The federal government has finally agreed to give absolute autonomy to the State Bank of Pakistan (SBP), freeing it from responsibilities of supporting economic growth and providing budgetary loans to revive the stalled International Monetary Fund (IMF) programme, a draft bill reveals.

The SBP Amendment Bill, 2021, says that the central bank’s primary objective will be domestic price stability. But neither the inflation target has been set in the bill nor does the government introduce any accountability in case the bank fails to ensure price stability.

The federal cabinet will take up the SBP Amendment Bill for approval in its meeting on Tuesday (today), which is a pre-condition along with about 30 other conditions to revive the stalled $6 billion IMF programme.

To meet another condition of the IMF, the government will also present the finance bill today (Tuesday) in the Senate to withdraw 80 income tax exemptions.

According to the SBP bill, supporting economic policies has been declared as “tertiary objective” of the central bank, while the National Accountability Bureau (NAB) and the Federal Investigation Agency (FIA) cannot investigate the SBP governor, deputy governors, its executives and board and committee members.

Former officials have also been provided with immunity from NAB and the FIA.

But in another major proposal, the Monetary and Fiscal Policies Coordination Board has been proposed to be abolished, with a view to ending “risk of undue political influence over the SBP’s monetary policy”, according to the finance ministry. The Bill also proposes abolition of the SBP’s powers to run quasi fiscal operations.

The central bank had sent the first draft bill to the finance ministry in March last year. However, the ministry did not agree and proposed many changes.

In April last year, the Cabinet Committee on Legislative Cases (CCLC) deferred the approval of the bill due to difference of opinion between the SBP and the finance ministry over the extent of autonomy.

The finance ministry has directly sent the draft bill to the federal cabinet for approval, while bypassing the CCLC, requesting the cabinet to waive the CCLC approval requirement due to “urgency” of the matter.


A major change has been proposed in the preamble of the SBP bill. As against its current dual objectives of regulating the monetary and credit system and fostering growth, it has been proposed that domestic price stability will be the primary objective and fostering development and fuller utilisation of the country’s productive resources will be tertiary objective.

A new clause has been inserted to make ‘Price Stability’ as the primary objective of the SBP. The central bank will have the freedom to determine and implement monetary policy, formulate and implement the exchange rate policy.

However, no inflation target has been given in the bill. Also, in the future, the federal government cannot make legislation without consulting the SBP. “The bank shall be consulted ex ante on any proposed legislative act related to the Bank”, sates section 46B sub section 8.

The definition of “monetary liabilities” has been introduced, which means total liabilities of the bank as reduced by the sum of “deposits of the government, amounts owing to the IMF, the WB, the ADB or other such instruments, deposits of foreign central banks or sovereign wealth funds, utilized swap lines of foreign central banks and balance of participant central banks under any clearing union”.

Currently, the Chinese currency swaps, foreign central banks deposits and the IMF loans for balance of payments are part of the SBP liabilities, which understate the total public debt of the federal government. The central bank will have full authority to “acquire, hold and dispose of movable and immovable property of any kind”.

It has been proposed to increase the authorised capital of the SBP to Rs500 billion and the paid-up capital to Rs100 billion. The paid-up capital will be made up through issuance of bonus shares by capitalising of profits or general reserves or through subscription of shares in cash by federal government.

However, the paid-up capital and general reserves of the bank have to be equal to 8% of the monetary liabilities of the central bank. The federal secretary finance has been proposed to be removed from the SBP board but the SBP Governor Dr Reza Baqir will remain the chairman of the board.

In April last year, the finance ministry had proposed that the SBP governor should limit himself only to the extent of operations and management, while the board should be headed by one of the ex-officio directors instead of him.

Prohibition on govt borrowing

“The Bank shall not extend any direct credits to or guarantee any obligation of the government, or government-owned entity or any other public entity”, states the bill. The bank will also not purchase the government securities in the primary market but can purchase in the secondary markets. Also, the government will have to retire all its debt that it owes to the central bank at the already agreed schedules and no rollover will be allowed.

The guarantees issued by the SBP to secure the obligations of the government outstanding at the enactment of the amended law “shall not be increased”. The Pakistan Railways overdraft will be converted into long-term debt for eight years period and be charged at the market interest rates.

In the future, the SBP will allocate 20% of its distributable profit to the general reserves account until the sum of the capital and general reserves is not equal to 8% of the total monetary liabilities of the bank. A portion of the profit will also be retained to meet the identified liabilities of the central bank.


The governor shall be appointed by the president for a period of five years, to be extended by another term of five years. The current term is three years.

The deputy governors will be appointed by the federal government from a panel of three candidates for each vacant position recommended by the governor, following an early consultation with the finance minister.

In case of appointment of non-executive directors, there shall be a panel of three candidates. The external members of the MPC will be appointed by the federal government but on the recommendation of the SBP board.

No member of parliament or provincial assembly and member of a political party can be a member of the SBP board or the MPC.

The maximum age for serving as governor and deputy governor will be 65 years. The appointment periods of the incumbent governor and deputy governors have been protected in the new law as well. The external members of the MPC will also be appointed for five years.

Instead of the federal government, the remuneration, terms and conditions of the service of the governor and deputy governors will be determined by the SBP board. The governor’s salary will be determined by keeping in mind the prevalent salaries in the financial sector of Pakistan, which runs into hundreds of millions of rupees in some cases.

As against the existing provision of giving leave and permission to visit abroad to the governor by the federal government, these powers have been proposed to be given to the SBP board.

The government cannot remove the governor or deputy governor except in certain cases, which are defined under section 13 of the proposed law. In case of deputy governor, the governor will also have to give recommendation for the removal.

MPC Committee

The condition to appoint economists as member of the MPC has been proposed to be abolished. While taking its monetary policy decision, the MPC would not consider to “support the general economic policies of the federal government”.

A new clause has been inserted to set up an “executive committee” of the SBP under the governor and with deputy governor and executive directors as its members. Any ‘residual matter’ that has not been explicitly addressed by the new law will be decided by the executive committee.

SBP Business

The SBP will provide refinance facility only to the financial institutions.

The SBP would not purchase and sell bills of exchange and promissory notes and it will not purchase the government debt in the primary market.

The SBP will abolish the Rural Credit Fund, the Industrial Credit Fund, the Export Credit Fund, The Loans Credit Fund and the Housing Credit Fund.

The SBP can provide short-term facility to a troubled commercial bank, provided the federal government provides guarantees to the SBP for giving such loan.

For the SBP, the accountability means only “the Governor shall submit annual report before the Parliament regarding the achievement of the bank’s objectives, conduct of the monetary policy, state of the economy and financial system”.

The clause is very vague that does not hold SBP accountable for not ensuring price stability.

“Government or the quasi government entities” will not have the authority to “approve, suspend, annul or interfere with the management of the bank and of the members of the board, executive committee, MPC or the staff of the bank”.

The SBP employees cannot be instructed by the federal government.

According to a new clause, protection of the action taken in good faith and indemnity, no suit, prosecution or any other legal proceedings including for damages shall be filed against the bank, board of directors or members, governor, deputy governors.

The NAB and FIA also cannot initiate any action or launch investigation against the SBP. Not only the protection has also been provided to former directors, governors, 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 during the service with bank, states section 52 A subsections 4.