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IMF rejects borrowing request

Vanguard One

Dec 20, 2019
The International Monetary Fund (IMF) has rejected Pakistan’s request to keep a door open for borrowing from the central bank and also did not agree on any meaningful accountability of the State Bank of Pakistan (SBP).

The central bank’s profit would also not be transferred 100% to the federal government until the SBP gets cover to back its monetary liabilities. At least 20% of the SBP profit will now remain in the central bank’s coffers until it gets the desired cover.

The IMF has rejected almost all major proposals of Pakistan for amendments to the SBP Act 1956, except for accepting the federal government’s right to appoint SBP board members and retaining finance secretary on the board.

However, the federal finance secretary, who would represent 96% of shareholding, would not have the right to vote on any issue, sources told The Express Tribune.

Finance Adviser Shaukat Tarin on Monday told the media that approval of the SBP bill was part of the IMF’s prior actions that the government would have to implement to secure approval of a $1 billion loan tranche by the IMF board in January next year.

The global lender turned down the government’s proposal to allow it to take loans equal to 2% of the gross domestic product (GDP) in a fiscal year. The IMF did not budge despite the government’s opinion that it was its constitutional right to take loans to finance its operations.

Although there is a ban on government borrowing from the SBP under the IMF programme till September 2022, the government has now given up and agreed to permanently close this door through legislation.

“The bank shall not extend any direct credit to or guarantee any obligations of the government, or any government-owned entity or any other public entity,” said a draft of the bill approved in March this year. This clause remains unchanged.

The bank shall not purchase securities issued by the government or any government-owned entity or any other public entity in the primary market. The bank may purchase such securities in the secondary market, according to the draft.

The ban on borrowing from the central bank has left the government at the mercy of commercial banks that have in recent weeks demanded an interest rate that is significantly higher than the key policy rate.

Sources said that the IMF also did not accept a proposal that the federal government would give an inflation target to the central bank. The government had proposed that the target should be set by it and the central bank should achieve it under its primary objective of price stability.

A major concession that Tarin managed to secure was the right of the federal government to appoint the SBP board of directors.

According to the draft approved in March, “In case of appointment of non-executive directors, the recommendation of the federal government shall be based on a panel of three candidates, who comply with the eligibility criteria for each vacant position proposed by the board of directors.” Now, this clause will be amended.

However, the IMF has agreed to keep the finance secretary on the IMF board but without the right to vote. The IMF had proposed that the finance secretary should be an observer but the federal government did not agree.

Another concession that the government got from the IMF was that it could remove the SBP governor on misconduct without recourse to the “court of law”. Earlier, the government had agreed that the governor could not be removed without an order by the court of law in case of misconduct.

Law Minister Farogh Naseem had termed the earlier clause about the court of law unconstitutional.

A change has also been made in another clause related to future amendments to the SBP law with consent of the central bank. Now, prior consultation will be required before making such changes as against the earlier clause that “the bank shall be consulted ex ante on any proposed legislative act related to the bank”.

The IMF also did not agree to change the SBP profit distribution formula. The March 2021 amendment will remain intact.

“An amount equivalent to 20% of the distributable profit shall be credited to the general reserve account until the sum of the capital and general reserves equals 8% of the total monetary liabilities of the bank.”

The bank is short by about Rs500 billion compared to the threshold of 8% of total monetary liabilities, according to the sources.

“So much of the amount as may be determined by the board, following consultation with the bank’s external auditors, from time to time shall be transferred to the special reserves account created for any of its specific, identified liability, contingency or expected diminution in the value of assets.”

Though the SBP board will be deciding about the special reserves account, the finance secretary will not have the right to vote under the new understanding with the IMF.

Sources said that unlike in the past when the government gave a waiver from vetting of the bill by the Cabinet Committee on Legislative Case, this time the agreed draft of the SBP bill would go to the cabinet body.

In March, The Express Tribune had raised the issue of giving absolute autonomy to the central bank and approval of the bill by the federal cabinet without even studying it.

On Monday, Shaukat Tarin said that the government would ensure that the legislation pertaining to the SBP autonomy was passed.

Tarin said that the IMF did not accept Pakistan’s demand to retain the Monetary and Fiscal Policy Coordination Board. But he said that there would be a liaison between the finance minister and the SBP governor.

Unlike the previous proposal, it had been agreed that the National Accountability Bureau (NAB) law would also be applicable on the SBP, as it was applicable on the Prime Minister, said Tarin.

The governor SBP will also now be answerable to NAB, raising hopes that the NAB may finally conclude the six-year old case of KASB merger.

Published in The Express Tribune, November 24th, 2021.


Hakikat ve Hikmet

Nov 14, 2015
United States
United States
From the geo-political standpoint Pak needs to have a working relationship with the IMF for then the USA won’t directly attack Pak via the Iran-like sanctions! Pak needs to hold out there for the time being till China overwhelms the US controlled financial order to some extent. Thanks to the state of affairs in the Western block, the days of redemption is getting quite near….

Now, how prepared has the Pak Deep State been for such scenarios? It’s anybody’s guess!! Here are my naive inputs for “the imagination is more important than knowledge (Albert Einstein)”:
  • According to the Italian Ambassador to Pak, 80% of economic activities in Pak are undocumented, untaxed, unregulated etc.; hence, it’s outside the direct control of the satanic orgs like IMF, FATF etc. I am pretty sure it’s done by design
  • Thanks to the Taliban takeover, the trade with Afganistan is now free from the US, Indian etc. influence. Not to mention the $100b worth of the “recreational stuffs” without which the White and rich ME folks can’t maintain their ways of life
  • The porous Iran-Pak border. I am pretty sure it’s being leveraged well for Pak can maintain 25m automobiles for a reason
  • The Chinese connection via regional connectivity etc.
  • Some “benevolent” friends with “secret” benefits
  • Ingenuity of the Pak Deep Nation and Deep State that has made them a nuclear power, defeat the USA in Afganistan with the help of the USA, keep 7x larger satanically clever Indians on their toes etc., I believe, is still intact to outsmart the IMF
  • Etc.
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