ISLAMABAD: The controversial State Bank of Pakistan (SBP) Amendment Bill, which proposes to limit the government’s borrowing from the central bank, was approved by the federal Cabinet on Tuesday.
The passage of the SBP Amendment Bill is part of the government’s preparations to meet the International Monetary Fund’s (IMF) conditions ahead of the IMF executive board’s sixth review of the Extended Fund Facility.
The SBP Amendment Bill suggested extending the SBP governor’s tenure from three to five years, divided in two terms. However, it is yet to be decided if it becomes applicable for the incumbent SBP governor or not.
Meanwhile, another bill, the Tax Laws (Fourth) Amendment Bill, slated to be presented before the Cabinet, was deferred. The main reason behind the deferral was the resistance from the PTI-led regime’s allies who insisted the government take them into confidence.
The government deferred the Tax Law (Fourth) Amendment Bill, but two federal ministers confirmed to The News that the bill would be approved by the special cabinet committee within the next 48 hours either on Wednesday (today) or Thursday.
When Federal Minister for Finance and Revenues (who was sworn in a couple of days ago) Shaukat Tarin was contacted on Tuesday, he said the Cabinet approved SBP Amendment Bill 2021 in today’s meeting and everyone would soon see what kind of changes the government proposed in it.
“We have deferred Tax Laws (Fourth), Amendment Bill, because when it would be approved by the Cabinet, then on the same day it would be tabled before the Parliamentary Committee and then submitted before the Parliament on the same day,” Tarin said.
Earlier, Federal Minister for Information & Broadcasting Fawad Chaudhry said that the Cabinet approved the SBP Amendment Bill 2021 and decided that the Tax Laws Fourth Amendment Bill would be approved on Wednesday or Thursday by convening a special cabinet meeting.
It proposes the establishment of an executive committee to make policy decisions related to the bank’s core functions as well as administration and management matters consisting of the governor, deputy governors, executive directors and other officers as needed.
Only the governor and deputy governors have the right to vote.
According to a presentation, given to the Cabinet on the SBP Amendment Bill, the international experience and economic literature demonstrated that countries with an independent and accountable central bank have lower inflation and greater financial stability over long periods of time.
In Pakistan, the SBP role was first defined in the State Bank of Pakistan Act 1956. Since then, the SBP Act has been amended several times to reflect changes to economic thought globally, including advocating for an independent role of central banks. Major revisions in the SBP Act came in 1994, 1997, 2012 and 2015.
Under the existing SBP Act 1956, there is limited government borrowing (i.e. zero net quarterly borrowing) but the new amendment proposes that there would be no new government borrowing from the SBP. There will be a complete ban on government borrowings.
It also advocates ending quasi-fiscal activities, which are defined as monetary actions conducted on behalf of the government. However, refinancing facilities, which the SBP has utilised to help underdeveloped sectors gain access to credit, are still allowed.
The Monetary and Fiscal Policies Coordination Board was suggested to be abolished by the government. It is proposed that the governor of the SBP and the finance minister maintain a tight working relationship and keep each other fully informed on any issues that affect both the Bank and the Finance Division.
