The government will overhaul the nepotism-plagued Fis

The government has decided to revamp the bilateral development finance institutions, which have become prone to nepotism due to the appointment of favored bureaucrats to their boards. These board members receive fees of up to $5,000 (Rs 1.4 million) per meeting. Instead of focusing on their primary role of lending to industry and promoting foreign investment, these financial institutions have invested heavily in public debt, using loans from the State Bank of Pakistan (SBP). These boards, often filled with people who lack relevant expertise, have overlooked violations of the Charter. Finance Minister Muhammad Aurangzeb decided to restructure these companies and their boards of directors. It will start receiving updates from today (Thursday) on the activities of these companies, which were established in partnership with China, Saudi Arabia, Iran, Oman, Libya, Kuwait and Brunei. The management of Saudi-Pak Industrial and Agricultural Investment Company and Pak-Brunei Investment Company are scheduled to present their investment mandates today. They will explain their rationale for investing in government debt instead of lending to industries. Official statistics show that, as of December last year, these companies invested Rs 1.9 trillion in government debt, after borrowing nearly Rs 2 trillion from the central bank. In 2021, their investment in government debt stood at just Rs 338 billion. However, the following year, the SBP allowed these institutions to participate in Open Market Operations, undermining the IMF’s goal of ending direct lending to the federal government by the SBP. Seven financial institutions were established with equity investments from regional countries, including Pak-Kuwait Investment Company, Pak-China Investment Company, Pak-Brunei Investment Company, Pak-Oman Investment Company, Pak-Libya Investment Company, Pak-Iran Investment Company, and of the Saudi-Pak Industrial Agricultural Investment Company. These development financial institutions are meant to implement the government’s external development policies and promote industrial development. However, according to the SBP, almost all new investment by these companies has gone into government securities, rising 72.4% to Rs 1.9 trillion last year. In contrast, loans to the private sector showed a stagnant growth rate of just 0.1% in 2023. The SBP’s Financial Stability Review said the expansion in the asset base of these companies came mainly from debt-financed investments. Their aggressive participation in Open Market Operations facilitated these large investments. A finance ministry official said the government had turned a blind eye to the financial affairs of these institutions as their boards were used to accommodate favored politicians and bureaucrats. These companies pay board members between $3,500 and $5,000 for each board or committee meeting, which translates to nearly Rs 1 million to Rs 1.4 million. According to the websites of these companies, retired bureaucrats continue to hold positions on these boards, enjoying the benefits, despite having left the finance ministry. The additional secretaries of the finance ministry have divided the boards of these development financial institutions among themselves, irrespective of their qualifications. To curb this trend, the federal cabinet decided in June that bureaucrats cannot keep more than Rs 1 crore a year in board emoluments. Any surplus must be handed over to the national treasury. However, this rule does not apply to retired bureaucrats, who continue to receive substantial board fees. Several board positions remain vacant and the finance ministry has been criticized for its poor record of filling them. The ministry was also slow to act against a senior official of the Export-Import Bank, who allegedly tampered with records. A senior official observed that strong ties among bureaucrats have led to nepotism in the appointment of board members. This, he said, is why former bureaucrats continue to hold these positions even after retirement. On Wednesday, the Senate Standing Committee on Finance directed the finance ministry to submit details of vacancies and names of directors in these development financial institutions.

a href=”https://tribune.com.pk/story/2491814/govt-to-overhaul-nepotism-hit-fis”>Source link