelations cast a shadow over the efficacy of State Bank reforms. The persistence of indirect lending mechanisms underscores the need for more stringent regulatory oversight to safeguard economic stability.
