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Report on Central Bank of Pakistan (SBP

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The State Bank of Pakistan was founded in 1948 and is to date the country's central bank and
financial adviser to the government. It is the only bank allowed the issue of currency, holder of
gold and currency reserves, banker to the government, lender of last resort to other commercial
banks, supervisor of other banks and overseer of national credit policy. Therefore the State Bank
of Pakistan is both the Central Bank as well as the financial sector controlling authority in
Pakistan. It has four major functions to perform under the law which are as follow

 Ensuring Soundness of the Financial Sector.
 Maintaining Price Stability with Growth.
 Prudent Management of the Exchange Rate.
 Strengthening of the Payment System.

Structure of the Organization

The management of the Bank consists of a Governor, one or more Deputy Governors, Executive
Directors, Economic Advisor, and Directors of various departments. The Governor is the Chief
Executive Officer and directs and controls the whole affairs of the Bank on behalf the Central
Board. The President of Pakistan appoints the Governor for a term of three years. A Governor is
eligible for re-appointment for another term of three years. The Federal Government appoints
Deputy Governors for such a period (not exceeding five years) and on such salary and such terms
and conditions of service as it may determine. Presently the Bank is benefiting from the services
of two Deputy Governors (DGs). Deputy Governors are assisted by Executive Directors (ED)
and Economic Advisor. Each ED and EA looks after the affairs of one or more department(s).
The organization of the Bank has been divided into sixteen departments. All departments of SBP
are pillars for it and are playing their role with full scrutiny

1. Agricultural Credit Department (ACD)
2. Accounts Department
3. Banking Inspection Department (BID
4. Banking Policy Department
5. Banking Supervision Department
6. Economic Policy Department
7. Exchange & Debt Management Dept.
8. Exchange Policy Department
9. Islamic Banking Department
10. Payment System Department
11. Research Department
12. Statistics Department
13. Human Resources Department
14. Audit Department

which is 11 per cent presently. Sometimes monetary aggregates are also handled through changes in the discount rate. SBP determines this rate depending on the liquidity condition in the market. The intermediate target of M2 is attained by monitoring the targeted path of reserve money. The system of bank-specific credit ceilings as an instrument of money and credit control was gradually abolished in September. SBP provides this facility on the basis of 3-day Repo and charges the discount rate. to facilitate the short-term liquidity requirements of money market. to a large extent. A reserve money management program has been established which regulates the quantum of OMOs to be conducted to assist the operating target of reserve money. Information Systems Department 16. Banks are now required to maintain average cash reserves of 5 percent on weekly basis with a minimum balance of 4 per cent on daily basis. SBP maintains a weekly averaging procedure for meeting cash reserve requirements. market interest rates. Currently banks are asked to maintain 5 per cent under Cash Reserve Requirements and 15 per cent in approved securities under statutory liquidity requirements. a lot of significant changes were made in the execution of monetary and credit control. banks are required to keep a certain percentage of their demand and time liabilities as reserves. Starting with the introduction of an auction system for government securities. which is used as an operating target of monetary policy. monetary policy was carried through administrative controls and quantitative restrictions on money and credit aggregates. Statutory Cash Reserves Requirement and Statutory Liquidity Requirement. by engaging in the secondary market through Open Market Operations (OMOs). Corporate & Media Affairs Department Policy Instruments Used For Conducting Monetary Policy Before the financial sector reforms. Discount rate serves as an indicator for short term interest rate. It buys and sells Government securities both outright and under repurchase agreements. Following the introduction of financial sector reforms in the starting of 1990s. SBP provides lender of the last resort facility to eligible financial institutions. OMOs involve purchase or sale of government securities by the SBP in order to supply or absorb bank reserves. SBP now manages domestic liquidity. 1995. giving banks more ease in their reserve management and to prevent unplanned short term swings in money. State Bank conducts OMO in between period of public debt auctions. which essentially marked a separation from administrative supervision and significant credit limit to market-based monetary and credit management. Under legal reserve requirements. Moreover. . In order to carry the functions of cash reserve requirements effectively. 15.

The banks. and at all levels of the public sector. References: . The governance structure of banks is still underdeveloped and banking supervision does not pay attention to macro indicators of risks and measures to avoid systemic problems.Performance over the last few years The State Bank of Pakistan (SBP) is the leading national economic institution legislated to play a main role in macroeconomic development. the SBP has gone through many highs and lows in the performance of its central banking functions but has never been as ineffective in national economic and financial matters as it is these days. the monetary policy is not framed on the foundations of the amended SBP Act. To conclude. have been extorting the depositors as well as borrowers while the shareholders have been creating money and senior commercial bank executives getting massive compensation. control on price levels. and with a worsening economic and financial conditions in Pakistan and increased interference by the ministry of finance in banking matters. fuelling inflation. the need for a legally autonomous and operationally assertive SBP was realized very acutely in 1990’s but SBP has failed in implementing it. There is a de jure autonomy of the SBP which is repeatedly acknowledged by the government as well as the SBP in their publications and public statements. In its history since independence. The SBP readily lets the government print notes or borrow from commercial banks beyond safe limits. conduct of monetary policy and development and supervision of a sound and steady banking system. crowding out the private sector and stifling economic growth. the SBP does not directly conform to its own legal charter in the conduct of monetary policy. The SBP has also weakened its grip on the commercial banks that look more towards Islamabad than the SBP for signals and guidance in managing their affairs. particularly keeping in view the statutory authority it has since 1997 to “determine and enforce” the limit on government borrowing from the SBP for all purposes. has taken bank supervision in a wrong route. a high rate of inflation and an extremely slow growth rate of the economy falls primarily on SBP. but the de facto situation is in fact that the SBP has surrendered its de jure autonomy and subordinated monetary policy to the dictates of the fiscal authorities. Reviving the SBP and its development as a powerful and effective central bank is necessary for addressing the current economic and financial problems of the country. its internal organization has become fragmented and incompetent. operating under the SBP’s weak regulatory authority. With a comprehensive recognition of the significance of the autonomy of central bank for macroeconomic stability and control on inflation. A large portion of the blame for the present financial instability in the public sector. The new legal framework and institutional arrangement for monetary policy formulation and implementation during the Musharraf era SBP lost in practice what was gained through legislative and institutional reforms of 1990’s. At present. it has limited power over its own balance sheet.

pk/reports/annual/index.org.Annual Report of SBP 2007-2008 Volume 2 Annual Report of SBP 2008-2009 Volume 2 Annual Report of SBP 2009-2010 Volume 2 http://www.sbp.htm Dawn Newspaper .