Global Finance and Local Control: The IMF’s Push for State Bank Autonomy and Its Implications for Governance in Pakistan

Abstract

The paper presents the dilemma of sovereignty of the economy and conditions set by the International Monetary Fund (IMF) and the impact on the State Bank of Pakistan (SBP) in particular. It discusses how the legal regulatory framework of the SBP and its institutional independence in monetary and fiscal policy coordination has been influenced by the different IMF programs since the 1990s. The paper uses a legal-institutional approach for examining IMF loan agreements, SBP annual reports and key legislation including the SBP Amendment Act 2021 to conclude that while the IMF conditionality has formally extended SBP's statutory independence, this has been done with the introduction of new coordination challenges with the fiscal authorities, which have impacted SBP's credibility and its primary mandate of maintaining price stability. The results indicate that central banks in a developing country under a balance of payments crisis have varying degrees of resilience.