ISLAMABAD: On Thursday, the Coordinating Board of Monetary and Fiscal Policies (MFPCB) seemed to be largely supportive of a continuing relaxed monetary policy posture in the near future to support the nascent economic recovery.
The MFPCB meeting was chaired by Dr Abdul Hafeez Shaikh, Minister for Finance & Revenue.
In general, the board expressed satisfaction with recent economic developments, showing promising signs after the downturn in the national economy last fiscal year ending June 30, 2020, and most of the members felt the need for accommodative fiscal and monetary policies to sustain an upward economic course, Dawn added.
Despite the downturn in its major global economic partners, the MFPCB members claimed that Pakistan’s primary economic indicators were optimistic and motivating, and this was partly attributed to the government’s timely stimulus package along with lower policy rates.
Board says fiscal stimulus played key role in post-Covid recovery
The majority opinion was that it was appropriate to push out the stimulus package and accommodative monetary policy, the sources said.
They added that while the Ministry of Planning and Development favoured more decreases in the policy pace of the central bank, the Ministry of Finance argued that the current stance should be retained.
Dr Reza Baqir, the Governor of the State Bank of Pakistan, did not express his mind, evidently in an effort to claim the independence of the central bank, the sources said.
Before February of this year, when the Covid-19 pandemic hit the world, the SBP had gradually peaked its policy rate to 13.25 percent and then gradually brought it down to 7pc and retained it last month in its latest policy statement. In the third week of January, the next policy announcement is expected.
In an official statement, the finance minister emphasised the active role of the MFPCB in the formulation of policies to resolve economic problems and “directed to make this platform more effective in achieving better coordination to achieve the desired macroeconomic objectives among all concerned.”
“Mr Shaikh also stressed the need to provide economic data in a timely manner for effective policy-making and concluded that “the Board should be more involved in reviewing the effects of fiscal and monetary policies on economic development, employment, expenditure and the economy’s external sector.
When presenting the current economic situation, the Secretary of Finance told the meeting that the government’s timely intervention had mitigated the extreme effect of the pandemic on the economy relative to other world economies.
As a result of continued domestic economic development, the country has undergone a substantial rebound during the first five months of FY2021.
During the first quarter of FY2020-21, the governor of the SBP told the meeting that monetary policy was accommodative due to the pandemic and had paved the way for economic recovery.
An change in the external accounts of the country is taking place. The noteworthy trends were the steady worker remittance inflows and the better trade balance in goods and services, he said.
Dr Jehanzeb Khan, Deputy Chairman of the Planning Commission, reported that the first two quarters of FY21 were marked by a turnaround in the economic activities of Covid-19.
Accommodative monetary policies can be attributed to the global growth. In addition, A said that the sectors of large scale manufacturing and housing have begun to show signs of development and change.
Razak Dawood, Prime Minister of Commerce & Investment Adviser, said Pakistan’s trade deficit had registered a modest improvement during July-November FY2021, as exports increased by 2pc (year-on-year) rise, while imports remained stagnant. He reiterated that it is important to continue the monetary policy changes implemented under the National Tariff Policy.
He advocated that the requisite support should be given to domestic industries, especially export-oriented ones, to expand their operations. Similarly, to ensure productivity, inflationary pressures must be held in place.
Dr Asad Zaman, Member of the MFPCB, praised the government’s timely fiscal and monetary steps taken during tough times. He also claimed that a fundamental to sound decision-making was rigorous data analysis.