Let us now discuss Section-9B that was part of amending Ordinance of 1993 aimed at giving autonomy to SBP. The lawmakers thought it was necessary to have coordination between the central bank, on the one hand, and the key economic ministries, on the other. Indeed, the proposed amendments were drafted by the then Governor and he may have sensibly used this section to make the proposal of autonomy palatable for Islamabad. The Section-9B stipulated establishment of a Fiscal and Monetary Coordination Board headed by the Finance Minister and comprising Commerce Minister, Deputy Chairman, Planning Commission, Governor and Secretary Finance. The functions of the Board included coordination of fiscal, monetary, foreign trade and exchange rate policies together with ensuring policy consistency and achieving specific targets, which the Board were to submit before the National Economic Council (NEC) for approval. Amongst the targets specified, included the monetary aggregates (setting monetary aggregate targets was in fashion at the time!) and the limits on Government borrowings. Interestingly, the law specified the preparatory work that each member of the Board should undertake (as background material) for consideration of the Board. Clearly, each member had a perspective to bring to the issue of policy coordination and consistency.
The SBP (Amendment) Act, 1994 made some minor changes to Section-9B. More changes were made by SBP (Amendment) Act, 1997. First, Secretary Commerce could attend the Board meeting in the absence of Commerce Minister; the name of the Board was changed to just Coordination Board; mandatory meeting of the Board was required before the budget to determine extent of government borrowing from commercial banks keeping in view credit requirements of private sector, liquidity expansion determined by the central board of the Bank and expected changes in the net foreign assets of the banking system [this sub-section replaced the old provision that envisaged NEC approval of SBP's recommendations for monetary aggregates and government borrowings]; hold quarterly meetings of the Board to review the consistency of macroeconomic policies and take remedial measures in the light of economic developments taking place.
Curiously, Ashraf Janjua, a former Deputy Governor and official historian who wrote the history of SBP has termed Section-9B as an attempt by the government to 'water-down' the autonomy of SBP. This is not a fair comment, as we have already pointed out that the draft proposals were formulated by the then Governor with adequate safeguards. Yet, the Governor in 2001 wanted to further strengthen the independence of SBP and thus formulated additional amendments, which were relatively easy to implement during the days of a military government.
The SBP (Amendment) Ordinance, 2002 inserted a new sub-section 6 in Section-9B that removed all apprehensions if it affected the autonomy of the central bank. The new section read: In carrying out its assigned functions of coordinating fiscal, monetary and exchange rate policies and for ensuring consistency among macro-economic targets of growth, inflation, monetary and external account, as laid down in sub-section (1), (2), (3), (4) and (5), the Coordination Board shall not take any measure that would adversely affect the autonomy of the SBP as provided in this Act. Evidently, this over-riding provision removed any doubts that the Coordination Board was an obstacle in the independence of the Bank.
The amending Ordinance 2002 went even further in securing the autonomy of the Bank. The appointment of the Governor was now to be made by the President of Pakistan, as opposed to the Federal Government, which previously had this authority. However, this provision reflected political realities of the moment rather than any enhanced security of tenure compared to what was already available. But the more curious protection to SBP autonomy was sought through the Chief Executive's Legal Framework Order (LFO), through which the SBP Act was included in the Schedule VI of the Constitution. This meant, under Article 268 of the Constitution, the laws specified in the Schedule VI were protected in the sense that the Parliament would not amend those without the previous sanction of the President.
As the future political events unfolded the succeeding setup did away with this additional safeguard. Clause-2 of Article 268 and the Schedule VI were omitted by the Constitution (18th Amendment) Act, 2010.
Now taking 9A and 9B together, there was a huge improvement in the autonomy of the Bank compared to what previously existed, since inception of the Bank in 1948. During the period, 1999-2005, Governor Dr Ishrat Hussain also succeeded in establishing effective working with the Ministry of Finance that helped developed efficient operating procedures at the grass roots level achieving better coordination with the government. He also eliminated the need for reference to government for personnel policies, including permission to travel abroad, for SBP employees.
Curiously, no such measures (like 9A, 9B) have been adopted in the case of Reserve Bank of India (RBI). During the period, this process started in Pakistan, no comparable amendments were made in the RBI law. The harmonious understanding between the central government in New Delhi and RBI in Mumbai is reflected in the first provision of the RBI Act 1934 under the head Management of the Bank: The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.
Now let us look at the performance of the Coordination Board. Here, unfortunately, there is nothing much to report. The Board met rarely and it never functioned as a forum the law makers had envisaged. The proceedings of the Board meetings, when at all held, were stale and amounted to just fulfilling a statutory requirement. The largest number of meetings was held under Ishaq Dar as Finance Minister. But these meetings were largely used to hold discussions on the emerging economic trends as opposed to developing proposals for the guidance of SBP. The Board never issued directives to SBP that constrained or impinged on its autonomy.
Having said that, we are of the considered view that the Coordination Board is a useful forum; and it should be strengthened and taken seriously. It should act in accordance with its mandate and help coordinate the three important policies. The monetary policy (as we would examine in the next part of this series) has now evolved into a very dynamic and primary responsibility of SBP and carries serious consequences for fiscal, trade and exchange rate policies. Accordingly, consistency and coordination among different policy-making bodies is essential.
(The writer is former finance secretary)
waqarmkn@gmail.com