Monetary and Fiscal Policy Coordination

Macroeconomic policies are meant to achieve non-inflationary, stable growth. There are two major groups of policy instruments to achieve the purpose; one is related to monetary conditions and the other to fiscal conditions. Monetary instruments are employed by the central bank and fiscal instruments are employed by ministry of finance. The objectives and implications of policy measures taken by the two institutions often conflict with each other and thus call for policy coordination for effective implementation of policy decisions to achieve the set targets. The policy coordination has to be supported by concrete institutional and operating arrangements like monetary and fiscal coordination board. In Pakistan there was no concept of such policy coordination before financial sector reforms which were initiated in 1989-90. This financial reforms and restructuring process necessitated the monetary and financial policy coordination and a monetary and fiscal policy coordination board has been established in Pakista