Senators, please reconsider

The honourable senators must appreciate that the autonomy of SBP is as important as the independence of the judiciary.

The rumour that the quality of debate in the Senate committees is better than those in the National Assembly seems vastly exaggerated. This is the least one can say about the proceedings of the Senate Standing Committee on Finance last week. The committee has been sitting on a most important piece of legislation, the State Bank of Pakistan (Amendment) Bill 2010, already cleared by the National Assembly Standing Committee on Finance. There is a global consensus that central banks should be allowed maximum autonomy in the conduct of monetary policy. In countries like Pakistan, where governments treat the central bank as nothing more than a security printing press for an insatiable demand for cash, the grant of autonomy is of fundamental macroeconomic significance. This is the most obvious purpose of the bill before the Standing Committee.

Instead of dealing with the substance of the issue of the autonomy, the honourable senators declared the monetary policy announcements of the State Bank since 2007 as illegal. All holders of the federal portfolio of finance — Ishaq Dar, Syed Naveed Qamar, Shaukat Tareen and Hafeez Shaikh — were held responsible for failing to convene the meetings of the Monetary and Fiscal Policies Coordination Board to authorise the State Bank to announce the monetary policy. Chapter and verse were quoted in praise of Shaukat Aziz for convening these meetings regularly.

Under Section 9A (a) of the existing law, it is the function and responsibility of the Central Board of the State Bank to “formulate and monitor monetary and credit policy and, in determining the expansion of liquidity, take into account the federal government’s targets for growth and inflation, and ensure that the bank conducts monetary and credit policy in a manner consistent with these targets and the recommendations of the Monetary and Fiscal Policies Coordination Board with respect to macroeconomic policy objectives.” It should be clear that the Coordination Board is a recommendatory body. The stated purpose is coordination of policies, which the State Bank can ensure, as it did by its time-old involvement in the process of annual plan-making. That is where it gets the targets for inflation and GDP growth. The Coordination Board was an unnecessary aberration, used mainly to lecture the governor of the State Bank not to take his/her autonomy too seriously. The poor governor is just one member of this overbearing board. According to Section 9B, the board is chaired by the federal minister for finance. In addition to the governor of the State Bank, members include the federal minister for commerce or secretary commerce, deputy chairman of the planning commission and the federal finance secretary. The law also provides that in “carrying out its assigned functions”, the Monetary and Fiscal Coordination Board “shall not take any measure that would adversely affect the autonomy of the State Bank of Pakistan”. This is precisely what Shaukat Aziz did in the meetings dominated by federal presence. In this backdrop, the amendment before the Senate Standing Committee seeks abolition of the Coordination Board.

Rather than being condemned for not convening the meetings of the Coordination Board, those heading the finance ministry after Shaukat Aziz deserve praise for ignoring a body set up with the mala fide intent of circumventing the autonomy of the State Bank. The honourable senators must appreciate that the autonomy of the State Bank is as important as the independence of the judiciary.

Published in The Express Tribune, March 4^th, 2011.