Finance ministry instructs SBP, AGP to block govt cheques

Published: July 3, 2018
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The ministry took these steps to stop payments from the treasury accounts, as the budget deficit was going through the roof, sources said. PHOTO: FILE

The ministry took these steps to stop payments from the treasury accounts, as the budget deficit was going through the roof, sources said. PHOTO: FILE

ISLAMABAD: As budget deficit in the last year of the PML-N government is set to hit a new record of Rs2.4 trillion, the Ministry of Finance influenced the central bank and accountant general to block the clearance of government-issued cheques on June 30 to avoid further embarrassment.

Sources in the finance ministry said that the management conveyed verbal instructions to the State Bank of Pakistan (SBP) to direct the National Bank of Pakistan (NBP) not to honour government cheques on June 30, which was the last day of fiscal year 2017-18. The central bank then conveyed these instructions to the banking institutions.

The finance ministry also conveyed to the Accountant General of Pakistan Revenue (AGPR) to stop the clearance of cheques, the sources added.

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While protesting against the ministry’s action, the planning ministry has raised the issue of the constitutionality of the move. “This would be amounting to non-compliance of constitutional provisions relating to the annual budget and its operation,” according to planning ministry’s memorandum to the secretary finance.

Ministry of Finance Secretary Arif Ahmed Khan was not available to comment. SBP spokesman Abid Qamar also did not respond to a question over accepting verbal instructions of the finance ministry.

The ministry took these steps to stop payments from the treasury accounts, as the budget deficit was going through the roof, sources said. Its initial assessment showed that the budget deficit for the fiscal year 2017-18 could widen to as much as Rs2.45 trillion or 7.1% of the Gross Domestic Product (GDP), excluding the circular debt of the power sector.

In fiscal year 2012-13, the budget deficit, excluding the circular debt payments, was 6% of GDP or Rs1.4 trillion. The main reasons behind the ballooning budget deficit were overspending by Punjab, lack of fiscal control by the federal finance ministry and massive shortfall in FBR’s tax revenue, sources added.

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The last Punjab government that completed its tenure on May 31, issued cheques for the month of June before leaving office, the sources said, adding that this led to an overdraft of about Rs59 billion by the Punjab government till June 28. Similarly, the Sindh government also had an overdraft of about Rs10 billion. These measures would lead to no savings by the provinces, which will further widen the budget deficit.

The federal government also opened its purse during the last few months and the finance ministry completely closed its eyes from 2018 elections-related spending. “Till May end, the budget deficit had already touched 6% of GDP or Rs2.1 trillion.”

Another shock came from the FBR that failed to even achieve its downward revised tax collection target of Rs3.935 trillion despite availing the bonanza of the tax amnesty scheme. Till Saturday, the FBR’s collection was less than Rs3.77 trillion.

The shortfall in tax collection would add at least 0.6% in the budget deficit against its original target of Rs4.013 trillion. The poor show requires complete reshuffle at the top level. The government has already transferred FBR Chairman Tariq Pasha.

The last parliament had approved a budget deficit target of Rs1.4 trillion for fiscal year 2017-18. It is rare that the actual deficit would be more than 70% of the target.

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The non-clearance of the government cheques by NBP and the banking system led to lapses of billions of rupees of funds for FY18. Affectees included federal government ministries, contractors working on public sector projects and the provincial governments, the sources said.

The Ministry of Planning, Development and Reform has formally conveyed its agitation at the finance ministry’s decision to block payments on the last day of the fiscal year. It wrote a letter to secretary finance asking him to take action against the AGPR and banks for not receiving cheques.

The AGPR issued cheques in the evening on June 29, but the same are not being entertained by the NBP and National Institute of Facilitation Technologies (NIFT), according to an office memorandum of the planning ministry to the finance ministry. “The two institutions have refused to receive the cheques,” it complained.

The SBP had directed all the banks to remain open on the last two days of the fiscal year aimed at facilitating the clients.

“The refusal of NBP/NIFT to entertain the cheques issued by the AGPR after due process will not only result in wastage of public money, but also cause financial burden on the next fiscal year, besides serious audit observations and upsetting the next fiscal year 2018-19 budgeting and programming,” according to the planning ministry.

The ministry has sought action to “to avoid further complications”.

Published in The Express Tribune, July 3rd, 2018.

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