ISLAMABAD: The Finance Ministry has reportedly decided to do away with direct credit lines from banks/financial institutions approved early to meet financial requirements of the country, well-informed sources told Business Recorder.
Sharing the details, sources said the Finance Division (Debt Management Office) in its letter of August 23, 2023 requested Public Procurement Regulatory Authority (PPRA) to place the subject matter before the Board for revocation of PPRA Board earlier decision of February 20, 2023.
In the letter, Finance Division has stated that a summary was initiated for the Cabinet on July 21, 2023 for approval of the following proposals: (i) Cabinet may revisit/revoke its decision of February 22, 2023 in line with the commitment of GoP with the IMF; and (ii) Cabinet may direct to rescind the exemption provided under Rule 14 of PPRA Rules 2004 to Finance Division from the applicability of Rule 12 enabling the Finance Division to have direct credit lines from banks/financial institutions.
Raising financing for national security: Finance Division decides to avail direct credit lines
The Cabinet approved the mentioned proposals on July 23, 2023. In the light of Cabinet decision, Finance Division requested PPRA to place the matter before the Board for revocation of its earlier decision of February 20, 2023.
Earlier, Finance Division, in a letter requested PPRA to allow exemption from Rule 12 of PP 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.
The request of Finance Division was placed before the PPRA Board in its 68th meeting held on February 20, 2023. The Board decided as follows: “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.”
The decision of PPRA Board was conveyed to Finance Division on February 21, 2023. Now, PPRA has submitted for revocation of PPRA Board’s earlier decision of February 20, 2023 to the Finance Division for consideration and approval of the PPRA Board.
In February 2023, the Finance Division had stated that the government is experiencing significant issues on its cash balances because of increased deficit financing. The existing procedure depends upon participation of the banks to raise domestic borrowings.
However, due to recent changes in market dynamics which include increase in Policy Rate by 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 owing to recent amendments in the SBP Act as part of the IMF conditions in the ongoing program. This has necessitated exploring diversified funding avenues through direct credit lines both from Islamic and conventional banks or other financial institutions to fulfil government’s funding needs.
Finance Division further added that to have direct credit lines from financial institutions requires government to follow Public Procurement Rules, 2004 in order to seek bids from the 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 of 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 Rule-I2 of PP Rules, 2004.
Furthermore, Finance Division had referred to the previous exemption provided by the Cabinet Division from PPRA Rules, 2004 for incurring of foreign loans/credit facilities vide its letter dated February 03, 2014. In addition to that a summary was also moved to the Prime Minister on January 16, 2023, which was approved by the Prime Minister with the stipulation that an exemption from PPRA Rules 2004 may be sought from PPRA.
Copyright Business Recorder, 2023
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