Recommendations

Despite the developments and the evolving macroeconomic situation, the monetary policy committee
recommended that further sustainable growth and overall macroeconomic stability requires further
policy measures because inflationary pressures continue to exist, the fiscal deficit is still at an elevated
level and despite improvement, the current account deficit is still quite large. Private financial flows
also need to increase on sustainable basis to achieve medium to long term stability in the country’s
external accounts. Moreover, concrete structural reforms are required to reduce the trade deficit by
improving productivity and competitiveness of the export oriented sectors. Coming to the problems of
current account deficit, monetary policy can play a vital role in managing it. The less money available to
the businesses and the individuals, at higher interest rates, the less they will have the disposable income
to spend and spend specially on imported items. In the short run, it might harm the expansion process
of many businesses due to the higher cost of borrowing but in the long run this measure might be able
to heal the economy and if the economy is healed, the businesses will soon be able to expand in a better
economy. This deflationary policy will also exert pressure on manufacturers to reduce the cost of their
products which will not only assist the domestic economy but also the export prices will become more
attractive to the importers overseas.

The monetary policy is controlled through three of the tools or instruments which are open market
operations, the discount rate and the reserve requirements. Open market operations involve the buying
and selling of government securities. If government bonds or sukkuks are listed and traded locally on the
stock exchange of Pakistan, funds can be raised more efficiently where foreign and local investors both
can purchase it through rupees exerting no pressure on the rupee. Although this measure would require
fixation of the Pakistan Stock Exchange first.

Lastly, as it is quite known that political interference in state institutions is quite common in Pakistan,
appointment of a merit based competent and reputable administrator at the top of financial and
regulatory authorities could prove to be quite beneficial. Governance rules should also be improvised to
minimize political interference. This would improve the performance of the institutions thus managing
the monetary policy better. Modernizing of the financial system would also be required such as moving
the financial system towards a cashless digital payment system that makes it easier to rack and audit
large financial transactions. This would in turn help in reduction of money laundering which creates an
imbalance between the supply and demand of dollars in the economy.