Sovereignty lies with IMF : SBP Amendment — 1: Primary objective
Under the new SBP Amendment Bill, parliament will be deferential to SBP
I have just received the draft of SBP Amendment Bill 2021 over WhatsApp. I am travelling without a laptop so didn’t have time to review it in depth. Apologies for the typos as I am writing this post on the phone.
Just quickly looked at the objective part.
4B. Objectives.- (1) The primary objective of the Bank shall be to achieve and maintain domestic price stability.
Earlier in the draft bill, price stability is defined.
“(kaa)” “price stability” means the maintenance of low and stable inflation guided by the government’s medium-term inflation target.”
Combining the above,
The primary objective of SBP is to maintain low and stable inflation guided by the government’s medium-term inflation target.
Whither “International Best Practices”
In the last monetary policy statement, SBP talked about “international best practices”. Ironic that SBP (supported by IMF) isn’t following the international best practices when defining its objectives. In the US, congress defines the mandate of Federal Reserve. In Canada, federal government gives the mandate every five years. In Japan, Bank of Japan is almost an extension of Ministry of Finance. Other countries may have different approach.
So when it wanted to oblige IMF to increase the policy rate before the IMF meeting, SBP cited “international best practices” to increase the number of MPCs to allow SBP to increase the policy rate to please IMF. But where it really matters ie setting the objective of SBP, SBP and IMF are shoving down a vaguely drafted objective (I will discuss this in the next section) through the parliament.
Vague primary objective
Shocking that the central bank that talks about “international best practices” and asks op-Ed writer to not criticize only but also suggest alternatives, is going ahead with such a vague primary objective.
What exactly is “low and stable inflation”?
Which inflation - CPI, SPI, rural, urban, wholesale?
How does SBP intend to control the inflation caused by Mafias and international commodity prices? (I don’t have reproduce my meme here. What the hell. Here it is).
What does “guided by” mean?
Who in the government will define “medium term inflation target”?
How will we measure if SBP is meeting its objective?
And lastly why not a dual mandate like the Federal Reserve?
The current team at the central bank is the most pedigreed one. It’s a shame that instead of using the deep research capability of SBP and releasing a report showing what should be the primary objective in light of international best practices and Pakistan’s unique circumstances, the SBP management is busy running a re-election campaign for the SBP Governor and resultantly bulldozing a vague primary objective through the parliament with the covert overt support of IMF.
Yep. International Best Practices.
Parliament is deferential to SBP
Please note that unlike number of MPCs in a year, objective of SBP will have far reaching impacts. And this objective cannot be amended without another bill making its way through the parliament. Moreover, government just cannot present a bill to the parliament. The government will have to “consult” with SBP before presenting the bill to the parliament. It hasn’t been explained what does “consult” mean here.
7) All matters relating to the Bank requiring approval of the Federal Government, Prime Minister or President shall be initiated by the Division allocated with the business of this Act on a reference received from the Bank or on its own initiative following written consultation with the Bank. Any reference so received from the Bank will be submitted in its original form to the competent authority for its decision within four weeks.
(8) The Bank shall be consulted prior to the introduction of any Bill by the Federal Government in the Parliament which may having a bearing on the functions of the Bank.
Does it mean that if SBP doesn’t agree, bill can’t be presented? Is SBP more supreme than the parliament?
No country for intellectuals?
When push comes to shove, parliamentarians can be shepherded to approve the bill by “relevant quarters”. The real tragedy is independent analysts, economists and op-Ed writers will do mental gymnastics and use selective anecdotes and examples to justify the travesty that will be the new primary objective of the SBP.
I have done my part by shining light on what’s happening here.
شکوۂ ظلمت شب سے تو کہیں بہتر تھا
اپنے حصے کی کوئی شمع جلاتے جاتے
— احمد فراز