Leading Issues in the Economy of Pakistan: Agenda for Reforms 6.3 The State Bank of Pakistan(Amendment) Bill, 2021 The SBP(Amendment) Bill submitted to the Parliament on the 30 th of December 2021 represents one of the most fundamental attempts at institutional reform in the history of Pakistan. Comments on the different sections of the proposed Bill are given below. 2. Preamble: The primary objective of the SBP according to the Bill will be to achieve domestic price stability by way of regulating the monetary and credit system of Pakistan. The basic question is how much control does the SBP, in fact, have on inflation caused by rise in international prices of commodities imported by the country or due to cost-push factors like escalation in energy tariffs? Also, for a developing country there is need for a balanced combination of the growth and inflation targets. As per the Constitution, the Annual Plan with these projections/ targets is approved by the National Economic Council chaired by the Prime Minister. The SBP Governor should ex-officio be a member of the NEC and contribute to the finalization of the Annual Plan. The SBP should also then work towards achievement of these targets. 4B. Objectives: This clause of the proposed legislation states that the‘Bank will contribute to the stability of the financial system.’ Instead, the Bank should be responsible of the stability of the financial system. 4C. Functions of the Bank: Item(c): This should state that the SBP will undertake research to identify in quantitative terms the broader social and economic impacts of the use of different instruments of monetary and credit policies. 9C. Prohibition of Government Borrowing: This clause clearly states that the SBP shall not extend any credit to the Government. There are two comments on this proposed legal limitation. First, there is need for an emergency provision in the event of natural disasters or territorial security concerns. Second, the drafters of the Bill are probably not aware of the phenomenon of‘ seigniorage ’. This is the normal increase in the demand for money, which is estimated at 1 percent of the GDP in Pakistan. This much direct borrowing should be allowed, equivalent to over Rs 650 billion. 9G. Governor and Minister of Finance to establish liaison: Informal mechanisms generally do not work. The existing Act has a provision for the Fiscal and Monetary Policies Coordination Board . This has been an effective mechanism for development of mutually supportive fiscal, monetary, trade and other policies. This Board should be retained. 80