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HomeGeneralThe International Monetary Fund (IMF) wants public entities' bank accounts closed

The International Monetary Fund (IMF) wants public entities’ bank accounts closed

ISLAMABAD: Pakistan has been ordered by the International Monetary Fund (IMF) to shut all bank accounts held by public sector firms and the defence ministry in commercial banks. The funds should be sent to the account of the central bank.

The demand aims to return hundreds of billions of rupees under government control that have been lodged with commercial banks in defiance of the finance ministry’s different directions.

The IMF’s demand on rolling out the treasury single account –II system within this fiscal year, according to sources, is one of the reasons for the delay in obtaining a staff-level agreement.

Instead of issuing a presidential edict, the international lender suggested that the government file a financial bill in parliament to repeal tax exemptions and impose new levies.

Also read: Tarin: Talks with IMF in the right direction

According to finance ministry sources, the defence ministry, armed forces, and public sector entities such as the Oil and Gas Development Company Limited (OGDCL) and the National Highway Authority (NHA) each have about 50,000 bank accounts that must be closed as part of the second phase of financial management reforms.

By December of this year, the IMF wants a structure in place to liquidate all remaining commercial bank accounts that are supported with government funds.

At present, the defence ministry, public entities and some autonomous corporations are still maintaining commercial bank accounts — taking the money outside the federal government’s purview.
Pakistan wants one more year to close these accounts, but the IMF is not willing to extend the date.

The global lender’s leverage is that the $6 billion loan will end by September, 2022.

The sources said the government had offered to close these accounts by February next year.
Finance Adviser Shaukat Tarin did not reply to the question whether or not Pakistan had agreed to the February 2022 deadline. The finance ministry spokesman also did not respond until the filing of this story.

The sources said under the first phase, the commercial bank accounts of the government ministries and attached departments had to be closed by May 2021.

However, only 4,500 of the 6,000 of these accounts could be closed and a balance of about Rs5 billion was transferred to the Federal Consolidated Fund.

Even some 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.

Tarin debunks reports about IMF talks failure

The finance ministry had also given relaxations to some security-related accounts and the those maintained by Rangers and Frontier Constabulary.

Under the IMF-World Bank conditions, the government first had to have the Public Finance Management Act passed from parliament to bring transparency in public cash management.
Subsequently, in July 2020, the Cash Management and Treasury Single Account Rules 2020 were introduced.

Also read: Economic growth of 4% is predicted by the IMF

Then 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 programme to achieve a functional single treasury account (TSA-1) by May 2021.

The government had given its commitment that it will “move swiftly to TSA-2 and improve, with EU assistance, their annual and multi-annual commitments control systems”, according to the IMF report.

The sources said that till June last year, there were about Rs500 billion deposits in various accounts of the armed forces that had now grown close to Rs600 billion.

The IMF wants this money to be transferred to the Federal Consolidated Fund at the earliest.
In addition to the armed forces, the civilian departments have remained reluctant to give up their accounts that have been funded by circumventing the rules and creating revenue streams that were not permitted by parliament.

The IMF’s move will help to bring better fiscal management, besides providing a cash base to the government. This cash base is currently unduly available to the commercial banks.
The State Bank of Pakistan is now required to host and maintain a treasury single account on behalf of the federal government.

Under 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 central bank has not yet been able to close many accounts until the May deadline.

IMF talks

Pakistan has not been able to conclude the 6th review talks with the IMF that originally began in June this year. The third attempt to complete the 6th review and secure the $1 billion tranche has so far remained unsuccessful that has also put at stake the next reviews.

Under the revised schedule, the 7th review had to begin from September 3 and December 8 this year. The finance ministry’s failure to timely complete these reviews has also delayed the completion of the next reviews, putting at stake $4 billion.

The sources said that the IMF team also asked Pakistan to withdraw all those tax exemptions, which were given without its consent of during the past few months. The team also sought the withdrawal of income tax exemptions that were non-negotiable.

Contrary to the understanding with the IMF, the government has reduced the 4.5% withholding tax being collected from distributors, dealers and sub-dealers of the steel sector to just 0.25%.
Similarly, the minimum income tax of 1.25% has also been reduced to 0.25% for the steel sector business chain.

It has waived off the 1.25% minimum income tax being collected from those engaged in the local manufacturing of mobile phone devices.

The Income tax exemption has again been given to the Pakistan Mortgage Refinance Company after taxing its income in February this year.

The sources said all these exemptions had to be withdrawn in the new finance bill.

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