ISLAMABAD: The Monetary and Fiscal Policies Coordination Board (MFPCB) on Thursday appeared to be overwhelmingly in support of the continued easy monetary policy stance in the near future to support nascent economic recovery.
The meeting of the MFPCB was presided over by Minister for Finance & Revenue Dr Abdul Hafeez Shaikh.
The board generally expressed satisfaction over the recent economic trends, showing positive signs following contraction in national economy last fiscal year ending June 30, 2020 and majority of the members felt the need for accommodative fiscal and monetary policies to maintain upward economic journey, informed sources told Dawn.
The MFPCB members believed Pakistan’s key economic indicators were positive and encouraging despite contraction in its major global economic partners and it was mainly because of timely stimulus package provided by the government along with lower policy rates.
Board says fiscal stimulus played key role in post-Covid recovery
“The majority view was that stimulus package and accommodative monetary policy should be carried forward,” the sources said.
They added that while the Ministry of Planning and Development advocated further reduction in the central bank’s policy rate, the Ministry of Finance argued for maintaining the current stance.
Governor State Bank of Pakistan Dr Reza Baqir did not speak his mind, apparently in an attempt to assert central bank’s independence, the sources said.
The SBP had gradually peaked its policy rate to 13.25 per cent until February this year when the Covid-19 pandemic hit the country and then gradually brought it down to 7pc and maintained it in its latest policy statement last month. The next policy statement is due in the third week of January.
An official statement said the finance minister emphasised the active role of MFPCB for designing policies to address economic challenges and “directed to make this platform more effective for achieving better coordination among all concerned to attain desired macroeconomic goals”.
Mr Shaikh also stressed the need for timely provision of economic data for effective policy making and concluded that the “board should be more proactive in reviewing the impact of Fiscal and Monetary Policies on economic growth, employment, investment and external sector of the economy”.
While presenting the current economic situation, the Finance Secretary told the meeting that the timely actions taken by the government had mitigated the severe impact of pandemic on economy as compared to the other economies of the world.
The economy has witnessed a considerable recovery during first five months of FY2021 as a result of continued domestic economic activity.
SBP governor told the meeting that monetary policy was accommodative due to the pandemic and had paved way for economic recovery during first quarter of FY2020-21.
There is an improvement in the country’s external accounts. The steady worker remittance inflows and improved trade balance of goods and services were the notable developments, he added.
Deputy Chairman Planning Commission Dr Jehanzeb Khan said the first two quarters of the FY21 had been marked by a rebound in economic activities amid Covid-19.
The economic recovery can be attributed to accommodative fiscal policy. A further said that Large Scale Manufacturing and Housing sectors have started showing signs of growth and improvement.
Adviser to the Prime Minister for Commerce & Investment Razak Dawood said that during July-November FY2021, Pakistan’s trade deficit had registered modest improvement as exports increased by 2pc (year-on-year) growth, while imports remained stagnant. He reiterated that the fiscal policy reforms being undertaken under the National Tariff Policy must continue.
He advocated that domestic industry, especially export oriented, should be provided needed support to expand their operations. Similarly, the inflationary pressures must be kept in check to ensure competitiveness.
Member MFPCB Dr Asad Zaman appreciated the timely fiscal and monetary measures taken by the government during challenging times. He also believed that comprehensive data analysis was a key to rational decision making.
Published in Dawn, December 25th, 2020