ISLAMABAD: In order to meet IMF requirements, the federal cabinet passed the contentious State Bank of Pakistan (SBP) Amendment Bill on Tuesday, which proposes to limit the government’s borrowing from the central bank.
The SBP Amendment Bill suggested extending the bank governor’s term from three to five years, with two terms. It remains to be seen if it will apply to the current governor of the SBP.
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The government postponed the second Tax Laws (Fourth) Amendment Bill primarily because the PTI-led regime’s supporters objected and begged the government to trust them.
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 next 48 hours either on Wednesday (today) or Thursday.
When Federal Minister for Finance and Revenues (who had just got oath after becoming a senator) Shaukat Tarin was contacted on Tuesday, he said the federal cabinet approved SBP Amendment Bill 2021 in today’s meeting and everyone would see soon 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 will be submitted before the Parliament on the same day,” Tarin said.
Earlier, Federal Minister for Information & Broadcasting Fawad Chaudhry said that the federal cabinet approved 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 is proposed to establish an executive committee to make policy decisions related to Bank’s core functions as well as administration and management matters consisting of governor, deputy governors, executive directors and other officers as needed.
Only governor and deputy governors have the right to vote.
According to a presentation, given to cabinet on 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.
The introduction in parliament of SBP Amendment Act 2021 is a continuation of that process to modernise the central bank. The proposed amendments to the Act seek to clearly define the objectives of the SBP, improve its functional and institutional autonomy to achieve its objectives, and strengthen its accountability in achieving its objectives.
It is important to note that the proposed amendments are not only based on international best practices in central bank legislations but also take into account ground realities in Pakistan.
Under the existing SBP Act 1956, there is limited government borrowing (i.e. zero net quarterly borrowing) but now it is proposed that there would be no new government borrowing from the SBP. There will be complete ban on government borrowings.
It is proposed that the quasi-fiscal operations, defined as monetary actions taken on behalf of the government, wouldbe discontinued. However, refinancing facilities, which SBP has used to support access to credit in underserved sectors are still allowed.
The government proposed to abolish the Monetary and Fiscal Policies Co-ordination Board. It is proposed that the SBP governor and finance minister would establish a close liaison with each other and keep each other fully informed on all matters which jointly concern the Bank and the Finance Division.