Ground realities taken into consideration in SBP’s act amendments: Ministry clarifies

January 7, 2022 (MLN): The amendments in the State Bank of Pakistan (SBP)’s Act being proposed are in line with international best practices and also taken into account the ground realities of Pakistan, the Ministry of Finance stated in a response to a common misperception about SBP’’s Amendment Act 2021, an official statement by the ministry revealed today.  

“This is not the first time the SBP Act is being amended,” the ministry highlighted.

The role of the State Bank of Pakistan (SBP) as defined in the State Bank of Pakistan Act 1956 has undergone several changes over the years. Major revisions in the SBP Act were introduced in 1994, 1997, 2012, and 2015. These changes were carried out to bring the central bank legislation in line with best practices at that time and to enable it to deal with evolving issues effectively, the statement added.

For example, the SBP Act was amended in 2015 to establish an independent Monetary Policy Committee for taking decisions related to policy rates and other monetary policy measures.

By facilitating domestic economic and financial stability, the amendments will help support sustainable growth and avoid repeated booms and busts that have characterized Pakistan’s past and led to painful consequences in terms of higher inflation, higher poverty, and lower growth, it explained.

Overall, the amendments balance the provision of necessary operational and financial autonomy to the State Bank with new mechanisms for enhancing transparency and strengthening accountability.

More specifically, the purposes of the amendments include to identify domestic price stability as the primary objective of the SBP, followed by financial stability and support of the general economic policies of the Government.

In addition, the amendments suitably align the SBP’s functions and collate them under a new section. The amendments also help to provide SBP with sufficient financial resources to achieve its objectives.

Meanwhile, the amendments also improve its transparency in the operations strengthen its governance.

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