KARACHI, Dec 6: State Bank of Pakistan Governor Dr Shamshad Akhtar on Saturday suggested either stop altogether or effectively curb the government’s unlimited borrowing from the central bank by amending the SBP Act, 1956 and Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005.

“Unlike many countries, there is no prescribed limit on government borrowings from the SBP,” she declared in her keynote address on Saturday before a gathering of top businessmen, business professionals, scholars and faculty and students of Institute of Business Management on its 11th convocation in which 698 graduates were given degrees.

Her point was that the government borrowing from central bank is “highly inflationary” and that it complicates liquidity management, which pleaded a legal curb to stop this altogether or limit it.

She vehemently defended her monetary tightening policy, which she called “an inevitable policy response for regaining macroeconomic stability”. But she readily conceded of arousing public anxiety but made passionate plea of better public understanding.

Dr Shamshad read out a lengthy speech quoting from authorities in economic literature from Pakistan and other countries, who advocated price stability measures and how monetary policy framework operates to achieve this objective before giving her perception of Pakistan economic environment.

“Effectiveness of monetary and fiscal coordination would be helpful,” she stressed while pointing out provisions incorporated in the SBP amendments of 1994 and formation of a Monetary and Fiscal Policies Board in 1994 with a provision of quarterly meeting. “It has been less than satisfactory,” she told her audience that included a retired deputy governor of SBP, who recently pointed out in an article that SBP law has effective safeguards to stop government from excessive borrowing.

She informed that sequencing of economy wide projections is done in isolation of budget and monetary policy making process.

The SBP governor questioned the quality of the information, data and reporting of various government agencies that inhibits accurate analysis for development and framing of policies.

“Unlike many developed and developing countries, data on quarterly GDP, employment and wages in Pakistan is not available,’’ she said.

She also complained of considerable time lag in availability of information on government expenditure and revenue, output of large-scale manufacturing and crop estimates. “This constraints an in-depth analysis of current economic situation and evolving trends and hinders ability of the SBP to develop a forward looking policy stance.

She also spoke on exchange rate management referring to a general perception that “SBP is bound to keep the exchange rate at some pre-defined level.” “It is impossible to pursue an independent monetary and exchange rates policy as well as allowing capital to move out freely across the border,” the SBP governor made it clear.

She said that SBP’s responsibility was to ensure an environment where foreign exchange flows are driven by economic fundaments and are not misguided by rent seeking speculation.

Mr Ashraf W. Tabani, a senior businessman and a former governor of Sindh, who is chancellor of the Institute of Business Management, in his brief address said that the graduates should equip themselves with adequate knowledge to face the challenges, which are far more difficult than normal times because of the global and economic crisis.

Mr Shahjehan Karim, the IoBM president in his address informed that there were now more than 3,500 students in their colleges. In 1995, there were only 98 students on roll. Out of 1,100 MBAs, who graduated from IoBM since 1998 an overwhelming majority occupy senior and key positions in national and multinational business houses.

Sindh Governor Dr Ishratul Ibad in his brief remarks congratulated the successful graduates, faculty member and parents.