In 2006, Dr Shamsad Akhtar was appointed as the Governor of the State Bank of Pakistan (SBP), representing the 14th person of such a post since the Bank's establishment in 1948. This appointment also afforded her the title of the first female Governor in the history of Pakistan. Amidst President Pervez Musharraf's political controversies, Dr Akhtar was recognized as Asia's Central Banker of the Year in January 2008 by the banking industries leading publication, The Banker. Within her short term of 2 years, Dr Akhtar has been able to implement new economic policies within the banking sector, thus instigating strong reforms within the country's economy.
With her rich experience in dealing with international trades, Dr Akhtar is not only able to operate at the domestic level, but is also able to bring to bear her valuable experience attached to the Asian Development Bank (ADB) as a Director General via the Southeast Asia Department.
Through her appointment with ADB, she has handled issues concerning other countries such as Indonesia and Malaysia, Philippines and Singapore. Her various experiences come from a substantial portfolio that encompasses involvement with operations, infrastructure, agriculture, environment, social sectors, governance, finance and trade.
In addition, Dr Akhtar has also built networks amongst various organizations through her service as Coordinator for APEC Finance Ministers Group (1998-2001), Reorganization Committees, Appeals Committees and Oversight Committees. It is noteworthy to mention that her experiences do not comprise of only legal or governance postings, but that she has also served as an Economist in the World Bank's Resident Mission in Pakistan for 10 years.
Milestones in the Finance and Banking Industry
Under the finance and banking realm, Dr. Akhtar's expertise and interests lie in macroeconomic analysis, financial/monetary reform of key sectors (industry, agriculture), and taxation systems of Pakistan. At a micro level she has worked on inter-governmental fiscal relations, poverty and foreign direct investment. She is even well known in the private sector where concerns of monetary policy and banking are related; and has done extensive interfacing with the stock exchanges, especially when financial reform was needed.
Dr Akhtar was instrumental in developing the bond market in Pakistan, which was a novel concept for the Pakistani banking industry as bonds are considered to be a predominantly controversial financial tool, especially in an Islamic economy due its conditioning with "interest."
Challenges as SBP Governor
Dr Shamsad Akhtar has had to confront a dual struggle in relation to her position as Governor. On an international level, due to the high inflation rates and economic instability worldwide, Pakistan's surrounding countries and even superpowers like the United States and the United Kingdom are directly affected along with Pakistan. On a domestic level, there are political, social and economic issues that have been plaguing Pakistan which also need to be addressed.
Monetary Policies to Curb Inflationary Concerns and Governmental Borrowings
In July 2008, Dr Akhtar announced the third interest rate hike within six months in order to curb alarming inflationary concerns and rising governmental borrowings. Governmental borrowings in Pakistan account for 80% of the fiscal deficit, having doubled in the last six months. The Governor continued to caution the move (also by the government) requesting SBP to print more money as excessive liquidity in the market would lead to even higher inflationary rates. Core inflation had hit a 30-year high, with inflationary prices of food recorded at 32% in July 2008.
Dr Akhtar was reported to say, "For the first time, SBP and its Board of Directors will pass a strong resolution for the government to cease all borrowings."
Increase in Transparency to Cultivate Good Governance
In addition to lambasting the Pakistani government against the nation's borrowing of money ,she has also been challenged to uphold transparency of previous transactions that were privy to SBP and Pakistan's previous government.
Finance Minister Naveed Qamar had announced that the problems facing the government were very much products of fund mismanagement of the previous government. He points to a a debt of Rs165 billion, which was readily adjusted by the new government. He has since challenged SBP's governor to provide for the debt in order to uphold the transparency that she represents.
Resistance to Change in the Financial Market
Dr Akhtar has also faced opposition on the domestic front concerning the purview of her supervisory role in the financial market. Her attempts at consolidating regulatory frameworks for a wider range of financial institutions have not been received lightly. Recently, the Leasing Association of Pakistan and Mutual Funds Association of Pakistan opposed a move to transfer its regulatory framework of the Non-Banking Finance Companies (NBFC) from the Securities and Exchange Commission of Pakistan to the SBP.
One of the concerns of the Leasing Association of Pakistan was that a movement of such a degree would create duplicity and lead to confusion despite the expertise of both the SBP and the exchange. The move, in fact, would cause a conflict of interest in having a portion of the NBFC being regulated by the SBP and the other by the exchange. However, the NBFCs agreed that deposits withdrawals would fall under the purview of SBP, as much as a bank's deposit withdrawals would do the same.
According to the history of NBFCs, the institutions themselves have played a vital role in providing assistance to small-scaled entrepreneurs, thus their importance in driving the Pakistani economy has not fallen short of SBP's interest. However, due to their finance policies, the NBFCs adamantly demand to be distinguished from banks and other financial institutions.
This strong resistance to change, with the valid reasons at hand, represents challenges for Dr Akhtar to formally create a flexible and comprehensive framework that is as effective as the one in operation by the exchange, without causing distrust or anxiety to of the parties involved. Even with the dwindling role of state banks internationally, there is no reason why such a framework cannot be properly adjusted if it is able to safeguard the interests of the NBFCs and their clients, the SME sector. As long as there is valid reason for such a framework to be formulated under the SBP (or transferred from the exchange to the SBP), the resistance to this change will slowly dissipate.
The Mutual Funds Association of Pakistan has welcomed the SBP only as far as the particular parameters of regulation of credit creation and asset price bubbles are concerned.
Apparently, the Mutual Funds industry has only developed into a full-fledged market since the transfer of authority and infrastructure from the SBP to the Securities and Exchange Commission of Pakistan. The Association has demonstrated severe disinterest in having their legal framework transferred back to the SBP due to the on-going developments in the market.
Dr Akhtar's propositions of regaining control over all aspects of the financial economy are seen at best with skepticism and at worse, with threat, by parties privy to her proposals. As the SBP spreads its authority over different but minute constituents of the Pakistani economy, measures have to be taken to ensure that Central or State banks maintain their role in the free market. Although these banks tend to reduce their role in free markets, there may be a need for this role to be maintained, if not expanded, in Pakistan.
Dr Akhtar may be at a crossroads, but nonetheless, with the milestones to her name, her creativity in creating a financial inclusion in all corners of the financial industry may pay off, especially with her knowledge and ability to manage multi-faceted operations in a short period of time.
By Maria Zain
© Dinar Standard 2009
