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Beware of IMF trap

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Pakistan is passing through difficult times and facing tremendous economic pressures forcing to further borrow from IMF to honour commitments made with donor agencies. In 2018 the foreign debt was around $93 billion that has now reached $115 billion with domestic debt Rs 25243 billion. State of foreign reserves is pathetic it is $20.8 billion. Our imports are around $ 39.5 billion against export of $18 billion thus showing trade balance $20.8 billion less than our foreign reserves. Covid- 19 has played havoc causing businesses shutdown with ever increasing unemployment with sky high prices of consumer’s goods. As this were not enough we having all time high confrontation between government and opposition. Pakistan successfully came out of Indian trap where ECC had decided to import sugar, cotton from India at a time when India is continuing atrocities on unarmed Kashmiris and cabinet took a stand that until India reverses his decision of making Kashmir as part of Indian union no trade will be carried out with India. But we must identify such people who floated this idea that was shelved after strong objections by some of the cabinet ministers. But then we have a bad news of amending the SBP Act of 1956 and making it independent under tough conditions dictated by IMF that ultimately may hit our sovereignty.
It is almost two weeks now that a controversy over State Bank Bill 2021 is hot subject on which majority of renowned economist of the country are busy in criticising the government and has termed it as emergence of another East India Company(IMF) that is against our national interest and security. Before we comment on it let us see what all it contains that has brought sharp criticism against the government that is yet to be discussed and approved by the parliament.
Six major purposes have been mentioned that necessitated making amendments in the State Bank of Pakistan Act 1956.
a. Clearly define the objectives of SBP to improve its accountability.
b. Outline SBP’s functions in line with its objectives.
c. Provide necessary financial resources to help achieve objectives.
d. Increase functional and administrative autonomy of SBP.
e. Improve transparency in operations of SBP.
f. Strengthen accountability by making oversight functions stronger and enhancing reporting requirements.
If the above proposals are critically analysed it becomes evident that these are the basic requirements needed to run State Bank of Pakistan, it is strange that since 1948 SBP was operating without these basic parameters. After defining the objectives the amendments in SBP Act of 1956 it will enhance SBP accountability by adopting following
a. Primary objective: Domestic Price Stability.
b. Secondary objective: Financial Stability.
c. Tertiary objective: Support Government’s economic policies to foster development and fuller utilization of resources.
In fact no role can be played by SBP as for as primary objective of controlling domestic price stability is concerned. All successive governments have failed to bring price stability, all price committees have failed to control the prices even heavy fines had no effect. The government price control ends when rates are displayed by vendors. By issuing statements or directives price stability can never be achieved. The system starts from grower to end user; before it reaches to end user the price is in nobody’s control. Under the new amendment to strengthen accountability of State Bank it binds the governor to submit annual report to parliament (in our case the parliament is dysfunctional) on bank’s achievements and price stability. The proposed bill restricts the government’s borrowing as there will be no new borrowing it is strange that subordinate office refuses to carry out state orders. In Pakistan State Bank is the major source of borrowing by the government, in the absence state is likely to collapse. This amendment is dangerous for the economy and the country. The amendment will make SBP autonomous from the state domain. With such amendment government cannot undertake development projects, employment creation and poverty reduction.
No suit, prosecution or any other legal proceeding including for damages shall lie against the Bank, Board of Directors or member thereof, Governor, 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 in exercise or performance of any functions, power or duty conferred or imposed by or under this Act upon such persons or any rules and regulations made there under or any legislation administered by the Bank unless such act is done in bad faith and with mala fide intent. Interestingly there is no representation of the government on the State Bank Board of directors
The Governor, Deputy Governors, Directors, members of any Board committee and monetary policy committee, officers and employees of the Bank shall not be liable in their personal capacity for any act of commission or omission done in their official capacity in good faith and in case of any such proceedings as mentioned in sub-section (1), they shall be indemnified by the Bank which shall bear all the expenses thereof, till final decision of the case. No action, inquiry, investigation or proceedings shall be taken by NAB, FIA or Provincial Investigation Agency, bureau, authority or institution by whatever name called without prior consent of the Board of Directors of State Bank. This shall also be applicable mutatis mutandis to the former directors, Governors, Deputy Governors
Presently Directors of the Board have 3 years now shall be eligible for reappointment 5 years; two terms External Members of MPC 3 years; two terms 5 years; two terms Governor 3 years; eligible for a second 3-year term 5 years; eligible for a second 5-year term Deputy Governors Up to 5 years; multiple terms 5 years; eligible for a second 5-year.These proposals are basically by IMF so that they have complete control over SBP. Proposed law provides blanket indemnity to SBP top officials whereas Prime Minister does not enjoy such indemnity.
However, Dr Kaiser Bengali, a renowned economist, stated that the bill to amend the “State Bank of Pakistan Act 1956” is exceptionally dangerous for the economy and the country. The country is overloaded with borrowing for development purposes to create economic infrastructure assets. By this amendment the government will no longer be able to resort to Development, and employment creation and poverty reduction due to losing control of SBP.The only option for government will be to borrow from commercial banks allowing freedom to charge any rate to ensure handsome profit. The bill effectively transfers decisions with respect to servicing foreign debt from the domain of the federal government to that of the State Bank.
The government will exist only to service its debts and borrow more and more to service them. The government will left want to meet even its salary obligations.
Likewise Dr Shahid Hassan Siddiqui a renowned economist has also expressed his reservation on this amendment; he said giving control of SBP in the hands of IMF can endanger our sovereignty and national security. To maintain our nuclear asset we definitely need funds and the only source shall be IMF, they would be too happy to extend monetary help at the cost of capping our nuclear program, therefore this amendment needs critical review before it gets too late
Lastly the IMF resident chief in Pakistan Teresa Daban has said that the government would have to hike electricity tariff and further added “Pakistan remains committed to the goals of IMF supported program and agreed to undertake key reforms of doing away with the tax exemptions, elimination of quasi fiscal circular debt, and SOEs losses”. Does it not fall under mandatory conditions is left to individual judgements.