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SBP says amendments will not ‘compromise economic sovereignty’

SBP to announce monetary policy on Monday

ISLAMABAD: The State Bank of Pakistan (SBP) has defended the proposed amendments to its Act, saying that the changes would neither compromise economic sovereignty, nor would it become a “state within a state”.

The central bank’s statement came after it faced severe criticism over the proposed handing over of its autonomy to the International Monetary Fund (IMF) for the $6 billion loan programme. In this regard, SBP issued two papers to clarify the situation about the proposed amendments to its Act.

The state bank maintained that it would continue working to achieve stable economic growth and development instead of limiting its role to inflation controller.

The amendments, it added, would help in boosting coordination between the finance minister and the SBP governor to better strike a balance between economic growth and inflation reading.

Its officials would remain answerable before parliament and that the National Accountability Bureau and the Federal Investigation Agency (FIA) could investigate alleged criminal matters.

“Supporting economic policies of the government to foster development remains one of the three objectives of the State Bank under the proposed amendments, in addition to domestic price stability (inflation) and financial stability,” the central bank said in a paper titled ‘Response to Common Misperceptions About State Bank of Pakistan Amendment Act, 2021’.

The bank added that focusing on price stability as the primary objective was sensible as inflation was one of the variables that it could influence directly through its tools, while generating growth is more in the hands of other actors, including other government agencies and the private sector.

“Moreover, inflation is very harmful and affects vulnerable segments the most,” the paper read. The bank contended that international experience had shown that price stability was a necessary condition for sustained growth and development.

Besides, the bank’s high officials would remain answerable before parliament. NAB and the FIA would have their full jurisdiction to investigate SBP officials for criminal or corruption related matters.

“However, indemnity is being proposed for actions taken in good faith, so that where due care and due process are followed, officials are not afraid to take actions. This is quite common in central bank laws and is considered an international best practice,” the paper added.

The central bank will remain accountable for its actions. “Indeed, accountability is being enhanced… explicitly giving the right to parliament to ask for senior officials to appear before it as many times as needed. The current Act does not have any such provisions.”

The amendments have six key purposes:

(1) to clearly define the objectives of the SBP to improve its accountability;

(2) to outline the SBP’s functions in line with these objectives;

(3) to provide the SBP necessary financial resources to help achieve its objectives;

(4) to strengthen the functional and administrative autonomy of the SBP;

(5) to increase transparency in the operations of the SBP and strengthen its governance; and

(6) to enhance the SBP’s accountability by strengthening oversight functions and increasing reporting requirements, it added.

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