Navigating SBP’s independence

THE debate surrounding the State Bank’s independence is again picking up pace after some shocking claims made by the federal minister for privatisation, blaming the International Monetary Fund for direct intrusion in the country’s central banking system. It all started back in January of 2022, when the parliament passed the State Bank of Pakistan (SBP) Amendment Bill, 2021. This legislation created an immense uproar as it addressed a greater power tussle between the State Bank and the federal government. It is imperative that parliament should not succumb to external pressures; rather it must strike a balance between the autonomy of the State Bank and the prerogative of the federal government. One of the most significant functions of the SBP is to control monetary policy. Simply put, monetary policy involves regulating interest rates, managing money supply, monitoring bank reserve requirements, overseeing exchange rates and promoting overall economic growth. Monetary policy requires continuity; it cannot be left to the cruel volatilities of Pakistani politics. As such, the SBP Act mandates a five-year term for the board. This ensures that the board can independently guide policy for a fixed tenure, regardless of the political situation in the country.