ISLAMABAD: The State Bank of Pakistan (SBP) has proposed abolition of five Funds including Export Credit Fund, Loans Guarantee Fund, Industrial Credit Fund and others, under the upcoming draft of SBP Amendment Bill 2020.
The SBP has finalised draft amendments to its SBP Act 1956 without taking the finance ministry into confidence in the name of achieving full autonomy on the pattern of modern world.
The draft bill has been prepared in consultation with the technical assistance of the IMF team and Islamabad was committed to laying this draft bill before parliament by March 31, 2020.
However, the outbreak of COVID-19 and massive requirement of adjustment on the macroeconomic front has delayed completion of second review and approval of third tranche so the submission of SBP Amendment bill also got delayed. So far, the finance ministry and SBP could not evolve a consensus on the draft bill.
However, if the finance ministry is even forced to table this draft bill in its existing shape, it may not get majority support of parliamentarians so it will stand rejected. However, there is a clear divide among independent economists on granting autonomy to the central bank, as some are staunch supporter and some are sternly opposed to any such move.
After proposing changes to the preamble of SBP 1956 Act for doing away with the objective of growth and restricting the role of central bank for achieving only price stability under the proposed draft of amendments into SBP bill 2020 which states that “Whereas it is necessary to provide for the constitution of State Bank of Pakistan to achieve domestic price stability by way of regulating the monetary and credit system of Pakistan and without prejudice to said primary objectives contribute to the stability of the financial system of Pakistan as a tertiary objective-supporting the general economic policies of the federal government with a view to fostering development and fuller utilization of the country’s productive resources”.
Now the SBP proposed in the draft amendment for omitting Section 17A, 17B, 17C, 17D and 17E of SBP Act 1956. Under 17A, there is Rural Credit Fund. (1) The Bank shall establish and maintain a Fund to be called the Rural Credit Fund to which shall be credited:-
an initial sum of one crore of rupees to be specified by the Bank; and (b) appropriations of such amount from the surplus profits of the Bank as may be determined by the Bank in consultation with the 156[Federal Government]; (2) The Rural Credit Fund shall be applied by the Bank to the following objects, namely:- (a) The making of medium-term loans and advances to cooperative banks, repayable on the expiry of a fixed period, not exceeding three years from the date of the making thereof, against such security as the Bank may, from time to time, 157[specify] in this behalf; (b) The making of medium-term and long-term loans and advances to rural credit agencies created or established by or under any law for the time being in force on such terms and conditions as the Bank may, from time to time, 158[specify] in this behalf; (c) Where the Bank is satisfied that any co-operative bank to which a loan or advance as is referred to in clause (4) of Section 17 has been made is unable to repay the same in time, the converting of such loan or advance into a medium-term loan or advance, as the case may be, in accordance with the provisions of clause (a); 159[(d) The making of short-term and medium-term loans and advances to scheduled banks as refinance against their loans and advances made for financing such agricultural operations as may be approved by the Bank from time to time.] Explanation:- For the purposes of this clause and section 17D, “agricultural operations” shall include improvement of land, procurement of agricultural inputs, agricultural machinery and other requirements of agriculture.
On the same pattern, the SBP proposed abolishing of Industrial Credit Fund under section 17B, Export Credit Fund under section 17C, Loans Guarantee Fund under Section D and Housing Credit Fund under Section 17E from the draft amendment of SBP Bill 2020.
When contacted, SBP spokesman offered no comments as amendments to the act were under discussions. After posting out of Omar Hamid Khan from Special Sec Finance to Federal Secretary Ministry of Food Security, the ministry of finance has not yet nominated anyone as official spokesman.