The federal government seems to be obstructing the independent working of the State Bank of Pakistan (SBP), having put off the appointment of seven members to the SBP’s central board of directors, besides also delaying the appointment of a deputy governor for the bank.
Owing to the lack of required diversification and sufficient expertise, analysts have recently questioned the quality of decisions taken by the current board. Their fears have some substance: at the moment, the provinces are not adequately represented in the highest corridors of decision-making in the country’s central bank.
It seems that the government is dragging its feet at a time when growth is sinking and inflation is slowly ticking up. The SBP has to monitor both these macroeconomic factors – it has to ensure sustainable growth while controlling inflation beyond desired levels.
According to the law, the SBP board provides general supervision and direction in monetary affairs for the smooth functioning of the economy. It formulates and monitors monetary and credit policy and determines the expansion of liquidity while taking into account the federal government’s targets for growth and inflation.
The SBP Act empowers the board to determine and enforce the limit of credit to be extended by the SBP to the federal and provincial governments – powers that bring it head-to-head with the existing policies of the federal government.
For effective decision making, the Act requires that there should be ten members on the central board of the bank. According to the Act, the authority to appoint these members rests with the federal government. The eight members of the board, other than the chairperson, should include at least one representative from each province. They should be eminent professionals from the fields of economics, finance, banking and accountancy.
On the contrary, only three members are currently in service; two of them ex officio. Yaseen Anwar is the chairman of the board because he is the governor. Finance Secretary Abdul Wajid Rana and Mirza Qamar Beg take up the two other seats.
Bearing in mind the expansionary fiscal policy employed by the incumbent government, our sources point out that an incomplete board seems to serve the interests of the government: it often dictates its decisions through the office of the finance secretary. Our sources claim that the finance ministry wishes to appoint people of its own choosing to the board, in a bid to bend the SBP to its own will.
They say the SBP has sent various names to the finance ministry for approval, but it is sitting on these names like it did in the case of appointment of SBP Deputy Governor Kazi Abdul Muktadir. Muktadir was appointed in July last year after months of tussles between the finance ministry and the SBP management.
On the other hand, spokesman for the finance ministry Rana Assad Amin says a summary for the appointment of the remaining seven members is still pending the prime minister’s attention. He also added that there is no minimum quorum requirement for the functioning of the board, and that it is working normally despite its reduced strength.
Former State Bank governor Dr Ishrat Hussain believes that a fully-occupied board is necessary for good management of the economy and governance. “In the absence of the required pool of expertise, the quality of decision making will [undoubtedly] be poor,” remarked Hussain.
Meanwhile, unwarranted delays in the appointment of board members has given substance to rumours that the State Bank’s recent monetary policy decision to keep the discount rate unchanged at 9.5% despite an uptick in inflationary pressure had a political reason behind it.
The federal government, in the meantime, hides behind a convenient legal loophole: Clause 51 of the SBP Act states that no act or proceeding of the bank’s central board shall be questioned merely on the grounds of an existence of any vacancy in, or any defect in, the constitution of such board.
Published in The Express Tribune, February 12th, 2013.
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