From July onwards, Finance Minister Ishaq Dar will no longer be able tell the State Bank governor to sell dollars in the market to strengthen the rupee. And neither will Finance Secretary Dr Waqar Masood be in a position to dictate his terms to the State Bank of Pakistan.
If all goes, as agreed between Pakistan and the International Monetary Fund (IMF), the federal government will introduce sweeping changes in the SBP Act of 1956. The amendments envisage surrendering the overarching authority that has so far allowed the federal government to keep all the SBP governors under its thumb.
The federal government has assured the IMF that it will hand over the joint control of foreign exchange reserves to the State Bank of Pakistan and withdraw its finance secretary from the SBP board to give autonomy to the central bank.
The federal government has already submitted the draft of the amendments to the IMF for review and will present it before parliament to make the requisite changes before end of June. Bringing changes is a condition of the $6.7 billion programme, states a recent report released by the IMF on Friday.
Talking to The Express Tribune, finance ministry spokesman Rana Assad Amin said the federal cabinet had yet to give approval for bringing changes in the SBP Act. This approval is necessary before the government tables the draft amendments in the parliament.
“The amendments will empower the SBP as the sole owner and manager of foreign exchange reserves,” the IMF report said.
Political intervention in managing monetary and exchange rate affairs have in the past annoyed both the IMF and the SBP top management. During its first nine months in power, Finance Minister Ishaq Dar has been calling the shots, as both the SBP’s former governor Yaseen Anwar and acting governor Ashraf Wathra obeyed his orders.
However, according to analysts, only a strong SBP governor will have the courage to say no to Dar in spite of legal covers available to him. But the names, which are under consideration for appointment as permanent governor, do not seem to have the mettle to resist pressure from the Q Block – the seat of the finance ministry.
According to the IMF report, through the amendments the federal government will also withdraw its nominee from the Central Board of the SBP. The board has the mandate to take any decision on the country’s key discount rate – the rate at which the central bank lends money to commercial banks.
Finance Secretary Dr Waqar Masood sits on the Central Board. His statement sets the tone of the meeting and even the independent directors of the SBP board follow the line, according to a director of the SBP’s central board, who spoke on condition of anonymity.
According to another proposed amendment, an executive board will be established with defined executive powers. Going a step farther, the government has also given written assurance to amend the SBP Act to declare the pursuit of price stability as the primary objective of the central bank.
At present, the SBP regulates the monetary and credit system of Pakistan keeping in mind the economic growth target. The language of the IMF report suggests that after amendments the growth will no more be a concern of the central bank and it can take decision to increase interest rate to curtail inflation without caring for growth.
Published in The Express Tribune, March 30th, 2014.
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