The Pakistan Peoples Party (PPP) on Wednesday announced it will become a party in a petition filed in the Supreme Court that seeks to declare appointment of the central bank governor illegal.
Former finance minister and PPP leader Senator Saleem Mandviwalla accused the SBP governor Dr Reza Baqir of causing a loss of Rs1 trillion to the exchequer by setting interest rate too high at 13.25%.
“The governor SBP Dr Reza Baqir robbed the government of Rs700 billion by setting interest rate at 13.25%,” Senator Saleem Mandviwalla said while addressing a press conference at Sindh House, Islamabad.
The former finance minister said that the governor also caused Rs300 billion loss by increasing the interest rate at 13.25% against the IMF’s condition of 12% and then reprofiling the government debt at high rates.
Mandviwalla announced that a parliamentary probe would be launched into $2 billion hot foreign money inflows out of the $3.6 billion receipts that the government had received during the period when interest rates were 13.25%.
The money flew back the moment the central bank started slashing interest rates in April last year under domestic compulsions.
“The PPP would become a party into a petition filed by Dr Zubair Khan, which now requires political attention,” Mandviwalla added.
In April this year, the SC admitted the petition for hearing that seeks enforcement of a law that binds the government to limit public debt to below 60% size of the economy and declare appointments of governor and a deputy governor of central bank illegal.
The FRDL Act binds the government to limit the public debt to 60% of GDP or Rs27.2 trillion at current size of the economy.
However, the public debt has already ballooned to 87.2% of GDP, which is roughly Rs12.4 trillion above the statutory limit defined in the law.The petition has been filed by former official of the International Monetary Fund (IMF) and former commerce minister Dr Muhammad Zubair Khan.
Mandviwalla said that the PPP would not spare the central bank governor, adding it would ensure that the governor does not leave the country until SC reached a decision and the parliamentary investigation of hot foreign money is complete. The former finance minister said that the matter of the hot foreign money would be taken up at the Senate Standing Committee on Finance.
Mandviwalla claimed that during 2019 negotiations, IMF had agreed to 12% interest rate but the governor got it at 13.25%. He said then the three years, five years and ten years fixed rate Pakistan Investment Bonds were sold at 8.25%, 8.75% and 9.25% respectively, which caused a loss of Rs700 billion.
The sharp increase in yields occurred from July 2018 onwards, when treasury bill rates crossed the “normal level” of 7.30% and stayed above this level until June 2020. This two years period was the period where the government may be deemed to have issued securities at “abnormally high” yields, he added.
He said that during this period, any interest cost on treasury bills paid by the government above the 7.30% threshold and any interest cost on PIBs paid above the 8.25%, 8.75% and 9.25% threshold has been factored in as “additional” cost.
Using these assumptions, over the life of the instruments the “additional” or extra interest cost to the exchequer comes to over Rs700 billion by IMF employee now Governor State Bank of Pakistan”, alleged the former finance minister.
The response of the Governor SBP Dr Reza Baqir was awaited till the filing of the story.
“In fiscal year 2019-20, the government had spent Rs2.709 trillion on interest payments, which was the largest amount ever on any budget item in the history of the country as a result of a self-imposed decision to raise interest rates to 13.25%, which was avoidable, and which was not in the economic interests of the country”, according to Dr Zubair’s petition.
The petitioner has alleged that the Governor exposed the financial system and the foreign exchange market to high risks of severe instability by encouraging the inflow of hot money into the country.
The petition stated that the “ill-designed exercises detrimental to the economic interests of Pakistan were brazenly undertaken by an economic team appointed on the eve of signing an agreement with the IMF”.
“The petition reflects the serious thought and presents an analysis that invites judicial consideration of the legal matters relating to financial discipline and responsibility of the State,” according to the order by Justice Umar Atta Bandial replying to a question, Mandviwalla said that the opposition would make a joint strategy to stop approval of the budget in the National Assembly. He said that chairman PPP Bilawal Bhutto Zardari has given this mandate to the opposition leader Shehbaz Sharif.