In its clarification about the controversial State Bank of Pakistan (SBP) Amendment Bill, SBP has stated that the proposed amendment has identified the domestic price stability as the primary objective of the bank, followed by financial stability and support of the general economic policies of the government.
According to SBP, the provisions pertaining to the central bank’s accountability to the Parliament have further been strengthened through the amendments proposed to the bill.
SBP has issued a brief about the new amendments laid down before the Parliament to fulfill the prior condition of the International Monetary Fund (IMF) – which wants the complete independence of SBP – to revive the loan program.
Moreover, despite a ban on government borrowing, said SBP, it will continue refinancing facilities to financial institutions.
The clear specification of objectives in this manner will make SBP more accountable for achieving them. In addition, it would help the central bank appropriately prioritize its policy actions to ensure sustainable economic growth in Pakistan.
There is strong evidence that some countries with an independent, accountable, and transparent central bank have lower and more stable inflation over long periods of time, which in turn lays the foundation for sustainable growth, clarified in the brief.
The amendments propose exclusion of the provisions related to the government borrowing from the central bank and the SBP quasi-fiscal operations.
It further revealed that the lender of last resort function of the central bank had been strengthened to enable it to provide temporary liquidity facility to banks against appropriate collateral.
A central bank’s autonomy can be jeopardized if it cannot continually avail itself of sufficient financial resources to fulfill its mandate, said SBP. It added that the proposed amendments, in this regard, allowed SBP to be sufficiently capitalized, and prescribed the necessary mechanism to achieve the desired level of capital over time, through both statutory reserves as well as retained earnings.
The proposed amendment makes sure the strengthening of the functional and administrative autonomy of SBP, according to the central bank. The bank said that a key element of the functional independence of central banks was the protection of its officials for actions taken in good faith. It maintained that the provisions for the protection were not only a common practice in other central banks but also existed in other domestic laws.
In addition, the Monetary and Fiscal Policies Coordination Board is proposed to be abolished, as its terms of reference overlap with the work that has been assigned to the Monetary Policy Committee under the existing Act, and such a mechanism for coordination goes beyond provisions in the acts of other central banks. Instead, adds the brief, a new mechanism for coordination is being proposed between the Finance Minister and the Governor, under which they would establish a close liaison and keep each other informed of matters that jointly concern the Ministry of Finance and the State Bank.
The central bank made it clear that the amendments prescribed qualification and experience requirements, tenure, conflict of interest, and disqualification criteria for all appointments, including the directors on the Board of State Bank, members of the Monetary Policy Committee, the Governor and the Deputy Governors.
The bank maintained that to introduce a collegial decision-making process, the amendments proposed to establish an SBP Executive Committee consisting of the Governor and the Deputy Governors. This committee will be responsible for formulating policies related to the bank’s core functions as well as those related to administration and management matters, excluding those matters falling in the purview of the Monetary Policy Committee or the Board of Directors. All policy decisions will be taken by the Executive Committee.
SBP said the amendments strengthened provisions related to the accountability of the bank to the Parliament, the constitution of an Audit Committee, the designation of a Chief Internal Auditor, and the appointment of External Auditors. The oversight role of the SBP Board of Directors will be strengthened and its scope be broadened, including by giving them explicit oversight over the affairs and functions of the bank; the power to supervise the management, bank’s administration, operations; and right of access to all activities of the bank.
Source: Pro Pakistani