• Cabinet clears three crucial bills
• State enterprises to be free from ministries’ interference
• Withdrawal of corporate income tax exemptions to generate Rs70-140 billion

ISLAMABAD: In order to meet IMF conditions for revival of its stalled programme, the federal cabinet on Tuesday cleared for introduction in parliament three crucial bills, including the one allowing unprecedented autonomy to the State Bank of Pakistan to target inflation, rather than economic growth.

“We will take these bills to fast-track legislation,” said Finance Minister Dr Abdul Hafeez Shaikh at a news conference after a meeting of the cabinet, adding that relationship with the International Monetary Fund, which had been under a “pause” for about a year, had formally started. He said the IMF board would soon meet to complete the review and its lending to Pakistan would resume immediately.

The two other bills approved by the cabinet relate to withdrawal of corporate income tax exemptions (Income Tax Second Amendment Act 2021) to generate Rs70-140 billion in additional revenue with effect from July 1, 2021, and State Owned Enterprises (Governance and Operations) Bill 2021.

Dr Shaikh, who was accompanied by Minister for Industries Hammad Azhar, Adviser to the Prime Minister on Reforms and Austerity Dr Ishrat Hussain, the finance secretary and FBR chairman, said the SOEs were operating in the country in a hotchpotch manner and reporting to various ministries and regulators, but now they would be governed by respective boards, free from interference of the ministries.

He said the government would appoint boards of directors and the chairmen and chief executive officers of the SOEs would be appointed by the boards instead of secretaries and ministers to bring professionalism to the public sector. Also, these commercial SOEs would be exempted from the application of procurement rules to let them take independent decisions and compete with the private sector through speedy decision-making.

The proposed bills would strengthen the country’s institutions and resultantly the economy, the minister said, adding that greater autonomy to the central bank was in line with international standards with the mandate of price control and fighting inflation by adopting exchange rate and monetary policy in an autonomous manner without government’s interventions.

Dr Shaikh said the draft law also provided a five-year guaranteed term to the SBP governor instead of the existing three years and surrendered government’s right to borrow from the central bank and instead adopt measures to meet its financial requirements through its own resources.

He said the Monetary Policy and Fiscal Coordina­tion Board was being abolished and the federal government would coordinate with the central bank thro­ugh various committees.

Responding to questions, the minister and his companions said the governor or the SBP would not remain unaccountable despite full autonomy and would be answerable to parliament where they would submit their reports instead of the federal government. They did not answer when asked what made the government to change its stance on ‘absolute autonomy’ to the SBP which it had been resisting until a few months ago and for almost a decade when Dr Shaikh was finance minister.

Finance Secretary Kamran Ali Afzal agreed that “price stability” had not been defined in straight jacket in the law. But Dr Ishrat said inflation targets would continue to be set by the National Economic Council comprising the prime minister and provincial leaders and the governor and central bank would adopt exchange rate and monetary policies on the basis of NEC’s targets and would be judged on that basis.

A senior official said submission of the SBP amendment bill to parliament was a prior action required by the IMF for taking up Pakistan’s case for revival of Extended Fund Facility by its executive board. Therefore, the cabinet also waived the requirement of mandatory clearance of the old and disputed bill from the Cabinet Committee on Disposal of Legislative Cases that had already taken up a revised draft ‘reconciled’ by the finance ministry and SBP.

Under the SBP amendment bill, the authorised capital of the central bank would be Rs500bn and the SBP board would be empowered to increase the authorised capital through a resolution subject to government’s consent. The paid-up capital of the SBP will be Rs100bn to be made up through issuance of bonus shares by capitalising profits or general reserve or through subscription of shares in cash by the federal government. The board with a prior approval by the government will be able to increase paid-up capital as well.

The SBP board led by the governor would be free to define, approve and determine general internal policies and rules of the bank regarding execution of its functions and approve internal rules and formulate and oversee foreign exchange reserve management, strategic investment and risk policy. The board will be also empowered to approve the central bank’s budget, annual reports and financial statements and adopt and monitor SBP’s policies on internal and external audit, compliance, internal controls and risk management.

The SBP will not guarantee any loan, advance or investment entered into by the government or its entities. Provided that the existing outstanding debt owed to the SBP in the form of loans, advances or government securities purchased on the primary market, at the time of the enactment of the SBP (Amendment) Act 2021 shall be retired in accordance with the terms and conditions under which such outstanding debts were extended. In compliance with the prohibition of monetary financing under this section, no roll-over or re-profiting of such existing outstanding debt of the governments shall be permitted.

The guarantees issued by the SBP to secure the obligations of the government outstanding as at the date of the enactment of the draft law shall not be increased, but can be rolled over in accordance with the terms and conditions under which such outstanding guarantees were issued. The amount of overdraft outstanding against Pakistan Railways shall be converted into long-term debt with duration of eight years and remunerated at market interest rates.

The SBP shall not purchase securities issued by the government or, any government-owned entity or any other public entity on the primary market but would be allowed to purchase such securities in the secondary market.

The governor and the finance minister shall establish a close liaison with each other and shall keep each other fully informed on all matters which jointly concern the SBP and the Ministry of Finance. The Auditor General of Pakistan may, without prejudice to the autonomy of the bank and the audits conducted by the external auditors, conduct audit of the accounts of the SBP, but such audit will not have concern with the merits of the policy decisions.

The governor, board of directors or deputy governor and members of the monetary policy, officers and employees of the SBP would be protected against any suit, prosecution or any other legal proceeding, including for damages “for any act of commission or omission done in exercise or performance of any functions, power or duty”.

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 they would also be exempted from the National Accountability Bureau and Federal Investigation Agency.

Published in Dawn, March 10th, 2021