State Bank set to take over govt funds in banks’ accounts on IMF diktat

ISLAMABAD: The State Bank of Pakistan (SBP) has directed all banks to shut down the federal government accounts and transfer all available balances to the SBP’s account number-1 by June 13, 2022 in a bid to comply with the IMF condition under the bailout loan programme.

“It is advised to close the accounts and transfer the aggregate amount of such balances to federal government’s Account No-1 (non-food) at SBP by close of business the 13th June 2022 and ensure the meticulous compliance of these aforesaid directives,” the central bank said in a circular.

“We are working on zero balance and dormant bank accounts. This is the only category of accounts about which the list is being compiled,” a spokesman of the finance minister told The News on the Treasury Single Account (TSA) of the IMF. However, official sources said the total stock of federal government deposits held with the commercial banks stood at Rs1.85 trillion (4pc of GDP on old rebasing) as on June 30, 2021.

The government deposits held in commercial banks provide certain types of incentives for the organisations. Financial autonomy is the single largest factor, in addition to earning interest on deposits and non-lapsable funds.

When the SBP spokesman was asked if it had issued instructions to banks to close down federal government accounts maintained in banks, he confirmed the development. Analysts said commercial banks would take a hit after the central bank’s directive.

"This would reduce the balance sheet size of the banks,” said Fahad Rauf, the head of research at Ismail Iqbal Securities. “Banks' profitability would also be impacted as they would not be able to earn spreads on these deposits. The magnitude of impact would differ between banks depending upon the quantum of government deposits in the mix."

The federal government deposits held in the commercial bank accounts are largely deposited in four commercial banks. The NBP had 35 percent of the total deposits (around 20 percent of their total banking deposits), Askari Commercial Bank had 17 percent (around 30 percent of total banking deposits), HBL 8 percent (around 4 percent of their total banking deposits), and ABL 7 percent (around 8 percent of their total banking deposits).

The amounts kept in the commercial banks are related mainly to autonomous entities, public universities, special purpose funds, military, and by civil setup including civil armed forces. The Treasury Single Account (TSA) is one of the IMF conditions. The TSA policy was approved by the cabinet in May 2019, following which legal provisions were enacted through the Public Finance Management Act, 2019. The implementation of the TSA was divided into two phases: Phase-1 for the Ministries/Divisions and their Attached Departments, while Phase-2 for the autonomous entities including special purpose funds.