Need to con­trol in­fla­tion

The Pak Banker - - Editorial -

Mon­e­tary pol­icy plays a vi­tal role in con­trol­ling in in­fla­tion­ary pres­sures in the econ­omy. State Bank of Pak­istan an­nounces pol­icy for banks so that in­fla­tion could be con­trolled. State Bank gover­nor Shahid H Kar­dar while ad­dress­ing the mem­bers of the busi­ness com­mu­nity at a func­tion or­gan­ised by the FPCCI, was quite lu­cid in elu­ci­dat­ing the lim­i­ta­tions of mon­e­tary pol­icy in con­tain­ing in­fla­tion­ary pres­sures. Pak­istan's econ­omy had ex­pe­ri­enced an in­fla­tion of 66 per­cent be­tween Oc­to­ber, 2010 and June, 2007 or al­most twice the level of in­fla­tion of 36 per­cent seen dur­ing June, 2003 and June, 2007. State Bank gover­nor di­lated upon the fac­tors which had cast a neg­a­tive im­pact on the rise in prices. Petroleum prod­ucts, elec­tric­ity and gas with sub­sidised prices had re­sulted in govern­ment bor­row­ings. Bor­row­ings of PSEs, which par­tially ex­plain trans­fer of sub­si­dies from the govern­ment's bud­getary ex­pen­di­tures di­rectly to the power sec­tor en­ti­ties, grew by 305 per­cent dur­ing Oc­to­ber, 2010 and June, 2007. With the in­crease in fis­cal deficit, the stock of govern­ment bor­row­ings from the SBP was now in ex­cess of Rs 1500 bil­lion as com­pared to only Rs 53 bil­lion at the end of June, 2003. He also said that mon­e­tary pol­icy had played its part in cor­rect­ing the macroe­co­nomic im­bal­ances, but other govern­ment poli­cies have not been that sup­port­ive. Strat­egy in fu­ture to con­trol in­fla­tion must in­clude co-or­di­nated. De­lay in im­ple­men­ta­tion of such strat­egy would make the pol­icy trade­offs much more dif­fi­cult re­sult­ing in con­tin­u­ing un­cer­tainty to meet de­sir­able eco­nomic out­comes". Pak­istan is un­able to raise enough rev­enues to meet its ex­pen­di­tures and se­cure eco­nomic fu­ture and may face se­vere prob­lems. The main el­e­ments of crit­i­cal re­form ef­forts needed to pull the coun­try out from cri­sis. Ef­forts should be made to re­move hur­dles to im­prove pub­lic fi­nances of the coun­try. Kar­dar has jus­ti­fied the pol­icy re­sponse of the State Bank but has re­frained from ad­vis­ing the govern­ment on pre­cise pol­icy mea­sures for ob­vi­ous rea­sons. Govern­ment's mis­man­age­ment of pub­lic fi­nances may be the main cause and the State Bank also needs to play its due role in main­tain­ing price sta­bil­ity.

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