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As the new National Security Policy (NSP) unequivocally states, geoeconomics is the new paradigm
through which Pakistan will shape its security calculus. As a whole-of-government document, the NSP
directs the entirety of the state machinery to work towards the realization of the country’s geoeconomic
ambitions. However, not all departments or ministries are equally central to the cause of geoeconomics,
as one would expect, since there are always specific agents who lie at the vanguard of strategies and
policies. In the case of geoeconomics, it is the Ministry of Finance (MoFin) and the State Bank of Pakistan
(SBP) who shall stay at the vanguard with their outsized role in the new paradigm. Yet the degree to which
they recognize this, or are empowered or prepared to drive this agenda, remains to be seen.

We can draw lessons from other countries that have wholeheartedly pursued geoeconomic strategies to
assure national security and social development, and notable in this regard is post-war Japan. In the
aftermath of World War 2, the Tokyo government empowered the Ministry of Finance to lead a semi-
planned economy approach to national development, and the Bank of Japan (BoJ, the central bank) was
subservient to the Ministry of Finance in that regard. As such, the Minister of Finance of Japan was by far
the most powerful man in the country, reflecting the geoeconomic purpose of development that his
ministry shouldered as a pillar of post-war national security.

Meanwhile, the BoJ would use instruments such as “window guidance” to dedicate monetary power that
bolstered the fiscal strength of the country, and both would then be used towards specific geoeconomic
purposes such as concentrated industrial development. There was a strong alignment between the BoJ and
the Ministry of Finance on their geoeconomic purpose, and they worked closely to drive a development
agenda that made the country the 2nd largest economy in the world. However, as foriegn (IMF-style
neoliberal) ideology creeped in, the BoJ began to work at cross-purposes with the Ministry of Finance,
literally engineering an economic bubble (which popped in 1989) that would discredit the ministry, and
thus lay the groundwork for an extremely powerful BoJ that no longer served the national geoeconomic
interests but instead froze the nation’s potential under an ideological shadow. Japan has never truly
recovered from this.

One must then draw the parallel with the new relationship that is emerging in Pakistan between its central
bank and the government, as envisaged in the SBP Amendment Bill. One is obliged to say that, if anything,
the bill makes the central bank into less of a national security asset and perhaps something of a potential
liability. This is because it absolves the SBP of the need for coordinated fiscal-monetary objectives. It

gives an outsized paycheque and blanket immunity to a governor who can invoke new privileges to keep
himself or herself at a distance from the overarching priorities, and narrows the mandate of the bank itself.

The SBP is also absolved of the important “quasi-fiscal operations” that it undertakes, which are an
extremely useful tool for economic coordination and for assistance to key economic sectors. Pakistan
would not have succeeded economically during the Covid-19 pandemic they way that it did without the
proactive quasi-fiscal role that the SBP undertook during 2020, and this is something that will not be
possible under the amendments.

More importantly and worryingly, the government will not be able to engage in new net borrowing from
the SBP and will be forced to tap the commercial banks, who have private interests at their core and charge
higher interest rates which public money will have to repay. In a time of economic crisis, the new SBP
may not be a reliable pillar to assist the government through monetary support, and can even pursue its
own agenda blatantly while seated in Karachi. This is particularly true if it is the IMF that is orchestrating
the appointments behind the scenes.

In the new scenario, then, the SBP might not remain at the vanguard of geoeconomic imperatives, even
though a central bank is, as the Japanese example illustrates, a core institution in a truly geoeconomic
vision. As with the engineering of Japan’s bubble, where the Bank of Japan worked against the Ministry
of Finance to dismantle the successful national development model, the SBP can both actively and
passively work against the government at many levels, thereby stymying the necessary coordination of
fiscal and monetary policy for the purposes of geoeconomics.

It is a supreme irony that the SBP Amendment Act has been under consideration at the same time that the
NSP has touted geoeconomics as the vehicle for the attainment of national security. The two are working
at cross-purposes, and thus unmoor the logic required for coherent policy pursuit. If geoeconomics lies at
the core of national security, then the central bank lies at the core of geoeconomics, and must be aligned
to serve at the vanguard of the new national security paradigm.

Dr. Usman W. Chohan is the Director for Economic Affairs and National Development at the Centre for
Aerospace and Security Studies (CASS). He can be reached at cass.thinkers@gmail.com.

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