Senate body questions SBP’s autonomy

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ISLAMABAD: As the central bank devalued local currency against dollar for multiple times during the past one year, the members of Senate’s Standing Committee on Finance, Revenue, and Economic Affairs have questioned the autonomy of State Bank of Pakistan (SBP).

According to the committee members, “It appears that the central bank decides about the dollar-rupee parity on the direction and intervention of the finance ministry.”

However, the SBP deputy governor, while briefing the committee, refuted the allegation and claimed that the central bank and its board have been deciding about the devaluation without interference of the finance ministry.

The SBP deputy governor’s statement could not convince the members who further questioned the sudden devaluation of rupee by a considerable number.

Senator Musaddiq Malik asked why was the central bank going for a free fall in the devaluation process instead of evaluating the money market and putting it on the right path. He also questioned the cost of devaluation process to the exchequer.

SBP Executive Director Jamil Ahmed on the occasion informed the committee that owing to devaluation of rupee by seven per cent on October 7, the current account deficit has been reduced of by 2.6 per cent while the trade deficit has been reduced by 1.6 per cent, as exports increased by 13 per cent.

Committee chairman Senator Farooq H Naik asked the State Bank governor to appear in next meeting and brief the committee on devaluation and other issues.

Earlier, briefing the committee, the SBP officials said in the current fiscal year, Pakistani rupee has depreciated by 9.2 per cent against the US dollar as compared to depreciation of 13.7 per cent in Financial Year 2018.

They said as on October 17, 2018, the rupee-dollar exchange rate closed at Rs133.77 per dollar compared to Rs121.50 per dollar on June 30, 2018.

“This depreciation in rupee against US dollar reflects the demand-supply gap in the foreign exchange market resulting from large current account deficit. The main issue is the strong domestic demand, which is clearly visible from the twin deficits (fiscal and external current accounts) over the last two years, especially in FY18,” they said.

The external account posted a deficit due to a high volume of imports, the officials pointed out, adding that besides other factors, an increase in international oil prices contributed towards an increase in the import bill.

“The country’s exports are less than half of the total imports. Remittances, another source of financing for imports, grew slowly while the income and services accounts registered excess payments over inflows. Foreign Direct Investment (FDI) flows have remained limited,” they highlighted.

As per the SBP officials, due to limited private financial flows, the current account deficit is largely financed through government’s multilateral or bilateral loans (which result in debt accumulation) or by using the country’s foreign exchange reserves. The falling reserves along with external account imbalances are exerting pressure on Pak rupee.

Apart from the positive impacts of devaluation, the SBP officials admitted that inflation in the country has also increased due to devaluation, but in order to control inflation, the SBP was also revising the monetary policy.

They said until last year, the current account deficit remained at over $2 billion while now in August this year it declined to as low as $600 million.

Meanwhile, discussing on another agenda, Senator Muhammad Ali Saif said that while opening bank accounts and issuing credit cards, the banks were showing discriminatory attitude to some certain sections including parliamentarians, advocates, politicians, and journalists.

Senator Musadik Malik also endorsed his opinion as according to him he was also denied a credit card by a bank despite having applied for it five months ago.

The SBP representative said that the bank should not reject the application of any customer to open bank accounts, credit cards or any other services without any legal reason which the bank officer will have to present to the customer.

Senator Saif said the banks irritate the politicians, parliamentarians, and advocates while opening an account and demand unnecessary documents just to embarrass them.