File photo of a meeting of the federal cabinet. Photo courtesy PID
Legislation to grant autonomy to State Bank of Pakistan approved and will now be placed before Parliament
The federal cabinet on Tuesday approved legislation to grant autonomy to the State Bank of Pakistan (SBP)—one of the “prior actions” required by the International Monetary Fund (IMF) to revive a stalled loan facility—but deferred the approval of a mini-budget also mandated by the global lender to remove tax exemptions from various sectors.
Addressing media, Information Minister Chaudhry Fawad Hussain confirmed that a revised draft of the SBP (Amendment) Bill, 2021 had been approved by the federal cabinet. It seeks to amend the SBP Act of 1956, removing any accountability of the central bank governor for missing economic targets set by the government. Under the revised draft, “the governor shall submit an annual report before Parliament regarding the achievement of the bank’s objectives, the conduct of monetary policy, state of the economy and the financial system.” Similarly, it restricts the conditions under which the governor can be removed by the government.
Per the new bill, the federal government “may remove” the governor, or a deputy governor, if they are guilty of gross misconduct; or are incapable of properly performing the duties of their office by reason of physical or mental incapacity. The governor would be appointed for a period of five years with an option of tenure extension for another five years.
The draft bill also curtails the authority of the finance minister to appoint a deputy governor, stating that the federal government would appoint a deputy governor from a panel of three recommended by the governor, in order of merit. It requires the government to consult the SBP prior to the introduction of any bill in Parliament that might have a bearing on the functions of the bank.
Under the bill, the SBP would also not extend any direct credit to, or guarantee any obligations of the government, or any government-owned entity or any other public entity.
Mini-budget
The second pending “prior action” that the IMF requires to revive a suspended $6 billion loan facility to Pakistan is the parliamentary approval of a mini-budget that would remove Rs. 360 billion worth of tax exemptions from various sectors, raising the specter of further inflation in the months to come.
According to sources, the government’s allies in the cabinet—as well as several lawmakers from Khyber-Pakhtunkhwa—objected to introducing the mini-budget over an expected political backlash. The PTI, particularly, fears a repeat of its performance in the first phase of the Khyber-Pakhtunkhwa local government elections, in which it came in a distant second to the opposition’s Jamiat Ulema-e-Islam (Fazl). The second phase of the local bodies’ polls is due next month.
In his press interaction, the information minister said that the government had decided to defer the mini-budget to ensure it had been fully debated prior to its presentation before Parliament. He said a special meeting of the cabinet would be held soon on a one-point agenda—the supplementary finance bill. He stressed that the bill would be presented and approved in the current session of Parliament.
The IMF’s Executive Board is set to meet on Jan. 12, and if the government has not completed all required prior actions, the revival of the loan facility would be deferred until it has done so, potentially worsening the country’s macroeconomic indicators.