Foreign Banks Receive Final Warning Over Non-Cooperation with Pakistan Govt

Three foreign banks were given stern warnings by the Senate Standing Committee on Finance and Revenue on 9th of November, 2017.

The warning was given to the banks regarding an ongoing probe into a two-year-old bond related issue. The banks had previously not bothered to aid the Senate about the matter at hand.

The Issue

The current government had hired three foreign banks as financial advisers in 2015 to help generate $500 million through the dollar-denominated Eurobonds.

The banks include:

• Citibank,
• Deutsche Bank,
• Standard Chartered Bank.

Chairman Senator Saleem Mandviwalla reported:

In response to our request to appear before the committee, all three commercial banks have shown their inability to come.

Banks Continue to Ignore the Senate

Mandviwalla claimed that a Citibank official told that his appearance was not possible as he was traveling while the other two banks refused to cooperate.

According to Mandviwalla:

The committee is giving a final warning to the representatives of the banks; otherwise, their warrants will be issued under the civil court powers available to parliament.

The focus of the committee is to ensure whether foreign investments under the dollar-denominated bonds actually came to Pakistan or not. However, according to the regulations of dollar-denominated bonds, Pakistani citizens themselves are not allowed to invest in these bonds.

Senate’s Jurisdiction

According to Senator Mohsin Leghari, the banks, perhaps, did not have the knowledge that parliamentary bodies have the right to use civil court powers to summon anybody.

The problem which might sprout from these threats may become a complication for the finance ministry.

The finance ministry is in talks to bring about 3 financial institutions, along with these banks again, to issue Euro and Sukuk bonds for potentially generating approximately $2 billion from global capital markets. However, these warnings might not be taken lightly and may cause a cancellation of the deal.

The finance ministry has to give directives to two different associations for issuing these bonds later this month.

Unfortunately, Finance Minister Ishaq Dar’s absence has caused a delay of an additional three weeks in the issuance of the bonds. Initially, the deal was to be completed by 15^th November.

The finance ministry aims to potentially complete this deal before the closure of the western and European capital markets for Christmas vacations.

A Worrying Time for Pakistani Economy

In addition to this, Pakistan’s foreign reserves have dropped to a staggering $13.8 billion which are so much so that the three-month import bill can just be covered.

The finance ministry has also been granted commercials loans, by the three European banks, to cover the increasing balance of payments requirement.

Eurobonds valued at $500 million with a 10-year maturity period were issued by the government in September 2015. The interest rate for these bonds, issued in the international market, was 8.25 %. Though, it is to be noted that the government agreed to offer the bonds at a rate of 6.12%, more than the US Treasury.

According to a former finance secretary, about 14% of the $500 million was invested by local banks.

PTI’s senator Mohsin Aziz said:

The banks’ reluctance to appear before the committee is deepening our apprehensions.

On the other hand, Noor Ahmad, Additional Secretary External Finance, requested the committee to be lenient with the banks since any strict decision may be problematic for the government.

He later said that the ministry had agreed to cooperate with the standing committee in a meeting between the finance minister and finance secretary.

Mandviwalla claimed that the finance ministry had handled the case and asked the banks not to come before the standing committee.

However, Ahmad said,

“The finance ministry actually encouraged the representatives of banks to appear before the panel.”