Pakistan Faces IMF Pressure to Amend Laws Strengthening SBP Independence

The International Monetary Fund (IMF) has urged Pakistan to implement significant changes to further enhance the autonomy of the State Bank of Pakistan (SBP), including removing the finance secretary from the central bank’s board and curbing the federal government’s authority over commercial bank inspections. The recommendations, part of the IMF’s Governance and Corruption Diagnosis Mission report, aim to reduce federal oversight of the SBP, despite the government being its sole shareholder. The global lender has also called for the immediate appointment of two deputy governors to fill long-vacant positions at the central bank, reported Express Tribune. The report revealed that the IMF has proposed an amendment to the SBP Act to exclude the finance secretary from the board of directors. This marks the second attempt in three years to remove the federal secretary from the board, which currently allows the secretary to participate without voting rights. In 2022, under IMF pressure, Pakistan granted the SBP significant autonomy, stripping the finance secretary of voting rights on the board. However, the IMF now argues that even a vote-less secretary undermines the central bank’s independence. The government has yet to accept this recommendation, and discussions remain ongoing. Finance Minister Muhammad Aurangzeb, speaking on Monday, emphasized that the government has no role in setting interest rates or determining the exchange rate, both of which fall under the SBP’s mandate. The SBP board, which includes the governor and eight non-executive directors, oversees the bank’s operations and management. Key decisions, such as interest rate adjustments and exchange rate policies, are made by the monetary policy committee, not the board. The IMF has also pressed Islamabad to fill two vacant deputy governor positions at the SBP, a requirement under the central bank’s law. Of the three sanctioned deputy governor posts, only one is currently filled, with Saleem Ullah serving as deputy governor for finance, inclusion, and innovation. Critical areas such as banking, exchange rate management, and monetary policy remain without a regular deputy governor. Former deputy governor Dr. Inayat Husain has been serving in an acting capacity since his tenure ended in November 2024. However, his dual nationality has complicated his reappointment. To address this, the government is exploring amendments to the SBP Act to allow dual nationals to serve as deputy governors. A committee has been formed to review the proposal, which has already been vetted by the law ministry. The report disclosed that Nadeem Lodhi’s name has been finalized for one of the vacant posts, but cabinet approval is still pending. Under the SBP law, such vacancies must be filled within 30 days, a requirement the federal government has repeatedly violated. The IMF has now recommended that these positions never remain vacant for extended periods. Additionally, the IMF has suggested that Pakistan publish detailed reasons for the removal of SBP governors, deputy governors, non-executive directors, and monetary policy committee members to ensure transparency. In a move to further insulate the SBP from government influence, the IMF has recommended amending the Banking Companies Ordinance of 1962. The proposed changes will eliminate the federal government’s authority to direct the SBP to inspect commercial banks. Currently, Section 40 of the ordinance allows the government to instruct the SBP to inspect any banking company and its accounts.