New rules tighten govt cash flow management, relax parliamentary oversight

Updated 07 Aug 2020

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Move towards a Treasury Single Account is a longstanding reform measure. — AFP/File
Move towards a Treasury Single Account is a longstanding reform measure. — AFP/File

ISLAMABAD: The government has secured relaxation in parliamentary oversight and reporting of its budgetary exercise and has tightened cash flow mechanisms of all the federal entities and ministries.

This has been achieved by amending the Public Finance Management Act 2019 through the Finance Act 2020, followed by notification of Cash Management and Treasury Single Account Rules 2020 that have only recently been uploaded onto the finance ministry website. The move towards a Treasury Single Account is a longstanding reform measure and has been the advice given to Pakistan by multilateral creditors for many years now.

A key change in law gives an additional month to the Ministry of Finance to ensure approval of the federal government to the Budget Strategy Paper (BSP) containing quantified macroeconomic and fiscal projections for the medium-term by April 15 instead of March 15 of each year. In extreme requirement (like recent Covid-19 pandemic), the government would be free to extend the deadline.

The BSP shall be published as well as placed on the Finance Division’s official website. The paper shall indicate strategic priorities of the government revenue and spending policies and specify indicative levels of spending in various ministries and divisions. The finance minister shall also present and discuss the BSP with the Standing Committees for Finance and Revenue in the Senate and the National Assembly.

In another respite, the government will provide only “major objects” – instead of existing detailed items – of estimates and statement of purpose in annual budget statement consistent with Articles 80 and 81 of the Constitution.

For the purpose of spending or withdrawal from Federal Consolidated Fund (FCF) as provided in the schedule of authorised expenditures or supplementary grants, as the case may be, these shall be required to observe procedures of pre-audit system of the accounting offices or assignment account and sub-assignment accounts or direct debit advice by the Finance Division to the State Bank of Pakistan.

Under the rules, direct payments from FCF shall only be made by the Finance Division by issuing direct debit advice with the approval of the Secretary Finance, where inevitable circumstances exist necessitating such payment and a copy of the direct debit advice shall be sent to the accounting office.

Each direct debit advice to SBP under sub rule (2) shall be signed by two authorised officers whose specimen signatures shall be communicated to SBP through Secretary Finance of the Federal Government and the direct debit advice to the SBP, must state by making explicit reference to the file, communication number and date of the approval. In order to ensure that funds are available in a timely manner to settle all duly authorized expenditures and supplementary grants, the Finance Division shall as it may deem fit maintain a cash buffer as a percentage of total budgeted expenditure for any fiscal year excluding debt servicing.

Also, the Finance Division shall, in close coordination with the SBP, utilise all surplus cash, over and above cash buffer available in the cash balance report of SBP after taking into account estimated net cash receipts for retiring short term borrowing.

All government offices shall report fiscal data through the GFMIS (Government Financial Management Information System) to the Budget Wing of Finance Division enabling it to prepare regular forecast cash flow reports for next two months on a monthly basis. The cash flow statement of the federal government shall be prepared by taking into account all expected cash flow determinants including historical data for last three years for tax and non tax receipts, payment of expenditures other than debt servicing, as adjusted on pro rata basis against budgeted revenue for that fiscal year.

No government office shall open, operate or maintain a bank account for any purpose, except in accordance with the Act and these rules. The SBP shall instruct the scheduled banks to conduct their regular procedure of ‘know your customer’ (KYC) on existing bank accounts prescribed format. The scheduled banks shall report all such bank accounts and balance therein, operated or maintained by any government office to Finance Division through the SBP.

Any approval granted by Finance Division prior to commencement of these rules, for opening of bank accounts in scheduled banks by government offices stand revoked on commencement of these rules and the SBP shall instruct all scheduled banks not to open account of any government office. The accounts already opened shall be closed and balance therein shall be transferred to the FCF using treasury challan.

All investments made by government offices in commercial bank accounts from special purpose funds or otherwise, for which money was sourced through the government’s budget, schedule of authorised expenditure or supplementary grant, shall be disinvested and balance amount therein shall be deposited in non-food account No.1 of the federal government as non-tax revenue by the principal accounting officer or on his instruction.

In case any expenditure is associated on disinvestment as above, it shall be communicated to Finance Division in advance which may agree to a supplementary grant for this purpose. Where investments were made prior to commencement of these rules and yet not matured, and it appears to principal accounting officer that disinvestment will cause loss to the national exchequer, then such investment shall be reverted to FCF on its maturity.

The SBP, in consultation with Finance Division, shall consolidate existing accounts including FCF, Public Accounts and other bank accounts of Government offices. Finance Division would have powers to authorise opening of additional bank accounts in the SBP as well as in domestic and foreign commercial banks, to act as transitory bank accounts to facilitate collection of revenues or for processing of payments.

Published in Dawn, August 7th, 2020