Accused of fudging data to trick IMF

Published: October 12, 2015
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Bank’s unwillingness to come forward reflects poorly on its credibility. PHOTO: FILE

Bank’s unwillingness to come forward reflects poorly on its credibility. PHOTO: FILE

Bank’s unwillingness to come forward reflects poorly on its credibility. PHOTO: FILE
Bank’s unwillingness to come forward reflects poorly on its credibility. ILLUSTRATION: TALHA KHAN

KARACHI: Imagine how the US Federal Reserve would react if a mainstream newspaper accused it of fudging data to hoodwink an international monetary agency.

It could either go into overdrive to dispel the accusation or accept responsibility for its regulatory misconduct. But it would never play ostrich while hoping for the accusation to go unnoticed by the general public.

However, the State Bank of Pakistan (SBP) has chosen to remain silent following a similar accusation by Business Recorder, a national financial daily. It published a story on October 1 that accused the SBP of ‘fudging data’ to deceive the International Monetary Fund (IMF).

What did the trick was an alleged change in the cash reserve requirement (CRR) for five large banks on their deposits to help the government achieve the IMF’s quarterly targets.

Read: After refunds: FBR’s collection figures inflated by Rs16 billion

Speaking to The Express Tribune, the SBP spokesman said the central bank would not comment on the accusation. “We have nothing to say on the issue,” he said, adding he could neither confirm nor deny any temporary change in CRR.

It is surprising that the central bank appears to be in no haste to defend its credibility, although the seriousness of the accusation can damage its reputation irreversibly.

So why – and how – exactly did the alleged statistical jugglery play out?

Under the loan agreement with the IMF, Pakistan was required to maintain its central bank’s net domestic assets (NDA) within the ceiling of Rs2.2 trillion by the end of September.

NDA mainly consists of net SBP credit to the general government plus outstanding credit to domestic banks by the SBP (minus liabilities not included in reserve money). Leaving semantics aside, let’s just say the IMF wants to limit NDA because its disproportionate growth is bad for economic management.

As opposed to the IMF’s target of Rs2.2 trillion for the end of September, the SBP website shows the NDA stock hovered around Rs2.8 trillion on September 18. This means the SBP’s NDA stock was in excess of roughly Rs648 billion.

So the quickest, and perhaps dishonest, way to reduce the stock of NDA temporarily was to tinker with the level of banks’ cash reserves for a brief period of time, thus immediately freeing up liquidity in the interbank market.

The weekly average CRR for every bank is 5% of the sum of its demand deposits and time deposits of up to one year. Every bank is bound to maintain the prescribed level of CRR, as they are penalised instantly for failing to maintain this weekly average.

Read: IMF praises SBP for financial sector’s stability

Business Recorder alleged that the SBP waived CRR for big five banks, and slashed it to 3% for the rest of commercial banks, towards the end of September. This created excess liquidity in the interbank market immediately and led commercial banks to buy T-bills from the SBP.

As a result, the SBP’s stock of T-bills (which is government debt) went down, notably reducing the stock of NDA to the satisfaction of the IMF.

Former central bankers say any change in CRR must be preceded by an SBP circular – something conspicuously missing in the latest round of alleged window-dressing at the highest level of economic management.

Whether the SBP indeed waived CRR for banks is unclear. But the fact that the SBP is unwilling to come forward and dispel the impression of wrongdoing reflects poorly on its credibility.

The writer is A staff correspondent

Published in The Express Tribune, October 12th, 2015.

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Reader Comments (17)

  • Saad
    Oct 12, 2015 - 9:11AM

    Truth is Pakistan’s economy is collapsing. You can only talk it up so much. Dar is a numbers fudger and he has done that in the past too.Recommend

  • Humza
    Oct 12, 2015 - 9:19AM

    @Saad: Fudging numbers is done by all companies, institutions and governments all over the world. The real truth comes from financial institutions who tell people where to invest. Financial institutions like Moodys are upbeat on the Pakistani economy just like most international financial groups. This is the reality.The Chinese are not so stupid as to invest tens of billions in Pakistan’s economy for no reason.Recommend

  • Zaida Parvez
    Oct 12, 2015 - 9:29AM

    Where is the surprise? Mr.DAR is a master at it.Recommend

  • Rollin & Trollin
    Oct 12, 2015 - 9:44AM

    @Saad: What can you expect from all these numerologists ?!!Recommend

  • Fazal
    Oct 12, 2015 - 9:51AM

    it will stamp further that all PAKISTANIS are fraudias internationally.
    but i’m worried about the directions as a nation???
    now we might have 60% young population but I’m sure it will be increased in a 8 or 10 years to 75% or 80% but worries are for these 60% or 50% population who might be younger than 25 years of age….can only say Allah bless us.Recommend

