IMF urges Pakistan to enhance SBP autonomy with key reforms, including removal of finance secretary from board

The International Monetary Fund (IMF) has called on Pakistan to implement several key reforms aimed at increasing the independence of the State Bank of Pakistan (SBP). These include removing the finance secretary from the SBP board and amending laws to limit the federal government’s authority over commercial bank inspections, The Express Tribune reported, citing the Governance and Corruption Diagnosis Mission report. 

The IMF recommended that the finance secretary be excluded from the SBP board, a proposal that echoes a similar recommendation made three years ago. While the finance secretary currently holds a seat on the board without voting rights, the IMF seeks to strengthen the SBP’s autonomy further by eliminating this position altogether.

According to the news report, the IMF also urged Pakistan to fill two vacant deputy governor positions at SBP, a move to ensure effective decision-making at the central bank. At present, only one of the three deputy governor positions is filled. Dr. Inayat Husain has been serving as acting deputy governor for critical areas such as banking, exchange rate, and monetary policy since November, but his dual nationality has hindered his permanent reappointment.

The IMF also emphasised that the SBP’s monetary policy committee should remain the key decision-maker, rather than the board, for critical matters such as exchange rates and interest rates.

Recently, Finance Minister Muhammad Aurangzeb clarified that interest rate decisions fall under SBP’s mandate, and the exchange rate will continue to be determined by market forces. He also mentioned that the IMF review mission will visit Pakistan in September for discussions on the third loan tranche under the ongoing 37-month program.

The IMF’s recommendations include removing the power of the federal government to direct SBP inspections of commercial banks, as outlined in Section 40 of the Banking Companies Ordinance, 1962. This, according to the IMF, would ensure further independence for the central bank and reduce government influence over its operations.

The federal government is still considering these recommendations, with discussions ongoing.

The IMF’s suggestions come as part of ongoing efforts to strengthen SBP’s autonomy, especially after the government agreed to grant the central bank more independence under the 2022 agreement.