Finance ministry opposes hike in interest rate

ISLAMABAD: Officials of the Ministry of Finance opposed increasing the policy rates in the Senate Standing Committee on Finance meeting on Wednesday, arguing one percent hike pushed up debt servicing by Rs600 billion.

Also banks faced severe criticism in the meeting for refusing to open up accounts for parliamentarians on the excuse of politically exposed persons (PEPs).

The Senate panel also sought a report from the Federal Board of Revenue (FBR) and State Bank of Pakistan (SBP) on alleged Trade Based Money Laundering (TBML) of over Rs69 billion through over-invoicing of imported solar panels, whereby Rs25 billion were deposited in banks as cash transactions. 

Chairman Saleem Mandviwalla seemed inclined to hand over the investigation to the Federal Investigation Agency (FIA) but the FBR opposed it, saying it would share its detailed report by fixing responsibility on those who allegedly connived in money laundering when the country was under the scrutiny of FATF. The SBP and FBR representatives made efforts to shift responsibilities on each other but it was highlighted that the alleged scam was committed but no one raised a red flag when it was happening.

While deliberating on massive money laundering by solar panel importers, the Member Customs apprised the committee that seven companies involved in money laundering have been identified and six FIRs have also been registered against them.

Senator Mandviwalla remarked that solar panel importers have succeeded in laundering Rs69 billion in the last five years but the FBR didn’t notice any suspicious activity and, above all, Rs25 billion were deposited in two different accounts without raising any queries. He directed the FBR to conduct an inquiry into the matter and submit a report before the committee.

The panel dwelt upon higher interest rates and their negative impacts on businesses. The chairman and other senators, irrespective of political divide, argued that the increased interest rate failed to curb inflation.

SBP Deputy Governor Dr Inayat Hussain informed the forum that the interest rate has been increased to control the rising inflation and it has borne significant results in the past few months. Mandviwalla questioned as to how the interest rate can be effective in controlling the growing inflation and directed the SBP to provide a comprehensive report in this regard.

The committee was briefed on difficulties faced by PEPs in availing financial services. The SBP deputy governor stated the system is in place wherein a focal person has been deputed in every branch to sort out such issues; however, the system has failed to provide desirable results due to unknown reasons.

The committee recommended to sensitise all banks to make functional the dedicated officers for PEPs in all commercial banks, designated on the direction of this committee earlier.

Moreover, the Senate panel discussed the causes of the reported low scores of Pakistan’s banks in terms of their human rights policies. Representatives from Fair Finance Pakistan emphasised that Fair Finance is committed to ensuring that financial institutions in Pakistan prioritise the social and environmental welfare of local communities.

They highlighted the need for Pakistan embracing a Green Banking policy that incorporates environmental and social concerns into financial operations. The SBP deputy governor mentioned that his institute is making dedicated efforts to align with international standards, aiming to improve the well-being of individuals.

The committee also took up the matter raised by Senator Hilalur Rehman regarding non-payment of compensation to the affected persons of Mohmand Dam. Officials stated that payment has been made to the affected and any increase in compensation amount could only be done through court.

Additionally, the committee was briefed on Deposit Protection Management. The SBP deputy governor mentioned that deposit up to Rs500,000 is protected by the Deposit Protection Corporation and around 94 percent of the depositors fall under this category.

Senator Mandviwalla questioned whether the deposit is being protected by the SBP or not. Dr Inayat stated that the deposit is being protected by Deposit Protection Corporation, a wholly owned subsidiary of the SBP. He further added that no depositor has lost their money in the financial history of the country.