IMF secured autonomy to access SBP info: Fawad

Privatisation minister reveals difficulties faced in putting together a credible PIA board

ISLAMABAD:

Privatisation Minister Fawad Hasan Fawad said on Monday that the International Monetary Fund (IMF) secured autonomy for Pakistan’s central bank to get direct access to the information that the federal government was reluctant to share with the global lender.

The startling statement by Fawad may further deepen suspicions about the motives behind securing the absolute autonomy for the State Bank of Pakistan (SBP) in January last year by the global money lender. This also raises questions on the role of the then central bank governor, Dr Reza Baqir.

The IMF first got the autonomy for the SBP, then made the central bank governor dependent on it and was now directly getting the information, which we earlier did not want to give to the IMF, Fawad said while responding to a question about the banking sector.

The privatisation minister maintained that a question should also be raised as to why the IMF and the World Bank do not ask about reducing the spreads in lending and deposit rates of the commercial banks, which were one of the highest in the world. He said the Privatisation Commission was getting only 4% profit on its Rs6 billion deposits placed with the National Bank of Pakistan.

Before 2022, the IMF used to deal with the central bank through the Ministry of Finance. But post amendments in the SBP Act the finance ministry does not know about SBP-IMF dealings, except in cases where the SBP governor himself reveals information to the finance minister or to the ministry.

In 2022, opposition parties had strong concerns over the SBP Act amendments, saying it compromised Pakistan's economic sovereignty and gave absolute authority to the SBP to take key economic decisions independently.

The absolute autonomy was granted in January 2022 in return for a $1 billion loan tranche. The governor has also been given complete autonomy in his affairs.

In 2021, The Express Tribune had reported that the then central bank management was pushing the finance ministry to accept the amendments in toto or the IMF tranche of $1 billion would be compromised.

The Express Tribune on Monday sent a question to Baqir, who spearheaded SBP autonomy, about Fawad’s statement. But his response could not be received till the filing of the story. Baqir left the country after his three-year tenure ended in 2022.

Fawad also spoke about the need of privatisation and the reforms in Pakistan.

The minister said that under the Privatisation Law it takes about 462 days to complete one privatisation transaction, adding that the interim government would try to privatise the entities that are difficult for a political government due to its consequences.

The interim government is trying to privatise PIA but has not yet succeeded.

Fawad said the government is expected to sign a Financial Advisory Service Agreement (FASA) with the Ernest and Young-led consortium. The cabinet approved the E&Y consortium hiring this month but the agreement signing remains pending and would be finalised this week.

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After the signing of the agreement, the advisor would need at least six to nine weeks to prepare a privatisation transaction structure and another 20 to 26 weeks to complete restructuring of the PIA balance sheet.

Fawad revealed that for the past six weeks he was facing difficulties to put together a credible PIA board, as people were reluctant to serve on it for a short term period. He said there were also difficulties in arranging loans for the PIA.

The government had tasked a technical committee to prepare a PIA debt restructuring plan and also arrange Rs15 billion loans for the national carrier within two weeks. There has been no success on this front for the past over one month.

The privatisation minister revealed that people on the state-owned enterprises boards were appointed by the last coalition government based on their political affiliations.

The Privatisation Board was also appointed by the PDM government during its last days and it is widely seen as a political entity having little expertise in the complex matters, according to sources.
Fawad opposed handing over power distribution companies to the provinces, fearing it may result in the worst form of cartelisation in the power sector.

The minister also spoke “very bitterly” about the poor performance of the Federal Board of Revenue (FBR) and set four conditions for any reforms in Pakistan, prominently stating that there should not be any further increase in the size of the government.

“Anything which increases the size of the government is not a reform,” Fawad said in a statement that apparently kills Caretaker Finance Minister Dr Shamshad Akhtar’s proposal to establish a new Tax Policy Division for separating policy from the FBR.

Prime Minister Anwaarul Haq Kakar had not approved Dr Akthar’s restructuring plan and referred the matter to another committee, including Fawad in the FBR restructuring process.

Fawad highlighted the flaws in the country’s taxation system, saying that around 93% of the collected tax revenue is either voluntary or withholding; whereas, only 7% is actually collected by the FBR.

He said in three years revenue board had sent recovery notices to individuals worth Rs600 billion but the actual recovery was less than Rs4 billion from 2013 to 2016. Since 2016, the tax burden on corporate taxpayers has increased by more than 40% on average.

Such a burden has not only contributed to encouraging people to stay out of the tax system but also de-corporatisation.

The public sector reforms should include bureaucratic reforms and taxation system reforms, he said, adding that these two areas are crucial for improving the performance of the state.

Fawad observed that the current state of the public sector was unsustainable.

In three years from 2018-2021, the government spent Rs2.54 trillion in terms of subsidies, grants, and loans to keep commercial SOEs operational. The size of the government has increased by more than three times in the last couple of decades.