Progress can be derailed if reforms not undertaken: SBP governor

Pakistan's economic progress could be derailed in case we do not undertake judicial and educational reforms, said Governor State Bank of Pakistan Dr Ishrat Husain.

He said that with the financial sector restructuring, capital allocation in an efficient manner will be achieved. However, to sustain the economy on a high growth path requires efficiency in human utilisation and an environment of social justice through reform of judicial system.The Governor of the Central Bank was paying a farewell visit to the Business Recorder office on Saturday.

Dr Husain was of the opinion that he had done justice with his job and was leaving his office with a sense of fulfilment and a feeling of performing the task with maximum effort and the best of abilities. He acknowledged that reforms in our country are not received well and people ask the need of such reforms and criticism becomes a norm.He reminisced the time when he was in London to attend a symposium, arranged by the Bank of England; many other chiefs of the central banks from different countries were there. A consensus was reached among them that in a market-based economy it had become necessary for them to manage expectations instead of a few knowledgeable players dictating market sentiments.Dr Husain was asked to characterise Pakistan's economy: Whether it was agriculture or industrial ie manufacturing. The governor said that it has changed over as contribution of agriculture was as high as 40 percent of the GDP and now it is below 25 percent, whereas manufacturing share has increased from 7-8 percent in 1969 to 26 percent. He felt now its strength is based on manpower.

He said individually Pakistani professionals are better than any one but collectively they some how fail to gel as a team. The SBP governor said the economy went into reverse gear after nationalisation. In the 80's under General Zia it was in maintenance mode and the Islamisation process, unfortunately, created fissures that were dangerous for the society.He made it clear that the economy's strength lies in the services sector. He said that he has worked in 50 countries and thinks that Pakistani professionals are better than many. The problem is our egoistic approach that blunts the pace of progress. We are yet to work as a team, he continued.

Dr Husain recalled his latest speech where he had stressed the need of quality professional education. He negated the notion that literacy was a major factor behind producing quality skilled workers. He had the example of India that has a literacy rate of 60 percent compared to 100 percent of Sri Lanka. But, he said the Indian scientist, IT professionals, bankers etc skilled workers are better. That proves the utility of specialist education. Human resource is the anchor for a knowledge-based economy.

The SBP governor did not accept a pointer from one of the participants that the Central Bank had failed to beef up its research department. He said that the SBP was sending two employees every year to do their Masters at William College in USA. Some have also gone in PhD programme and we have an excellent team; all doing excellent work in the field of research and were developing various models of the economy.

He was told about the disparity in society that vaporises the gains made to the economy. The SBP governor said that social sector should be stabilised as we have structural problems in Pakistan. There are overlapping and clarity is often absent and that is the reason that the social sector is in a mess.

Dr Husain narrated his experience that he had encountered in rural school. He visited the school and saw children playing in the classroom but the teacher was no where to be seen. On inquiry he was told that the teacher had been transferred by the provincial government and his replacement is yet to join. Schools operated by local governments have employees under provincial authorities. Similarly, there is overlapping in colleges and universities with all the three tiers interfering in each others domain and a better of the turf is the norm. It is a case of overlapping and different horses pulling the cart to the different directions.The division of educational process to different departments causes the educational mayhem. In his opinion higher education should be the exclusive domain of the Higher Education Commission. Local governments should have the schools, provincial governments should manage the colleges and the universities should be the responsibility of the federal government.

Dr Husain sadly described the two major ailments eating away our society; ego and the turf. Our vanities do not allow us to work in cohesion and selflessness has been confined to the dictionaries only. He criticised the wrong priorities and aimlessness in our society. He aptly gave the example of banks and the NCBF. He said he willingly transferred regulation of NBFIs from SBP to SECP as he saw that the banks were doing business to the extent of 95 percent and the NBFIs had the remaining 5 percent. But the allocation of staff for regulating the two was equal.Dr Husain mentioned about the SBP that has 6000 field officers and 1000 staff manned the SBP head office. It was a torture and waste of time for a governor to worry about the field officers and their performance. He acted to finish this unnecessary administrative hurdle by creating SBP Banking Services Corporation (SBPBSC). The day to day work is now managed by SBPBSC MD and the governor can concentrate on policy.

On being congratulated by for bringing a fresher look to the economy and asked about the ways to drag the economy and the country on the right track. He thought that the financial, judicial and educational reforms were the tools to cure the country's ills. He said that poverty not only gives hunger pangs and a collective deprivation, it also blocks the way to the social justice as well.Courts were overflowing with the case backlogs and justice was delayed which amounted to the justice denied.

Dr Husain was unsympathetic with the role of Monopoly Authority. He said it has become a parking lot. He said we send a bureaucrat as a punishment to NIPA. It was sordid idea as a disgruntled person was least appropriate to teach the younger bureaucrats.He expressed his dislike about the rhetoric in the country. Armchair intellectuals inundate the nation with their far-fetched ideas. Rhetoric is harming Pakistan and it should be curtailed.

The SBP governor said foreign investors somehow still feel that economic policies will change with the change in government. He talked about the single risk phenomenon. While appreciating the good work of President Musharraf they still fear that in case he is not at the helm the country would go to the dogs. This is the only worry expressed by them in the road shows conducted by us.

He agreed that the recent earthquake had traumatised the victims. The trauma could be erased if we respond in a positive manner. We are taking about reconstruction and rehabilitation. The latter is more important to heal the scars of the devastation. Rehabilitation involves both economical and social help. The victims had to be dealt with psychologically, he stressed.

Dr Husain said it was the nation that underwent pain due to the upfront leading conditionalities by the IMF. We were seeking long-term profiling of our debt. Between 2000-2002 IMF was dictating us, while from 2002 onwards we were on the driving seat as our debt had been re-profiled.The SBP governor said he was worried as the work on creating strategic framework was incomplete. We need to complete it and to update it continuously. He said fiscal responsibility law, the media and the market will force government to maintain macro-economic stability and keep a balance between resources and expenditure. Business Recorder