ISLAMABAD: The National Assembly on Wednesday approved State Bank of Pakistan Amendment Bill 2011 designed to make it mandatory for the government to retire borrowing from the central bank at the end of each quarter and introduce a statutory committee to facilitate Bank's autonomy in performance of essential functions in the changing financial environment.
The bill moved by the Minister of State for Finance Khawaja Sheraz was again passed by the National Assembly largely because of some amendments proposed or effected by the Senate. The legislation imposed limitations on the federal government borrowing from the SBP that would be brought to zero at the end of each quarter barring the ways and means limits to be determined by the Central Board of the Bank from time to time. Additionally, the debt of the federal government, which it owes to the Central Bank as on April 30, 2011, would be retired not later than eight years from that date. The Finance Minister would place before the Parliament a statement giving justification of the failure if any of the above stated provisions were not met by the federal government.
According to the statement of objectives and reasons stated in the law, the 'State Bank of Pakistan Act, 1956, being an old law would benefit from being updated to bring it closer to the current emerging functions of a modem central bank and to better conform to best international practice.'
The Monetary and Fiscal Policies Co-ordination Board is redundant in terms of current practice for it is proposed to replace it and give the current Monetary Policy Committee a statutory status, with external experts to be appointed by the federal government.
The Central Board will be represented by two members on the Committee which will be responsible to formulate, decide and implement the monetary policy and decide on matters such as those relating to key interest rates, supply of reserves, exchange rate policy, and the limits and nature of advances and loans to the government.
The main object behind the introduction of this statutory committee is to facilitate the State Bank's autonomy in performance of its essential functions in the changing financial environment. Consequently, various sections in the Act have also been amended in order to bring them in line with the role of the Monetary Policy Committee. Lending to the government has been restricted by insertion of a new section and emergent functions pertaining to open market and credit operations and international reserves have been elaborated and clarified by substitution of the existing sections.
The Section 52 of the SBP Act which provided for the supersession of the Central Board by the federal government since the time the State Bank was privately owned has been repealed in conformity with the current autonomy of the Central Bank, and international practices. These amendments will make the law more conducive to the changing global economic and regulatory environment and will better enable the central bank to function on modern lines.