A review of Governance/Board/MPC in State Bank of Pakistan…

Pakistan’s central bank which is celebrating its 70th anniversary, is going through its own governance challenges with the change of government as written in this article.

Keeping the challenges aside, it is interesting to review whether and how the governance and policy structure differs in SBP compared to RBI.

As per the SBP Act (1956), SBP’ s Board has 10 directors:

  • Governor who is the chair.
  • 8 non-executive Directors: including at least one from each province, who shall be eminent professionals from the fields of economics, finance, banking and accountancy, to be appointed by the Federal Government. Those appointed to the Board shall have no conflict of interest with the business of the Bank.
  • Secretary Finance to the Federal Government.

Hmm.. The Province representation is interesting.

What is interesting is that the Board is responsible for forex reserves and also presents an economic report:

The Board, with the exception of the powers entrusted to the Monetary Policy Committee, shall perform the following functions, namely:-
(a) to define and determine policies of the Bank regarding the execution of its functions, and approve internal rules for their implementation; and 
(b) oversee foreign exchange reserve management and approve strategic investment and risk policy. 
(2) The Board shall submit a quarterly report to the Majlis-e-Shoora (Parliament) on the state of the economy with special reference to economic growth, money supply, credit, balance of payment and price development.

Compared to this RBI has 21 members in the Board:

  • Executive members: Governor +  4 Deputy Govs
  • Non-executive members:
    • 10 experts from different fields
    • 4 from local boards
    • 2 Government nominees

The role of RBI Board is not really clear. It seems that either they do everything under the sun or nothing at all. It atleast does not have as clear a mandate as SBP. Ideally, RBI Board should be accountable for something atleast and required to present some report and so on.

Moving over to MPC. It consists of ten members:

  • 1 Governor (Chairman),
  • 3 members of the Board nominated by the SBP Board
  • 3 senior executives of the SBP nominated by the Governor
  • 3 External Members (economists) appointed by the Federal Government on recommendation of the SBP Board. The External Members are appointed for a term of three years.


RBI MPC on the other hand is that of 6 members:

  • 1 Governor
  • 1 DG incharge of monetary policy
  • 1 member nominated by the Board
  • 3 outside experts appointed by Government.

In case of Pakistan, there is another interesting body named Monetary and Fiscal Policies Co-ordination Board which was established in 1994.

59 B . Monetary and Fiscal Policies Co-ordination Board

1) There shall be a Board for the coordination of fiscal, monetary and exchange rate policies, hereinafter to be called [the Co-ordination Board], consisting of :

(i). Federal Minister for Finance Chairman
(ii). Federal Minister for Commerce or  [Secretary, Ministry of Commerce] Member
(iii). Deputy Chairman, Planning Commission Member
(iv). The Governor Member
(v). Secretary, Finance Division, Government of Pakistan Member
vi) two eminent macro or monetary economists with proven record of research and teaching to be appointed by the Federal Government.

(2) The [Co-ordination Board] shall—
(a) coordinate fiscal, monetary and exchange-rate policies; 
(b) [ensure consistency among macro-economic targets of growth, inflation and fiscal, monetary and external accounts;
(c) [ meet for the purposes of clauses (a) and(b) before the finalization of the budget to determine the extent of Government
d) [ meet on a quarterly basis to review the consistency of macro-economic policies and to revise limits and targets set at the time of the formulation of the budget, keeping in view the latest developments in the economy];
(e) consider limits of the Government borrowing as revised from time to time in the meetings to be held before and after passage of the annual budget;
(f) review the level of Government borrowing in relation to the predetermined or revised targets after every quarter; and
(g) review the expenditure incurred in connection with raising of loans and Government borrowing.

3. State Bank of Pakistan shall place before the Board—
(a) relevant data relating to monetary expansion and Government borrowing;
(b) the assessment of the State Bank regarding the impact of economic policies of the Government on monetary aggregates 
(c) [{OMITTED}]

4. The Planning Commission and the Ministry of Finance, Government of Pakistan shall, from time to time, bring to the notice of the Board the impact of monetary policy adopted by the State Bank on investment, growth and balance of payment.

(5) The Ministry of Commerce, Government of Pakistan shall, from time to time, bring to the notice of the Board the impact of the monetary policy
by the State Bank on imports and exports.

(6) In carrying out its assigned functions of coordinating fiscal monetary and exchange rate policies and for ensuring consistency among macro economics, targets of growth, inflation and fiscal, monetary and external accounts as laid down in sub-sections (1), (2), (3), (4) and (5), the Coordination Board shall not take any measure that would adversely affect the autonomy of the State Bank of Pakistan as provided in this Act. 

Hmm.. This is interesting. A coordination of fiscal and monetary policy put in the central bank act…




Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: