Government Proposes Full Autonomy for the SBP

It has recently been revealed that the federal government has given its approval for the absolute autonomy of the State Bank of Pakistan (SBP). Therefore, it is now free of responsibilities of supporting economic growth in the country, as well as providing budgetary loans in order to revive the stalled International Monetary Fund (IMF) program. A draft bill revealed this piece of important news. 

According to the SBP Amendment Bill, 2021, the primary objective of the central bank will be domestic price stability. However, the bill is silent on the inflation target and no accountability has been introduced in case the SBP fails to follow up on its price stability objective. 

On Tuesday, a meeting will be held amongst the members of the federal cabinet, who will take up the Amendment Bill for the purpose of its approval. The green light from the cabinet is a pre-condition, as well as 30 other conditions, when seeking to revive the stalled IMF program worth $6 billion. 

In order to meet another condition set by the IMF, the government will also be presenting the finance bill, during the meeting of the Senate. The purpose of this gathering is to ensure that 80 income tax exemptions are withdrawn. 

As per the bill of the SBP, supporting economic policies of the government will now only be a tertiary objective, as far as the central bank is concerned. In addition, the Federal Investigation Agency (FIA), as well as the National Accountability Bureau (NAB), cannot investigate the governor of the SBP, its executives, the deputy governors, or the board and committee members. 

Former officials of the central bank have also been awarded immunity against the FIA and NAB. 

In another major proposal, it has been suggested that the Fiscal and Monetary Policies Coordination Board be abolished. According to the proposal, this will put an end to the risk of any political party influencing the monetary policy of the SBP. 

The bill further recommended that the powers of the SBP to run quasi-fiscal operations be abolished as well. 

The central bank had sent the first draft of the bill to the Finance Ministry back in March of last year. However, the Ministry had proposed many changes and disagreed with various parts of it. 

In April of last year, the Cabinet Committee on Legislative Cases (CCLC) interfered and deferred the approval of the bill. It stated that the reason for the deferral is the difference of opinion between the Finance Ministry and the SBP over the extent of the autonomy to be granted. 

The Finance Ministry has now directly sent the draft of the bill to the federal cabinet for approval. It has bypassed the CCLC and requested that the cabinet waive the approval of the Legislative Committee, due to the importance and urgency of the matter at hand. 

As expected, a handful of changes have been proposed in the preamble of the SBP bill. One major change is to set the domestic price stability as the primary objective, while fostering the development and maximum utilization of the productive resources of the country has been deemed as a tertiary objective.