State Bank clears air surrounding forthcoming legislation; no, it won’t bankrupt Pakistan

Deputy governor of the State Bank of Pakistan (SBP) Dr Murtaza Syed has clarified that repayment of loans isn’t a priority on the list of objectives the central bank plans to achieve if it is granted autonomy under forthcoming legislation.

He was responding to The Current’s query during a meeting of SBP bigwigs, including Governor Dr Reza Baqir, with digital broadcasters amid widespread rumours about a future with an autonomous central bank in Pakistan.

Besides opposition members, renowned Economist Dr Kaiser Bengali had earlier warned that “the SBP ordinance, which is likely to be introduced soon, is anti-national and could lead to no accountability of central bank officials besides ultimately resulting in the collapse of the country”.

“Our objectives are controlling inflation, ensuring financial stability and promoting the government’s policies of development and growth,” he said.

Earlier, SBP Governor Baqir also clarified the air surrounding what he said was not an ordinance but a bill to be presented before the parliament for discussion.

He said that it wasn’t the first time that amendments to the SBP Act will be discussed.

“The SBP Act was previously amended in 1994, 1997, 2012 and 2015. Changing the Act does not mean that it cannot be changed again and the parliament has the power to withdraw amendments to the SBP Act,” the SBP governor said.

However, he added, that clarity in the bill to avoid any sort of troubles in the future was important.

“The aim of the proposed law is to limit interference in the operations of the SBP. In turn, the bank will be asked what it did to achieve its objectives. Accountability would not be possible if the goals remain unclear. Excess currency printing and lending to the government causes inflation. With the amendments to the Act, this will not be allowed to happen.”

He said that discipline would have to be exercised to end borrowing, adding that it was easier to ask the SBP to print more money instead of raising taxes.

“Relying on the SBP does not solve the government’s problems. In the last year and a half, the government has not taken any loan from the SBP. A country that repays loans by printing notes witnesses increased inflation,” he reiterated.

The SBP governor said that in the past, governments had repeatedly printed excess money, the effects of which are still seen today. The current inflation is not due to monetary policy, but because of administrative shortcomings.

“If the current government had made the SBP print more money, inflation would have been even higher.”

Addressing concerns that under the new law authorities won’t be able to hold SBP officials accountable, Dr Murtaza clarified the only difference would be that anti-graft bodies would require permission from the bank’s board beforehand to proceed on allegations.

He also vowed that the bank would ensure complete transparency in any such instance, which he maintained was also a common practice across the globe.

SBP members, including Dr Inayat Hussain and Abid Qamar, as well as Information Ministry officials were also present during the session.