Islamabad: In line with the International Monetary Fund (IMF)’s demands, the government has decided to detach the State Bank of Pakistan (SBP) from the Ministry of Finance so that it can control inflation and foreign exchange regimes independently. However, the central bank is bound to follow fiscal targets set by the National Economic Council and will be answerable only to the Parliament
The decision to give State Bank full autonomy was taken in a Cabinet meeting held under the chairmanship of Prime Minister Imran Khan. After the cabinet meeting, Finance Minister Hafeez Shaikh along with Minister for Industries Hammad Azhar, Adviser to the Prime Minister on Reforms and Austerity Dr Ishrat Hussain, the Finance Secretary, and Chairman Federal Bureau of Revenue (FBR) held a media briefing. The Finance Minister said negotiations with the IMF, which were on a standstill for a year because of the COVID-19 pandemic, have now formally started.
He said the IMF Board would meet soon to complete the review, and lending to Pakistan would resume immediately. He added that apart from the SBP amendment bill, the two other bills approved by the Cabinet relate to the withdrawal of corporate income tax exemptions (Income Tax Second Amendment Act 2021) to generate Rs 70-140 billion in additional revenue, with effect from July 1, 2021, and State-Owned Enterprises (Governance and Operations) Bill 2021.
While elaborating on the SBP amendment bill, the Finance Minister said that with the introduction of this bill, the Central Bank will not take any instructions from the Ministry of Finance or any other government institution. He said that after the approval of this bill, the Fiscal Coordination Board will also be dissolved and the federal government will coordinate with SBP through various committees.
“State Bank will only be answerable to Parliament and no one else will dictate it in forming and implementing the Monetary and Foreign Exchange policies,” he remarked.
Answering a query on whether this decision was taken on the pressure of IMF, the Finance Minister said: “We have to find out why after every four or five years we have to approach the IMF to rescue us from a financial crisis.”
Hafeez Shaikh mentioned that the draft law also provided a five-year guaranteed term to the SBP governor instead of the existing three years. It also surrendered the government’s right to borrow from the central bank and will instead adopt measures to meet its financial requirements through its own resources. He also pointed out that the government shall not borrow or take guarantees from the SBP for its operations.
Regarding the bill on State-Owned Enterprises (SOEs), the Finance Minister said the SOEs were operating in the country without any proper system and reporting to various ministries and regulators, but now they would be governed by respective boards, free from the interference of the ministries.
“We want independent boards to evaluate the performance of these SoEs, and they will have the powers to appoint chief executives on merit. They should not be bound to PPRA rules for the procurement of anything,” he added.
Dr Ishart Hussain said the SBP’s autonomy will only be in line with the fiscal targets set in the meeting of National Economic Council (NEC), and inflation is one of them.
“Let me clarify that the central bank only autonomous in meeting the inflation target set in NEC, in the annual meeting of NEC before the Budget. Apart from monetary, operational and administrative issues related to price stability will also be into account,” he said.
Dr Ishrat Hussain said that because of government policies, in the last one-year, losses of SOEs reduced from Rs 268 billion to Rs 123 billion. He said that out of 85 SOEs, 51 are making a profit and 33 are running in loss, while one is on break-even. He said that now highly qualified expatriates are willing to work in SOEs and the government has shortlisted 56 such expatriates.
In an exclusive interview with The Correspondent, Dr Ishrat Hussain elaborated on the government’s plans.
Chairman FBR said that with the amendment in the Income Tax Act, withdrawal of corporate income tax exemptions to the industry will generate Rs 70 to 140 billion additional in tax revenue. “By waiving off these exemptions, our dependence on indirect taxes to meet revenue target will decrease substantially.”
The Finance Minister, while commenting on his defeat in the Senate Elections, said that Prime Minister expressed full confidence on his performance and asked him to continue his job. He said that as per law he can remain Finance Minister for six months, after which it will be decided how he will continue.
Earlier, Federal Information Minister Shibli Faraz informed the media that the Cabinet decided to start work on the Islamabad Metro project. He said that the government has decided to remove Sheikh Akhtar Hussain as Chief Executive of Drug Regulatory Authority of Pakistan (DRAP) and appointed Asim Rauf as CEO on a temporary basis. He said the cabinet also approved the appointment of Aizaz Ahmed as Managing Director of National Transmission and Despatch Company (NTDC).