ISLAMABAD: Showing an ease in Pak-US tension, the United States has indicated to disburse withheld bills under the Coalition Support Fund for services provided by Pakistan to coalition forces in Afghanistan, according to a senior finance ministry official.
This was the crux of a meeting of the Senate Standing on Finance that was informed by the governor State Bank of Pakistan that any decision to stop liquidity injection into the banking system and non-financing of government budget could lead to downgrading of Pakistan credit rating by international credit rating agencies and collapse financial system.
The committee also unanimously supported a private member bill seeking regulation of international funding to the non-governmental organisations (NGOs) and their activities to protect country’s national interest.
Secretary finance Abdul Wajid Rana told journalists after the senate standing committee’s meeting that Pakistan expected to get payments from the United States very soon. Pakistan had estimated about $1.3 billion inflows from the US on account of CSF for the current financial year but recent worsening of relations after attack on Salala border posts and closure of land route for NATO supplies resulted in stoppage of disbursements by the US.
“Both the governments are engaged on the issue of disbursements of Coalition Support Fund and we are expecting that the US will soon release the amount,” Mr Rana said without going into details.
A recent IMF report put the estimated the CSF disbursements at $400 million during the current fiscal year, raising fears that Pakistan’s budget deficit and balance of payment position could aggravate.
He told the committee that the government was still hopeful to materialise anticipated CSF inflows from the US and Etisalat on account of PTCL privatisation proceeds as envisaged in the budget. “On the basis of these inflows the government still assumes that it will be able to achieve its revised budget deficit target of 4.7 per cent of GDP”, said Wajid Rana but the committee doubted the fiscal deficit target could be achieved.
“It seems that the Finance Ministry does not want to correct its mistakes pointed out by both the standing committee and the IMF”, said Senator Ahmad Ali of MQM who presided over the meeting for the last time as chairman because of his retirement from Senate next month.
The finance secretary said the Pakistan had not yet decided whether to request for new IMF programme or not but said it was not immediately seeking any shadow programme.
Governor SBP Dr Yasin Anwar informed the committee that it had adopted an accommodative policy because any decision to stop injecting liquidity in the banking system and budget financing through central bank could downgrade Pakistan’s credit rating and collapse the financial institutions.
“Yes we have been injecting liquidity and financing the budget deficit because we do not have choices”, said Anwar told the committee. The committee had asked both the Finance Ministry and the SBP to explain their positions in light of the IMF report that criticised both the institutions in its diagnosis of state of Pakistan’s economy.
Mr Anwar said if the central bank did not do adopt accommodative policy, there would be liquidity shortage, the inter-bank interest rates would go up and eventually it could lead to collapse of financial institutions. Liquidity provision was the main concern of the central bank, he said.
“The liquidity is coming down due to federal government borrowing”, said Senator Safdar Abbasi of PPP. During first half of the fiscal year the federal government expenditures exceeded its revenues by Rs1047 billion or 5 per cent of GDP and almost entire financing was arranged from the domestic market at the expense of the private sector growth, he said The SBP chief said the liquidity injection could easily be stopped but this could be perceived by international credit rating agencies as the central bank was restricting the government securities papers which could affect our ratings.
He said some of the banks were lending two-third of their total lending to the government, which was also not good for these institutions. “Banks need to give priority to small and medium enterprises, agriculture and house financing and we need to get rid of top six banks that have captured most of the debt market”, he said.
Senator Ahmad Ali disclosed that the federal government was restricting the Governor SBP from travelling abroad who had to skip many events due to objections by the federal government. The governor did not contest the disclosure but added that in India there was no travel restriction on the central bank governor.
He also criticised the Finance Ministry for withholding a summary forwarded by the Governor SBP for appointment of Deputy Governor-a post lying vacant since his elevation to Governor.
He said the other Deputy Governor, Dr Kamran Shahzad was also retiring next week that could handicap the watchdog responsible to ensure financial stability. “We immediately need to fill the post as there are risks to the banking system and there is need to appoint a person who could overseas this important sector,” Dr Anwar said.
The committee unanimously supported a bill introduced by Senator Tariq Azim to regulate financing to the NGO sector. About 100,000 NGOsare currently operating in Pakistan, many of them not registered with 12 different registration bodies.
The bills seeks to regulate funding of these NGOs through a single body because nobody currently knows how much financing was coming from abroad and how this was being used or misused. Some senators said some NGOs were even working against the interest of Pakistan but there was no institution to hold them accountable.
The bills seeks to restrict 20 per cent of total funds coming from abroad for administrative expenses and remaining on the purpose these donations were being made from outside because it was pointed out that up to 80 per cent of donations were being consumed by NGO owners on administrative expenses.