ISLAMABAD: The State Bank of Pakistan (SBP) on Tuesday told a parliamentary panel that a probe was currently in progress to get to the bottom of purported massive exchange rate manipulations by the country’s top banks amid low foreign exchange reserves before taking formal action against the culprits.

At a meeting of the National Assembly’s Standing Committee on Finance & Revenue, the Ministry of Finance also reported that the ongoing IMF programme had not been violated in the recent petroleum price adjustment as recently described as “reckless” by former finance minister Miftah Ismail but an adjustment was made within the available cushion.

The meeting presided over by Qaiser Ahmad Shaikh, the ruling party MNA, took serious notice of reports that the banks and foreign exchange companies had taken undue and illegal benefit of the country’s low reserves. Members were of the view that during recent volatility in the exchange rate and the difference between the interbank rate and the rate offered by exchange companies, the banks earned exorbitant profits as reports suggest banks charged Rs10 per dollar higher premium.

The members deplored that banks were involved in volatility in the exchange rate and acted against the interest of the state. They asked the SBP to assess the extent of violation by both the entities (banks and exchange companies) and take exemplary action so that no one dared to play with the economy of the country.

SBP to proceed with heavy fines if violations detected

SBP Governor Jameel Ahmad while testifying before the committee said an inquiry had been ordered against banks involved in undue profit in exchange rate variations but it would be premature to conclude if they manipulated the exchange rate and if found guilty, action would be taken against them accordingly. At this stage, he said a few banks and forex exchange companies were suspected of involvement in exchange rate volatility. The central bank had taken cognisance and initiated strict monitoring of the foreign exchange operations of banks and exchange companies and inquiry proceedings into the violations of SBP regulations.

In response to members’ questions, Mr Ahmad said the names of banks were no secret. Deputy Governor Dr Inayat Hussain said the banks which earned heavy profits included Habib Bank, United Bank, Allied Bank, National Bank, Meezan Bank, Bank Al-Habib, Bank Alfalah and Habib Metropolitan Bank. He said this did not mean these banks were guilty but at this stage, certain transactions had been identified and more banks were also being examined in the next stage.

No IMF violation

Minister of State for Finance Dr Aysha Ghaus Pasha said the banks involved in any wrongdoing would be proceeded against and the central bank would take action and impose heavy fines under the law but it would be unfair at the outset to describe banks as guilty. She said the financial sector had stood by the government in difficult times.

Dr Pasha also told the committee that there was no violation of the IMF agreement in the Sept 30 petroleum development levy (PDL) adjustments on oil products. She said some higher PDL than committed with IMF had been imposed before the resignation of former finance minister Miftah Ismail which had been adjusted this time.

In recent price adjustment, the finance minister had increased PDL on diesel by Rs5 per litre to above Rs12 was behind schedule committed with the IMF and lowered by Rs5 per litre on petrol from Rs37 to Rs32 as it was higher than commitment.

She said the government still had more than a quarter to complete PDL increases to the target set under the IMF programme. She said Pakistan was determined to complete the IMF programme. She said the floods had devastated our economy and the growth rate was estimated to be around 2pc this year instead of the 5pc budget target.

She said the IMF, the World Bank and other multilateral institutions had been informed that difficult circumstances would require major changes. She hoped the government would be able to convince the IMF of the required changes.

Credit to SMEs

Responding to a query, the governor SBP said there was currently a restriction on 10-12pc imports because of foreign exchange reserve limitations. He said machinery imports also come under these restrictions which would be removed as the economic conditions improve.

The SBP chief said the SME sector was the backbone of the country’s economy which had not been extended the ample finances it deserved. He said there was no condition of financing against collateral only. He said the SMEs could also avail of credit from commercial banks on basis of cash flow. He assured the committee that a scheme was being fine-tuned and would be launched for SME sector soon.

Regarding incentives given to the industrial and trading sector during Covid-19, the SBP governor said a multi-pronged approach was adopted to facilitate industrial and trading sectors. He said that those measures included debt rescheduling, financing to large and medium industries for carrying out their operations besides avoiding retrenchment. He also informed that export-based industries were also promoted.

Rupee witnesses exchange rate stability

Without any improvement in the economic fundamentals, the rupee recovered Rs14.07, or 6.08 per cent, against the US dollar in the interbank market in the last eight trading sessions.

During this period neither the demand for dollars has contracted nor the foreign exchange reserves have improved, but the local currency maintains its recovery drive mainly because the new finance minister is willing to see the dollar below Rs200.

On Tuesday, the local currency appreciated by Rs1.65 to close at 225.64.

Published in Dawn, October 5th, 2022