PAC seeks briefing from SBP on hot foreign money

Will also ask FBR about status of revenue collection in current fiscal year

ISLAMABAD: The Public Accounts Committee (PAC) has decided to take briefing from the central bank on the inflow of over $3.3 billion worth of hot foreign money, including details of foreign investors, and showed apprehension over an anticipated steep shortfall in tax revenue.

PAC also decided to take briefing from the Federal Board of Revenue (FBR) over the status of revenue collection in the current fiscal year.

The committee directed the Pakistan Engineering Council to get its accounts audited from the Auditor General of Pakistan (AGP), upholding the viewpoint of the AGP office.

The parliament’s accountability arm decided to get briefing from the State Bank of Pakistan (SBP) and the FBR during a presentation on the revenue and expenditure pattern of the federal government in the last year of Pakistan Muslim League-Nawaz (PML-N) administration.

A briefing by the AGP showed huge fiscal slippages in the last year of PML-N tenure - a trend that Federal Finance Secretary Naveed Kamran Baloch said was reversed in the current fiscal year to the extent of supplementary grants.

Responding to a question about the interest rate Pakistan was paying to foreign investors on hot foreign money, the finance secretary said only the SBP could brief on the issue. PAC Chairman Rana Tanveer Hussain decided to take briefing from the central bank and also desired that the SBP should give details of the foreign investors.

As a policy, the SBP has been encouraging foreign investment in the government’s debt securities aimed at increasing its official foreign currency reserves.

So far, the foreign investors have invested $3.32 billion in the government debt papers in the current fiscal year, according to the SBP statistics. Most of this money has been invested in three-month treasury bills. Foreign investors have also withdrawn $150 million from the debt securities, including $138 million by banks based in the United Kingdom, showed the central bank data.

To another question, the finance secretary informed PAC that FBR’s revenue collection may grow by 18% over last year’s receipts. In the last fiscal year, the FBR had collected Rs3.829 trillion.

Baloch said it would be considered a very good performance if the FBR could collect Rs4.8-4.9 trillion in the current fiscal year.

The FBR’s revenue collection was one of the outstanding issues, which led to inconclusive talks between Pakistan and the International Monetary Fund (IMF) this month, according to the sources.

The IMF mission returned to Washington without reaching a staff-level agreement with Pakistan.

For the current fiscal year, parliament had approved a Rs5.5-trillion tax collection target for the FBR but in the first seven months, it faced a shortfall of Rs385 billion.

The finance secretary was of the view that $6 billion worth of import compression dented tax collection by roughly Rs336 billion. But the PAC chairman did not accept the argument, saying imports were reduced as part of the government’s policy and the tax collection target had been set while keeping that in mind. In his presentation, the director-general federal audit of the AGP department said in fiscal year 2017-18 actual expenditures by the federal government stood at Rs30.6 trillion against the allocation of Rs27.4 trillion.

He said there was a slippage of Rs3.2 trillion in 2017-18 due to higher repayment of principal loans and payment of interest on loans.

The finance ministry does not show the repayment of loans as part of the budget, therefore, the actual budget size is shown by excluding the repayment figure.

Out of the Rs30.6 trillion, the repayment of debt stood at Rs26.8 trillion and another Rs1.5 trillion was consumed on account of interest payments, said the DG audit.

Spending on repayment of debt and interest stood at Rs28.3 trillion or 89% of the total expenditure in the last year of the PML-N government, according to the AGP.

He stressed that this left practically no fiscal space for spending on human development.

The Pakistan Tehreek-e-Insaf (PTI) government will borrow a record Rs43.5 trillion in the next fiscal year mainly for repayment and interest cost of maturing public debt, which was higher by 84% or nearly Rs20 trillion than the previous fiscal year.

The amount of Rs43.5 trillion is more than the total size of the federal budget, which stood at Rs7 trillion for 2019-20. The difference is because the government does not book loans taken for repayment of domestic and foreign loans in the budget. These transactions are settled outside of the budget. The central bank borrows on behalf of the federal government from commercial banks.

The finance secretary told PAC that this year the spending on payment of interest on loans would remain within the approved budget of Rs2.9 trillion. He also said during almost seven and a half months of the current fiscal year the finance ministry did not issue any new supplementary grant.

The fiscal discipline had been ensured after the approval of Public Finance Management Act by the National Assembly in June 2019, said Baloch.

But the finance secretary did not comment on whether the repayment of principal loans would remain within the allocation approved by the National Assembly at the time of approving the budget. 

Published in The Express Tribune, February 20^th, 2020.

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