SC petitioned to have SBP policy rate slashed

ISLAMABAD: The Supreme Court has allowed fixing for hearing of a pro bono publico petition by a former minister seeking a directive for the government to reduce the central bank’s policy rate and scaling down of interest payments being paid out of public money to finance deficit.

“The petition reflects serious thought and presents an analysis that invites judicial consideration of the legal matters relating to financial disciple and responsibility of the state,” observed Justice Umar Ata Bandial in a two-page order while accepting the petition for hearing after removing the office objections on the petition moved by Dr Mohammad Zubair Khan.

Mr Khan has served as the federal commerce minister and done his PhD from the John Hopkins University.

During the chamber hearing on March 16, Justice Bandial observed that the subject matter of the petition concerned the monetary policy of the state, which has widespread implications for the national economy and the public at large for which the state also has legal obligations under the Constitution. Senior counsel Mian Abdul Rauf represented the petitioner.

Call for State Bank to immediately introduce appropriate capital controls

In its order Justice Bandial stated that the petitioner has asked for the relief of enforcing the mandate of the Fiscal Responsibility and Debt Limitation Act, 2005, in letter and spirit as well as the requirements of the State Bank Act, 1956, the Rules and Regulations as well as the Banking Companies Ordinance, 1962, for safeguarding the national economy from the adverse effects of high interest rates given on deposits in Pakistan.

The petition focusses on the enforcement of the legal mandate of both the statutory and the private financial institutions, the conduct of sovereign functions in relation to foreign debt of the state, the effect of rapid growth of the public debt of the state and its negative consequences resulting in the breach of the legal mandate laid down by the relevant laws and the Constitution.

The petition pleaded before the apex court that reduction in deficit will have a number of positive effects and will contribute to the reduction of the external current account deficit and contain the depletion of foreign exchange reserves. Lower deficit will also reduce inflationary pressures, and control the accumulation of debt.

The petition pleaded that the fiscal space created by lower interest payments could be used to eliminate Customs duties on machinery, raw materials and inputs to stimulate the economy, increase exports and create employment and raise incomes.

The petition has also sought a directive for the State Bank of Pakistan (SBP) to immediately introduce appropriate capital controls and ensure orderly withdrawal of hot money from Pakistan and avoid the risk of instability in the foreign exchange market.

The arbitrary, unlawful and unjustifiable increase in the interest rates, the petition highlighted, has increased the federal fiscal deficit in comparison to its gross domestic product (GDP) in blatant violation of the Fiscal Responsibility and Debt Limitation Act, 2005.

The unjustified interest rate policy is shutting down industry, trade and commerce, transport and construction. Also, it is encouraging foreigners and Pakistanis to invest in interest-bearing instruments, contrary to the constitutional and Islamic injunctions to refrain from the business of usury and interest rates.

The policies that are not in the interest of Pakistan have been adopted by an economic team which has not acted in the interest of the country, ensnaring it in a debt trap and now in an interest rate trap that threatens the stability of the foreign exchange market, the petition argued.

As a result, Pakistan has been placed at the mercy of foreign creditor countries, thus gravely compromising the independence and sovereignty of the country, the petition regretted.

Published in Dawn, May 2nd, 2021

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