Finance Advisor’s Spokesman Dispels Rumors Surrounding SBP’s Autonomy

Spokesman for Advisor to Prime Minister on Finance and Revenue, Muzammil Aslam, has dispelled rumors surrounding the issue of granting autonomy to the State Bank of Pakistan (SBP).

In a video, the spokesman cleared that the issue of making the central bank autonomous has been pending since 1994. He highlighted that since 1994, past governments have agreed with the International Monetary Fund (IMF) to grant autonomy to the central bank, and at least four amendment bills related to the State Bank of Pakistan have been passed by the national assembly.

Muzzamil added that despite the passage of these bills, complete autonomy was never granted to the central bank as past governments used SBP to achieve their political objectives.

He said that the autonomy of the central bank is of utmost importance for a country’s economic sovereignty. He pointed out that all countries with stable economies have an autonomous central bank. He cited the example of the U.S. and said that former President Donald Trump was highly critical of the Federal Reserve, but it remained autonomous.

He underscored the non-autonomy of the central bank as a reason for Pakistan’s continuous economic plight. The spokesman further said that Pakistan had entered IMF programs over 20 times, but most of them were not completed because Pakistan never gave autonomy to the central bank, which has always been a key condition of the Washington-based lender.

He said that a bill would soon be tabled in the parliament, with regards to the amendments to the State Bank of Pakistan (SBP) Act, 1956, that will ensure the autonomy of the central bank. He added that, however, in practice, the central bank has been given complete autonomy, since July 2019.

Muzzamil said autonomy ensures that monetary policy and exchange rate remain the domain of the central bank. He said that previous governments did not hesitate to use the central bank to print huge amounts of money to lend to the government, which has resulted in 40 percent of the country’s budget going to interest payments on debt.

He highlighted that in the fiscal year 2020, the present government abstained from borrowing directly from the SBP and instead returned loans worth Rs. 153 billion. In 2021 the government returned loans worth Rs. 1,206 billion.

The spokesman further said that during the first five months of the current fiscal year, the government has once again not borrowed any money from the central bank. He said that right now, the government has only two viable options; either to increase revenues or cut expenditures. The spokesman added that expenditures can only be controlled by reducing debt.

He further said that borrowing from the market instead of the central bank makes the governments disciplined. Further, highlighting the magnitude of repayments, he said that Pakistan has debt obligations of Rs. 3,060 billion this year, whereas our defense budget is merely Rs. 1,370 billion.

He concluded by saying that Governor State Bank will be appointed by the Prime Minister of Pakistan, and the IMF will have no say in it, and he will be answerable to the parliament.

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