Dr. Muhammad Yaqub’s emphasis on controlling money supply for maintaining its soundness, as highlighted in his 2011 article, aligns with PRIME’s recent report on Sound Money, which evaluates Pakistan’s monetary stability. The report underscores the importance of macroeconomic policies in maintaining sound money and economic freedom, crucial for fostering prosperity.
Pakistan’s economy faces challenges with low growth, attributed to various factors affecting economic prosperity. Market functioning, essential for economic growth, relies on economic freedom, particularly the respect for property rights over money. Ensuring the soundness of money through macroeconomic policies is vital for maintaining economic stability and fostering growth.
The Fraser Institute’s Economic Freedom Index, which includes the category of sound money, ranks Pakistan relatively low. Despite maintaining an average score for sound money over the years, Pakistan’s ranking in this aspect remains poor. The erosion of purchasing power and currency depreciation over the years underscores the fragility of Pakistan’s monetary situation.
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Excessive monetary growth, outpacing real economic growth, has contributed to monetary fragility. The government’s role, particularly its borrowing from the State Bank of Pakistan (SBP) to finance its budget, has led to unsustainable monetary expansion. Despite amendments to limit such borrowing, monetary expansion persists, affecting inflation and currency depreciation.
The SBP’s attempts to control inflation through interest rate adjustments have been hindered by the government’s borrowing practices. The cycle of debt accumulation, compounded by fiscal imbalances between the federal government and provinces, exacerbates monetary challenges. Reforms are needed to address these issues comprehensively.
A reform agenda should focus on reducing the size of the government, coordinating fiscal and monetary policies effectively, managing debt efficiently, and promoting sustained economic growth. This includes reviewing the monetary-fiscal policy mix, enhancing the SBP’s autonomy, and ensuring compliance with fiscal responsibility laws.
Overall, addressing Pakistan’s monetary challenges requires a concerted effort to align policies with long-term economic stability and growth objectives. Dr. Ali Salman’s and Dr. Wasim Shahid Malik’s insights from PRIME’s report provide valuable recommendations for policymakers to navigate these complexities and strengthen Pakistan’s monetary stability.
