The central bank has several core functions including managing public debt and foreign exchange reserves, advising the government, and maintaining relationships with international financial institutions. It also plays roles in developing the banking system through training programs and promoting priority sectors like agriculture and small businesses. The central bank aims to foster economic development and capital formation in the country. It is organized into numerous departments that oversee functions like banking supervision, monetary policy, research, and information systems.

1. Functions of Central Bank
By AsHra ReHmat

2. Functions of Central Bank
Secondary Functions:
• Public Debt Management
• Management of Foreign Exchange
• Advisor to Government
• Relationships with International Financial Institutions
Non-traditional Functions:
• Development of the Banking System
• Training Facilities to Bankers
• Credit to Priority Sectors
• Islamization of the Banking System

3. Public Debt Management
Public debt refers to all the money that the
government is liable to pay. The following actions
are involved in this regard:
• Subscribing Federal and Provincial governments’
securities at the time of their issue
• Sale/purchase of such securities in the Money
Market (through auction, OMO or discount
window)
• Payments of interest to holders of public debt
instruments

4. Management of Foreign Exchange
• Being responsible for maintaining the external
value of the currency.
• The Bank is responsible to keep the exchange
rate of the currency at an appropriate level
and prevent it from wide fluctuations. As the
custodian of country’s external reserves, State
Bank is also responsible for the management
of the foreign exchange reserves.

5. Bankers, Agent and Adviser to the
Government
• As banker to the government, central bank
provides all those service and facilities to the
government which public gets from the ordinary
banks.
• It operates the account of the public enterprise. It
mangers government departmental undertaking
and government funds and where there is a need
gives loan to the government.
• From time to time, central bank advice the
government on monetary, banking
and financial matters.

6. Monetary and Fiscal Policies Coordination Board
(MFPCB)
• The State Bank also participates in economic policy
making as a member of various government agencies
and committees.
• In order to coordinate fiscal, monetary, foreign trade and
exchange rate policies, a “Monetary and Fiscal
Coordination Board” has been set up under Section 9B of
the SBP Act 1956.
• The Board is responsible for ensuring consistency among
macro targets and to determine, in consultation with the
Federal Government, the limits of credit to be extended
to the Federal and Provincial governments and review, on
a quarterly basis, Government’s borrowings
in relation to pre-determined or revised
targets.

7. Reports on the State of the Economy
• The Bank submits its review of the economy to the
Parliament through its annual and quarterly reports.
• The advisory function of the State Bank has been
assigned to it by sub-sections (d), (e) and (f) of Section
9A of the SBP Act, 1956.
• It 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 payments and price developments.

8. Relationships with International
Financial Institutions
 It maintains relation with international agencies
such as IMF, World bank etc.
 The Central Bank deals with the IMF on behalf of
the Government.
As a member of the Fund, the Government
accepted the obligations of Article-VIII, Sections
2, 3 and 4 of the IMF Articles of Agreement July 1,
1994.
Pakistan is also the member of
International Monetary Fund.

9. Non-traditional Functions
Development of the Banking System
The most significant contribution made by the
Central Bank towards facilitating and fostering
economic development is the rehabilitation of
the banking system.

10. Micro Finance
 In order to expand the banking services at grass root level
and to enable the financial sector to play its role in poverty
alleviation, the State Bank of Pakistan is also promoting micro
banking in the country.
 It has facilitated two micro finance banks namely Khushali
Bank and the First Micro Finance Bank (FMFB) Limited.
Promotion of Islamic Banking
 In order to meet the latent demand for Shariah compliant
solutions of various financial needs of masses.
 Conferences, workshops, seminars and presentations are
being conducted to create public awareness and develop
better coordination among various stakeholders of Islamic
banking.

11. Training Facilities to Bankers
• It provides training facilities to the staff
working in various banking institutions.
• They have been specifically designed to equip
you with the means to tackle the challenges
you face and allow free debate of sensitive
issues in a confidential environment.
• Every year, the courses are refreshed and
updated to cover the topics which matter the
most to central bankers and regulators.

12. Training Institutions in Pakistan
• Institute of Bankers Pakistan
• Training Department/Division
• National Institute of Banking and Finance
(NIBAF),
• SEANZA (South East Asia Region comprising
Australia, Bangladesh, China, India, Indonesia,
Iran, Japan, Korea, Malaysia, Nepal, New Zealand,
Pakistan, Papua New Guinea, Philippines,
Singapore, Sri Lanka and Thailand).

