In a recent report on the third review of the $6.7 billion bailout package, the IMF has expressed its reservations over a proposed SBP amendment bill that the government earlier tabled in parliament to fulfill the international lender’s condition that seeks meaningful autonomy for the central bank.
The report shows IMF’s seriousness in getting the desired results as it has imposed another condition with firm timelines.
The IMF has relayed its discomfort over the piece of proposed legislation at a time when independent economists and former central bankers have mounted pressure on the finance ministry to give real independence to the SBP that has become
subservient to the federal government.
“While the draft (of the bill) addresses some key weaknesses identified in the Safeguards Report [of the IMF], other weaknesses remain, including constraints to the SBP’s autonomy in the pursuit of its objective, and weaknesses in the SBP’s governance and internal control framework,” said the report.
The IMF seems determined in its bid to get the SBP free from the influence of the finance ministry and has inserted a new structural benchmark in the $6.7 billion programme that binds the government to ensure statutory independence by end of August.
The IMF stressed that the law should strengthen the autonomy of the SBP, through full operational independence in pursuit of price stability as SBP’s primary objective, enhanced governance structure – including strong internal controls – and strengthened personal autonomy of Board members and the financial autonomy of the SBP.
Earlier, instead of addressing these issues through the proposed bill, the government opted for seeking an extension in a statutory deadline to return over Rs2.6 trillion loans that successive governments obtained from the central bank for budget financing.
The law binds the government to retire this huge sum by 2019. The government has proposed that Parliament extend the deadline to 2023.
The IMF said that among other things, the proposed amendments should also establish an independent decision-making monetary policy committee to design and implement the monetary policy and prohibit any form of new direct lending from the SBP to the government.
The IMF has been pushing Pakistan to shift its financing to commercial banks, as SBP borrowings are considered highly inflationary. The interest the government pays on the SBP borrowings comes back to it in the shape of SBP profits, making the central bank borrowings virtually interest-free. For the new fiscal year, the government has estimated Rs270 billion SBP profits.
Further, the IMF asked Pakistan that the final law should also ensure re-establishment of an advisory monetary policy committee to advise the Board on its policy decisions, which could then be converted into a decision-making body once the legislation is approved.
It also seeks the establishment of a Board committee to centralise and oversee risk management activities across the bank and start publishing summaries of the monetary policy proceedings of the Board meetings and monetary policy committee deliberations. All these amendments have to be incorporated and get passed from Parliament in the next two months.
The proposed bill also does not reflect what the IMF had sought. The government had assured the IMF that it’ll withdraw its nominee, federal finance secretary, from the Central Board of the SBP. But the proposed bill is silent on this aspect.
In a letter of intent, jointly signed by Finance Minister Ishaq Dar and SBP Governor Ashraf Wathra, which the IMF released along with its report, Pakistan has assured the IMF that the final law will incorporate the IMF recommendations.
Published in The Express Tribune, July 9th, 2014.
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Good steps prescribed by IMF. I truly hope that the government implements these reforms in earnest and does not dilly dally. I am highly critical of the fact that IMF is advising us on implementing these reforms which from the outset seem logical and an effective control mechanism - what is our finance ministry ( under this and previous governments) been doing? We need a stronger/ independent burecratic set up as well which refrains from appeasing the government on its whims (appeasement for favors I must add). Every few years we have new policies and enacted which remain unfinished / incomplete before a new government steps in with another set of policy reforms or 'vision' and the jingle continues - can we have some continuity please. We have the people and skills to make Pakistan a great nation economically and in providing social welfare to its people (bankers. engineers, doctors, world renowned policy setters, strategists, philanthropists etc etc) then why do we insist on being intoxicated by the 'same old wine in a relatively new bottle', the mediocre lot - the losers of our community.
IMF pls take over our country!! Anyways most of our ploiticians are completely useless.We wanr britishers/americans to rule us. We have tried everybody in pakistan Generals,Dictators,Family politicians,Cricketer,Ngo's etc but none have worked.So pls do the needful at earliest.
Hmmm nice practical designs. for a change .