Going against rules: State Bank flouts law, transfers profit to govt
Money used to meet budget deficit target for 2013-14.
ISLAMABAD:
The State Bank of Pakistan (SBP) has violated an act of parliament that requires it to keep annual profit to build its Reserve Fund as the central bank transferred earnings of the last three years to the federal government.
The government took the money to achieve the budget deficit target of 5.8% of gross domestic product, set by the International Monetary Fund for previous fiscal year 2013-14.
The SBP Act 1956 binds the central bank to retain appropriations out of the annual profit to beef up the Reserve Fund. The fund is aimed at providing the central bank the needed liquidity for contingency purposes.
This is not the first time that the SBP Act has been violated either by the government or the central bank. There have been violations pertaining to reducing outstanding government borrowings, appointment of members of the central bank board and convening meetings of the monetary and fiscal policies body.
However, because of weak parliamentary accountability mechanisms, the violators were never punished, according to former central bankers.
“The securities of the value of three crore rupees [Rs30 million] contributed by the federal government for the purpose shall be held by the bank as part of its Reserve Fund, which may also receive such appropriations out of the annual profits as the bank may, with the prior approval of the federal government, from time to time decide,” according to Clause 41 of the SBP Act 1956.
Contrary to this, the SBP not only transferred the entire profit of fiscal year 2013-14 but also gave up remaining earnings of the previous two years in favour of the federal government, which were presumably placed in the Reserve Fund earlier.
Actual profit for the three fiscal years stood at Rs744.6 billion, according to audited profit and account statements and the response given by the SBP.
However, the SBP transferred Rs750 billion, which was more than the actual profit and showed that the central bank violated the Act in a bid to help the central government achieve the budget deficit target.
In 2011-12 and 2012-13, when the Pakistan Peoples Party was in power, the SBP earned Rs494.6 billion. Of this, it transferred Rs424 billion and kept the remaining in the Reserve Fund. However, due to the fiscal situation, it provided to the government the balance of the previous two years along with the profit made during the first year of PML-N government.
In an official bulletin, the finance ministry said the SBP posted a profit of Rs326 billion for 2013-14, the highest ever earnings for the bank.
According to sources, in the past the SBP and Ministry of Finance had divergent views on how to deal with the profit kept in the Reserve Fund. According to former central bankers, it has always remained an outstanding issue that requires consensus from both sides.
However, this time the SBP management opted to transfer the entire profit of three years to the federal government.
The Express Tribune sent a questionnaire to SBP’s chief spokesman Khubaib Usmani on September 9 and sought the bank’s response on the issue. However, even after more than two weeks, the bank did not come up with a reply.
The SBP was asked whether under Clause 41 of the SBP Act, the bank had to retain part of its annual profit and place it in the Reserve Fund each year. It was also asked about the earnings breakdown for 2011-12, 2012-13 and 2013-14 and how much was kept in the Reserve Fund.
Besides violating the Act of parliament, the government also booked earnings of previous two years against expenditures for fiscal year 2013-14, which independent economists term ingenious accounting aimed at claiming fiscal consolidation.
Published in The Express Tribune, September 28th, 2014.
The State Bank of Pakistan (SBP) has violated an act of parliament that requires it to keep annual profit to build its Reserve Fund as the central bank transferred earnings of the last three years to the federal government.
The government took the money to achieve the budget deficit target of 5.8% of gross domestic product, set by the International Monetary Fund for previous fiscal year 2013-14.
The SBP Act 1956 binds the central bank to retain appropriations out of the annual profit to beef up the Reserve Fund. The fund is aimed at providing the central bank the needed liquidity for contingency purposes.
This is not the first time that the SBP Act has been violated either by the government or the central bank. There have been violations pertaining to reducing outstanding government borrowings, appointment of members of the central bank board and convening meetings of the monetary and fiscal policies body.
However, because of weak parliamentary accountability mechanisms, the violators were never punished, according to former central bankers.
“The securities of the value of three crore rupees [Rs30 million] contributed by the federal government for the purpose shall be held by the bank as part of its Reserve Fund, which may also receive such appropriations out of the annual profits as the bank may, with the prior approval of the federal government, from time to time decide,” according to Clause 41 of the SBP Act 1956.
Contrary to this, the SBP not only transferred the entire profit of fiscal year 2013-14 but also gave up remaining earnings of the previous two years in favour of the federal government, which were presumably placed in the Reserve Fund earlier.
Actual profit for the three fiscal years stood at Rs744.6 billion, according to audited profit and account statements and the response given by the SBP.
However, the SBP transferred Rs750 billion, which was more than the actual profit and showed that the central bank violated the Act in a bid to help the central government achieve the budget deficit target.
In 2011-12 and 2012-13, when the Pakistan Peoples Party was in power, the SBP earned Rs494.6 billion. Of this, it transferred Rs424 billion and kept the remaining in the Reserve Fund. However, due to the fiscal situation, it provided to the government the balance of the previous two years along with the profit made during the first year of PML-N government.
In an official bulletin, the finance ministry said the SBP posted a profit of Rs326 billion for 2013-14, the highest ever earnings for the bank.
According to sources, in the past the SBP and Ministry of Finance had divergent views on how to deal with the profit kept in the Reserve Fund. According to former central bankers, it has always remained an outstanding issue that requires consensus from both sides.
However, this time the SBP management opted to transfer the entire profit of three years to the federal government.
The Express Tribune sent a questionnaire to SBP’s chief spokesman Khubaib Usmani on September 9 and sought the bank’s response on the issue. However, even after more than two weeks, the bank did not come up with a reply.
The SBP was asked whether under Clause 41 of the SBP Act, the bank had to retain part of its annual profit and place it in the Reserve Fund each year. It was also asked about the earnings breakdown for 2011-12, 2012-13 and 2013-14 and how much was kept in the Reserve Fund.
Besides violating the Act of parliament, the government also booked earnings of previous two years against expenditures for fiscal year 2013-14, which independent economists term ingenious accounting aimed at claiming fiscal consolidation.
Published in The Express Tribune, September 28th, 2014.