Jury is out in Reza Baqir



May 15, 2022

Umair Jalali describes a contentious career

Reza Baqir has quitted the Pakistani financial scene after a controversial 3-year stint as head of Pakistani central bank. One thing is quite finally mentioned about him and that is his remaining true to the remit given to him by his eventual employer, the IMF. Reza Baqir placement at the head of the premier Pakistani monetary institution also was a bitter reminder about the dubious practices followed by Pakistani financial mangers over the years with international financial centres that had lost trust in their financial veracity. At one point in time the international lenders made public their frustrations by claiming that Pakistani financial authorities fudged figures and this unfortunate event happened during the financial watch of the Ishaq Dar who is considered the economic czar of PMLN. It is indeed an irony that the incumbent government has rushed to London to hear out the so-called economic wisdom of Ishaq Dar.

Reza Baqir was serving on the idle management of the IMF when he was sent to Pakistan to sort out monetary matters. Many economic observers pointed out to his relative inexperience but IMF was constrained by the fact that he probably one of the few Pakistanis on their payroll. IMF however tried to strengthen his position by placing a full-time economic team in Islamabad throughout his tenure. IMF went quite out of way to arrange independence for their operative and got Pakistani legislature to ensure that this goal was achieved. He was also given the prized privilege of determining the interest rate of the country that is ordinarily the most controversial of monetary decision throughout the world. Reza Baqir practically became an economic warlord who decided any matters on his own.

Armed with such potent weaponry Reza Baqir claimed at his departure that SBP devised appropriate measures such as Covid relief packages which included Rozgar payroll loans and hospital financing, Roshan Digital Account, Raast, a framework to licence digital banks in Pakistan, financial inclusion for women, affordable mortgages for lower-income groups and others. The fact of the matter that the Covid pandemic pared Pakistan its severity and even then the then government remained divided on how to handle it with the result that the financial benefits were not equitably distributed and it is a matter of record that most of the relief money provided by the IMF went unused. It was also reported that Reza Baqir did not play an active role in sorting out the difference of opinion prevailing in PTI government circles regarding dealing with the pandemic.

Reza Baqir’s appointment did not go down well with Pakistani financial officialdom that resented hi all through his stay at the helm of SBP. It was quite natural that the new government refrained giving him an extension and said good-bye to him forthwith though they retained the very deputy he brought with him from the IMF indicating that Reza Baqir might have steeped on toes of the politicians of Pakistan’s largest political party. Their discomfiture has always remained obvious as PMLN legislators have demanded an inquiry into the $3.6 billion hot foreign money brought in Pakistan during the first year of the governor’s term and they want a forensic audit of the hot foreign money inflows.

There are also questions raised about Reza Baqir’s handling of inflation and in this context it is mentioned that despite the governmental fixation of ceiling of 8 percent the SBP constantly revised the inflation target with the result that in its last monetary policy statement SBP revised upwards its forecast to over 11% clearly working against the principle of containing inflation that, according to the new rules of SBP, is it primary duty.  SBP is also criticised for not cracking down on the banks that have been exploiting the federal government and extending loans at rates up to 2.5% over and above the SBP policy rate. In addition to many also question the most expensive NPC debt, dwindling foreign exchange reserves and deeply devalued rupee.

What Reza Baqir left behind is rising inflation, depleted foreign exchange reserves, failing currency and unprecedented current account deficit. After him the SBP is facing the formidable challenge of stabilising prices and the external sector. Despite repeated denials the perception never changed that Reza Baqir emerged as supporter of the rich and that big businesses under his command has grown stronger. The muchmuch-trumpted and appreciated Temporary Economic Finance Facility (TERF) also came under severe criticism by economists and analysts. It is pointed out that those who received large sums of money at 1 percent interest automatically became wealthy and earned billions simply by the difference in interest rates. The most troubling aspect of this exercise was that mostly the rich who became the beneficiaries of such largesse. Opinions however in this regard are also divided as many analysts believe the cheap financing will pay in the future and exports will go higher.

Umair Jalali teaches in Denning Law School and is an avid sports fan


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