Now that SBP’s prized autonomy is in the bag, this would’ve been a good time for the elected representatives of the people of Pakistan to initiate a non-partisan debate in the house about how the Bank should go about balancing growth and prices; to provide healthy food for thought for monetary authorities if nothing else. But it’s a shame that senate proceedings are too full of lawmakers spewing venom on each other to give such technicalities much time or even thought. But these are very important matters. And even though the state bank is now much freer than before to deal with them as it sees fit, it is still necessary for everybody to understand the give-and-take that such policies invariably involve.
That Pakistan needs consistently higher GDP growth is not disputed at all. Yet it is also true that increased economic activity required to fuel high growth will also push up prices; something that the country cannot afford too much of at the moment or even in the foreseeable future. The only thing that the SBP, or even the finance ministry for that matter, is banking on for a calmer future in terms of inflation is the prospect of international commodity prices dipping in the quarters ahead. But if that doesn’t happen, or even if it doesn’t happen to the extent needed, then both monetary and fiscal authorities, as well as businesses, will have to go back to the drawing board to come up with something that works in the backdrop of elevated prices.
SBP, therefore, has a tough job ahead. If it goes for growth alone it will draw flak for yet more inflation, and make the government look bad as well. If it ignores growth and clamps down on inflation, it will be accused of strangulating economic activity and depressing jobs and wages just when the opposite was needed, and make the government look even worse. That is why it must identify the closest thing to equilibrium that circumstances permit. It would have been better, given this environment, to talk about these things in the upper house of parliament instead of reducing the debate to an undesirable slugfest.
