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The airwaves are inundated by discussion on the passage of the State Bank of Pakistan (SBP) amendment bill in the Senate Friday past with the Pakistan Tehreek-e-Insaf (PTI) claiming victory in getting this controversial bill, like all previous bills, passed from a chamber where they are in minority while the Opposition blamed each other for absences of their senators as proof of duplicity in their voting patterns.

The battle lines were drawn well in advance on the SBP Amendment bill – a bill reportedly not supported by the Prime Minister’s Office and several key cabinet members known for not blindly echoing the Prime Minister’s opinion though, needless to add, they all defer to his final firm decisions. The opposition, in marked contrast, was able to publicly voice objections on key clauses of the bill that Cabinet members were reportedly reluctant to endorse in the first place.

While this is a reflection of the current state of politics in Pakistan where a consensus is presented as disagreement and subsequently temperatures publicly raised to a boiling point yet no national party - not the PTI, not the PML-N and not the PPP - has truthfully acknowledged that there was no choice but to pass the bill for two reasons.

First, the coalition partners/disgruntled PTI members and some opposition members had stated that they received “telephone” calls to attend the National Assembly session when the finance supplementary bill was tabled, a bill that like the SBP amendment bill was a key prior condition for IMF Board approval for the release of the sixth tranche under the 6 billion dollars Extended Fund Facility programme. Thus it was not probable that the same tactics would not be used to ensure its passage.

And second, there is no doubt that the other two national parties would have supported the bill had they been in government given the state of the economy today, irrespective of government claims to the contrary. By remaining on the IMF programme the government has ensured that the capacity of the government to borrow for budget support (as opposed to project specific support) is not compromised from multilaterals, equity borrowing (issuance of sukuk/Eurobonds) and from the commercial banking sector abroad at rates lower than would otherwise be possible.

But as claimed by opposition leaders does the bill make the apex bank unaccountable? And allow it to take decisions at IMF prompting and against our national interests? To respond to the first question it is relevant to note that the decisions of the SBP in 2019 remain unchallenged except by the media and some independent economists and therefore the decision makers remain unaccountable - decisions which include: (i) linking the discount rate (13.25 percent from July 2019 to March 2020) to the consumer price index (lower at around 12 to 12.65 percent) and not core inflation (around 7 percent) as was the practice previously (a summary decision in defiance of SBP’s own 2006 research paper) which throttled economic activity, as envisaged under the IMF programme with a growth rate projection of 1.5 percent; (ii) proceeding to convert short-term government debt to long-term debt when the discount rate was a high 13.25 percent thereby raising the government’s annual budgeted mark-up repayment; and (iii) allowing the rupee to depreciate by citing the prevalence of disorderly market conditions while the real effective exchange rate (REER) in June 2019 was, according to its website 90.9, which is as inexplicable as Ishaq Dar raising the REER to 121 in June 2017.

The process for appointing non-executive directors, Governor and deputy governors be made more rigorous; sadly, this has not been done in the amendment as clause 11A regarding appointments states that “Governor and non-executive directors shall be appointed by the President upon the recommendation of the federal government taking into account the eligibility and disqualification criteria laid down in this bill” which do not include their qualifications or work experience or the appointment of deputy governors.

In addition, the tenure of the Governor, deputy governors and non-executive directors has been extended to five years, with a one term extension (possible only if those serving mid-level in other organizations are appointed as age is cited as a factor) though the incumbents’ term will expire in accordance with the current terms and conditions.

The question would these amendments make the SBP an IMF viceroy the answer is no. The apex bank would, if led by a competent governor, deputy governors and non-executive directors, refuse to endorse a Finance Minister’s flawed policy to overvalue the rupee just so he can understate the budgeted mark-up, no longer undertake any quasi fiscal operations or development finance activities, and under the amended SBP bill clause 21 it can operate in financial markets by buying and selling (spot or forward), conducting repurchase agreements of government securities purchased in the secondary market, swap or lending operations in foreign currencies, lending or borrowing claims and marketable instruments and precious metals, and conducting credit operations with lending based on adequate collateral.

And finally, the bill states that the primary objective of the Bank shall be to achieve and maintain domestic price stability – a role that it has failed to do in the past given its claims that prices in this country are a function of collusion and administered prices by the government. Unless the bank sets an indicative inflation target rather than merely forecasting the rate based on government data this primary objective is doomed not to be met.

However, for all those opposed to the SBP bill it must be borne in mind that in Pakistan de jure, or laws on paper, are rarely applied and that de facto conditions (existing state) apply on an entire range of government appointments and functions.

To conclude, notwithstanding the SBP amendment bill incumbent office holders can tender their resignation if the powers that be so decide.

Copyright Business Recorder, 2022

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