State Bank Governor Shahid Kardar has also been summoned to the ECC meeting to brief the participants, after it was revealed that foreign remittances had sharply dwindled in recent months, setting alarms bells ringing for the cash-starved PPP government. Kardar has prepared a six-page presentation for the ECC members.
The sorry state of affairs at the BoK has been revealed in an official summary of the finance ministry being tabled in the ECC meeting to be presided over by Finance Minister Dr Hafeez Sheikh.
The State Bank has already quietly given Rs10 billion to a scam-riddled Bank of Punjab to keep it afloat after a huge scam involving its president Hamesh Khan hit the bank during the previous provincial government in Punjab, led by Chaudhry Pervaiz Elahi.
The Shahbaz Sharif-led government had made it an excuse to get Rs10 billion from the SBP. Now the ANP-PPP coalition government has used the same pretext of ‘bad governance’ to seek Rs3 billion on the same terms and conditions on which money was given to BoP. However, in the official summary, Special Finance Secretary Asif Bajwa has not cited reasons behind the financial collapse of BoK. The summary mentions only “bad governance and poor management” as two reasons behind the financial crunch without fixing responsibility.
Bajwa’s summary is also silent on another important aspect: what was the BoK’s position during the last two years because the summary says it had reached the verge of a financial collapse during 2003-08. Interestingly, the summary does not mention the period between 2008 and 2010, apparently not to annoy the PPP-ANP led government whose intervention in the bank’s affairs is said to have landed the BoK in the current financial mess.
The summary, while giving the background of developments leading to the financial crunch says that in November 2008, the government introduced a credit guarantee scheme for one year with an aggregate amount of Rs75 billion for small banks enabling them to meet their liquidity requirements.
The scheme is meant for supporting small banks having assets not exceeding Rs50 billion and is being administrated by the SBP. The scheme was extended for two years with the prime minister’s approval. At the behest of the SBP a bridge financing facility of Rs10 billion was extended to the BoP with the ECC approval in May 2009 to comply with SBP’s regulatory capital adequacy requirements.
The Khyber-Pakhtunkhwa government has also approached the SBP to seek financial support for the BoK under credit guarantee for small banks. The loan will be for a period of five years, including a one--year grace period, and will exclusively be used for recapitalisation of the BoK.
Meanwhile, according to a copy of the SBP governor’s presentation on foreign remittances, available with The Express Tribune, Kardar would focus on home remittance historical trend, country-wise share in 2010 which shows the UAE and Saudi Arabia were contributing 22.89 per cent and 21.53 per cent, respectively followed by the United States with 19 per cent. He will also explain the migration-remittances nexus.
The withdrawal of the five per cent withholding tax on electricity bills in the Karachi Port Processing Zone is also on the agenda of the meeting. The ministry of industries and production has recommended to the ECC that all manufacturers and exporters of the KEPZ may be allowed exemption of withholding tax on electricity bills to encourage them.
Published in The Express Tribune, November 4th, 2010.
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