Revised draft of SBP Amendment Bill 2021 shared with IMF

ISLAMABAD: The government has revised the draft of State Bank of Pakistan (SBP) Amendment Bill 2021 and shared it with the IMF under which complete immunity for governor SBP and other officials of the central bank are proposed to be withdrawn.

Top official sources confirmed to The News here on Thursday that the government had also finalized withdrawal of Tax Exemptions Bill 2021 whereby it proposed abolition of major sales tax exemptions except on food and medicines.

The government is making last-ditch efforts to convince the IMF for submission of Tax Exemptions Amendment Bill but the IMF is insisting upon getting approval of the parliament to make it law of the land.

The IMF may slap a condition to pass Tax Exemption Bill 2021 before the Fund’s Executive Board meeting expected to take place by January 12, 2022 for considering approval of $500 million under Sixth Review of Extended Fund Facility (EFF). When the government will submit Tax Exemptions Bill 2021 before the parliament, then the Upper House of Parliament (Senate) would have time-frame of 14 days for sending its recommendations within 14 days.

The National Assembly will have a time-frame to pass the piece of Finance Bill after getting recommendations of the Senate, so the government was making all required arrangements to meet the IMF conditions. Although, the government had demonstrated its majority through Joint Sitting of Parliament for approving 33 bills but it will be still a challenge for the government to pass the amended Finance Bill through simple majority. However, in case the government faces defeat on the Finance Bill, then the government would stand dissolved.

When IMF’s Resident Chief in Pakistan Terresa Daban Sanchez was contacted and asked whether Pakistani authorities shared the draft of SBP’s amendment bill with the Fund, she replied that “we are engaged and continue working on the set of policies and reforms to complete the 6th review under the EFF.”

On the SBP’s amendment bill, the official sources said that the submission of revised bill in the parliament was a prior action from the IMF for presenting before the Fund’s Executive Board because it requires approval of both Houses of Parliament that might take some time. It was envisaged through the proposed SBP’s Amendment Bill 2021 that international experience and economic literature have demonstrated that countries with an independent and accountable central bank have lower inflation and greater financial stability over long periods of time.

This is because independent central banks have their objectives clearly specified and are held accountable for their actions to achieve their objectives. Typically, in modern central banks, these objectives prioritize maintaining price and financial stability, which is a key requirement for improving people’s livelihood and sustained economic growth.

In Pakistan, the role of the State Bank of Pakistan (SBP) was first defined in the State Bank of Pakistan Act 1956. Since then, the SBP Act has been amended several times to reflect changes in 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 the SBP Amendment Act 2021 is a continuation of that process to modernize the central bank. The proposed amendments in 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.

This proposed clause from the earlier envisaged draft of SBP’s amendment bill 2021 has been withdrawn whereby no suit, prosecution or any other legal proceeding including for damages shall lie against the Bank, Board of Directors or member thereof, Governor, Deputy Governors, member of any Board committee and monetary policy committee, officers and employees of the Bank for any act of commission or omission done in exercise or performance of any functions, power or duty conferred or imposed by or under this Bill upon such persons or any rules and regulations made thereunder or any legislation administered by the Bank unless such act is done in bad faith and with mala fide intent.

The Governor, Deputy Governors, Directors, members of any Board committee and monetary policy committee, officers and employees of the Bank shall not be liable in their personal capacity for any act of commission or omission done in their official capacity in good faith and in case of any such proceedings as mentioned in sub-section (1), they shall be indemnified by the Bank which shall bear all the expenses thereof, till final decision of the case. This has been withdrawn.

No action, inquiry, investigation or proceedings shall be taken by NAB, FIA or Provincial Investigation Agency, bureau, authority or institution by whatever name called without prior consent of the Board of Directors of State Bank. It also proposed to become applicable mutatis mutandis to the former directors, governors and deputy governors. For removal of governor SBP, the earlier proposed clause has also been withdrawn from the revised draft of SBP’s amendment bill 2021.