ISLAMABAD, Sept 2: The government is considering proposals to enhance the institutional capacity of the State Bank and the Securities and Exchange Commission of Pakistan (SECP). The move is aimed at making them more effective regulators and supervisors of the country’s financial system.
Informed sources told Dawn on Friday that the existing weaknesses in the financial system could not be overcome without enhancing the institutional capacity of the central bank and the SECP, particularly with regard to the operations of the banks and stock exchanges.
Proposals made by the Higher Education Commission (HEC) and Pakistan Institute of Development Economics (PIDE) after a joint study of the issues were currently being examined by the federal government for implementation.
The initial response of the government, the sources said, was positive to make the central bank and the SECP strong regulators with a view to saving them from public criticism on various occasions.
The joint study, the copy of which was also made available to this correspondent, said that Pakistan must continue the reform process with particular emphasis on: ensuring autonomy and competence of the regulators and promoting professional management at all levels of decision-making in the financial institutions; implementing the privatization process efficiently and prudently so that 90 per cent of the banking assets are in the private hands; restructuring and strengthening non-banking financial companies to make them an integral part of financial services industries; automating the existing manual systems (banking operations); and developing local and wide area networks, connecting various departments and offices across the country.
A well functioning system is essential for channelling funds for most productive uses for industrial development and growth.
Recognizing the importance of financial reforms in the process of industry and economic growth, the study said, a series of measures had been adopted in recent years with a view to removing various distortions in the financial system, minimizing government’s interference in the banking system, and strengthening the prudential regulations. “While these measures have led to an improvement in the financial system, much more needs to be done to transform the financial sector into an efficient and market-driven financial system,” the study added.
It also said that industrial development and expansion had to be complemented by a dynamic and efficient services sector including telecommunications, information technology and financial and transport services. The telecom sector has made significant progress in recent years, however, the country still lags behind many of the comparable economies in terms of fixed line density.
The government was also advised in the study to have an efficient and good quality transport system which should contribute to economic growth by lowering domestic production cost through delivery of raw materials, facilitating market integration, and strengthening competition. Major issues in the transport sector, identified in the report are: inadequate physical capacity; inadequate maintenance system; poorly targeted investment priorities; operation and financial inefficiencies of the public investment; and lack of private sector participation.
The rational allocation of inland freight traffic between rail and road network, privatization of railway’s operation in selected sections and inclusion of private sector in development of roads, airlines, ports and shipping, and inland navigation can help improve the efficiency of the sector.