The government’s aim of reducing the independence of the central bank has been criticised by senior bank officials and former caretaker prime minister Moeen Qureshi, who says the move will create difficulties in the government’s negotiations with the IMF.
Three directors of State Bank of Pakistan (central bank) have submitted their resignations over new legislation curtailing the bank governor’s power to set monetary policy, the London daily Financial Times reports. The governor will also be required to consult with the federal and provincial governments before determining the level of lending. In contrast, the law introduced by Qureshi last year gave the governor discretion to determine the limit. The new regulations have also reduced the governor’s term in office to three years from five.
‘It is extremely important to give the central bank the feeling that if they take a stand on principles, the governor will not be fired,’ Qureshi was quoted as saying by the Financial Times. Keeping lending under control is one of the items on the agenda in the government’s negotiations with the IMF for a $1,700 million loan facility (MEED 26:11:93). An independent central bank would increase the IMF’s confidence that agreed lending limits would be maintained, analysts argue.