Ordering of IMF’s structural adjustment not effective, burdening government with profits: Report. Photo: File
Islamabad: A think tank has accused State Bank of providing direct loans to the federal government which has rendered the changes in State Bank’s regulations in response to IMF’s orders ineffective.
Policy Research Institute of Market Economy (PRIME) in its report titled “Pakistan Economic Freedom Audit: The Second Money” sheds light on the negative effects of the collaboration between State Bank and Ministry of Finance, resulting in increased inflation and rising debts. Although the amendment in State Bank Act has limited State Bank’s ability to provide loans to the government, the practice of financial interference from State Bank continues. State Bank has provided necessary liquidity to commercial banks which has been passed on to the government.
The report states that through open market operations, State Bank has provided liquidity to schedule banks, making them eligible to provide loans to the government. According to the banking industry, during the first week of the current month, State Bank provided commercial banks with 10.3 trillion rupees through open market operations which later reached the government.
Furthermore, it was mentioned in the report that setting policy rates to control inflation, then providing loans to the government through schedule banks to increase the supply of money is non-productive. The restriction on loan provision did not help in reducing currency supply but has resulted in increased government interest payments. State Bank is printing notes to provide to commercial banks, and commercial banks are providing these notes to the government at high interest rates.