THE Sustainable Development Goals (SDGs) are a global commitment to end poverty, promote prosperity and protect the planet.
Pakistan has adopted these goals through its National Assembly and aims to achieve them.
Effective policies, strong governance and public-private collaboration are essential for realizing these objectives.
The State Bank Act (SBP Act), approved in 2022, has raised concerns about its alignment with the SDGs.
Central banks are responsible for managing economic objectives such as employment, growth and price stability.
However, the SBP Act prioritizes price stability, placing employment and growth in a secondary position.
This shift in priorities conflicts with the SDGs, where employment and economic growth are essential components.
In 2019, Pakistan’s economic growth rate dropped from 6.1% to 3.4%.
Had the central bank focused on economic growth, it could have lowered interest rates to stimulate business activity.
However, with price stability as the primary objective, the central bank raised interest rates, slowing down growth.
This led to negative growth in 2020 and continued into 2022 and 2023.
This trend shows the risks of prioritizing price stability over other goals and highlights the need for a more balanced monetary policy that considers both growth and price stability.
Raising interest rates has a clear impact on the economy through two channels.
The demand channel suggests that higher interest rates reduce consumer spending, leading to lower aggregate demand, which in turn lowers GDP and increases unemployment.
The cost channel, on the other hand, suggests that higher interest rates increase production costs, leading to supply shortages, which can cause prices to rise, while also reducing employment and growth.
Both channels demonstrate the trade-offs between controlling inflation and fostering economic growth.
When interest rates rise, economic growth and employment decline, and the impact is most severely felt by the most vulnerable members of society.
Unemployment tends to disproportionately affect daily wage workers and temporary job holders, who are already among the poorest groups.
These individuals lack social safety nets and are more vulnerable to poverty and hunger.
A rise in unemployment can significantly increase poverty levels, directly undermining SDG 1 (No Poverty) and SDG 2 (Zero Hunger).
The situation in Pakistan is exacerbated by the country’s large debt burden.
Higher interest rates result in a larger portion of the government’s budget being directed toward debt servicing, which reduces the funds available for other vital government functions, including investment in social services and infrastructure.
In the current fiscal year, 9,775 billion PKR was allocated for debt servicing, which makes up 57% of the federal government’s total current expenditures.
This substantial allocation limits the resources available for achieving the SDGs, such as poverty alleviation, education, health care and infrastructure.
As a result, the rise in interest rates hurts the government’s ability to focus on long-term development and the achievement of key SDGs.
The SBP Act also contains provisions that restrict the government’s ability to borrow directly from the central bank.
This restriction reduces the government’s flexibility to respond quickly to economic crises, such as the COVID-19 pandemic, when immediate liquidity was necessary.
Many countries, including Pakistan’s peers, were able to stabilize their economies by borrowing from their central banks.
However, the SBP Act prohibits this option, limiting the government’s ability to manage fiscal imbalances.
The government needs access to flexible funding mechanisms to invest in SDG-related initiatives, such as poverty reduction, education, health and infrastructure.
Without this flexibility, the government’s capacity to address long-term development challenges is severely constrained.
The focus on price stability in the SBP Act, without adequate consideration of employment and growth, has far-reaching consequences for the achievement of SDGs.
By prioritizing monetary stability over broader economic objectives, the SBP Act undermines the government’s ability to invest in key development areas, such as poverty reduction and infrastructure.
A more balanced approach that takes into account the trade-offs between different economic goals is necessary for achieving the SDGs.
In conclusion, the SBP Act needs urgent revision to realign its priorities with Pakistan’s development goals.
Economic growth and employment must be given equal importance alongside price stability.
The SDGs should not be sacrificed in the pursuit of monetary stability.
A balanced approach, recognizing the interconnections between growth, employment and price stability, is essential for ensuring Pakistan’s development trajectory aligns with its SDG commitments.
Such a revision would support the government’s efforts to reduce poverty, promote sustainable economic growth and improve social well-being, ultimately helping Pakistan achieve the SDGs and meet the aspirations of its citizens.
—The writer is Associate Professor, University of Azad Jammu and Kashmir. (ateeqmzd@gmail.com)
