The government was led to believe by some Pakistani negotiators that accepting a controversial draft of the State Bank of Pakistan (SBP) amendment bill would lead to the revival of the stalled International Monetary Fund programme, sources told The Express Tribune.
The then finance secretary was also stopped from highlighting the proposed clauses before the federal cabinet at the time of the approval of the bill in March 2021, they added.
The revelations come amid Finance Adviser Shaukat Tarin’s disclosure that constitutional amendments were needed before approval of the SBP Amendment Bill 2021 by parliament in its present form. The cabinet had approved the draft bill in March 2021 to qualify for the $500 million tranche.
“Even in March, we knew that some of the powers and protections being sought under the SBP amendment bill were contrary to the constitutional provision,” one of the key players involved in negotiations at that time told The Express Tribune.
The sources said that the finance ministry had planned to get these clauses reversed at the time of the approval of the bill from parliament. But now the government faces another situation where it is under pressure to get the bill passed without bringing any change.
In March, “we did not have a choice after one of the Pakistani negotiators said that either the finance ministry would have to accept the proposed draft or else the programme would not be revived”, the sources added.
On the day the cabinet meeting was held, the then finance secretary was stopped by the then finance minister from making a presentation before the cabinet, the sources revealed.
The Express Tribune had contacted both the SBP governor and former finance minister Dr Abdul Hafeez Shaikh. Both of them did not reply to the questions regarding events that took place back in March before the approval of the bill.
Everything was well-orchestrated including getting a waiver against the requirement of first seeking the draft SBP bill’s approval from the Cabinet Committee on Legislative Cases (CCLC) and then bringing it to the federal cabinet, the sources said.
No legislative business-related summary can go to the cabinet before being endorsed by the CCLC, which is headed by Law Minister Barrister Farogh Naseem. The cabinet summary showed that the finance ministry took the CCLC approval waiver by claiming that no CCLC meeting could take place in the next 14 days.
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The sources said that a meeting had been held in February to sort out the issues between the Q-Block and the SBP, but a few things still remained unresolved.
Under the proposed bill, everything revolves around the personality of the SBP governor. The governor will be the head of the Monetary Policy Committee, head of a new proposed executive committee, and head of the SBP Board.
Shaukat Tarin twice described accepting some conditions as a “gauntlet” around his neck and he was facing the “brunt” of these conditions.
Law Minister Naseem reportedly said on Monday that the prior action to approve the SBP bill by December 17 cannot be met and it will take at least four to seven months.
In case both sides reach an agreement this week, the IMF can call a board meeting on December 17 for approval of the next loan tranche of $1 billion. The programme remained derailed since April – the second time since both sides entered into a 39-month $6 billion deal in July 2019.
The sources further stated that the Farogh Naseem on Monday informed the IMF Mission Chief Ernest Rigo that the clauses that were against the Constitution cannot be approved.
However, during Monday’s meeting, few points remained unresolved.
Shaukat Tarin on Monday said that the approval of the SBP Bill from the Parliament was the only remaining major hurdle in reaching an agreement with the IMF. This suggests that Pakistan is again pushed to the corner by the same elements who forced the government to what are now called unconstitutional clauses.
About half a dozen clauses have now been described as in violation of the constitution, including those related to the removal of the SBP Governor on misconduct, complete immunity from a criminal investigation by the anti-corruption watchdog, powers to the SBP to directly communicate with the Parliament by bypassing the Finance Ministry and future amendments in the SBP Act.
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There were three drafts of the SBP Bill. The first draft had been proposed by the SBP in March 2020, the second draft was of the Finance Ministry and there was a third draft, which was approved by the Cabinet this March.
The Express Tribune has seen all three drafts and the comparisons showed how the Q Block surrendered to the will of the central bank.
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 nor any accountability in case the SBP fails in ensuring price stability has been introduced.
According to the SBP Bill, supporting economic policies has been declared as a “tertiary objective” of the central bank.
The new bill says that “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”.
The bank will also not purchase the government securities in the primary market but can purchase in the secondary markets.
Moreover, 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.