ISLAMABAD:

Pakistan has agreed with the International Monetary Fund (IMF) to close 70 bank accounts of government departments and transfer roughly Rs300 billion in balances to the national kitty, a move that could help consolidate public funds and reduce the cost of debt.

Pakistan has also committed to reducing debt refinancing risks by increasing the maturity period of domestic debt to four years and two months by June 2027. The ratio was hardly two and a half years at the start of the $7 billion bailout package. The assurances were given as part of the staff-level agreement reached between both parties last month.

According to the understanding, around 70 non-interest bearing bank accounts with average balances of Rs300 billion will be shifted to the treasury single account. This would be in addition to 242 accounts that had been transferred to the treasury having around Rs200 billion balances, said the officials.

The finance ministry officials said they were planning to close all the remaining non-interest bearing bank accounts of government departments, estimated at around 250, and retain about Rs400 billion in balances.

Shifting the bank balances of government departments, state-owned entities, autonomous bodies and regulatory authorities to a single treasury has remained a key IMF demand during previous programmes. However, the issue was not a top priority for the IMF under this programme, as some new accounts were opened and a few closed accounts were also made operational.

Few government departments maintain private accounts, particularly those that directly charge money from the public in the shape of traffic challans or point-of-sale fees. The IMF’s stance has remained that many government entities keep money in private bank accounts and earn interest, and these banks lend back the same money to the government at much higher rates.

However, during these deliberations, the finance ministry took the position that it cannot ask independent authorities to surrender their bank balances maintained in interest-bearing bank accounts, as this could compromise their financial autonomy.

The officials said the ministry of finance has agreed to close 70 non-saving accounts of government ministries and attached departments in the first phase. These accounts have an estimated roughly Rs300 billion in cash balances that would be transferred to the national exchequer. Overall, the government would close all non-saving accounts, and cash balances of roughly Rs400 billion would be transferred to the federal consolidated fund, said the officials.

In the second phase, the government plans to close saving accounts of ministries, divisions and departments but may not go after autonomous bodies, said the officials. The finance ministry’s view was that those autonomous bodies and authorities which do not take money from the federal budget should have the right to maintain their bank accounts.

The finance ministry would also release a framework to give timelines to close the bank accounts of the federal government, ministries and attached departments and shift the balances to the treasury single account.

Pakistan assured the IMF that it would continue the exercise of consolidating cash holdings of government institutions. It has also shelved the plan to conduct a sector study to determine which accounts should be closed or not. Now it would follow the path given by the Public Finance Management Act and the Treasury Single Account rules.

The Senate Standing Committee on Finance this week expressed concerns over 200 state-owned entities, regulators and autonomous bodies keeping Rs1 trillion in private bank accounts instead of depositing it into the Federal Consolidated Fund (FCF) in violation of the Public Finance Management Act 2019.

A treasury single account is an essential tool for consolidating and managing governments’ cash resources, thus minimising borrowing costs. In countries with fragmented government banking arrangements, the establishment of a treasury single account should receive priority in the public financial management reform agenda, according to the IMF.

Debt management

Pakistan has also agreed that it would increase the domestic debt maturity period to four years and two months by June 2027. This would reduce refinancing risks and the gross financing needs of the government. The current ratio is around three and a half years, which before the start of the programme was hardly two and a half years.

Pakistan has assured the IMF that it would address debt vulnerabilities stemming from elevated gross financing needs and a significant sovereign-bank nexus. The finance ministry said it has enhanced transparency regarding provincial participation in government securities auctions.

Under the IMF condition, it would continue to gradually retire domestic debt held by the State Bank of Pakistan. The finance ministry was also prioritising the development of the domestic government securities market and widening the investor base. It has also assured the IMF that the government will refrain from any issuance that could expose the government’s debt portfolio to excessive risks.

The finance ministry’s debt management office is in the process of finalising plans to reform the retail debt programme and exploring digital channels to distribute debt securities more efficiently.