National Assembly's Standing Committee on Finance has approved the proposed State Bank of Pakistan (Amendment) Bill 2015 envisaging establishment of monetary policy committee aimed at taking independent decisions on monetary policy. The committee whose chairman Omer Ayub Khan was de-seated due to electoral disputes met Monday and decided to nominate committee member Qaiser Ahmed Sheikh as temporary chairman to head the proceedings and push through much delayed law that the government by committed to the International Monetary Fund (IMF) under $6.64 billion Extended Fund Facility.
The Finance Minister after conclusion chaired a meeting on public debt on Sunday and on the following day he approved the bidding process of strategic sell-off of government shares in National Power Construction Company (NPCC) as well as got SBP law approved from the committee.
An official on condition of anonymity said that intensity of activities by Finance Ministry subsequent to the review suggests that all was not good during the discussions on eighth review and these measures may be prior to conditions for the release of next tranche.
The Secretary Finance said that the government has requested the committee for the passage of law because it proposes some important amendments in the SBP 1956 Act. He added that after the amendment, powers would be taken from Executive Board of the SBP and delegated to the Monetary Policy Committee to determine policy rates and do away with the perception of government influence in SBP decisions with respect to policy rate because it was borrowing from it.
Riaz Riazuddin, Deputy Governor SBP, informed the committee that the number of members on the committee would be nine, including governor SBP and majority of them would be experts from private sector. The committee was further informed that the purpose of amendments in the SBP Act 1956 is to bring the existing legislation in conformity with the international best practices of a modern central bank.
The amendments are being proposed for the reasons because the existing clauses pertaining to shareholders, executive committee and local boards are no longer relevant after various amendments as well as promulgation of the Bank (Nationalisation) Act, 1974. Amendments propose that a statutory Monetary Policy Committee with external experts to be appointed by the federal government to be established, which will be responsible to formulate, support and recommend the Monetary Policy and take appropriate decisions relating to key interest rates, supply of reserves, exchange rate policy, and limit and nature of advances and loans to the government.
The main object for introducing this statutory committee is to enable the SBP to perform its essential functions in a professional way in a changing and emerging financial environment. Consequently various sections in the Act have also been amended in order to secure the independent statutory role of the Monetary Policy Committee.
An enabling c1ause to allow SBP for the establishment of depositor's protection fund has been introduced. Draft law on the deposit protection fund is already under consideration of the federal government whereby the fund will be a subsidiary of SBP.
A new section on lender of last resort has been introduced in the Act to provide legal certainty to the support that is already being provided by SBP to the troubled banks. Another new section on regulatory powers has been introduced in the Act, in order to provide explicit powers to SBP for issuing directives, imposing and recovering penalties, which is already being exercised by SBP under Banking Companies Ordinance 1962.
In order to further the role of Islamic Banking in Pakistan, it is necessary for the Banks to engage in Sharia-compliant instruments and for this purpose an amendment has been introduced whereby a bank is allowed to hold property for the purposes of use of Shariah-Compliant Instruments.
The role of SBP has been strengthened further by substituting the Federal Government's approval wherever required, with the Board's approval. This is reflected in various amendments including but not limited to establishing offices, agencies or branches outside Pakistan, approve declaration of approved foreign currency, total amount of assets and the value of such assets, forms of weekly returns submitted to federal government. The Chairman Federal Board of Revenue (FBR) informed the committee that he was optimistic about positive results from ongoing talks with traders on 0.6 per cent withholding tax on all banking transactions.
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