Govt on defensive after IMF rebuke

State minister denies breach in agreement with international lender

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ISLAMABAD:

Hours after the International Monetary Fund (IMF) insisted on sticking to policy commitments made by Pakistan, a top government official on Tuesday said that the country had not breached the agreement with the fund, saying “any shortfall in petroleum levy will be adjusted in coming months”.

Minister of State for Finance and Revenue Dr Aisha Ghous Pasha gave the statement on the floor of the National Assembly Standing Committee on Finance.

The committee discussed the burning issue of currency manipulation by certain banks and whether the State Bank of Pakistan had taken any action to correct the course. However, neither the central bank nor the Ministry of Finance gave a satisfactory reply about the action taken against the banks.

Earlier, Reuters quoted the IMF’s country representative Esther Perez as saying that there were no changes in the conditions agreed between Pakistan and the fund.

“Policy commitments made by the Pakistani authorities as part of the seventh and eighth reviews under their IMF-support programme continue to apply,” she told Reuters.

She said policy discussions, including how to target support to those affected by the floods while maintaining macroeconomic stability, will commence in the coming weeks after the damage assessment report becomes available.

The IMF official made the comments in response to a question if the recent reduction in fuel prices had been discussed with the lender.

The international lender’s statement came after Finance Minister Ishaq Dar reduced the prices of all petroleum products for the next fortnight by around five per cent — reversing a policy of raising prices monthly through added levies to ensure enhanced revenues as agreed with the IMF.

Dar reduced the levy to Rs32.42 on petrol but increased the rate to 12.58 per litre on diesel. Cumulatively, the rate on the two products should have been Rs55 per litre against the current Rs45 per litre rate.

“We have not violated the agreement with the IMF,” the state minister said and added, “We still have time till December to recover any shortfall against the petroleum levy target.”

She was responding to a question by MNA Dr Ramesh Kumar who raised the issue of a statement given by former finance minister Miftah Ismail who termed Dar’s move “reckless”, saying it may carry adverse implications for the IMF programme.

Dr Pasha said lower rates can be adjusted till December this year.

Finance Secretary Hamid Yaqoob Sheikh revealed that the government collected only Rs22 billion on account of petroleum levy during July-August period – a sum that appears significantly lower and could compromise the annual target of Rs855 billion set for the current financial year.

The government also seems to be in violation of its commitment to further increase power tariff by 91 paisa per unit with effect from October 1.

The deputy finance minister said that Pakistan remained committed to the IMF programme and the finance minister would take up the issue of relaxation in the deal with the IMF during his upcoming visit to the US.

Dr Pasha said, “Pakistan will be unable to get funding from multilateral and bilateral creditors without the IMF deal,” and added, “It is important for the country to stay in the programme.”

Committee Chairman Qaisar Sheik raised the issue of exorbitant profits made by eight commercial banks on account of foreign exchange earnings through manipulation of the local currency. He criticised the central bank for making pro-elite policies that benefited a handful of industrialists during the Covid pandemic.

“Under the Temporary Economic Refinance Facility (TERF), an amount of Rs436 billion was disbursed among 624 people,” confirmed SBP Governor Jameel Ahmad. However, he denied that one person got Rs90 billion loan alone.

The governor also could not satisfy the standing committee on the issue of investigation being carried out against eight commercial banks for their alleged role in currency manipulation.

“We are taking actions against the commercial banks and foreign exchange companies [involved in the activity],” said Ahmad without giving any specifics about the steps.

The central bank governor did not give any timeline with regard to concluding the proceedings in show cause notices given to eight banks a few weeks ago.

The central bank has given show cause notices to National Bank of Pakistan, Allied Bank Limited, Bank Al Habib, Standard Chartered Bank, Meezan Bank, Habib Bank Limited, Habib Metro Bank and the United Bank Limited.

SBP Deputy Governor Dr Inayat Hussain maintained that serving of the notices did not mean that the banks were culpable.

In a hearing by the Senate Standing Committee on Finance last month, the representatives of eight commercial banks did not deny that they quoted higher dollar rates against the rupee. The eight banks had been picked for inspection based on their trade volumes and “substantial profits” that they made till the end of June.

“The action (against these banks) is in process and there is no pressure on us to halt the proceedings”, said Jameel Ahmad while responding to a question whether the central bank was under pressure to put the matter in the cold storage.

Dr Pasha assured the forum that severe fines will be imposed against the banks found involved in manipulating the currency but added that the government wanted to move carefully to protect the financial sector.

“No one is talking about protecting the interests of the business community that has been forced to pay artificially high prices of the dollar and of the people who have been bearing inflation due to the currency devaluation,” remarked the committee chairman.

The banks have been accused of manipulating the currency, which led to the rupee depreciation to Rs240 to a dollar.

PML-N’s MNA Barjees Tahir questioned what fundamentally changed after the return of Dar that led to Rs15 appreciation in the value of the rupee against the dollar. But he could not get a satisfactory reply.

The members of the National Assembly also raised questions about the delay in opening of the letter of credits (LCs) – an instrument of international trade – and timely payments of the maturing import payments. The central bank governor assured that the restrictions will be eased but he did not give any deadline.