The International Monetary Fund (IMF) has placed a condition on Pakistan asking it to close all bank accounts maintained by public sector entities and the ministry of defense in commercial banks. The money is to be transferred to the State Bank of Pakistan’s (SBP) account.
The purpose of putting forth the aforementioned demand is to bring back hundreds of billions of rupees that are presently placed with the commercial banks in violation of various orders from the finance ministry, under the government’s control.
According to reports, the IMF’s insistence to roll out the treasury single account-II system within the current fiscal year was one of the causes behind the delay in reaching a staff-level agreement between the government and the global lender.
The IMF has also demanded the government to introduce a finance bill in the parliament for the purpose of withdrawing tax exemptions and levying additional taxes instead of issuing a presidential ordinance.
Sources from the Ministry of Finance said that there were nearly 50,000 bank accounts maintained under the defense ministry, the armed forces, and public sector entities including the Oil and Gas Development Company Limited (OGDCL) and National Highway Authority (NHA) that need to be closed in adherence to the second phase of the financial management reforms.
The IMF has demanded the framework for closing all the remaining commercial bank accounts funded via government money to be put in place by December of the current year.
Currently, the defense ministry, public entities, and a number of autonomous corporations are maintaining commercial bank accounts effectively taking the money outside the federal government’s purview.
According to sources the government has offered to close the accounts by February 2022 but the IMF is unwilling to extend the date. IMF’s leverage is that the $6 billion loan will end by September 2022.
As per sources, under the first phase, the commercial bank accounts of the government ministries and attached departments were required to be closed by May 2021. But only 4,500 out of the 6,000 accounts were closed and a balance of around Rs5 billion was transferred to the Federal Consolidated Fund. Some of the major accounts maintained by the Motorway Police, Anti-Narcotics Force, the Customs Department, and the Petroleum Division could not be closed by May this year.
The finance ministry had provided relaxations to a number of security-related accounts and to accounts maintained by Rangers and Frontier Constabulary.
Under the IMF-World Bank conditions, the government is required to have the Public Finance Management Act passed by parliament to bring transparency in public cash management. Subsequently, in July 2020, the Cash Management and Treasury Single Account Rules 2020 were introduced. Later in March 2021, the federal government notified the Financial Management and Powers of Principal Accounting Officers Regulations, 2021 but excluded the Defense Division from its purview.
The IMF had added a structural benchmark in the $6 billion program to achieve a functional single treasury account (TSA-1) by May 2021.
As per the IMF report, the government of Pakistan had committed that it will “move swiftly to TSA-2 and improve, with EU assistance, their annual and multi-annual commitments control systems”.
According to sources, there were around Rs500 billion deposits in various accounts of the armed forces that had now grown close to Rs600 billion till June of last year.
The IMF has demanded this money to be transferred to the Federal Consolidated Fund at the earliest.
In addition to the armed forces, the civilian departments have shown reluctance in giving up their accounts that have been funded via circumventing the rules and creating revenue streams that were not permitted by parliament.
The central bank is now required to host and maintain a treasury single account on behalf of the federal government. As per the rules, the SBP is required to “collect information from commercial banks and ensure provision of all information to the Finance Division to ensure implementation of the treasury single account system”.
The IMF’s move is aimed at improving fiscal management as well as providing a cash base to the government. This cash base is presently unduly available to commercial banks.