The MOF and SBP are issues over authority and a blunder over why Euro bonds did not get issued when it was needed. I told you that is not normal that PKR has been going downhill on daily bases and PTI youth thought it was normal. It is not normal.
The federal government has proposed removing the State Bank governor from the post of the chairman of the SBP board of directors to keep the central bank’s activities in check after its management’s aggressive bid for complete autonomy.
The State Bank’s fresh attempt has created serious differences between the central bank and the finance ministry, highly-placed sources told The Express Tribune.
The central bank has sought complete autonomy, which is not in line with the country’s existing legal structure, they added.
The federal government agrees with the principle of giving autonomy to the SBP but the dispute is over its extent, as the central bank’s management has sought unbridled powers in the draft amendment bill of the SBP Act of 1956, a federal minister told The Express Tribune.
Due to the differences between the central bank and the Q Block, the Cabinet Committee on Legislative Cases recently returned a summary that had been moved to vet legal changes in the SBP Act, largely suggested by the central bank with the support of the International Monetary Fund (IMF), the top government functionaries confirmed.
As a consequence, Pakistan again missed the IMF deadline to present amendments to the SBP Act in parliament by March 31.
The SBP wants the abolishment of finance minister-led Monetary and Fiscal Policies Coordination Board, an end to the role of federal government in quasi fiscal operations, the removal of the secretary finance from SBP Board, a five-year secured term for the governor with an option to extend it by another five years and almost no option to remove him before the expiry of the term.
The finance ministry also will not have powers to appoint SBP Board members and its role will be restricted to picking one of the three names proposed by the central bank governor.
The ministry reacted after the SBP, with the support of the IMF, prepared a new set of amendments to the SBP Act of 1956. The plan to amend the SBP Act is part of the $6 billion bailout package but the central bank is trying to use the opportunity to consolidate its position, according to the sources.
The SBP and the IMF technical team finalised the amendments without the participation of the finance ministry, said a senior government functionary.
The Q Block came to know about the proposed legal changes only when the central bank shared the draft for its vetting and approval by the law ministry and the federal cabinet, respectively.
The differences were visible during the last meeting of the Cabinet Committee on Legislative Cases, which was chaired by Law Minister Barrister Farogh Naseem.
The SBP proposed plan includes the consolidation of policy and top management at the central bank.
The finance ministry has proposed that the SBP governor should limit himself only to the extent of operations and management while the board should be headed by one of the ex-officio directors instead of him.
It is of the opinion that in the modern corporate world, the positions of the chief executive officer and the chairman of the board is not held by the same individual.
The central bank is seeking unbridled powers but without any check and balance, said the government sources.
The finance ministry has proposed that the functions of management, operations and policies should not be in the hands of the SBP governor alone.
The sources said that the SBP governor was not ready to give up the position.
“We would not like to comment on your queries since the issue is under discussion among the stakeholders,” SBP spokesperson Abid Qamar replied when asked to comment on the matter.
The SBP Act reads that the SBP Board, with the exception of the powers entrusted to the Monetary Policy Committee, shall perform the function of defining and determining policies of the central bank regarding the execution of its functions, approve internal rules for their implementation, oversee foreign exchange reserve management and give the nod to strategic investment and risk policy.
The finance ministry also proposed that instead of SBP governor making all the decisions without any check and balance, there should be an executive committee of the central bank comprising the governor and three deputy governors to take decide administrative matters.
Qamar also did not respond to the question about the executive committee. The SBP spokesperson ducked a query on the accountability mechanism of the central bank management. He also did not reply as to why the SBP had not taken the finance ministry into confidence.
The sources said that the SBP was also not willing to explain its monetary policies before the Monetary and Fiscal Policies Coordination Board even though it was legally binding upon it to do so.
The SBP cancelled the scheduled board meeting twice before the announcement of the monetary policy on March 17.
The sources said the proposed changes by the SBP meant that the federal government would have no role, except appointing the SBP governor, for a five-year term.
Successive governments have been undermining the SBP autonomy but the model that the SBP-IMF is pushing for is yet another extreme where the central bank will be least bothered about the overall economic growth objective and will be focused on inflation targeting.
The law ministry did not respond to the question about whether the amendments proposed by the SBP were in line with the country’s existing law and constitutional framework.
The finance ministry said that it would make a public statement on the issue at an appropriate time.