What is the SBP autonomy bill?

Finance Minister Shaukat Tarin on Thursday presented the Finance (Supplementary) Bill 2021 and State Bank of Pakistan (SBP) Amendment Bill 2021 in the National Assembly (NA) amid uproar from the opposition benches.

Speaker Asad Qaiser said there would be a debate on the bill in the NA, following which the House would vote on it. Meanwhile, the SBP Amendment Bill 2021 was referred to the relevant standing committee for necessary vetting.

Why the government has introduced the bill?

The proposed law, which has been heavily criticised by opposition parties including the PML-N and the PPP and which gives unprecedented autonomy to the SBP to target inflation rather than economic growth, is one of the requirements Pakistan has to meet under the programme agreed with the International Monetary Fund (IMF) in July 2019.

Under the programme, the Fund had approved a 39-month $6bn arrangement for the country under its Extended Fund Facility (EFF) to support Islamabad’s economic reform programme.

The legislation will pave the way for the disbursement of a $1bn tranche under the EFF, which has been stalled since April. In November, Pakistan and the IMF had reached a staff-level agreement to revive the $6b funding programme.

The agreement is subject to approval by the Fund’s Executive Board, following the implementation of five prior actions, notably on fiscal and institutional reforms. Thus, the legislation for making the SBP autonomous is one of the prior actions agreed with the IMF.

Contents of the Amendment Bill

1. Under the draft bill, the government should be barred from borrowing from the SBP.

2. Domestic price stability has been defined as the SBP’s primary objective

3. Supporting economic policies has been defined as the SBP’s tertiary objective.

4. The authorized exchequer of SBP will be Rs500 billion and the paid up capital will be Rs100 billion.

5. If the SBP’s general reserves fall below zero, the federal government will provide the required cash within 30 days.

6. The central bank will formulate exchange rate policy, maintain all international reserves of Pakistan and issue currency.

7. The Board of Directors will consist of one Governor and 8 Non-Executive Directors. The Non-Executive Directors will have at least one member from each province.

8. Federal Secretary will be a member of the Board of Finance but will not have the right to vote. Deputy Governors will attend board meetings but will not have the right to vote.

9. In the absence of the Governor, the Deputy Governor shall preside over the meeting and exercise the right to vote. The Governor shall be the Chairperson of the Board of the SBP.

10. The SBP will not provide direct loans or guarantees to the government, its departments or public institutions. The SBP will not purchase any securities issued by the government.

11. The governor and non-executive directors will be appointed by the president on the recommendation of the federal government. The SBP will have three deputy governors.