Regulators need autonomy, and also accountability

LAHORE: Pakistan’s long-term solution to the economic woes lies in giving full autonomy to regulatory institutions and the state should be constitutionally refrained from overriding the regulatory orders of these institutions.

Currently, the State Bank of Pakistan enjoys the powers to determine the policy rates of the country. The government has no role in determining the interest rate regime. Every government desires that the interest rates should be on the lower side, but the central bank evaluates the impact of inflationary measures taken by the state, while determining the policy rates.

The central bank; however, is not fully autonomous; it has to obey the orders of the state to increase money circulation by printing currency notes.

The State Bank then retaliates by adjusting the interest rates upwards to counter the inflationary impact of higher money circulation.

Another advantage that the central bank enjoys is that its governor has to be appointed after the term of incumbent governor expires. The state though has the option to appoint the deputy governor, as the SBP governor for three months after which it is mandatory to appoint a permanent governor for a period of three years.

There is no restriction on the government to appoint heads and board members of other regulatory bodies other than the central bank after the post is vacated. The government has the discretion of asking the former head of the institution to continue till further orders, or may ask any of the board members to assume the charge till further orders.

There is no time limit to appoint the new head and those that assume temporary charge may continue to head the regulatory institution for years. This dilutes the independence of the regulator, as the fate of its head is linked with the discretion of government. Instead of merit, the institution regulates according to the wishes of the government. There is a flaw in the law that ought to be corrected. There should be a law that makes it mandatory to appoint heads and members of a board before the expiry of the existing head and board so that there is no vacuum that necessitates temporary appointments.

The present regime should adopt the suggestion that the World Bank had given to the Zardari-led PPP government, advising to shortlist the probable candidates of each regulatory post. The minimum qualifications of each regulatory post should be advertised and the candidates may be interviewed by a panel of experts of impeccable reputation plus an expert from the relevant regulatory body.

The list of qualified candidates may be placed at the website of the federal government. The prime minister should have discretion to announce appointment of any shortlisted candidate a week before the post is vacated. Otherwise the person on top in merit list should automatically be inducted.

The institutions should be accountable, if they fail to perform their regulatory functions according to the law. The state should have no right to override the regulatory orders of all regulatory institutions. Currently, for instance, NEPRA determines the electricity tariff, but the state has the option to disagree and do not implement the determined tariff.

The power distribution companies should bill the consumers on tariff determined by NEPRA. The government could provide the subsidy to the consumers after the payments are received, as these payments belong to the power distribution companies.

In the same way, petroleum products rates and gas rates determined by OGRA should be fully implemented. We have established these regulatory agencies to ensure fair rates for suppliers and consumers. If the government has the final say in determination of tariff, there is no need to waste money on regulatory institutions. There would have been no circular debt crisis had the determinations of NEPRA been implemented.

All the regulatory institutions operate under the umbrella of the federal government, but the institutions they regulate operate in the provinces. To ensure full compliance of regulators’ instruction these institutions such as the power and gas distribution companies have to take action against bill defaulters or gas and power thieves.

This they cannot do until they have the support and cooperation of the provincial law-enforcement agencies. If the provincial ruling party is different from the federal ruling party, this cooperation is mostly withheld.

The federal government ought to have a separate force on the pattern of FIA to ensure smooth operations and regulatory compliance. They cannot depend on the provincial cooperation only.