Senate panel wants action against banks for ‘dollar manipulation’ in 2022

ISLAMABAD: A Senate panel has called for swift action against commercial banks accused of manipulating the US dollar exchange rate and opening over-prices letter of credits (LCs) in 2022, reaping Rs65 billion.

The Senate Standing Committee on Economic Affairs demanded a detailed report within two weeks, emphasizing the need for chamber representatives to attend the next session to address the elevated costs.

The report should be on the LCs issued from April to September 2022, including the names of the banks involved, the amounts, and the dollar rates at which the LCs were issued. The committee also wants to know what actions have been taken by the SBP and the Finance Ministry to address these issues.

The committee, led by Senator Saifullah Abro, that met here on Monday also expressed disappointment with the Economic Affairs Division (EAD) and the State Bank of Pakistan (SBP) for repeatedly failing to provide reports on the use of International Monetary Fund (IMF) funds, despite requests dating back to July. “This non-serious attitude towards the parliamentary committee is alarming,” the panel stated.

SBP official Qadir Bakhsh defended the bank, stating that IMF inflows are meant solely for supporting the country’s balance of payments. He explained that these funds do not enter the government’s non-food account no-1, addressing concerns raised by the panel.

The EAD’s joint secretary echoed this, clarifying that IMF funds can only be used to cover the SBP’s operational deficits and do not contribute to government budgetary support. He emphasized the distinction between IMF’s BoP support and budgetary support provided by other international donors.

Saifullah Abro, pointed to former Finance Minister Ishaq Dar’s admission in September 2022 that commercial banks had manipulated dollar prices to make Rs65 billion. “How can he make such claims without a briefing from the SBP?” Abro questioned. “We need to know which banks exploited businesses and traders, and why no recovery has been made.”

The SBP official acknowledged that during the period from April to September 2022, when the dollar surged from Rs218 to Rs240, there was a severe liquidity crisis. He confirmed that the central bank had imposed a collective Rs1.4 billion penalty on banks for regulatory violations. However, the committee found this response unsatisfactory.

Senator Kamil Ali Agha criticized the central bank, saying, “They saved face and threw the ball into a black hole. They’ve eaten and drank it all while SBP was asleep.” In response, the SBP official noted that a one-time 10 percent tax on banks had been levied by the Federal Board of Revenue in November, though this matter is currently sub judice.

Senator Rana Mahmood ul Hassan highlighted that the alleged manipulation continued for five months, during which the SBP failed to act. “We want all major chambers of commerce and industry representatives to attend the next meeting to share their views,” he added.

In addition to the banking issues, the committee reviewed ongoing donor-funded water sector projects, including Dasu, Tarbela Tunnel 5, Kurram Tangi, and the Naulong Integrated Water Resources Development Project. These projects are funded by the World Bank, Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), Islamic Development Bank, and the European Investment Bank. The total donor commitment for 10 projects is $2.844 billion, with disbursements exceeding $705.6 million so far.

The director of water and hydropower at the Ministry of Water Resources informed the committee that 65 percent of phase-I of the Kurram Tangi Dam project in North Waziristan is complete. However, feasibility for phase-II is underway, and security concerns have hindered further progress.

The official noted that unlike other projects, work is limited to four hours a day due to security issues. Kamil Ali Agha, a committee member, criticized the security concerns as a common excuse and pointed out that the official lacked key details about the project’s specifications.

“I don’t believe security is the sole issue, as the area is under the control of security forces,” Agha said. He suggested the forces be asked to provide necessary security. Committee chairman Abro urged the Economic Affairs Division (EAD) secretary to investigate how the funds are being utilized.

An official updated the committee on the Naulong Integrated Water Resources Development Project, stating that a consultant has been hired, and a feasibility study, based on ADB recommendations, will be completed by November. Construction is set to begin next year. Agha added that similar low-cost projects could be built in Gilgit-Baltistan, but lamented the lack of government action. He noted India has constructed 52 dams in Indian-held Kashmir, including seven major ones.

The committee expressed dissatisfaction with the delays and lack of detailed information provided by officials regarding various projects. The Dasu Hydropower Project, a 4,320 MW initiative, received a $588 million loan from the World Bank in August 2014, with $372 million disbursed. Stage-I, consisting of six 360 MW turbines, is scheduled for completion by May 2025. Overall project completion stands at 22 percent.

Wasim Raza, project director of the Tarbela Tunnel 5 project (1,530 MW), received praise for his briefing. The project is financed by $390 million from the World Bank, $300 million from Asian Infrastructure Investment Bank (AIIB), and $109 million in equity from WAPDA/NTDC, with $174 million spent to date. The project is expected to be completed by September 30, 2027.

Raza informed the committee that the Indus River System Authority (IRSA) issued a no-objection certificate (NOC) in 2021, despite the project’s initial studies starting years earlier. A joint secretary from the EAD explained that the project was initially slated for completion in 2022 but has been delayed multiple times due to the late issuance of the NOC by IRSA. The government has been paying interest on the loan since 2021.