Alleged currency manipulation: Senate panel to recommend action against errant banks

ISLAMABAD: The Senate Standing Committee on Economic Affairs has decided to recommend further action against commercial banks that were allegedly involved in overinvoicing while opening Letters of Credit (LCs) and earned Rs65 billion in 2022 from currency manipulation.

The committee has further demanded a comprehensive report within two weeks and instructed relevant chambers to participate in the next session to discuss the opening of expensive LCs for US dollars.

It was discussed how commercial banks earned Rs65 billion in 2022 by selling US dollars at extortionately higher rates.

Committee chairman Senator Saifullah Abro said this money belongs to the people and should be recovered from the banks.

The chairman Committee lamented that requisite information had been sought over three meetings but did not get it. He further enquired about actions taken by the State Bank regarding the return of extra amount of approximately Rs65 billion from various commercial banks to Government of Pakistan in lieu of over invoicing of LCs during the year 2022, noting that the then finance minister had also recognised the issue and directed an investigation.

The State Bank of Pakistan officials presented concerns about bank over-invoicing. Senator Abro asked for clarification on the term “over-invoicing,” referencing media reports about independent power producers (IPPs) engaging in this practice, which has reportedly cost the country billions annually.

The chairman Committee emphasised that State Bank of Pakistan must provide a comprehensive report to the committee and directed it to deliver details of LCs issued from April to September 2022 in a tabulated format, including the name of the bank, amount, the dollar rate for that day, and the rate of the bank opening the LC and action taken by State Bank of Pakistan.

The State Bank of Pakistan officials indicated that actions had been taken regarding regulatory violations.

Senator Kamran Murtaza asked whether anyone had been held accountable, to which, officials replied that the State Bank of Pakistan had prosecuted and fined for such violations. It was noted that commercial banks were fined 1.4 billion rupees, prompting Senator Murtaza to question the adequacy of this penalty relative to their 65 billion rupee earnings. The chairman Committee expressed dissatisfaction with the response, stating that the matter would not be closed lightly.

Senator Kamil Ali Agha remarked that the State Bank’s admission of banks over-invoicing constituted a significant error, and after assessing the situation, disciplinary action was taken.

The State Bank of Pakistan officials noted that Federal Board of Revenue (FBR) imposed a 10 per cent forex income tax last year; however, the matter later went to court and is currently under hearing.

Senator Saifullah Abro highlighted that officials of State Bank of Pakistan are not acknowledging the alleged 65 billion rupee loss, despite the finance minister’s assertions. He insisted that all relevant details be provided to the committee within three days. Senator Kamil Ali Agha emphasised that without the presence of the federal minister and secretary in the meeting, the issue would remain unresolved.

Senator Murtaza questioned whether the State Bank had identified weaknesses on its part and the individuals involved, to which officials responded that the State Bank of Pakistan had no role in the matter.

Murtaza inquired about the duration of the issue, and officials stated it extended over two to three months before action was taken. Senator Rana Mahmood ul Hasan remarked that the State Bank of Pakistan had delayed action for five months. Senator Abro expressed that this was a national issue and criticised the State Bank of Pakistan’s awareness. He reiterated the need for detailed information within three days, while officials of State Bank officials requested an extension, arguing that the timeline was insufficient. The chairman Committee countered that two weeks’ time would be adequate for the requisite data.

The committee directed the Ministry of Economic Affairs to ensure the recovery of these funds and sought a detailed report from SBP on the matter.

Foreign exchange received as loans from the International Monetary Fund (IMF) is exclusively used to manage balance of payments, State Bank of Pakistan officials informed the committee.

The committee was informed that these funds do not go to the federal government but are directly deposited with the central bank, which utilizes them for managing import bills, interest rate payments, and balance of payments.

One of the major issues raised was the failure of the Economic Affairs Division to provide detailed reports on the IMF programme since 2018.

Committee chairman Senator Abro said this information had been requested in previous meetings but no details had been shared over the past four sessions.

Committee members also expressed concerns about the management of foreign loans received via SBP and the use of foreign funds.

The meeting was also briefed about the financial health of the central bank and how both the financial and current accounts were in deficit. The committee members sought more clarity in this regard at the next meeting.

The chairman Committee enquired about the utilisation of funds received from the IMF since 2018, stating that this is the 26th programme of the IMF. He recommended the State Bank of Pakistan to provide details regarding deficits in all accounts (current and financial) and the utilisation of the IMF loans.

Furthermore, the committee was also briefed in detail about on-going projects of the water sector under multilateral development partners with commitments of US $ 2844 million and disbursement of US $ 705.62 million.

The projects under bilateral development partners were with the commitments of $730.94 million and disbursement of $ 480.61million.

The committee also received a detailed briefing on the Tarbela 5th Extension Hydropower (T5HP) project, the WAPDA officials informed that project was launched in 2017, involves a tunnel to release water for irrigation needs and has been in operation for 90 days. The tunnel will function when sufficient water is available in the dam.

The officials mentioned that provinces had previously objected to closing the tunnel for four years, but later agreed.

The total cost of the project is estimated at 860 million dollars, with 690 million dollars provided by the Asian Development Bank and Asian Infrastructure Investment Bank.

The project is set to be completed in three phases by 2026. After the detail deliberations, the Committee unanimously decided and defer the agenda item to be further discussed in the next Committee meeting.

The Committee recommend EAD and all its concerned to provide the details as per the agenda item within one week to the Committee.

The Committee recommended EAD to invite Chairman, WAPDA to attend the next Committee meeting.

The Committee, unanimously, decided and recommended EAD to establish a desk headed by technical person at the ministry in order to have a better monitoring mechanism and follow up regarding the projects under multilateral development partners, bilateral development partners and UN agencies.

Copyright Business Recorder, 2024