ISLAMABAD

The National Assembly on Monday approved the State Bank of Pakistan (amendment) Bill, establishing monetary policy committee with external experts for taking decisions on interest rate, supply of reserves, exchange rate policy and limit of government’s loans.
Pakistan had brought amendment in the SBP act 1956 on the direction of the International Monetary Fund (IMF) under its $6.2-billion bailout package. The government had earlier missed the deadline of approving Bill before September as per agreement with the IMF.
The National Assembly has approved the Bill for the second time, as the Senate passed the bill with certain amendments that forced the government to take fresh votes on it from the NA.
“The government wants to strengthen the autonomy of the SBP through this Bill,” said an official of the Ministry of Finance. He further said that a 10-member monetary policy committee would be constituted with the passage of bill, which will include four employees of the central bank, three members of the board of the SBP and three prominent economists. The federal government has also managed to increase the period for retiring its debt to the central bank from eight to 12 years with the approval of the Bill.
“A statutory Monetary Policy Committee with external experts to be appointed by the Federal Government has been established, which will be responsible to formulate, support and recommend the Monetary Policy and take appropriate decisions relating to key interest rates, supply of reserves, exchange rate policy and limit and nature of advances and loans to the government. The main objective for introducing this statutory committee is to enable the State Bank to perform its essential functions in a professional way in a changing and emerging financial environment. Consequently various sections in the Act have also been amended in order to secure the independent statutory role of the Monetary Policy Committee,” stated the bill approved by Lower House of the parliament. The government has allowed the SBP for establishment of depositor’s protection fund after the aforesaid bill. The draft law on the deposit protection fund is already under consideration of the federal government whereby the Fund will be a subsidiary of SBP.
Under the approved SBP (amendment) bill, a new section on lender of last resort has been introduced in the Act to provide legal certainty to the support that is already being provided by SBP to the troubled banks. Meanwhile, in order to provide explicit powers to SBP for issuing directives, imposing and recovering penalties, which is already being exercised by SBP under Banking Companies Ordinance 1962.
“In order to further the role of Islamic Banking in Pakistan, it is necessary for the Bank to engage in Shariah Complaint Instruments. For the purposes, amendment has been introduced whereby, Bank is allowed to hold property for the purposes of use of Sharia Complaint Instruments,” according to the Bill.