The government has managed to get an important piece of legislation passed from parliament that empowers the State Bank of Pakistan (SBP) to take crucial decisions independently pertaining to interest rates, foreign currency reserves, exchange rate, limit and nature of advances and loans to the government. It tabled “The State Bank of Pakistan (Amendment) Bill 2015” in the National Assembly on Thursday in the absence of opposition legislators as they staged a walkout in protest against the attitude of cabinet members, who, according to them, were not taking the house business seriously.
The new law paved the way for setting up a statutory monetary policy committee that would take monetary policy decisions independently and without any interference. Now the question is that isn’t the Bank already independent? And hasn’t it, quite publically, defended this autonomy, especially when the press found certain interest rate decisions remote controlled; and once when the finance minister announced a change one night before? Besides, if the government is pushing for central bank autonomy, just what sort of interference is it implying if not from itself? That there was practically no debate on the matter – since opposition members had walked out, again – and required number of lawmakers were not present, just about sums it up.
But now that an initiative has been taken, certain pointers will be important. How much influence the finance ministry can exercise over the interest rate is not always apparent from the monetary policy report. However, the Bank is now in a position to put its foot down on the matter of banks advancing loans to the government. For far too long now the government has relied on borrowing to finance even its day-to-day running. Surely, no responsible and truly independent central bank would allow this.
It is heartening, though, that someone has finally settled the ‘lender of last resort matter’. The recent great recession should have proved to everybody the importance of ensuring solvent credit markets. With the expansive fiscal outlook especially – with large construction projects coming online – this solvency will be crucial. Also, the central bank is in a more assertive position to enforce regulations, etc, when it is also the ultimate saviour. Hopefully this is the shot in the arm that will make the Bank finally toggle the instruments at its disposal without any undue interference. At best, it could spur investment. At worst, things will remain the way they are.
pk.shafaqna.com
