The federal cabinet early this week approved the State Bank of Pakistan (SBP) ‘Amendment Bill 2021’. Reportedly, the bill advocates fundamental changes in the SBP founding laws of 1956. According to finance minister Dr Hafeez Sheikh, the SBP’s sole mandate would be “price control and to independently set monetary policy and exchange rate policy.”
The amendments include administrative changes such as the term of office of the SBP governor shall be five years, the government shall not borrow or seek guarantees from the SBP for its operations, and the remuneration, terms and conditions of the service of the governor and deputy governors will be determined by the SBP board. The governor shall submit bank’s annual report before the parliament regarding the achievement of its objectives, conduct of monetary policy, state of the economy and overall functioning of financial system. The parliament may require any senior official to attend at such additional times as may be required.”
The proposed amendments seek protection to actions taken in good faith by providing indemnity, “No suit, prosecution or any other legal proceedings including for damages shall lie against the bank, its board of directors or members, governor, deputy governors and support for economic policies of the government has been declared as the “tertiary objective” of the SBP. The National Accountability Bureau (NAB) and the Federal Investigation Agency (FIA) cannot investigate the SBP governor, deputy governors, its executives and board and committee members including its former officials without permission of its board of directors.
Whereas, on the legislation side, the federal government cannot make legislation without consulting the SBP. “The bank shall be consulted ex ante on any proposed legislative act related to the Bank,” states Section 46B sub-section 8 of the ordinance. The definition of “monetary liabilities” has been introduced, which means total liabilities of the bank as reduced by the sum of “deposits of the government, amounts owing to the IMF, the World Bank, the Asian Development Bank (ADB) or other such instruments, deposits of foreign central banks or sovereign wealth funds, utilised swap lines of foreign central banks and balance of participant central banks under any clearing union”.
The proposed amendment bill has invited an outcry from the leading economists and analysts of the country - with wide coverage in the print, social and electronic media of the country. In the event of passage of this bill as is, the SBP governor perceived by some as an IMF insider, is being portrayed as an ‘Economic Viceroy’ and the IMF as the East India Company out to usurp the sovereignty of the nation.
Dramatic reforms in a country are difficult to be absorbed. Some oppose them out of vested interests and some out of emotions and lack of any rational approach, with some on merit.
Setting aside for a while the apprehensions and opinions of the economists of the country, one is tempted to ponder on some basic and undeniable facts to draw out a logical conclusion based on some analytical and rational understanding.
The IMF is a lending bank and like all lenders it lends money and ensures that the borrower has sufficient means and fiscal discipline to repay it. To ensure that, it would go to any lengths. In the 1990s, in the face of a severe economic crisis, India approached the IMF for a bailout. India’s fiscal situation was so bad that the IMF refused to accept India’s sovereign guarantees and instead demanded India deposited its bullion reserves as hard collateral. The then finance minister of India, Yashwant Sinha, ensured that tons of bullion was flown out from the vaults of Delhi treasury to the IMF vaults in London. Such is the extent to which IMF can go with its member clients.
It is also a fact that sectoral regulators in Pakistan, by design, have been rendered ineffective and compromised. So much so that the former government stripped regulators Nepra and Ogra of their independent status and placed them under the line Ministry of Power and Oil & Gas, respectively. Whereas, country’s prime regulatory bodies, including SBP’s, have largely been headed by the hand-picked political appointees.
The clause to insulate SBP Governor, its principal officers and the board members from intervention of NAB and FIA is understandable. This ‘precaution’ stems from an ongoing NAB investigation against SBP officers in the alleged non-transparent merger of the KASB and BankIslami. SBP executives fear that more of their actions would be challenged by NAB and FIA. But, similar has also been the demand of the bureaucracy and elite businessmen of the country as they want to conduct their responsibilities free from fear and perceived or real harassment by NAB. In case of SBP this condition may sail through under the guise of IMF flag, although it is unlikely that the Fund would put up this condition and meddle in the criminal law of the land. Their concern is limited to the independence of SBP and other regulatory entities of Pakistan. The clause pertaining to absolute autonomy to the board of SBP to conduct its business is similar to the recently rolled out reforms for the management of State-Owned Enterprises (SOEs) where the entity boards have been delegated the principal responsibility to its business free from political and bureaucratic interventions.
Be that as it may, the country has to just settle the IMF loan and walk out to freedom. Unless we do that, the IMF and its dictates are here to stay.
(The writer is former President of Overseas Investors Chambers of Commerce and Industry)
Copyright Business Recorder, 2021