ISLAMABAD: The International Monetary Fund (IMF) is said to have reservations over a government bill seeking greater autonomy for the State Bank.
Informed sources told Dawn that the IMF was of the opinion that “The State Bank of Pakistan (Amendment) Act, 2014” introduced by the government in the National Assembly early this month was not sufficient to provide full autonomy to the central bank in line with international best practices.
The IMF is expected to formally take up the issue with Pakistan during the third quarterly review of the $6.78 billion bailout package under the Extended Fund Facility (EFF) scheduled for April 30-May 9 in Dubai.
The two sides will finalise exact targets for fiscal adjustment in next year’s budget on the basis of economic development during the current fiscal year to reduce fiscal deficit to less than 4.5 per cent.
Chief of IMF mission in Pakistan Jeffrey Frank told Dawn that the government had provided the SBP amendment act to the IMF which “may have some reservations and may seek some revisions” once its experts on capital markets and monetary and legal side came up with their input.
Mr Franks, who is also adviser for the Middle East and Central Asia Department, said IMF’s monetary and capital market divisions were examining the new law because “enhanced SBP independence is a very important medium-term objective”.
Under the EFF programme, the government had committed to strengthening the autonomy of SBP through full operational independence in pursuit of price stability and enhanced governance structure, including strong internal controls.
In line with findings of the recent safeguard assessment mission of the IMF, amendments are required to empower the SBP as the sole owner and manager of foreign exchange reserves, remove government representatives from the bank’s board and eliminate provisions which empower the government to direct certain SBP activities. The IMF also wants strengthening of personal autonomy of board members and financial autonomy of the SBP.
The bill proposes a statutory committee on monetary policy comprising the SBP governor and 12 directors to allow the central bank to perform its functions in an independent manner. It also seeks clauses allowing the SBP to set up depositors’ protection fund as a subsidiary of the central bank.
A new section on regulatory powers has been introduced in the proposed act in order to provide the central bank explicit powers to issue directives, impose recovering penalties which is already being exercised by it under the Banking Companies Ordinance 1962 and provide legal certainty of being a lender of last resort in case of troubled banks.
In order to further the role of Islamic banking, the proposed law seeks to allow the central bank to hold property for the purpose of use of Shariah-compliant instruments.
Under the law, the role of the central bank has been strengthened by substituting the federal government’s approval wherever required with the SBP board’s approval.