IMF Urges Pakistan to Remove Finance Secretary from SBP Board, Strengthen Central Bank Autonomy
ISLAMABAD: The International Monetary Fund (IMF) has recommended that Pakistan remove the finance secretary from the State Bank of Pakistan’s (SBP) board and amend another law to revoke the federal government’s authority to order inspections of commercial banks, according to media reports on Tuesday.
The IMF has also called on Islamabad to immediately fill the two vacant deputy governor positions at the SBP to ensure effective collective decision-making.
The recommendations, outlined in the IMF’s Governance and Corruption Diagnosis Mission report, include amending 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, the report noted.
In 2022, under IMF pressure, the government granted full autonomy to the SBP, stripping the finance secretary of voting rights on the board. Currently, the finance secretary remains a non-voting member, while key policy decisions such as exchange rates and interest rates are determined by the SBP’s monetary policy committee.
Finance Minister Muhammad Aurangzeb confirmed on Monday that the government does not interfere in setting interest rates, which fall under the SBP’s mandate, and that the exchange rate will continue to be market-determined. The rupee strengthened further to Rs282 per dollar.
Aurangzeb said the IMF review mission is expected in the third week of September to discuss the release of the third $1 billion tranche under the ongoing 37-month programme.
While the IMF maintains that removing the vote-less finance secretary would enhance SBP’s independence, the government has yet to accept this recommendation, and discussions are ongoing.
The SBP board currently comprises the governor and eight non-executive directors, representing each province. It oversees the bank’s operations, administration, and management, with full access to all activities. The IMF has also recommended publishing reasons for the removal of governors, deputy governors, non-executive directors, and monetary policy committee members.
Of the three deputy governor posts, only one is filled. Former deputy governor Inayat Husain has been acting in the role since November last year, with his dual nationality complicating reappointment. The finance ministry has proposed amending the law to allow dual nationals to serve as deputy governors, and the law ministry has vetted the amendments.
Deputy governors are appointed by the federal government after consultation with the finance minister and SBP governor, from a panel of three candidates recommended by the governor. Sources indicate that Nadeem Lodhi’s name has been finalised for one vacancy, pending cabinet approval.
The SBP law requires that key positions be filled within 30 days, a requirement often unmet. The IMF has now recommended that these posts should not remain vacant for extended periods.
Additionally, the IMF has suggested amending the Banking Companies Ordinance of 1962 to remove the federal government’s authority to direct SBP inspections of commercial banks, further reinforcing the central bank’s independence.
Pakistan is currently implementing a $7 billion IMF loan package, with each $1 billion tranche contingent on meeting the lender’s conditions. The 39-month programme was agreed last year to complete disbursement of the full loan.
