The money managers of the country have failed miserably to ensure proper financial discipline in the country, causing a plethora of problems, despite a clear pathway provided under the relevant laws, said a draft of an audit report for 2011-12 on the performance of the Ministry of Finance.
The Auditor General of Pakistan, while examining the performance of the finance ministry prescribed under the Fiscal Responsibility and Debt Limitation Act, 2005, found that the ministry violated the law that said the government should restrict the issue of new guarantees to 2% of the gross domestic product (GDP) in any financial year.
The Act requires the government not to issue “new guarantees, including those for rupee lending, bonds, rate of return, output purchase agreements and all other claims and commitments that may be prescribed, from time to time for any amount exceeding 2% of the estimated GDP in any financial year; provided that the renewal of existing guarantees shall be considered as issuing a new guarantee.”
The government allegedly violated the relevant law during the financial years 2009 and 2010, where it managed to issue sovereign guarantees beyond the prescribed limit of 2% of the GDP. Contingent government liabilities are associated with major hidden fiscal risks.
New guarantees issued by the government in 2009 amounted to Rs274.3 billion or 2.09% of the GDP, higher than the stipulated limit imposed under the Act.
The finance division had been issuing continuing guarantees against the commodity financing operations undertaken by the Trading Corporation of Pakistan, Pakistan Agricultural Storage and Supplies Corporation and provincial governments.
Commodity financings are secured against hypothecation of commodities and letter of comfort from the finance division. These guarantees were never included in the limit of 2% imposed by the Act.
The government issued Rs192.6 billion worth of new guarantees on behalf of the commodity financing operations in 2009, besides issuing new guarantees amounting to Rs224 billion or 1.5 % of the GDP.
The audit recommended that new guarantees issued for commodity operations should be included by creation of a legal and institutional framework that enforces proper accounting of this hidden cost to the government.
The Ministry of Finance had no answer to these objections raised by the audit and remained silent when asked by the audit for a reply.
A spokesperson of the ministry did not comment when The Express Tribune contacted him several times for a reaction over
Published in The Express Tribune, November 25th, 2012.
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They have wide range of tools, from random fires to creative accounting.
It is hard to balance two books. They have wide range of tools, from random fires to creative accounting.