13. Credit to Priority Sectors
• The Bank has also introduced various credit
schemes to channel resources towards priority
sectors like export finance scheme, mandatory
credit for agriculture, small business and small
industries, etc.

14. Islamization of the Banking System
• The State Bank has also been involved in the
process of Islamization of the economy in general
and the banking system in particular.
• Considerable amount of research work is
undertaken in Islamic Economics Division which
includes the nature and connotation of „Riba‟,
the Shari” a position of present day interest
based financial system, various alternatives to
interest and the fiscal system of Islam.

15. Collection of Data
Central banks in almost all the countries collects
statistical data regularly relating to economic aspects
of money, credit, foreign exchange, banking etc. from
time to time, committees and commission are
appointed for studying various aspects relating to the
aforesaid problem.
Central Banking in Developing Countries
The basic problem of underdeveloped countries is the
problem of lack of capital formation whose main
causes are lack of saving and investment. Therefore,
central bank can play an important role by promoting
capital formation through mobilizing savings
and encouraging investment.

16. Departments of SBP
• The organization of the Bank has been divided
into sixteen departments.
1. Accounts Department
Provides effective & efficient accounting
services & information for planning, control
and decision-making regarding annual budget
and balance sheet of the Bank.

17. 2. Agricultural Credit Department (ACD)
ACD coordinates the operations of the Bank in
connection with agricultural credit and its
relations with the provincial co-operative
banks and any other organizations engaged in
the business of agricultural credit.
3. Banking Inspection Department (BID)
BID achieves the regulatory goals of State
Bank of Pakistan, i.e., ensuring the safety and
soundness of the financial system and
safeguards the interests of the
depositors.

18. 4. Banking Policy Department
BPD reviews and formulates proactive policy framework
for Banks concerning diligent licensing, proposals for
mergers/acquisition, privatization matters, management
of the banks and conducting special studies for
improvement in the banking sector with a view to safe
guard the depositor’s interest.
5. Banking Supervision Department
Banking Supervision Department ensures enforcement
of regulatory and supervisory policies, monitors risk
profiles, and evaluates
operating performance of individual
banks and DFIs as also of the overall
banking system.

19. 6. Economic Policy Department
Prepares monetary survey, credit plans, working
papers for National Credit Consultative Council
(NCCC) and M&FCB meetings, keeps constant watch
and analyses developments in the financial markets
and matters relating to Pakistan’s relationship with
IFIs.
7. Exchange & Debt Management Dept.
Its function is effective and efficient execution of
monetary and exchange rate policies through money
market and foreign exchange operations.
It also performs domestic debt management
function.

20. 8. Exchange Policy Department
Its functions include formulation and regulation
of policies relating to foreign exchange matters.
9. Islamic Banking Department
IBD has been set up recently with the objective
of promoting and regulating Islamic banking in
the country. Its vision is “Make Islamic Banking the
banking of first choice for the providers and users of
financial services”.

21. 10. Payment System Department
It is set up recently to implement Real Time Gross
Settlement (RTGS) project, and to oversee the
existing payment and settlement system in place and
develop a strategy with the banking industry for
improvement in the banking system.
11. Research Department
Makes objective analyses of economic
developments; explore inter-linkages between
macroeconomic policies; and examine their
relationships with overall economic growth, with a
view to initiating informed public debates
on national issues, and guiding formulation
of sound economic policies.

22. 12. Statistics Department
The Department is responsible for collection,
compilation, dissemination and publication of
statistics on economic, financial and monetary
aspects most pertinent to the central banking.
13. Human Resources Department
Its objective is excellence at acquiring,
developing and retaining the right talent for SBP
by continuous innovation & improvement of the
HR policies & procedures, providing effective
facilitation and advisory services to line
departments and efficient and timely
delivery of HR services.

23. 14. Audit Department
It provides independent appraisal of all the
activities of SBP aiming to add value, improve
operational efficiency, risk management &
internal control systems.
15. Information Systems Department
It is responsible for oversight and
management of the technology operations,
development and implementation, including
all corporate systems, LANs, WANs, databases,
websites, system administration
and desktop support for the SBP.

24. 16. Corporate & Media Affairs Department
This department is entrusted to arrange
Central Board meetings. It takes care of all the
affairs related with Board of the Bank, acts as
spokesman of the Bank for media and other
external stakeholders, and manages
publications of the State Bank of Pakistan