The Senate Standing Committee on Finance on Wednesday sought a report from the State Bank of Pakistan (SBP) to justify how higher interest rates are helping reduce inflation in the country.
Chaired by Senator Saleem Mandviwalla, the meeting saw several committee members criticizing the prevailing 22 percent key policy rate, noting it was hampering business and fueling inflation. Senator Zeeshan Khanzada noted the massive hike in the interest rate over the past year had made it very difficult for businesses to survive, much less contribute to economic growth.
To a question from a senator, a finance ministry official said that, generally, a 1 percent hike to the interest rate translated into roughly Rs. 600 billion in additional debt. The official claimed domestic debt had soared by over Rs. 7 trillion since January last year primarily due to the interest rate hikes. Defending the central bank’s decision, SBP Deputy Governor Inayat Hussain said the interest rate was increased to curb rising inflation, adding it had produced significant results in the past few months.
However, Senator Mandviwalla questioned the validity of this claim and directed the SBP to provide a comprehensive report justifying its position.
The committee also discussed money-laundering by solar panel importers, with the Federal Board of Revenue (FBR)’s Customs head informing it that seven companies were found to have been committing trade-based money-laundering and six FIRs had been registered against them. The FBR official said solar panels had emerged as a high-risk item for over-invoicing and trade-based money laundering due to their duty-free import status and the absence of sales tax on local supply.
Senator Mandviwalla said data suggested solar panel importers had laundered Rs. 69 billion in the past five years, adding over Rs. 25 billion was deposited in two different accounts without attracting the FBR’s suspicion or facing any queries. He suggested forwarding the case to the Federal Investigation Agency (FIA) for a comprehensive probe, but amidst opposition from some senators, the panel directed the FBR and SBP to conduct separate investigations into the matter and submit reports.
The meeting also discussed difficulties being faced by politically exposed persons in availing financial services, with the SBP deputy governor maintaining that a system was in place to resolve such issues but had failed to produce desirable results. The committee asked the SBP to direct all banks to ensure they had officers on staff to cater to politically exposed persons.
The SBP also briefed the Senate panel on deposit protection management at commercial banks, with the central bank’s deputy governor saying any account holder’s deposit of up to Rs. 500,000 was protected by the Deposit Protection Corporation. He said around 94 percent of depositors fell under this category.