The Government of Pakistan proposed a bill, which the Federal Government of Pakistan declares as aimed at making the State Bank of Pakistan autonomous, The legal framework of central bank of Pakistan is being amended in light of international best practices and domestic experiences which Clearly define the objectives of SBP to improve its accountability, Outline SBP’s functions in line with its objectives, Provide necessary financial resources to help achieve objectives, Increase functional and administrative autonomy of SBP, Improve transparency in operations of SBP and Strengthen accountability by making oversight functions stronger and enhancing reporting requirements.
The Government claims that the accountability of State Bank of Pakistan is being enhanced by defining objectives more specifically as the existing role of SBP is to secure monetary stability and fuller utilization of the country’s productive resources, But now proposed SBP amendment act categorically identified the 3 main objectives as defined as Primary objective of SBP to stable domestic price, Secondary objective is to Financial Stability in the country and Tertiary objective will be to Support Government’s economic policies.
In order to achieve these objectives, The proposed act SBP aligned functions more suitably to collated under a new section after refinement and discontinuation of certain functions (i.e. quasi-fiscal operations) which was currently dispersed, Now the State Bank of Pakistan is being provided with sufficient financial resources like Sufficiency of Capital and Reserves the proposed bill provided Paid up capital and general reserves to increase to 8% of the monetary liabilities of the Bank through retention of 20% of distributable profits each year and General Reserve only to be used for increasing capital or cover losses.
According to the bill, If capital and general reserves fall below zero (-ve) than the board to prepare a report on causes and extent of shortfall after that the Federal Government will transfer to the Bank necessary amount in cash or negotiable instruments to restore paid-up capital, The State Bank of Pakistan is now being provided with sufficient financial resources distribution of profits as currently there is no specific formula for the distribution of profit and needs to be decided by approval of Government, the proposed bill now based on a formula to be incorporated in the SBP law the government’s approval will not required.
Now the State Bank of Pakistan’s functional/institutional autonomy is also being strengthened as there would be no Government Borrowing the existing practice of SBP is mandated to carry out quasi-fiscal operations, including rural credit, industrial credit, export credit, loans guarantees, and housing credit but now Quasi-fiscal operations, defined as monetary actions taken on behalf of the government, shall be discontinued However, refinancing facilities, which SBP has used to support access to credit in underserved sectors still allowed in the proposed amendment bill.
Currently the SBP operation as Monetary and Fiscal Policies Co-ordination Board but in a proposed bill the Governor and Minister of Finance to establish liaison, The Governor and the Finance Minister shall establish a close liaison with each other and shall keep each other fully appraised on all matters which jointly concern the Bank and the Finance Division, Existing every person in the service of the Bank shall be deemed to be a public servant within the meaning of section 21 of the Pakistan Penal Code, but in a bill proposed by the government stated that No suit, prosecution or any other legal proceeding including for damages shall lie against the Bank, Board of Directors or member thereof, Governor, Deputy Governors, member of any Board committee and monetary policy committee, officers and employees of the Bank for any act of commission or omission done in exercise or performance of any functions, power or duty conferred or imposed by or under this Act upon such persons or any rules and regulations made thereunder or any legislation administered by the Bank unless such act is done in bad faith and with mala fide intent.
The Governor, Deputy Governors, Directors, members of any Board committee and monetary policy committee, officers and employees of the Bank shall not be liable in their personal capacity for any act of commission or omission done in their official capacity in good faith and in case of any such proceedings as mentioned in sub-section (1), they shall be indemnified by the Bank which shall bear all the expenses thereof, till final decision of the case, No action, inquiry, investigation or proceedings shall be taken by NAB, FIA or Provincial Investigation Agency, bureau, authority or institution by whatever name called without prior consent of the Board of Directors of State Bank.
According to the government of Pakistan the proposed SBP amendment act also enhanced the transparency and controls as the executive committee of the bank to make policy decisions related to SBP’s core functions as well as administration and management matters, It will consisting of Governor, Deputy Governors, Executive Directors and other officers as needed for this only Governor and Deputy Governors have right to vote, Currently the Auditors appointed by the board members, but now a Audit Committee comprising 3 or more non-executive Board members to be constituted by the Board Responsibilities, duties and terms of reference to be defined by the Board (to include some mandatory functions) Chief Internal Auditor to be appointed by the Board as an employee of the Bank on the recommendation of the Audit Committee.
“No person appointed under section 10A shall act as a representative of any commercial, financial, agricultural, industrial or other interest, or receive or accept directions therefrom, in respect of duties to be performed under this Act, Every such person shall fully and promptly disclose to the Board any interest, whether personal, commercial, financial, agricultural, industrial or other, which he or any dependent member of his family may directly or indirectly hold or be connected with and which becomes the subject of consideration by the Board, and shall recues themselves from any Board deliberations and voting related thereto.
As per to the government’s proposed SBP amendment bill which aims to end the practice of the board which submits a quarterly report to the Majlis-e-Shoora (Parliament) on the state of the economy, But now the Governor shall submit annual report before the Parliament regarding the achievement of the Bank’s objectives, conduct of monetary policy, state of the economy and the financial system in addition to this the Parliament may require any senior official to attend at such additional times as may be required it further added that the Bank shall, not less than twice a year, publish and submit a state of the economy report to the Parliament and the Minister of Finance.
The government has taken this step so no one can use State Bank of Pakistan for their self interest and ruin the economy of Pakistan as the previous governments used the central bank of Pakistan politically like during the time of PML-N into the parliament they forced to stop the industry in Pakistan and start importing everything’s for this to control the value of Pakistan rupee was necessary so the prices of imported items may not cross a certain limit, for this purpose at that times foreign Minister Ishaq Dar started borrowing annual $5 billions and circulated into market despite of strong opposition of State Bank of Pakistan, Due to this activity the prices of imparted products for the time being didn’t cross the limit but consequently Pakistan foreign debt rose from $54 billions to $94 billions, though the parliamentary tenure of PML-N’s government nears to an end and the value of rupee start declining which caused massive economic problems for the incumbent government of Pakistan Tehree-e-Insaf (PTI), the annual installment of debt including interest was $10 billion along with this the country needs billions of dollars to import for oil the trade deficit already were $20 billion, which leads to cause inflation in the country and compelled the government to increase the prices.
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