IT is considered to be a cornerstone of good economic policy: an autonomous central bank that works in coordination with the government of the day to promote stable growth, keep inflation in check and, in the Pakistani context, help foster development-oriented growth. But the State Bank of Pakistan has once again become a virtual appendage of the finance ministry, to the extent that a governor SBP with a guaranteed fixed term can be forced out on the finance minister’s demand. The rarefied, wonkish world of monetary policy and banking-sector regulations does not lend itself easily to crisp headlines or quick understanding — but that does not mean the SBP does not have a critical role to play in the management of the country’s economy. Dispiritingly, the PML-N government has continued the trend that accelerated under the last PPP government to treat the SBP as little more than a source of unlimited borrowing, with the SBP’s policy input reduced to virtually zero.

What should be the SBP’s proper institutional role and what kind of leadership does it need? In truth, with the priorities of successive governments in Islamabad centring on doing the bare minimum to keep the economy afloat and preventing the government’s fiscal position from imploding, there is little that is meaningful the SBP can do to use its monetary policy levers to help nurture sustainable growth with inflation kept in check. The SBP cannot on its own turn around the country’s economy, though if it were afforded more independence by the government, it could probably improve things at the margins. Still, interest rates, government borrowing and inflation aside, there are significant contributions the SBP can make to help at least set the stage for an inclusive, growth-oriented strategy. Not least, the SBP can use the tools at its disposal to encourage the banking sector to be more aggressive in finding lending opportunities other than the automatic and easy choice of lending to the government itself. Finding ways of channelling credit to small and medium enterprises would almost certainly help stimulate the kind of job-creating growth the country truly needs.

Yet, can the kind of re-direction and re-purposing of the SBP come from a pliant, handpicked next governor with a banking background, as the likely next nominee is rumoured to be? While bankers and businessmen have the kind of real-world experience that cannot be disregarded, economic policy being crafted exclusively by non-economists with commercial backgrounds is simply too narrow a prism for the country’s needs. Finance Minister Ishaq Dar, the architect of this government’s economic strategy, is seemingly too concerned with day-to-day issues and month-to-month survival to help guide economic recovery that is both inclusive and sustainable. Instead of a virtual subordinate in the governor SBP slot, what Mr Dar truly needs is an independent and authoritative voice there.