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#1
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Autonomous State Bank
Hi folks, word has it that the SBP is on its track to become privatized. Now I am not a man of finance, so the ramification of such act escape my comprehension.
I would appreciate if a kind sole here shed some light upon State Bank of Pakistan Act 2014, the consequences of it, who gets the longer end of the stick and who gets the shorter, beneficial for the country or not, and how does IMF come into the equation? I'd like to quote a statement made in one of the opinions of The Nation, which sounds pretty intense but to form up my own opinion on this statement I need to get down to the brass tacks. "If the government chooses to show wisdom in this time, it will remember dearly that IMF harms more than it does heal. Massive debts have led developing countries to surrender their economies to international banks that have accumulated revenue thanks to their predatory lending policies sanctioned by private banks. " Any kind of elaboration would be appreciated. |
#2
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a political economy runs on two important wheels; the fiscal policy and the monetary policy.
the fiscal policy is the responsibility of the finance ministry and the monetary policy is the responsibility of the central bank, which in our case is the state bank of Pakistan. fiscal policy determines government expenditures and revenue. monetary policy controls the amount of currency in the country. let's say the government decides to increase its expenditures, either by increasing salaries, increasing investment or subsidising a particular sector. the government has two sources to do that; it can get loan from a commercial bank or it can ask the central bank to print money. in either case the expenditures of the government increases inflation. inflation is that too much money is following too few goods. now here is where the central bank jumps in. the central bank has to keep inflation in check, as that is its main job. to do that it can increase bank rate i.e. it can increase the interest rate on loans which in turn will discourage investors and consumers from getting loans, and in this way the amount of currency in the country will be reduced and inflation will be reduced. for this to happen the central bank has to be independent of political influences. i hope you can figure out the rest. |
The Following User Says Thank You to waqas izhar For This Useful Post: | ||
matfq (Wednesday, April 23, 2014) |
#3
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Thanks for the replies. So from this I take it that the problem our economy has found itself is that the government is not letting the central bank increase the interest to rate to keep the inflation in check.
Basically, the people are at the losing end in both cases. If the government does not interfere and keep the interest rates low, foreign investment will get discouraged thus fueling unemployment. On the other hand, if the SBP is not given autonomy, then the inflation will keep rising. Correct me If I wrong please. So where is IMF in all this? I understand from the articles you posted that IMF has conditions on the fiscal policies which include job cuts, salary cuts etc. But how would privatizing SBP harm or benefit IMF deals with Pakistan?
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"The unbelievers plotted and God planned, but God is a much better planner" [Surah Al-Imran 3:54] |
#4
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Pakistan is not the first country where the IMF has been pushing 'austerity measures', their point is that we should reduce govt expenditures... once we get loan from IMF then our economy is in their hands... the recent loan that we got was at the eve of USA leaving Afghanistan remember! point being that a strong Pakistan is in 'NO ONE's ' interest and IMF is the best tool with USA to keep us weak... at least that is how i see it.. and i may be wrong...
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