Outsourcing govt borrowing on the cards

ISLAMABAD: The Finance Ministry is reportedly working on a plan with the SECP to outsource government borrowing aimed at getting money from the public at less rates than banks which are lending public money at exorbitant rates.

This was revealed by Secretary Finance at a recent meeting of Public Procurement Regulatory Authority (PPRA) when a proposal of Finance Division regarding exemption from applicability of Rules 12 of Public Procurement Rules, 2004 was discussed.

MD PPRA informed the Board that Finance Division has requested the Authority to allow exemption from applicability of Rule 12 of Public Procurement Rules, 2004 so that Finance Division may be able to have direct credit lines from banks/Financial Institutions to meet financial requirements of the country.

MD PPRA invited Chairman PPRA Board in his capacity as Secretary Finance to further brief the Board Members on the agenda. Secretary Finance apprised that in terms of Article 166 of the Constitution of Pakistan and Rules of Business, 1973, it is authorized to raise domestic debt through domestic government securities/bank loans or any other domestic borrowing instruments, other than those issued by the Central Directorate of National Savings.

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The government is experiencing significant issues on its cash balances because of increased deficit financing. The existing procedure depends upon participation of banks to raise domestic borrowings.

However, due to recent changes in market dynamics which include increase in policy rate by the SBP and imposition of ADR (Advances to Deposit Ratio) related tax, banks are reluctant to participate through auctions.

The option of raising debt from the SBP is also restricted owning to recent amendments to SBP Act. This has necessitated exploring diversified funding avenues through direct credit lines both from Islamic & conventional banks or other financial instructions to fulfil governments funding needs.

He further apprised members that direct credit lines from financial institutions require government to follow Pubic Procurement Rules, 2004 in order to seek bids from institutions. In the current situation, financing has to be taken on an emergency basis and in this regard normal procurement process cannot be followed.

Moreover, issuing advertisements in the local and international press for raising such financing will result in further deterioration in market perception. Hence, in order to seek such commercial financings from domestic financial institutions, Finance Division requires exemption from applicability of Rule 12 of Public Procurement Rules, 2004.

Secretary Finance highlighted that this is an emergency measure and is not going to be a regular exercise. One of the Board Members inquired whether it is covered under the provision of emergency or otherwise.

Secretary Finance explained that emergency in the instant case is not attracted. He further highlighted that Finance Division is facing the problem of timelines with respect to auction of T-Bills as specific time frame is given for the auction of T-Bills.

One of the Board Members highlighted that banking sector disbursed loans to the people over and above average cost of capital. Average cost of capital includes current accounts as well as savings accounts. The people’s money deposited is being disbursed by banks to the people on a higher margin interest rate.

He proposed a separate system such as a digital application to be developed to outsource this borrowing. In the said application, people may get the message on their apps regarding required borrowing by the government. Eventually, this will enable borrowing by the government at a much lower cost.

Secretary Finance appreciated the idea and stated that the government is already working with the SECP in this regard.

Secretary Finance also explained to the members that cost of DCL is automatically linked to the cost of T-Bills through market dynamics.

After detailed discussion, the Board decided to allow exemption under Rule 14 of PPRA Rules 2004 to Finance Division from the applicability of Rule 12 of Public Procurement Rules, 2004 enabling Finance Division to have direct credit lines from banks/financial institutions to meet financial requirements of the country provided that such exemption will remain valid for a period of one year.

Copyright Business Recorder, 2023