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ISLAMABAD: State Bank of Pakistan Amendment Bill 2021 approved by the cabinet “without” proper discussion and in “haste”. It speaks volumes about the “lack” of transparency in the way the finance ministry is being run.

This was stated by former adviser to finance ministry Dr Ashfaque Hassan Khan.

On 9 March, 2021 after the federal cabinet meeting, Finance Minister Dr Abdul Hafeez Shaikh flanked by Secretary Finance and Adviser to Prime Minister on Institutional Reforms Dr Ishrat Hussain shared the following few components of the amendment bill without sharing the copies of the bill with the media: the focus of the central bank would now be on price stability, the governor’s tenure would be of five years and the governor as well as other SBP officials would be accountable to parliament.

This newspaper requested SBP for a copy and was informed that the Bank has not yet shared its copies with the public; a similar response was delivered from sources in the Ministry of Finance. The National Assembly Secretariat informed Business Recorder that the Bill had not been tabled yet.

“The timing and the way the Bill was brought before the federal cabinet for approval speaks volumes about lack of transparency and ill intentions of the proposers as the cabinet members and the prime minister were heavily engaged in the senate elections at the time. This law should be made public so that it can be debated publicly, otherwise this may become be the second biggest debacle after the eighteenth Constitutional Amendment” Dr Khan said.

He further contended that through the proposed Amendment, the SBP would be above the law and the Constitution and the country’s parliament that can remove a prime minister would not be able to remove the SBP Governor or Deputy Governor. National Accountability Bureau (NAB) and federal investigating Agency (FIA) can investigate the chief executive of the country but cannot investigate Governor, Deputy Governors of SBP; and all the SBP would be required to do would be to present a report to the parliament, Ashfaque Hassan Khan said.

The SBP after this amendment would only be responsible for price stability and would use all the instruments including increase in discount rate for inflation targeting which is “simply not doable by the SBP” given that in developing countries like Pakistan other factors such as government administered prices of electricity, gas, oil, medicines etc as well as mafias heavily contribute to inflation.

Dr Asfaque Hassan Khan further stated that as per his information the bill was circulated to the cabinet members a few hours before the cabinet meeting at a time when all the cabinet members including prime minister were busy in the senate elections. He said as per his information, the bill was approved by the cabinet after five to ten minutes.

He further suggested that there is a need to strengthen the fiscal policy and monetary policy coordination board and the tenure of the governor should be one time for five years and the President should have the power to hire and fire the governor. The Governor should not chair the monetary policy board however he could be a member.

“I am against making the Governor financial viceroy of Pakistan,” he said and added that it is interesting to note that Dr Ishrat Hussain in an article on ‘central bank independence’ wrote that “unfettered freedom to a group of technocrats without strong accountability for their actions is equally risky”.

Dr Ashfaque said that lack of accountability of the central bank would have serious consequences because if it performs badly there is no provision for replacing the Governor SBP, Deputy Governor and its directors. He said that the public holds politicians (prime minister and president etc) responsible for the economic well-being of the country and yet those politicians would have no control over the central bank.

Khan further contended that a comparison of Pakistan central bank with other countries’ central banks – Japan’s, India’s, Thailand’s, Korea’s, Indonesia’s Malaysia’s, Brazil’s and Argentina’s – was undertaken some time ago and the conclusion was that Pakistan central bank, in terms of dependence, is at par with the reserve bank of Indian and Central Bank of Malaysia.

He further stated that as per the study Pakistan’s central bank is far more independent than the central banks of Thailand, Brazil and Argentina while it lags behind those of Japan and South Korea. The argument, he said, is that the more the central bank would be independent the less would be the rate of inflation; “however, empirical findings do not support this”.

Dr Ashfaque acknowledged that there are two opposing views on the central bank’s independence: some people support independence on the premise that politicians in a democratic set-up are short-sighted and are driven by the need to win the next election and would like to influence central bank to achieve their short term goals. Therefore control of monetary policy is too important to leave it to politicians; the other group does not want an independent central bank because for them it is undemocratic to have monetary policy controlled by an elite group that is responsible to none, he concluded.

Copyright Business Recorder, 2021

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