Aurangzeb hints at amending SBP law

Proposal aims to allow dual nationals as central bank leaders, fill key vacancies

ISLAMABAD:

Finance Minister Muhammad Aurangzeb on Wednesday hinted at amending the controversial State Bank of Pakistan (SBP) law, which currently bars dual nationals from serving as governor or deputy governors of the central bank.

A legal amendment could be introduced soon, as one deputy governor with dual nationality is set to retire in a month. Two of the three deputy governor positions could be vacant by November 9th unless immediate appointments are made.

Sources indicate that the leading candidates for these roles are outgoing Deputy Governor Dr Inayat Husain and former International Monetary Fund (IMF) Senior Advisor Dr Saeed Ahmad, both of whom hold dual nationality or foreign-origin cards. "We may need to bring a few things back to the Parliament, particularly regarding nationality," said Finance Minister Aurangzeb during a meeting of the Senate Standing Committee on Finance, chaired by PPP Senator Saleem Mandviwalla. The finance minister highlighted a limited talent pool to fill these positions.

In 2021, under pressure from the IMF, Pakistan made sweeping changes to the SBP Act of 1956. However, the clause banning dual nationals from these positions was not part of the IMF's original conditions but was added later by the National Assembly Standing Committee on Finance. Initially, the restriction applied only to the governor, but was eventually extended to include deputy governors as well. "We might bring back an SBP Act amendment package to Parliament," said Aurangzeb.

Under the current law, outlined in Section 13(a), no one holding dual nationality can serve as the governor, a non-executive director, an external member of the Monetary Policy Committee, or as a deputy governor of the SBP. As per the law, the federal government appoints deputy governors after consultations between the finance minister and the SBP governor, based on a panel of candidates recommended by the governor in order of merit.

Sources said that the consultation process for appointing a new deputy governor for economic research has already been completed. The panel includes Dr Saeed Ahmad and two SBP Executive Directors, Amin Lodhi and Mohammad Ali Malik. Ahmad is the frontrunner, provided the law is amended in time to accommodate his dual nationality.

Aurangzeb noted that Pakistan went the extra mile when passing the SBP Amendment Act in 2021. Currently, the governor, deputy governors, and non-executive directors serve for a five-year term, with the possibility of reappointment for one additional term.

Senator Saleem Mandviwala, in his remarks, said that the amendments to the SBP Act in 2021 have placed the government at a disadvantage.

The finance minister suggested that if the Parliament reviews the SBP Act, it should undertake a comprehensive review of the entire law. However, Aurangzeb opposed provisions in the Banking Companies Amendment Ordinance 2024 that would grant the finance minister authority to review SBP decisions regarding penalties imposed on financial institutions. "I am giving up my proposed legal right of reviewing the penalties being imposed by the central bank on banks," said Aurangzeb, arguing that such a right would undermine the central bank's autonomy, a core principle of the SBP Act.

"There should be political oversight of regulatory bodies," remarked Senator Anusha Rahman of the PML-N. She expressed concerns over the influence of commercial banks on the SBP during Pakistan's 2022 economic crisis, which saw accusations that banks were manipulating foreign currency values. Despite these allegations, the banks faced no significant repercussions due to their strong influence over the central bank.

Deputy Governor Dr Inayat Husain also refused to take responsibility for the frozen assets of proscribed organisations, urging the Senate committee to leave such matters to law enforcement agencies.

In addition to SBP-related matters, the Senate committee also invited the Asian Development Bank's (ADB) outgoing country director for Pakistan, Yong Ye, to brief them on ADB's lending operations in the country. When questioned by Senator Farooq Naek, Yong Ye confirmed that the National Accountability Bureau (NAB) had not contacted the ADB regarding its investigation into the Peshawar Bus Rapid Transit (BRT) project, a $593 million scheme funded by the ADB. However, Ye revealed that the ADB had referred the case to its independent investigation office in Manila, following reports of misappropriation.

The ADB plans to lend Pakistan $8.5 billion over the next four years, with a three-year lending envelope of $6 billion. Of this, $2.8 billion will be in highly concessional loans, according to the ADB representative.

Rs1 POS fee

Meanwhile, the Federal Board of Revenue (FBR) briefed the Senate committee on the Rs1 fee charged on each shopping invoice from large retail stores. Member Operations of the FBR, Badsha Khan Wazir, reported that Rs647.4 million had been collected through this Point of Sale (POS) fee from July 2023 to July 2024. However, Wazir revealed that out of this amount, Rs309.4 million had already been spent—primarily on purchasing land for the IRS Academy and on welfare initiatives for FBR employees.

The stated objective of the POS fee is funding the monthly prize scheme for the customers of integrated Tier-I retailers, capacity enhancement of Board's POS related technical, logistic and field teams, media campaign and welfare of the employees". However, Wazir disclosed that the funds have thus far been used exclusively for FBR employees' welfare (Rs150.3 million) and the purchase of land (Rs159.4 million) for the IRS Academy.