SBP Act

Published
1

FROM a more technocratic point of view, the new amendments the government is seeking to bring to the State Bank Act might have a lot to recommend them. But the fact that they will place the State Bank beyond any oversight by elected authorities is problematic. One argument presented on oversight is that the State Bank will still be bound to submit an annual report to parliament on its performance, but this does not constitute oversight of any meaningful sort. Granted neither parliament nor the government should try to insert itself into core central banking functions, such as curating the money supply or banking supervision, nor try to influence the process of producing independent assessments of the state of the economy that the central bank provides via its quarterly and annual reports. These are functions requiring specialised skills and must be performed outside the glare and normal give and take of politics. Nevertheless, the State Bank is ultimately a public institution, not a private one, and it cannot and must not enjoy the kind of immunity from public scrutiny of its actions that come with its role. If it is allowed to become as completely autonomous as the proposed amendments to the State Bank Act envision, it will create a perverse incentive for future governments to appoint a weak individual as governor in order to retain some control of the office. This will hamper the central bank more in pursuit of its core mission than would some built-in mechanisms for parliamentary oversight.

The government is acting in haste given the directives of the IMF, and is clearly rushing the process along in order to meet deadlines for prior actions before the Fund programme can be resumed. But haste in legislation is never a good idea. So long as the conduct of economic policy remains ad hoc and in firefighting mode, no legal framework will be sufficient to bring order to it. The proposed amendments to the State Bank Act must include a more robust mechanism for parliamentary oversight, and they must enjoy consensus within parliament to be effective. Otherwise, the exercise will be little more than a pro forma set of actions hastily implemented to meet an IMF condition and to unlock the next tranche of the Fund programme. The government must not seek to tie the hands of all its successors into a knotty legal framework they never consented to.

Published in Dawn, March 24th, 2021

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