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The government of Pakistan is preparing to approve the State Bank of Pakistan Amendment Act 2021. This 2021 amendment in the SBP Act of 1956 is perceived as being rushed under the duress of the International Monetary Fund (IMF). This law has been a source of hot debate in Pakistan; not only is the opposition critical to the new amendment in the State bank’s law but the senior economists are also lambasting the expected modification.
The critics maintain that the said amendment would prove to be inimical for the economic condition of the country. They also hold the view that it would make the Director of the SBP above the law of the state.
The Preamble to the New Amendment
The SBP functions under the State Bank of Pakistan Act of 1956, which has been amended thrice before: in the era of Benazir Bhutto, then in the era of a caretaker government, and lastly in 1997 in the government of Mian Nawaz Sharif. The newly proposed amendment in this law has been approved by the cabinet of the Prime Minister of Pakistan.
This amendment is now awaiting further approvals to get into force. According to some senior economists, the new modification in the law will have many negative impacts on the already stagnant economy of the country. As per the 2021 amendment in the 1956 SBP Act, the bank would have to halt its quasi-fiscal operations which it takes on behalf of the government of Pakistan.
The ramifications of this act would hamper the state bank and the government of Pakistan from taking action for the welfare of the populace of the country. It will also preclude the SBP from granting any loans to the federal government. Thus, the federations will be coerced to take loans from private banks on higher interest rates.
The assets in the SBP would only be used to pay the debt to IMF without any kind of consent or approval from the federal government of the country. The central government will be responsible to fill the account of the SBP if found empty. The SBP Amendment Act 2021 would give the central bank greater autonomy to play its role in target prices and the financial stability of the country.
It will also increase the role of SBP in the independent determination of monetary and exchange rate policies. The new amendment will also reset the core rationales of the state bank and would prevent any type of intervention by the elected government of the state.
The Upper Echelons
The top officials of the SBP will also gain unprecedented autonomy as no agency of the country including NAB, FIA, and any other federal or provincial government would be able to initiate any kind of investigation or action against them without permission from the board of directors of the bank.
This amendment will also make the former top officials of the central bank immune from the actions of the aforementioned agencies. While the existing rules of the State Bank, as mentioned in the 1956 Act, deems all the people serving in the central bank to be a ”public servant” within the meaning of Section 21 of the Pakistan Penal Code.
Currently, all the decisions of the central bank require the government’s approval through the monetary and fiscal policies coordination board, but the proposed amendment will alter this mechanism for coordination between the SBP and the government of Pakistan.
The president of Pakistan, unlike erstwhile, will not be able to dismiss the Governor of the SBP in case of any crime. Only the judicial branch would have the discretion to take any sort of action as per the expected amendment. The amendment will also extend the duration of the appointment of the Governor from 3 years to 5 years.
Will the Governor Be Equal to a Viceroy?
Raza Baqir, Governor of the SBP, was an employee of IMF and has also served in Egypt. It is claimed by senior journalists and economists that he caused the devastation of the Egyptian economy by implementing the IMF’s plan in that country. They hold the view that the appointment of Raza Baqir will also prove detrimental in the same in Pakistan.
Senior politician and former Governor of Sindh, Muhammad Zubair, also claimed that Raza Baqir was an employee of IMF and would return to his original organization after exacerbating the economic condition of the country. Miftah Ismail, former finance minister of Pakistan, and Dr. Ashfaque Hassan Khan, a senior economist, have also maintained that the Governor of the SBP would become the financial viceroy of the country like the time when the country was in the clutches of the British Empire.
They hold that this will be because of the powers and immunities incorporated in the new amendment for the top officials of the State Bank. The central bank will be authorized to make an agreement with any national or international institution and to share any kind of confidential or non-confidential information with that organization without consulting the government of Pakistan, according to Dr. Ashfaque Hassan Khan.
Pakistan’s Grim Future
The expected amendment in the SBP Act of 1956 will devastate the already struggling economy of the country. It will make the SBP a sort of state within the state of Pakistan. The Governor of the SBP will become more powerful than the Prime Minister of the country as he would have immunity against any action from NAB and FIA.
Imran Khan seems to be playing in the hands of IMF which could prove pernicious for the country. The Prime Minister of Pakistan, Mr. Imran Khan, before coming to power, always stated that he would never ask for assistance from IMF or any other monetary institution of the world.
He always claimed that these organizations exploited the developing countries by sending their economic hitman, referring to the famous book, The New Confessions of an Economic Hit Man. Hence, the government must consciously assess the impacts of the suggested amendment before endorsing the controversial amendment.
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