WHEREAS one should wish the new State Bank governor well as he assumes an important position at a critical juncture, there is an inescapable sense of dismay at the circumstances under which he is taking charge. We have just seen Finance Minister Ishaq Dar deliver an unseemly and heavy-handed rebuke to the State Bank, during the course of which Mr Dar unjustifiably tried to put the central bank in a corner where he feels it belongs. Ever since the depreciation of the rupee on Wednesday sent currency markets reeling, with the State Bank sticking to its view that the depreciation was necessary to rectify a growing distortion in the country’s external account, the minister has been criticising the whole exercise. Now the new governor has a challenge ahead of him; he must demonstrate that he is capable of exercising independent judgement when the country is facing growing pressures on its external accounts. He has taken up his new post under a cloud of suspicion that he is the minister’s man sent to do his duty. And, it is the new governor’s responsibility to dispel that impression and reclaim his credibility. This is not a matter of individual ego. The financial markets are watching carefully.

The risk now is a total reversal of three decades of hard work. One has to go back to the 1980s, to the tenure of A.G.N. Kazi perhaps, to find the last example of when the State Bank was run by an officer of the civil services. Those were the days when the central bank took its direction from the government directly. The new era of globalisation and the free flow of capital required a big change in that configuration. Markets need to be assured that the debt repayment capacity of the country, its foreign exchange reserves, the exchange rate and debt pricing are in the hands of those who will appreciate economic good sense and not just follow the dictates of their political masters. To reverse that change is not just a shame. It is a dangerous step in the wrong direction, especially considering how dependent Pakistan’s economy is becoming on foreign capital inflows. In the weeks and months to come, the new governor must take a clear-eyed look at the economic landscape, the external accounts and the reserves, and decide for himself how sustainable that picture is.

Published in Dawn, July 8th, 2017