ISLAMABAD: The Senate’s Standing Committee on Economic Affairs criticised the State Bank of Pakistan (SBP) during a meeting on Monday for leniency in penalising commercial banks involved in Rs65 billion heist through unauthorised higher charges on opening of letters of credit (LCs) for imports at the height of a foreign exchange crisis in 2022.

The meeting, presided over by Senator Saifullah Abro, sought details about profits earned by banks through foreign exchange on imports and also called upon the Economic Affairs Division to create a special desk for monitoring of foreign-funded projects.

The committee asked the central bank to provide details on how funds received from the International Monetary Fund (IMF) over the years had been utilised.

Click to see more

The committee took up complaints that commercial banks had made unusual profits by charging heavily on provision of foreign exchange for LCs. It enquired about actions taken by the SBP regarding return of an additional amount of Rs65bn from various banks to the government in lieu of over-invoicing of LCs during 2022.

Committee seeks details of IMF fund utilisation over the years

Senator Abro said Ishaq Dar, the finance minister at the time, had conceded that banks had made “unreasonable’ foreign exchange earnings and ordered an investigation.

The SBP officials explained that the central bank had investigated the matter and imposed fines totalling Rs1.4bn on banks involved in “over-invoicing”.

The senator wondered what was meant by the term ‘over-invoicing’, recalling that the word was being repeatedly used in the IPPs saga.

The committee directed the SBP to provide a report on the issuance of LCs from April-Sept 2022 in a tabulated format, including the names of the bank, amount, the dollar rate for that day, and action taken by the central bank.

Senator Kamran Murtaza criticised the State Bank for imposing a mere Rs1.4bn in penalties on banks which made a huge profit of over Rs65bn, terming the fine severely inadequate.

Senator dissatisfied with SBP’s reply

Senator Abro expressed dissatisfaction with the SBP’s response and the punishment, warning that the matter would not be closed so lightly.

The SBP officials explained that the Federal Board of Revenue (FBR) had also imposed a 10pc foreign exchange income tax last year, but the banks had taken the matter to court and it was currently being heard.

Senator Abro highlighted that the SBP officials were not acknowledging the alleged Rs65bn loss, despite then finance minister’s assertions. He asked the central bank to provide all details to the committee in two weeks.

Senator Agha emphasised that without the presence of the federal minister and the secretary in the meeting, the issue would remain unresolved.

Senator Kamran Murtaza asked whether the State Bank had identified weaknesses on its part and the individuals involved. The SBP officials replied that the bank had no role in the matter.

Senator Murtaza wanted to know how long the malpractice of over-invoicing had lasted, the SBP officials stated it went on for two to three months before action was taken.

Water projects

On a separate agenda item, the committee was informed that water sector projects worth $2.84bn were currently ongoing with commitments from multilateral development partners, with total disbursement of $705.62 million so far.

The projects under bilateral development partners had financial commitments of $730.94 million and the disbursement stood at $480.61m.

During the briefing on Tarbela Dam’s fifth Extension Hydropower (T5HP) project, the Wapda representatives told the committee that the project was launched in 2017. It involved a tunnel to release water for irrigation needs and has been in operation for 90 days.

The tunnel can function when sufficient water is available in the dam.

The panel was told that the provinces had previously objected to closing the tunnel for four years, but later agreed. The total cost of the project is estimated at $860m, with $690m funding from the Asian Development Bank and the Asian Infrastructure Investment Bank.

The project is set to be completed in three phases by 2026. The committee decided to take up the project for further discussion during its next meeting.

The panel asked the economic affairs division (EAD) to invite the Wapda chief to attend the next meeting. The committee unanimously decided that the EAD should establish a desk, headed by technical person, to have a better monitoring mechanism over projects being executed in collaboration with multilateral development partners, bilateral development partners and UN agencies.

Published in Dawn, September 24th, 2024