Senate approves ‘toothless’ SBP amendment bill

Paper says central bank cannot restrict govt borrowing and take emergency financial measures.

ISLAMABAD: The Senate approved on Monday a ‘toothless’ State Bank Amendment Bill 2011 by snatching from the central bank the authority to restrict federal government borrowing and to take emergency financial measures.

By approving the bill, the Senate took a step further in giving the central bank under practical control of the finance ministry with an aim to keep the doors open for reckless government borrowing. Now the bill will go back to the National Assembly for final approval, as the Senate introduced many amendments to the original draft earlier approved by the assembly. The amendments were incorporated by the Senate Standing Committee on Finance.

Though the Senate standing committee unanimously approved the ‘toothless’ bill, its one recommendation makes a mockery of the committee system and points at the domination of vested interests in the lawmaking process. It reads, “There is a need for meaningful legislation to limit federal government borrowing from the State Bank of Pakistan (SBP) and to make government accountable to parliament for any additional and emergency borrowing.”

According to the draft of the approved bill, the federal government can borrow money from the central bank equivalent to its six months ways and means expenditures. If the federal government borrows over and above this limit, the finance ministry will give reasons in writing to parliament.

The bill passed by NA had limited federal government borrowing to 10 per cent of total revenues of the previous year. However, PML-N and PPP joined hands to get this clause omitted in a bid to continue borrowing that independent economists and the International Monetary Fund (IMF) have termed the root cause of inflation.

However, Standing Committee Chairman Senator Ahmad Ali of MQM issued a dissenting not to this clause and recommended parliament’s approval for overspending.

“Ahmad and I demanded that the finance ministry should seek parliament’s approval before excessive borrowing but we had to accept it as a lesser evil to keep the tradition of approving every bill unanimously,” said Senator Professor Khurshid Ahmad of Jamaat-e-Islami.

According to the bill, the State Bank cannot turn down any request by the federal government or any other public agency or state-owned entity for provision of direct and indirect credit. Earlier, the bill passed by NA had authorised SBP not to grant direct and indirect loans more than the prescribed limits. This clause has been omitted from the approved draft, thanks to Senator Ishaq Dar of PML-N and Finance Minister Dr Abdul Hafeez Shaikh.

The Senate also refused to give the powers of taking emergency financial measures to the SBP governor. It also disbanded the Monetary Policy Committee of the central bank and proposed addition of eight directors to the central bank board on the ground of strengthening it. The central bank will be bound to coordinate with the Fiscal and Monetary Coordination Board, headed by the finance minister, for formulation of monetary policy.

According to the approved bill, the federal government will retire Rs1.29 trillion loans in eight years against the earlier recommendation of returning them in five years. So far, the federal and provincial governments have borrowed over Rs2 trillion for budget financing, commodity operations and covering losses of public sector enterprises.

Published in The Express Tribune, May 3^rd, 2011.