If there is one thing that the current government will strive at all costs to retain, it is control over the State Bank of Pakistan (SBP). And if there is one thing that the International Monetary Fund wants, it is to wrest control of the SBP from political control and create a truly independent entity. To that end, the IMF has dropped the hammer on the federal government and given it two months to get its financial house in order by giving complete autonomy to the SBP. This is a move that was neither sudden nor unexpected and the government had been ducking and diving on this issue virtually since it took office.
The federal government had proposed an amendment bill which sought to satisfy the IMF condition of autonomy for the SBP, but the IMF was not satisfied with the proposed amendments that fell far short of what it sought and had a number of structural weaknesses, particularly in relation to autonomy — the very thing that the IMF was seeking and the federal government was hoping to avoid. The government is keen to retain control of the SBP because it allows what amounts to interest-free borrowing, the proverbial licence to print money. As things stand, the SBP is subservient to the federal government, and has weak internal governance and controls.
The government would be wise to accede to the requirements of the IMF. The devolution of control has been an issue for many years and successive governments have resisted granting autonomy to the SBP simply because it is an immediately accessible source of ready cash in a cash-strapped economy. The IMF favours the government borrowing from private banks — which have rather more stringent terms of business than does an enfeebled SBP. Borrowing in the private sector is also likely to result in greater transparency, something that Pakistan’s governments are perennially averse to. The federal government now has till the end of August to demonstrate compliance — a tight time frame. Our financial managers cannot dodge and weave forever and this looks like the end of this particular road. An independent SBP is maybe not a distant dream after all.
Published in The Express Tribune, July 11th, 2014.
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