The State Bank of Pakistan has unveiled its strategic plan, which covers a five-year period to help focus on key strategic priorities which include enhancement and effectiveness of monetary policy; strengthening of financial system’s stability; improved efficiency, effectiveness and fairness of the banking system; increased financial inclusion; efforts towards creating a robust payment system and improving the central bank’s organizational efficiency and effectiveness. All these are indeed laudable goals. However, just like the past we seem to sacrifice our long-term objectives with our immediate needs for foreign currency. Compliance is forced on us by our lenders rather than willingness from within. This has been our history as we tend to shelve all our plans and laudable vision at the drop of a hat for short-term gains.
The SBP Vision 2020 talks about increased financial inclusion in the country. With 11 (eleven) percent of the citizens using banks for financial settlements, as per National Financial Inclusion Strategy, we have imposed a 0.6 percent tax on all banking transactions for nonfilers. Is that the right approach to achieving goals by raising financial inclusion to 50 percent over five years? Certainly not. FBR needs to have access to bring non-filers into the tax net to help document the economy. However, those who have agri income only or are dependent on remittances from expatriate Pakistanis, who are legally tax exempt, can always reply to notices received from tax hounds. However, there should be no element of harassment and PRAL’s own portal needs to be updated on a daily basis.
So our immediate need to reduce fiscal deficit trumps the need to attract more Pakistanis towards the banking system as a whole, which we fear may result in lowering the number of bank accounts in the country. Similarly, a legal obligation imposed on SBP, by the Supreme Court, is to draw plans and the Vision 2020 also envisages enforcement of an Islamic Banking Strategic Plan. But do we have a structure in place for this to happen? More sukuk issuance is needed. But the federal government, for this to happen, needs to first identify and then offer unencumbered underlying assets it owns to the Islamic banks as well as commercial banks having Islamic banking branches. As a result of Ministry of Finance’s failure in identifying these assets Islamic banks are being forced to place their deposits in non-Islamic commercial banks, who continue to enjoy a higher return. This is patently unfair. The situation has become more complicated - after the passage of the 18th Amendment - as provinces now own some of the federal assets or have a strong say in the matter. So we fail to understand how SBP will achieve the goal of promoting Islamic finance.
The SBP is and has been one institution on the civil side that enjoys the confidence and respect of the people; it also enjoys credibility with international lending bodies. It is therefore essential for people in authority to realise this and support that this confidence in SBP is not undermined. The fiscal authorities need to consult and hold in high esteem SBP’s views on economic matters to obtain a better future. Thus, the SBP Vision 2020 need not be lost in the noise created for sake of petty ambitions. The share of Non-Bank Financial Institutions (NBFIs) and Islamic banks may be small. But this does not mean that their views and ambitions should be ignored or go unheard. The action plan for financial inclusion needs to be implemented and the long-term goals need not be sacrificed at the altar of immediate needs. So let us get our priorities right. Security environment is improving but energy still remains an Achilles’ heel or a weakness. Without adequate, sustainable and affordable supply of energy to all sectors of the economy - the Vision 2020 will only remain a dream and not a reality which should be our adopted and desirable goal.