Cabinet Approved Autonomy of SBP

The federal cabinet has approved a revised draft of the State Bank of Pakistan (SBP) Amendment Bill 2021, which promises complete autonomy for the central bank and places a complete restriction on the government’s borrowing from the SBP.

The development was confirmed by Information and Broadcasting Minister Fawad Chaudhry during a press briefing following a cabinet meeting in Islamabad on December 29, 2021.

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. It will potentially be tabled in the National Assembly tomorrow (Wednesday).

Under the draft bill, as approved by the cabinet, domestic price stability has been defined as the SBP’s primary objective and supporting economic policies as its tertiary objective. It explains price stability as “the maintenance of low and stable inflation guided by the government’s medium-term inflation target”.

Moreover, the bill’s statement of objects and reasons states that the amendments proposed in the draft are in line with international best practices and take into account the ground realities in Pakistan.

“By facilitating domestic economic stability, the amendments will help support sustainable growth and avoid repeated booms and busts that have characterised Pakistan’s past and led to painful consequences in terms of higher inflation, higher poverty and lower growth

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