ISLAMABAD: The Transparency International Pakistan has raised 26 objections over proposed amendments into the State Bank of Pakistan (SBP) Act 1956, arguing that there is no accountability for the SBP in case it fails to ensure price stability.
In a letter written to PM’s Principal Secretary on Wednesday, the Transparency International Pakistan stated that TI received a complaint on the federal cabinet’s recently-approved sweeping powers for the central bank given in haste to meet the condition of the IMF.
The complaint stated that according to the SBP Law 1956, the role of the SBP was to regulate the monetary and exchange procedures. Whereas in the latest bill along with regulating monetary and exchange procedures, the State Bank will also be obliged to control inflation. The amendment has been introduced without providing any inflation target. It further states that there is no accountability for SBP in case it fails to ensure price stability.
After the new Financial Liability clause, the SBP will not be responsible for government loans even though it has taken from IMF, World Bank, Asian Development Bank, etc.
Furthermore, the State Bank of Pakistan will not be responsible for the payable and receivable of loans obtained from overseas banks or government through Swap lines or any other unions. After the amendment in Section 3, the SBP has power to hold or sell any movable and non movable property for the fulfillment of any contract agreement. As per the new bill, the governor SBP will be the chairman of Board of Directors. In the 1956 law, it was mandatory for the Secretary Finance to be a part of the Board of Directors but in the new bill the said condition is exempted. Initially, the Finance Ministry opposed this clause but eventually accepted it afterwards. Previously, a coordination board worked for the monetary and fiscal policies but in new bill the Board has been dismissed.
The SBP board was responsible for making the monetary and export policies. It was also responsible for the stability between economy, inflation and foreign accounts. The SBP will not guarantee any loan, advance loan or investment, which is being obtained from government or any public organization provided that the central bank did not already owe these loans from primary markets at the time of enactment of SBP amendment bill 2021.
According to this amendment, in compliance with the prohibition of monetary financing, such dues of bank from government will not be further extended.
The tenure of governor and deputy governors extended from three to five years and the salary and other terms and conditions for employment will be decided by the board of directors of SBP. In the new bill, it has been recommended that the private sector salaries and benefits will be considered while deciding the salaries of governor SBP and deputy governors as well as the private members. According to clause A-52 (3), NAB or FIA or any other investigating organization cannot do any legal action, investigation, or inquiry without prior permission of the board of directors.
Meanwhile, the finance ministry, in its clarification, said it is a misconception that the SBP will be empowered unabatedly through the proposed act to share financial or non-financial private information with any entity, particularly outside the country. Importantly, the proposed amendments allow SBP to enter into MoUs with domestic and international supervisory authorities, only after prior approval of the federal government. It is pertinent to mention that the SBP already has longstanding MoUs/ arrangements with several international regulatory bodies/central banks, after approval of the federal government.
Similarly, Indemnity (protection against loss or other financial burden) to the officials and staff members of the Central Bank from legal challenges on actions taken in good faith is quite common in the central bank laws, is considered an international best practice, and such an indemnity is an important aspect to ensure functional autonomy of the central bank officials and staff. Such provisions also exist in other domestic laws.
Furthermore, it is incorrect to say that bodies like NAB and FIA, etc, will not have jurisdiction in the case of SBP officials. The only change is the requirement of approval of the SBP Board to initiate proceedings.
Also 14 central bank laws explicitly prohibit the government to instruct the central bank in order to provide an autonomous legal framework to achieve their set objectives. Therefore, it is misleading to assert that the proposed SBP Act envisions no accountability for the SBP. It is important to note that the proposed SBP Amendments Act 2021 clarifies the objectives of the SBP and therefore also makes the SBP more accountable to achieving those objectives.