90pc privatisation proceeds to be used for debt retirement
By Khaleeq Kiani
ISLAMABAD, Nov 26: The Ministry of Finance has issued ‘standing instructions’ to the State Bank of Pakistan to automatically retire government debt to the extent of 90 per cent of privatisation proceeds without seeking further guidance from the ministry on individual basis.
The instructions have apparently been issued following objections raised by the audit department which reported to the Public Accounts Committee last week that the privatisation commission kept privatisation proceeds in a separate account and termed the practice “imprudent and unconstitutional”.
Earlier, the Finance Ministry used to formally advise the SBP to apply 90 per cent of the proceeds towards retirement of the most expensive debt. “Now the ministry has issued standing instruction to the SBP to automatically retire debt to the extent of 90 per cent of the proceeds so received without seeking further guidance from the ministry on individual receipts,” an official announcement of the finance ministry said on Sunday.
As far as the mandatory use of 10 per cent of privatisation proceeds for poverty reduction was concerned, the ministry said that it was incurring expenditure for the purpose much more than 10 per cent through a budgetary process with the approval of the parliament as prescribed by the Constitution.
The ministry said the privatisation proceeds were received only into the federal consolidated fund, adding that the privatisation proceeds had never been treated as government revenue.
It said the gap between government revenue and expenditure was the deficit which was
financed through government borrowings. The deficit level was fixed at the time of budget approval and remained unaffected by privatisation inflows, it said and added: "Whenever privatisation proceeds are received, they automatically displace debt of the government.”
Further, the privatisation commission remitted the proceeds of each transaction to the government after making payments to owners other than the government whose shares were sold and after meeting direct transaction costs of the privatised assets.
The audit department had informed the PAC that the Privatisation Commission kept privatisation proceeds in a separate account, other than the federal consolidated fund, and was utilising the money for current expenditures, instead of debt retirement and poverty alleviation. The audit department officials said that the ‘unique arrangement’ not only violated the 1973 Constitution but also negated the 1991 privatisation policy and a related ordinance promulgated in 2000.
The PAC directed the Privatisation Commission officials to appear before the committee within 10 days and clear the commission’s position regarding the allegations.
At least two articles of the Constitution envisaged that public money could only be managed through the federal consolidated fund or a public fund.
Article 78 specified that amounts received by the government could either be credited to the federal consolidated fund or public fund.
For spending public money, Article 80 stated that any amount should be budgeted only through the federal consolidated fund.
Finance Secretary Tanveer Ali Agha had informed the PAC that the Finance Ministry had constantly been urging the commission to "stop keeping the funds separately" but without any success. "When the commission was doing this (unconstitutional) practice, we kept pressing for a change ... but our directives were not heard," Mr Agha told the committee.
After facing Finance Ministry’s pressure, Mr Agha said, the commission got the practice approved from the Cabinet’s Committee on Privatisation in a bid to validate the unconstitutional step. However, he contested the audit department’s objection that privatisation proceeds had been used for any purpose other than debt retirement and poverty alleviation.
