KARACHI - State Bank of Pakistan (SBP) Governor Ashraf Mahmood Wathra has termed the India’s shock clampdown on cash as an “extreme” step to boost financial inclusion, tax collection and battle graft, as the neighbouring nation implementing its own plans to double the number of people using banks within four years.
“To my imagination that is a very, very extreme measure,” Wathra said in an interview after speaking at a Bloomberg forum in Karachi on Wednesday. “It’s the enabling environment which has to get better in the economy."
India’s Prime Minister Narendra Modi had invalidated 500 rupee and 1,000 rupee bills ($15) in a single move announced on November 8, sucking out 86 percent of the nation’s currency in circulation.
Described as the world’s most sweeping currency policy change in decades, the step has earned India’s government both admiration for its boldness and criticism for its chaotic execution, with queues spilling from banks in a country where cash dominates day-to-day life. Opinions are mixed on the impact on tax evasion and graft.
“There are both cultural issues and the tendency of evading taxes, these two are combined,” Wathra said.
“It’s just like a mindset of our populations that they like to keep money with them instead of passing it to a bank or a financial institution. This is perhaps in the DNA, which we need to change.”
About a quarter of Pakistan’s adult population has a bank account and the central bank wants that to double the number of bank account holders by 2020 and the nation’s more than 14,000 bank branches aren’t enough, he added. He said, “That is where the digital internet technology is going to help us in achieving our objective.”
Wathra said the current account gap is forecast at 1.5 percent of gross domestic product for previous fiscal year, as overseas shipments fell to $21 billion, the lowest level since 2010. “We have to expand and refine our export model” beyond traditional industries such as textiles, and find new countries and regions to market them to,” he said. “The present model is not working well enough for us. We have a great potential in services and great potential in information technology which is not being fully realized,” he added.
The decline in exports has added to doubts over Pakistan’s economic stabilisation after it completed an International Monetary Fund loan programme in September that boosted foreign exchange reserves to a record level after a balance-of-payments crisis in 2013.
Nevertheless, the government is seeking to boost growth and end power shortages by 2018 - when he is up for re-election - with the help of China’s pledged $46 billion investments that were announced last year.
“Our economists are researching and considering a few models which will facilitate us to switch to inflation targeting,” he said. “The central bank is working with the government and planning commission on the ranges as we can’t start inflation targeting in isolation,” he added.