The Senate Standing Committee on Finance on Thursday postponed considering the State Bank of Pakistan (Amendment) Bill 2010 on the request of Federal Minister for Finance Dr Hafeez Shaikh till the return of Governor State Bank of Pakistan (SBP) from abroad.
During the committee proceedings, Finance Minister said the Governor SBP, who is presently abroad, has been asked to immediately return to brief the committee about the salient features of the proposed law as Senator Ishaq Dar was of the view that the law proposes unlimited autonomy to the central bank, which would tantamount to create state within state.
On behalf of all members, chairman of the committee announced postponement of the meeting. "I fully agree with the proposal of the Finance Minister that the proposed law be explained by the Governor SBP," Ahmad Ali stated. Some members of the committee also expressed concern over not convening the meetings of the Fiscal and Monetary Policies Co-ordination Board since 2007. They opined that the SBP has been announcing the monetary and credit policies during last four years without approval of the Fiscal and Monetary Policies Co-ordination Board which was in violation of the State Bank of Pakistan Act.
Senate Standing Committee on Finance was met here in the parliament house with Senator Ahmed Ali in the chair to consider SBP amendment bill 2010 but was postponed till the return of Governor SBP. Ahmed Ali supported the proposal of Finance Minister that the Governor SBP should come and explain the provisions of the proposed law.
Earlier, Senator Professor Khursheed Ahmed, Senator Haroon Khan and Senator Ilyas Bilour said that announcing monetary and credit policies by the SBP without the approval by the Fiscal and Monetary Policies Co-ordination Board was violation of the State Bank Act.
Hamza Ali Malik, Director Monetary Policy State Bank of Pakistan (SBP) informed the committee that it was the responsibility of the Finance Ministry for holding meeting of the Fiscal and Monetary Policies Co-ordination Board as the Board is headed by Finance Minister and its secretariat is managed by Finance Division.
Chief Economist SBP stated although no meeting of the Fiscal and Monetary Policies Co-ordination Board was held, the SBP has been announcing the monetary and credit policies as per inflation and growth targets approved by the government contained in the Annual Plan.
Senators among Haroon Khan, Ilyas Bilour and Professor Khursheed Ahmed also expressed their concern over the proposed section of 2-A of the State Bank of Pakistan (amendment) Bill 2010. They argued that in emergency cases, this proposed clause allows the Governor SBP to take decisions on his own and afterwards he has to just report to the Board of Directors. Under the existing clause there is a requirement for the Governor to take approval from the BoD for taking decisions in emergency.
According to the brief presented to the committee by the Finance Division regarding autonomy of the SBP, the powers of the SBP regarding implementation of Monetary Policy has been clearly elaborated. Open market and credit operations (OMCO) have been elaborated and Monetary Policy Committee has been mandated to monitor the OMCO of the Central Bank.
Under the proposed law, the lending to the government has been restricted. However, some relaxation has been made in case the Federal Government requires liquidity temporarily to cover its deficit. This lending has been restricted to 10 percent of the actual revenue in the preceding years budget.
Moreover, section 52 of the State Bank of Pakistan Act, 1956 provides for supersession of any decision of the Central Board of SBP by Federal Government. However, SBP (Amendment) Bill, 2010 proposes omission of the section. After omission Federal Government would not be able to supersede any decision of either Central Board or the proposed Monetary Policy Committee.
The proposed bill after vetting by the Law and Justice Division and approved by the Cabinet was introduced in the National Assembly. The bill was approved by the national Assembly on 4th November 2010 and sent to the Senate Secretariat on 8th November 2010 for placing in the Upper House. The Bill was introduced in the Senate on 1st February 2011 which was referred to the Standing Committee on Finance, Revenue, Economic Affairs, Statistics and Planning & Development for consideration. Bill approved by the National Assembly and matrix containing existing provisions and proposed amendments were placed before the Senate Standing Committee on Finance.