The Economic Advisory Group (EAG) at PRIME Institute think tank met in Islamabad to deliberate on the new autonomous structure of the State Bank of Pakistan (SBP) following the passage of the SBP Amendment Act, 2021 by the Federal Cabinet.
The EAG termed the legislation to be a move in the right direction.
The cabinet gave its nod to the bill last week, which caused a heated debate over the unbridled independence allowed to the central bank. However, the Ministry of Finance issued a press release later in the day that the SBP has not been provided with unabated powers, rather has been allowed autonomy under constitutional rights.
PRIME Institute, however, has issued a statement declaring its full support for more autonomy for the central bank, its independence from the Ministry of Finance, and the abolishment of the Monetary Policy and Fiscal Coordination Board.
Some members of the board shared concerns that limiting the government’s ability to directly finance its expenditure through the central bank will expose the government to market conditions and facilitate fiscal discipline.
However, after lengthy debate, it was surmised that despite concerns around inflation in developing economies driven by supply-side factors, inflation targeting is globally adopted by developing economies and evidence from across the world corroborates its effectiveness.
