Islamabad, Aug 19 (PTI) The International Monetary Fund (IMF) has urged Pakistan to remove the finance secretary from the board of the central bank and proposed changes to a law that would revoke the federal government's authority to mandate inspections of commercial banks, according to media reports. The global financial institution also recommended filling two vacant deputy governor roles at the State Bank of Pakistan (SBP) without delay.
The IMF has suggested amending the SBP Act to exclude the finance secretary from the board of directors, as reported by The Express Tribune, citing sources. This marks the second effort to remove the federal secretary from the board in three years.
The IMF's recommendations, part of its Governance and Corruption Diagnosis Mission report, seem to aim at minimizing federal government control, even though the government holds 100% ownership of the SBP. In 2022, under IMF pressure, the Pakistani government granted full autonomy to the central bank and stripped the finance secretary of voting rights on the board.
Presently, the finance secretary is an SBP board member but does not have voting rights. Key decisions, including exchange rate determination and interest rate setting, are not made by the board but by the monetary policy committee.
Finance Minister Muhammad Aurangzeb stated on Monday that the government does not influence interest rate decisions, which are under SBP's jurisdiction. The exchange rate remains market-determined, and the rupee appreciated further on Monday to Rs282 per dollar.
Minister Aurangzeb announced that the IMF's review mission is expected in the third week of September to discuss the third loan tranche of $1 billion under the current 37-month program.
Removing the non-voting finance secretary from the SBP board is seen by the IMF as a move to bolster the already considerable independence of the central bank. Discussions between the Pakistani government and the IMF on this recommendation are still ongoing.
The SBP board, including the governor and eight non-executive directors representing each province, oversees the bank's operations, administration, and management with full access to all activities.
The IMF has also recommended that Pakistan publicly disclose reasons for the dismissal of governors, deputy governors, non-executive directors, and monetary policy committee members. Additionally, the lender stressed the importance of immediately filling vacant deputy governor roles to facilitate collective decision-making at the central bank. Currently, only one of the three sanctioned deputy governor positions is filled by Saleem Ullah, who handles finance, inclusion, and innovation.
No permanent deputy governor oversees crucial areas like banking, exchange rate, and monetary policy. Former deputy governor Inayat Husain, who has been serving in an acting capacity since his term ended in November last year, faces challenges in his reappointment due to dual nationality. The Prime Minister has convened a committee to explore legal amendments allowing dual nationals to serve as deputy governors.
The finance ministry had previously proposed amendments to the SBP Act, including provisions permitting dual nationals to be appointed deputy governors. These proposals have been vetted by the law ministry.
Under the law, deputy governors must be appointed by the federal government based on consultations between the finance minister and the SBP governor, chosen from a panel of three candidates recommended by the governor based on merit.
The name of Nadeem Lodhi has been decided for one of the vacant posts, but cabinet approval is yet to be finalized. The SBP law stipulates that vacancies for governor, deputy governors, non-executive directors, and external members of the monetary policy committee should be filled within 30 days, a requirement currently violated by the federal government. The IMF has now insisted that these positions should not remain vacant for prolonged periods.
The IMF has additionally called for an amendment to the Banking Companies Ordinance of 1962, aiming to end the federal government's power to instruct the SBP to inspect commercial banks, as part of measures to ensure the central bank's independence.
Pakistan is implementing a $7 billion IMF loan package, and the release of each installment of around $1 billion necessitates fulfilling conditions set by the lender. Agreed last year for 39 months, the loan ensures the complete disbursement of funds to Pakistan.
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