ISLAMABAD: A former International Monetary Fund official has filed a petition in the Supreme Court, pleading to order the authorities concerned to cut interest rate to save Rs1 trillion annually and place capital controls to ensure orderly withdrawal of hot money.
“The court may kindly order the federal government to lower the policy interest rate to 6-7% , which will reduce the allocation of public funds for interest payments by about Rs1 trillion,” according to a petition filed by Dr Zubair Khan, former official of the IMF and former commerce minister.
The SBP’s key policy rate currently stands at 13.25%, which has doubled in the last almost one year.
Zubair has further requested the apex court to instruct the State Bank of Pakistan to immediately introduce appropriate capital controls to ensure the orderly withdrawal of hot money from Pakistan aimed at avoiding the risk of instability in the foreign exchange market due to the flight of hot money.
Zubair has made the federal government, prime minister, Ministry of Finance, SBP, Finance Adviser Dr Abdul Hafeez Shaikh, SBP Governor Dr Reza Baqir, Deputy Governor Dr Murtaza Syed, leading chambers of commerce and four main commercial banks respondents.
“The SBP is not aware of any such petition so far. If there is any petition and the SBP is required by the court to respond, it will provide its response to the court,” said Abid Qamar, chief spokesperson for the central bank, when contacted for his version.
The Ministry of Finance did not give its version on the issue.
Zubair has filed the petition under Article 184(3) of the Constitution against what he calls “arbitrary unlawful and unjustifiable increase in the interest rates”.
In fiscal year 2019-20, the interest payments will be more than 211% of development spending, and 233.6% of defence spending and 306.7% of subsidies and grants for the poor and underprivileged, according to the petitioner.
He has worked out these ratios on the basis of Rs3.125 trillion projected spending on interest payments by the IMF. The Rs3.125 trillion spending is more than half of all the tax revenues by the government, twice the defence budget just when India is threatening Pakistan’s existence, he pleaded.
Zubair has worked in the IMF till 1992 and has also remained an international consultant to the multilateral IFIs and bilateral donors, and served as a federal minister for commerce (1996 – 1997).
The petitioner pleaded that high interest rates were increasing federal fiscal deficit, which also led to violation of the Fiscal Responsibility and Debt Limitation Act, 2005.
This year, the government of Pakistan will spend the largest amount ever on any budget item in the history of Pakistan ie on interest payments, as a result of self-imposed decision, which could have been avoided, which is not in the economic interest of the country, and which exposes the financial system and the foreign exchange market to high risk of severe instability by encouraging the inflow of “hot money” into the country, he narrated.
“This avoidable waste of scarce public fund is at a cost of rising public debt leading to an unsustainable fiscal situation”.