Financial Regulators in Pakistan in Disarray

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At times we forget the consequences of events once we move away from them. Today, our Financial markets are on recovery and the wounds of the 2008 global financial crisis have healed for active market participants but overall economic scenario is confused.

If the governments and each of the regulators in the West had worked in silos, the West may have taken a lot longer to recover and the world may have been pushed into depression. Taking a holistic view, they decided to pump in liquidity and provide cheap money by keeping the interest rates and inflation low.

In Pakistan, we did just the opposite. A severe liquidity crunch most of the time prevailed in the system with high interest rates.

We need similar kind of steps in case of State Bank of Pakistan, the Securities and Exchange Commission of Pakistan (SECP), the Competition Commission of Pakistan,NEPRA and the Federal Board of Revenue.

Each crisis is also an opportunity to learn, change and adapt. But did the 2005 and 2008 crisis lead to any change in the way we operate? The answer is an obvious ‘no’.

Presently, each of these authorities are either coordinating bilaterally with each other, or with the relevant wing of the finance ministry.

Each regulator focuses only on the sector and role under its ambit because of which some sectors get neglected.

On the other hand each regulator in Pakistan is working under some adhoc arrangement. SECP has not yet recovered from the consequences of 2005 and 2008 capital market collapses and their heads are rolling like anything. SBP after Dr Shamshad Akhtar has seen departure of four governors who were commercial bankers, Charted accountant or market practitioner but not an economist who have worked with any multilateral or Central Bank to have an experience about monetary policy operations. Current government is also trying to bring some banker being an affiliate of ruling party. Names appearing like Munir Kamal, Aurangzeb Khan, Dr Waqar,Dr Ashfaq, Syed Iqbal Ashraf and current Acting Governor and Dy Governors are such examples. Hence most probably this experience is also going to fail.According to Dr Yaqub former Governor of SBP “The SBP is legally mandated to perform two critical functions – conducting an independent monetary policy and regulating the banking system. The monetary policy must be geared to control inflation and channel commercial banks’ credit to productive economic activities to facilitate economic growth. The regulatory framework has to be developed and enforced on the banking system so as to safeguard the interests of depositors, ensure liquidity, solvency and profitability of banks and avoid systemic risks. In today’s national and international setting, in which the concept of money is changing with the use of technology and creation of new financial derivatives, formulation and conduct of monetary policy is a difficult and sophisticated task. Even an economist, who is not especially trained in money and banking matters and intricacies of monetary policy, would find it challenging to effectively lead the SBP as its governor”. Whether present Government is going to adhere with these ideas. The answer is no.Same goes with FBR where government does not like to bring a person who is well versed with expanding tax base and that too through direct taxation by bringing Services, Wholesale,Retail and Agriculture sectors under tax net.

The Competition Commission of Pakistan (CCP) aimed to provide a legal framework to create a business environment based on healthy competition for improving economic efficiency, developing competitiveness and protecting consumers from anti-competitive practices is passing through the same phases. Whenever its chairman tried to take action against some big fish he has to resign. Example is of its last lady chairman.

NEPRA’s another important financial regulator holds main responsibilities as to Issue Licenses for generation, transmission and distribution of electric power; Establish and enforce Standards to ensure quality and safety of operation and supply of electric power to consumers; Approve investment and power acquisition programs of the utility companies; and Determine Tariffs for generation, transmission and distribution of electric power. But what is happening everybody knows. NEPRA decisions are most of the time put aback by MOF. If all these regulators gets the opportunity to work together than chance of emerging circular debt does not arise. Last time in 2013 it crossed Rs 500 billion and the government have to make it adjusted by cutting developmental projects. As on date it has crossed Rs 200 billion. The persons sitting around Mian Sahib are its beneficiaries who are running power projects with second hand machinery.

Some years back a question was raised that which central Bank is the most independent Central Bank in the world. The answer came the Bunders Bank of Germany but thereafter a conflict came in between chancellor of Germany and Chairman of Bunders Bank. Ultimately the Chairman had to go. In each country the government in reality is the main regulator like a Loin in Jungle but now we have a real Lion sitting in Islamabad with teeth or no teeth but the game to correct the economy by allowing regulators to act independentlylies with him.

 

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