Financial woes: Govt seeks four-year extension to retire debt

Bill to amend the SBP law is contrary to govt’s agreement with IMF.

ISLAMABAD:

In what appears to be an attempt to pass the buck to the next political setup in the country, the government has proposed to extend by another four years the statutory deadline to retire the Rs2.6 trillion debt obtained for budget financing.

The move came in the guise of giving more autonomy to the State Bank of Pakistan under a condition imposed by International Monetary Fund (IMF) as part of its $6.7 billion three-year bailout package.

However, according to finance ministry sources, the government is due to miss the June 30 deadline set to give full autonomy to the central bank. In addition, the bill that has been proposed to amend the SBP law is contrary to what the government has agreed with the IMF, they added.

In order to go ahead with the plan, the Pakistan Muslim League – Nawaz (PML-N) government requires a waiver from the Washington-based lender, as the bill introduced to amend the SBP Act of 1956 is yet to be cleared by the standing committees of the National Assembly and the Senate.

It will be second waiver as the government is also set to miss another deadline of June 30 to appoint a financial adviser to privatise 26% shares of Pakistan International Airlines, the national flag carrier.

Both the sides are expected to hold fourth review meetings of the $6.7 billion in early August where these issues will be taken up for discussions.

According to the proposed bill that the federal government introduced in the lower house of parliament on April 1st, the debt of the federal government owed to the SBP as on the 30th April, 2011, shall be retired no later than twelve years from that date.

Currently, the deadline is due to lapse in 2019 — the last year of the five-year constitutional term of the PML-N government.

In his capacity as member of the Senate Standing Committee on Finance, Ishaq Dar, and the current finance minister had the limit of five years extended to eight years.

Under the last bailout programme, the IMF had sought autonomy for the SBP and also asked the federal government to retire the SBP loans in five years with effect from April 2011.

Foreseeing his party coming into power, Dar convinced the then finance minister Hafeez Shaikh to extend the deadline to eight years, which was later approved by parliament.

The IMF has been pushing Pakistan to shift its financing to commercial banks, as the SBP borrowings are considered highly inflationary. The interest the federal government pays on SBP borrowings comes back to it in the shape of SBP profits, making the central bank borrowings virtually interest-free.

According to the central bank, the outstanding SBP debt stood at Rs2.24 trillion as of June 2013. Despite tall promises, instead of reducing the amount as required under the SBP law, the federal government has added another Rs382 billion in the debt stock pile, taking the total liabilities to a staggering Rs2.623 trillion.

Sources further added that the proposed bill does not reflect what the IMF had sought. The federal government had assured the IMF to withdraw its nominee, federal finance secretary, from the Central Board of the SBP.

Published in The Express Tribune, June 20^th, 2014.