ISLAMABAD: An independent think tank has accused the State Bank of providing indirect loans to the federal government, rendering the changes made to the State Bank’s rules on the recommendations of the IMF virtually ineffective.
The Policy Research Institute of Market Economy (PRIME), a think tank in its report titled Pakistan Economic Freedom Audit: The Sound Money, highlighted the negative effects of the nexus between the State Bank and the Ministry of Finance, which led to high inflation and increased debt. Although the amendment to the State Bank of Pakistan Act has limited the State Bank’s ability to provide credit to the government, financial intervention by the State Bank continues, the State Bank has provided the necessary liquidity to commercial banks. , which they have provided to the government.
The report states that State Bank has provided liquidity to scheduled banks through open market operations to enable them to provide loans to the government. The bank has provided Rs 10.3 thousand billion to commercial banks through open market operations, which have subsequently reached the government.
The report added that it is counterproductive to set policy rates to curb inflation, then increase the supply of rupees by extending loans to the government through scheduled banks, and the ban on lending did not help reduce the money supply. However, this has increased the government’s interest payments, the State Bank is printing notes and giving them to commercial banks, and the commercial banks are giving these notes to the government at high interest rates.
