The International Monetary Fund (IMF) has rejected Pakistan’s request to keep a door open for borrowing from the central bank and also did not agree on any meaningful accountability of the State Bank of Pakistan (SBP), reports Tribune.
The central bank’s profit would also not be transferred 100% to the federal government until the SBP gets cover to back its monetary liabilities. At least 20% of the SBP profit will now remain in the central bank’s coffers until it gets the desired cover.
The IMF has rejected almost all major proposals of Pakistan for amendments to the SBP Act 1956, except for accepting the federal government’s right to appoint SBP board members and retaining finance secretary on the board.
However, the federal finance secretary, who would represent 96% of shareholding, would not have the right to vote on any issue, sources told The Express Tribune.
Finance Adviser Shaukat Tarin on Monday told the media that approval of the SBP bill was part of the IMF’s prior actions that the government would have to implement to secure approval of a $1 billion loan tranche by the IMF board in January next year.
The global lender turned down the government’s proposal to allow it to take loans equal to 2% of the gross domestic product (GDP) in a fiscal year. The IMF did not budge despite the government’s opinion that it was its constitutional right to take loans to finance its operations.
Although there is a ban on government borrowing from the SBP under the IMF programme till September 2022, the government has now given up and agreed to permanently close this door through legislation.
“The bank shall not extend any direct credit to or guarantee any obligations of the government, or any government-owned entity or any other public entity,” said a draft of the bill approved in March this year. This clause remains unchanged.
The bank shall not purchase securities issued by the government or any government-owned entity or any other public entity in the primary market. The bank may purchase such securities in the secondary market, according to the draft.
The ban on borrowing from the central bank has left the government at the mercy of commercial banks that have in recent weeks demanded an interest rate that is significantly higher than the key policy rate.
