Amid a stalemate over the nominee for the post of State Bank of Pakistan (SBP) governor, the central bank board is also going to become dysfunctional on Friday, which may completely break down the policymaking chain in the middle of a worst external sector crisis.
Out of the five existing members of the SBP board of directors, three directors are retiring on Friday, leaving the board with only two members. Board meeting cannot be convened until at least four members are present, according to the SBP Act.
Of the remaining two members, one is acting governor and the second is secretary finance, who has already been stripped off his voting rights by the International Monetary Fund (IMF).
The board is going to become dysfunctional at a time when the government has failed to break the gridlock on the appointment of the SBP governor during the past three months.
Sources said that the resistance was coming from within the PML-N, as two factions of the party were pushing for their own candidates. Due to disagreement over the existing six candidates that had been interviewed by Prime Minister Shehbaz Sharif, the name of Shahzad Dada, President of United Bank Limited, has also lately surfaced. Similarly, the government is now again considering appointing a bureaucrat who has not yet attained the superannuation age.
“All options remain open,” commented a senior government official involved in the decision-making process.
PM Shehbaz has failed to show his metal at a time when the central bank is in dire need of leadership. The rupee is falling like leaves in the autumn and there is no body at the helm of affairs, neither a permanent governor nor a board that can give any sense of direction.
The rupee closed at Rs222 to a dollar - one of the steepest declines in the history of Pakistan amid the leadership vacuum.
The SBP said on Tuesday that the current account position, relevant news items and domestic uncertainty together determine the exchange rate. The Express Tribune had reported on Tuesday that the central bank was choking even small amounts of dollar transactions to save declining foreign exchange reserves.
Sources said that the Ministry of Finance has not yet transmitted a summary to the Prime Minister’s Office for appointment of new members of the board.
Saleem Sethi, Ali Jameel and Tariq Hassan are going to complete their term on Friday. Since the board is appointed by the federal cabinet and it may take time before a new board is put together. A finance ministry official said that it has been decided that the terms of the outgoing board members would not be extended.
Names of Ali Cheema, Akbar Zaidi, Nadeem Hussain, Fawad Anwar and Shahid Mehmood were being considered for appointment on the SBP board. However, no name has been finalised yet.
Under the SBP Act, the government is required to appoint eight non-executive directors for a term of five years. The board is responsible for the oversight of affairs and functions of the SBP and also supervise the management and the bank’s administration, operations and have the right of access to all the activities of the bank, according to the SBP Act.
The law says that the non-executive directors shall be eminent professionals each of whom is well-known for his integrity, expertise, and experience in the fields of economics, financial services, banking, law, information technology, risk management or accountancy to perform the oversight.
They shall have an advanced degree from a recognised university or hold professional accreditation, and relevant experience in any such fields for not less than 10 years. This will limit the government’s choices for the appointment of the board directors.
The board also has a say in formulation and overseeing foreign exchange reserve management, strategic investment and risk policy; approves the annual budget of the bank and approve the annual report and financial statements of the bank.
The governor’s term is also five years, to be extendable for another five years. But the maximum age limit is 65 years and no one can be appointed as governor, if he or she cannot complete the five-year full term. The position of central bank governor fell vacant on May 4 after the Pakistan Muslim League-Nawaz (PML-N) led coalition government decided against giving a second term to Dr Reza Baqir.
Last month, the government conducted interviews of Asim Meraj Hussain, a former official of the IMF, Dr Murtaza Syed, acting Governor of the SBP, Dr Saeed Ahmad, Senior Adviser to the IMF Executive Director, Zafar Masood, a banker, Mohammad Ashraf, Executive Director of the SBP and Jameel Ahmad, former deputy governor of the SBP.
Sources said that the finance minister was in favour of appointment of Asim Meraj as the governor. Some senior party leaders wanted Dr Saeed Ahmad as the governor but the finance ministry was not happy with the performance of Ahmad as a senior adviser to the executive director of the IMF.
Dr Murtaza Syed has not been actively considered due to some of his affiliations and also the government wanted to appoint some senior person as the governor, according to a high-ranking government official.
Published in The Express Tribune, July 20th, 2022.
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