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IMF Proposes Transfer of Govt Deposits in Commercial Banks to SBP

The International Monetary Fund has proposed a transfer of government deposits in commercial banks into federal consolidated funds in the central bank, reported a national daily.

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According to report, the international financial institution has shared a draft proposal asking the government to transfer deposits of federal and provincial governments held by three major commercial banks into the federal consolidated funds in the State Bank of Pakistan under Treasury Single Account (TSA)-1.

The Pakistani government and the International Monetary Fund (IMF) are currently hashing out differences regarding the pace of adjustments on fiscal, monetary, and exchange rate issues. The IMF wants to make adjustments immediately, while the Pakistani government wants to implement changes in intervals.

The banks under discussion are the National Bank of Pakistan, Bank of Punjab, and Askari Bank Limited, which hold the largest share of deposits as of 30 June.

The policy is aimed at creating a unified structure of government bank accounts, which would allow for a consolidated view of government cash resources. The Ministry of Finance wants to transfer the deposits to the central bank to gain effective control over its cash balances. This would result in the consolidation of resources in a single account which, in turn, is expected to minimize the government’s borrowing cost.

The move is also expected to support the government to reduce the number of accounts it holds, which would help lower administrative and maintenance costs.

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However, the deposit attrition would lead to a higher advance to deposit ratio for banks. It is estimated that banks would lose out a 2 percent spread between money markets’ interest yield and interest expense paid on the deposits. In addition, additional returns from overnight lending by commercial banks will also be cut down, as the banks will be required to transfer money at the end of the day to the central bank.

As of June 30, the National Bank of Pakistan (NBP) held Rs. 674.985 billion out of total bank deposits at Rs. 2.418 trillion, a majority share of government deposits. Meanwhile, the Bank of Punjab held governments’ deposits of Rs. 409.081 billion out of its total deposits at Rs. 835.070 billion. The Askari Bank Limited (AKBL) has governments deposits of Rs. 257.515 billion out of its total deposits of Rs. 790.982 billion.

Pakistani officials and the IMF are currently holding discussions on conditions for the approval of the next $1 billion loan tranche under the fund’s $6 billion program. The talks began at the start of October, and no set date for their conclusion has been announced yet.

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