Daily Times

It’s no surprise that the new government has spoken out against the state bank’s so-called sovereignty so early in its tenure. Speaking on prime time television, Defence Minister Khawaja Asif made it pretty clear that the matter of reversing the SBP (Amendment) Act 2021 would be taken to the prime minister sooner rather than later. Yet while it is understandable that the former opposition and new government might feel this way about the said Act, it will be extremely important not to jump the gun, so to speak, when it comes to something so sensitive. And the minister and his colleagues would do well to keep a few things in mind.

One, if it’s about the way the rupee has been squeezed over the last few years, then definitely it’s less a matter of what was done and more of how it was done. And even if less damage would have been caused by going to the IMF earlier, it must be noted that neither the PTI government’s last finance minister nor the SBP governor in question occupied these positions in the previous administration’s early days. And this was clearly a top-down decision, so it’s not really fair to hold the Bank responsible for it. Two, since the rupee snapped in the manner that it did because it had been artificially kept at around 100 to the dollar by the previous PML-N administration, and that would not have been possible with an independent central bank, perhaps it would not be the best idea to go back to the days when the money market could be fiddled with if the finance minister so wanted; and was close enough to the prime minister to have his way, for that matter.

And three, let’s not forget that this was one of the main conditions for keeping IMF’s EFF (Extended Fund Facility) on track. And since the Facility is frozen right now, and the government very much wants to revive it, shouldn’t it not make the kind of noise about SBP’s independence that Khwaja Asif made just the other evening? Of course, all this is not to say that the government should just look the other way and let whoever runs the Bank run away with whatever he/she wishes. But it’s also not right to control the direction of the money market or interest rates. For example, if it hadn’t been for the controversial Act, the SBP would never have been able to hold its recent emergency session and jack up rates by a record amount because the situation was getting out of hand and Islamabad was too paralysed to do anything about it.

Rather than take away SBP’s sovereignty, the government should make it stronger and more responsible in its functioning. *