In the following paragraphs I will be dilating on the subject of the role of various stakeholders with respect to proposed amendments in the State Bank of Pakistan Act, 1956. These stakeholders are (i) the Government of Pakistan, the party proposing the amendments; (ii) the International Monetary Fund (IMF) that has demanded certain amendments in the SBP regulations as part of a programme for a broad economic correction; (iii) SBP executive and staff; (iv) the media and opposition who disagree with these amendments; and (v) the people of Pakistan who largely remain ignorant. In my view, all the parties are not totally correct and there is an urgent need to provide a cohesive analysis. The dissemination of rationale advanced by SBP and Ministry of Finance is grossly insufficient.
Let me first deal with the IMF. It is the Fund’s misconception that there can be any Central Bank that can be completely independent from the Government in power and that too in a developing country. This is a theoretical concept confined to books. Even, if there is such a thing called ‘independent Central Bank’ the question is whether or not there should be any difference of views on monetary matters between the Ministry of Finance and SBP. Both are working for the benefit of Pakistan. Accordingly, the concept of an independent board is a wrong presumption. There is no sense in the assumption that there is something good for Pakistan where Q Block in Islamabad (finance ministry) may have a view different from I. I. Chundrigar Road, Karachi. If it is really so then we should take other actions. There is a merit in the case that Board of Directors should be selected from amongst the people of stature and background and the Governor’s post should be a constitutional position; however, everything should be within the folds of Government of Pakistan, whereby personal prejudices and favours should not prevail. The simple question is who will appoint the so-called Directors of the SBP Board. In my view, the IMF is wrong in this presumption that this is only an academic issue.
Secondly, the proposal relating to SBP’s role with regard to prices is also a completely incorrect presumption within Pakistan’s context. The prices of essential commodities are shooting on account of constant increase in the size of undocumented economy where currency in circulation earned through unscrupulous means is being parked in these sectors. Furthermore, there is lot of confusion about the so-called banking system based on divine revelations. These matters are beyond the control of SBP; therefore, any prescription on that count is also an academic adventure. In short, it is suggested that IMF’s prescriptions be attuned with the situation on the ground.
Now we turn to the proposed amendments. In my view, the following are the major amendments suggested in the bill:
(a) SBP will be allowed to share information with international financial institutions and others if and when required; (b) SBP officers will not be investigated or prosecuted by NAB and FIA without approval by the Board of Directors of SBP; (c) Government of Pakistan will not directly borrow from SBP. Any such borrowing is to be done through the financial markets; (d) The Monetary & Fiscal Policy Coordination Board has been abolished; and (e) SBP has been freed from responsibilities of supporting economic growth and provide budgetary loans.
There are many other minor changes however, most of the controversy is around the aforesaid issues.
Pakistan is a strange country and Imran Khan is an unfortunate Prime Minister in some sense. Throughout the world there are allegations of snatching power whereas in this case the ruling party is being criticized for devolving the powers to the Board. If it is considered that by these actions the country is being mortgaged to the IMF then before reaching this conclusion there should be a considerate evaluation of the proposed amendments.
In the post-9/11 world there is an international campaign against terror financing. This requires a coordinated approach for exchange of information. It is being felt that certain provisions introduced in 1956 require reexamination in 2021. Nevertheless, if sharing of some information is against the national interest then such information will not be given to outsiders. It should be clearly appreciated that the Governor and the Members of the Board are Pakistanis and their integrity and sincerity cannot be challenged.
As rightly indicated by an article in a newspaper the amendment relating to NAB and FIA is the outcome of KASB-BankIslami merger dispute and litigation. Nevertheless, this amendment raises a bigger question. That question is whether or not persons performing their job as Government Servants and also those retired can be prosecuted under the accountability laws for actions undertaken under any statute or rules of business. My answer is that such persons should be subject to accountability. However, there has to be a process for the same. In this case it has been provided that in case of SBP no proceeding can be undertaken unless approved by the Board of SBP. This condition may be challenged as the Board of SBP is deemed / perceived as a party. There is an argument on both sides and a workable but protective system would have to be designed. Otherwise, the government functioning will be choked.
Without prejudice to the same and not related to these amendments the primary question is whether such immunity for SBP be extended to all such persons. This is a very valid observation and actions on that count be undertaken. Nevertheless, in principle an amendment has to be there.
There is no harm in providing a condition that SBP should not be used for government borrowing and government support without any limitation. If some caveats are provided then that is good for the country.
The abolition of Monetary & Fiscal Policy Coordination Board is a right step. There cannot be another central bank within SBP. The primary Board is responsible and answerable for the provisions contained in the SBP Act and there cannot be any parallel hierarchy on that matter. It is not SBP’s role to provide policy guidelines and support for economic growth. This is the job of Ministry of Planning & Development which is effectively dysfunctional.
In the wake of enthusiasm on the subject, instances are being quoted of other countries like Turkish President’s act of terminating the president of the Turkish central bank. This is a questionable subject. Whether or not we want an ‘all powerful’ CEO (Prime Minister) of the country or the powers are to be shared and devolved. I would prefer the latter option.
It is quite unfortunate that instead of having a constructive debate based on facts and circumstances time is being wasted in confusing the masses, executive and the parliament. There is no perfect example. Each society decides the best for itself according to generally acceptable international best practices. This is a process of making choices, which can be corrected if proved wrong.
Copyright Business Recorder, 2021