Governor State Bank of Pakistan (SBP) Reza Baqir said Pakistan needs to make improvements in the judicial system to be able to hear cases related to corporate insolvencies.
While addressing a high-level panel discussion on corporate debt in developing countries, Baqir sated that it was difficult to do a corporate workout in Pakistan due to intricacies of the judicial system and partly due to a culture where, previously, some borrowers used strategic default to set up questionable activities and then get a free bailout.
“The combination of weak corporate governance and judicial system issues make it difficult to do corporate workouts,” said the governor.
The conference was organized to discuss the World Bank Group’s insolvency series to improve understanding and explore solutions for heading off the rising threat to economic recovery in the wake of the pandemic.
Baqir said, “The most important area for Pakistan, where help from institutions like the World Bank can go a long way, is creating expertise in the judicial system to be able to hear case relating to insolvencies by having specialised benches of the court, judges and using technology to address the backlog of such cases that exist.”
He said that due to the current covid 19 situation in Pakistan it is difficult to handle the situation. Baqir further added that since Pakistan has high public debt at nearly 80% of GDP so there is need for the improvements in the monetary instruments rather than a fiscal expansion.
“If, after Covid, Pakistan ends up with a high debt-to-GDP ratio it would actually undermine the goal of restoring financial stability.”
He claimed that there was also a memorandum of understanding in progress with the provincial government and high courts to promote interaction between officials of the central bank and judicial system.
