The federal government has proposed to suspend Dr. Reza Baqir from the post of the chairman of the State Bank of Pakistan.
Sources told Pak Revenue that the State Bank’s fresh attempt has created serious differences between the central bank and the finance ministry.
The central bank has sought complete autonomy, which is not in line with the country’s existing legal structure, they added.
The federal government agrees with the principle of giving independence to the SBP but the dispute is over its extent, as the central bank’s management has sought unbridled powers in the draft amendment bill of the SBP Act of 1956.
Due to the differences between the central bank and the Q Block, the Cabinet Committee on Legislative Cases recently returned a summary that had been moved to vet legal changes in the SBP Act, largely suggested by the central bank with the support of the International Monetary Fund (IMF), the top government functionaries confirmed.
Pakistan has again missed the IMF deadline to present amendments to the SBP Act in parliament by March 31.
The finance ministry will also have no powers to nominate members of the SBP board and its position will be confined to choosing one of the three names suggested by the governor of the central bank.
The ministry responded after the SBP prepared a new set of amendments to the 1956 SBP Act, with funding from the IMF. The proposal to reform the SBP Act is part of the $6 billion rescue package but, according to the sources, the central bank is attempting to use the opportunity to strengthen its position.
The SBP and the IMF technical team finalized the amendments without the participation of the finance ministry, said a senior government functionary.
The Q Block acknowledged the proposed legal changes only when the central bank shared the draft for its vetting and approval by the law ministry and the federal cabinet.
Successive governments have been declining the SBP autonomy but the model that the SBP-IMF is pushing for is yet another extreme where the central bank will be least bothered about the overall economic growth objective and will be focused on inflation targeting.
The law ministry did not respond to the question about whether the amendments proposed by the SBP were in line with the country’s existing law and constitutional framework.
The finance ministry said that it would make a public statement on the issue at an appropriate time.