  • Oct 12, 2015 - 9:56AM

    One can expect anything negative in the muk muka governments of PPP & PMLN. They are past masters at manipulation and distortion. SBP should be the last resort for deceptive figures and practices, but NO! Even that has been messed up. Without a circular being issued shows that it was hush hush affair and hastily done. SalaamsRecommend

  • Wellwisher
    Oct 12, 2015 - 10:21AM

    @Fazal:
    Then why China brings their own workforce people to man all projects connected with CPEC. Nobody seem to have taken note of that.Recommend

  • Jawad
    Oct 12, 2015 - 10:26AM

    This is a very serious matter. Why did the banks, now privatized and run by so called professionals and risk managers, agreed to lower their CRR and buy T-Bills without SBP written (circular) notification. This FM is destroying the economy with reckless borrowing and putting the entire nation into a debt trap. Recommend

  • sgrr
    Oct 12, 2015 - 10:38AM

    I am dead sure that nothing has happened like that in the banking sector as in my opinion that no central bank can play like that. Its my sincere advice to SBP concerned officials to file a complaint in the appropriate court of law under the relevant law and taken to task the newspaper who initiated in story.Recommend

  • karachi3
    Oct 12, 2015 - 10:57AM

    FBR fudges real tax collection data by collecting advances,not issuing refunds etc
    Now SBP?
    This nation has to come clean and start sharing correct data.PleaseRecommend

  • Oct 12, 2015 - 11:09AM

    Monetary management is a specialized and technical subject, which needs more understanding.

    Reserve requirements are the amount of funds that a Bank must hold in reserve against specified Deposit Liabilities, within specified limit. Banks are required to hold reserves in the form of Cash or Deposits (Government Securities) with its Central Bank. Reserve Requirement is determined by applying the reserve ratio specified by Central Bank.

    In my view, I do not see any wrong doing, as SBP has effectively/timely used one of its Monetary Tool to meet its NDA ceiling target caused by “Fiscal Disorder”.
    It is the fiscal slippages, which is putting all the burden/pressure on Pakistan’s Central Bank, which has choked growth. It needs to be addressed more seriously rather adopting a very casual approach.

    It is argued that temporary change in Reserve Requirement is a artificial way of meeting NDA target. It is SBP’s prerogative to decide in the best National interest.
    One reason SBP may have opted not to respond on the subject could be that it does not require to issue a Circular for Temporary Changes to CRR/SLR.
    Circular is only necessary if Permanent Changes are made. Therefore, its very sensible on its part to avoid such debates.

    Further, SBP has the right to make arbitrary change Statuary Ratios for Individual Banks, as well if required for Financial Stability or for Punitive reasons.

    For record sake, last time in year 2000 SBP used similar tool when in PRGF program, for one day, as was breaching NDA. Recommend

  • Ashraf
    Oct 12, 2015 - 11:31AM

    @Humza:
    You are wrong. It is a fraud and it doesn’t happen often. Recommend

  • Habibullah
    Oct 12, 2015 - 12:05PM

    Sell the nukes for money or petrol. Recommend

  • Parvez
    Oct 12, 2015 - 1:37PM

    In knowledgeable circles the SPB, especially of late, is known as an appendage of the Finance Ministry…….but it does not seem to bother the SBP. It would be worth checking out if its head is even a Pakistani or does he too have the dubious distinction of being a ‘ dual national. Recommend

  • Truth
    Oct 12, 2015 - 2:39PM

    fudging or no fudging..IMF will continue funding pakistan..USA and Europe want to prevent disintegration of Pakistan due to economic crisis similar to central Asia Recommend

  • Faraz
    Oct 12, 2015 - 3:15PM

    @Humza
    I am shocked how casually you justify figure fudging as a normal practice around the world. No wonder you are a PML-N supporter, for whom fraud is like a hobby. For your information just Google Enron, Arthur Anderson, and other accounting scandals you wil be surprised to learn how the civilized world deals with figure fudging. Secondly, Moody’s is a rating agency. Their ratings do carry importance but are not treated as final word. Afterall, these same rating agencies gave investment grade rating to junk grade asset backed securities in the years leading to the financial crisis of 2008. It were these very same securities which caused thethereasonforthe financial implosion. Please do some research. Recommend

  • Amit Chowdhury
    Nov 8, 2015 - 4:44AM

    @Humza: So according to you fudging is a normal, everyday practice in the world of business? If this is the attitude of the average Pakistani then God only can help the.Recommend

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