Pakistan, IMF trying to find solution to SBP autonomy issue

ISLAMABAD: The Pakistan government and the International Monetary Fund (IMF) are trying to find a solution which is acceptable to both sides to the proposed State Bank of Pakistan (SBP) Amendment Bill 2021, The News reported. 

Sources privy to the matter said that the outstanding settlement on the SBP Amendment Bill 2021 can make or break the IMF deal.

The IMF staff is finding it really hard to convince the Fund’s executive board to continue waiting on the lingering issue of the SBP’s autonomy. 

Earlier, the Fund had written in its staff report that the authorities (Ministry of Finance) submitted amendments to the SBP Act to Parliament in March 2021 (end March 2021 Structural Benchmark SB) as Prior Action. The IMF was also told that the SBP Amendment Act was expected to be adopted by Parliament by end of September 2021.

However, it did not happen within the stipulated time frame of September 2021. The government did not even introduce the SBP Amendment Bill 2021 in the National Assembly, so under the normal practice, the IMF placed such failed action as part of Prior Action for completion of the next review. 

Now the Pakistani side is arguing that the submission of the bill can become Prior Action, but that it could not dictate this to Parliament in a short span of time-frame, calling it “simply impossible”.

In the past, keeping IMF’s pressures in view, the SBP Amendment Bill got a waiver from the Cabinet Committee for Disposal of Legislative Cases (CCLC) for detailed scrutiny and got approved in haste. Then the cabinet approved the SBP’s Amendment Bill 2021 in just 10 minutes as planned by former adviser to PM on finance Dr Abdul Hafeez Shaikh and incumbent SBP Governor Dr Reza Baqir. It was argued that the IMF placed it as a structural benchmark and Prior Action, so it should be approved right away.

Now there is a second thought within the ranks of the government because the SBP’s Amendment Bill 2021 provides sweeping powers to the SBP governor and his team, making them above the law of the land.

Here are some examples of sweeping powers proposed in the SBP’s Amendment Bill 2021 in comparison to the existing SBP Act, 1956. The Monetary and Fiscal Coordination is part of the SBP Act 1956 but in the new bill, it proposes to be abolished.

Under the existing SBP Act 1956, 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. The new proposed SBP Amendment Bill 2021 proposes 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 an 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 the 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 the prior consent of the Board of Directors of SBP. It will also become applicable mutatis mutandis to the former directors, governors, deputy governors.

For the removal of the governor, under the existing law of SBP Act 1956, the President can remove the governor over misconduct or breach of trust. However, it is proposed under the new SBP’s amendment bill 2021 that the President can remove the governor for serious misconduct as determined by a court of law.

It is also unclear if the finance minister replied to the questions on the SBP-related domain on the floor of the House. After getting so much autonomy and complete detachment from the Ministry of Finance, the SBP governor cannot be held accountable before Parliament and it is unclear how he would reply on the floor of the House.

This scribe contacted IMF Resident Chief Teresa Daban Sanchez to seek comments. She replied that the amendments that are needed to the SBP Act to make it converge with best international practices are prescribed in the Memorandum of Financial and Economic Policies (MEFP) of 2 to 5. “We are working on the timelines, calendar, and composition of policies and reforms,” she added.

Law Minister Farogh Naseem had, meanwhile, written a fresh point of view and also held a meeting with the IMF team as efforts remained underway to convince the IMF to not make approval of SBP’s Amendment Bill part of Prior Action, arguing Parliament is sovereign and cannot be dictated on how much time it should pass the piece of legislation under the IMF conditions. 

The government also wants to slash down the powers under the proposed SBP’s Amendment Bill for the governor and other SBP officials. It is yet to be seen how much it succeeds in convincing the IMF.