IT is encouraging that the government has signalled its renewed resolve to the IMF to pass legislation updating the State Bank’s autonomy.

The IMF has been given a commitment that this will be done by June, and the new legislation will include language to bring it in line with international standards.

The issue has been the most important sticking point in all reviews of the current programme, and the government has been showing considerable reluctance in undertaking this reform.

Legislation was drawn up in April last year, and the Fund found that it did not meet international standards. Another attempt was made in August, but was drowned out by the protests, outside parliament, that began that month.

This time the government appears to have signalled seriousness of purpose in seeing the passage of legislation that does more to protect the State Bank from political interference — and there is limited room for failure.

The first step in the grant of such autonomy should be the removal of the secretary finance from any decision-making role on the State Bank board.

Governments have historically resisted an autonomous State Bank for various reasons, principal amongst them being the difficulties they face in getting other organs and pillars of state to respect their mandate.

Elected governments have routinely had to face headwinds from the military and bureaucracy, both of whom have sought to circumscribe the powers of the elected rulers.

They have also been wary of autonomous actors going rogue and engaging in a game of political point-scoring rather than focusing on the discharge of their obligations in a fair and professional manner.

Given the powers that the State Bank exercises, such as management of the exchange rate, the conduct of monetary policy, auctions of government debt and regulatory oversight of banks, there is a feeling that in the wrong hands these could do some damage to the sitting government if used for political point-scoring.

But such fears are misplaced. Regulators, particularly as important as the State Bank, need to be insulated from political interference because the duties they perform have long-term effects and should not be allowed to become entangled in the short-term thinking that is typical of politics.

And for autonomy to really matter, it must be coupled with proper appointments at the top in order to ensure that the person has no political ambition and brings considerable credibility and expertise to the spheres of banking and economics.

Having said that, it is also important that those heading the State Bank show more regard for the hard-fought autonomy that the bank currently enjoys.

Those at the top must demonstrate an interest in expanding their areas of autonomous action.

There is little sense in passing legislation to enhance the powers of the State Bank if those heading the institution are themselves not interested in exercising them.

Published in Dawn, April 9th, 2015

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