THE latest monetary policy announcement by the State Bank of Pakistan provides an optimistic assessment of the economy, bordering on the unrealistic.

It begins by telling us that every economic variable is moving in a “favourable” direction, and goes on to say that those which aren’t, such as growth in the large-scale manufacturing sector, will also be doing so soon.

Further on, most of the statement dwells on falling inflation and attributes movement in many other variables to it. At best, this analysis is too optimistic, and at worst, it is disingenuous.

Also read: Currency correction

It is true that inflation has fallen faster than anybody forecast in this fiscal year, but it is also possible to read too much into that development.

It strains the imagination a little, for instance, when the State Bank tells us that a decrease in private-sector credit offtake is due to falling inflation. If this is true, how do we explain rising government borrowing?

In fact, the bank has gone a little overboard in its optimism, a fact likely to be read by independent commentators as bowing before its political masters.

The drop in the current account deficit is attributable in some measure to higher CSF payments and other “multilateral inflows”, hardly a sustainable basis on which to build external sector health.

Fiscal affairs are only touched on in passing to say that the deficit appears to be “on track” despite major revisions in revenue targets and large expenditures looming in the third quarter.

The State Bank appears to be going to some lengths to avoid giving critical comments on the state of the economy, a trend that has been visible for some time now, but the latest monetary policy goes much more out of its way than most others have.

Given the powers vested in the bank to exercise autonomous decision-making, there is no reason for it to be so shy of pointing out the areas in the economy that need improvement. The assessments given by the bank are meant to provide the National Assembly with an objective and realistic view of the economy.

By giving out assessments of the sort contained in the monetary policy statement, the State Bank lets down the National Assembly, and those who look to it for a grounded, independent analysis of the economy.

It would be better if future pronouncements by the bank did not read like a press release from the finance ministry.

Published in Dawn March 24th , 2015

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