ISLAMABAD: The government approved on Thursday to utilise Rs20 billion savings of pensioners and bank depositors to buy shares by investors in relaxation of prudential regulations aimed at giving an artificial ‘boost’ to wealthy brokers and end volatility at the Pakistan Stock Exchange (PSX).

“In order to stabilise the stock market of the country, the Economic Coordination Committee (ECC) approved the proposal of the Finance Division authorising the government of Pakistan to issue sovereign guarantee amounting to Rs20 billion for investment in National Investment Trust (NIT)-State Enterprise Fund,” said the finance ministry on Thursday.

The fund has been conceived and approved without involvement of the Securities and Exchange Commission of Pakistan (SECP) – the equity market regulator. SECP Chairman Farrukh Sabzwari did not attend the ECC’s meeting.

The ECC also approved billions of rupees supplementary budget despite the current fiscal crisis. It approved Rs77 million supplementary budget for refurbishment of prime minister’s office and another Rs322 million for maintenance of Supreme Court building and residences of judges.

The decisions are against Prime Minister Imran Khan’s austerity drive. The Rs77 million payments were approved to clear past liabilities while Rs322 million have been sanctioned by the ECC for fresh refurbishment work.

Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh chaired the ECC meeting that took these decisions. Shaikh approved the supplementary budget for PM’s office and judges’ residences hardly a week after he announced to give an austerity budget for the next fiscal year.

The ECC allowed the finance ministry to give sovereign guarantees and issue letter of comfort in favour of the National Bank of Pakistan (NBP), State Life Insurance Corporation of Pakistan, Employees’ Old-Age Benefits Institution (EOBI) and National Insurance Company Limited to give Rs20 billion to NIT.

The money, primarily savings of the pensioners and bank depositors, will be used to buy shares of government-owned enterprises to create a sense of stability at the market. A similar fund was established in 2008 when the stock market was in serious crisis and eight stocks were selected for investment.

The ECC also approved to relax the State Bank of Pakistan’s prudential banking regulations aimed at allowing these institutions to take risk by giving money for buying these stocks. The ECC relaxed the regulation R-4 of the central bank that deals with security and margin requirements. It also waived off the regulator G-2 that deals with the directors and major shareholders of the banks and the Development Finance Institutions (DFI).

After the ECC waiver, NBP and the other investing institutions will not be bound to ensure to analyse the credit rating of the borrower, their past experience with it or its financial strength and operating performance.

It has mainly relaxed the margin requirements related regulations. The investing institutions are no more required to ensure that appropriate margin must at least be equal to the prescribed margin. The condition of exposure against the shares of listed companies of their 30% current market value has also been waived off by the ECC.

Similarly, in relaxation of regulation G-2, the banks and the DFIs can now take unsecured exposure on, or take exposure against the guarantee of any of their directors.

Other decisions

The ECC pended a decision on a ban on export of wheat and established a committee to review the matter. The Ministry of National Food Security and Research informed the ECC about the wheat situation in the country.

It had been proposed that due to rising prices in the international market and 5% less production of wheat this year, the government should impose a ban on export of wheat and its products. Currently, about 7.257 million tons of wheat was available in the stock.

The Ministry of Maritime Affairs suggested various proposals on the revival and development of shipping industry in Pakistan. The committee noted the proposals and advised Ministries of Petroleum and Maritime Affairs to jointly come up with a comprehensive proposal in next ECC meeting for introducing a dynamic shipping policy focusing on expansion and development of local shipping industry.

The ECC acceded to the proposal of Ministry of States and Frontier Regions to grant Rs781 million supplementary budget for arranging 20,000 tons of wheat for Temporarily Displaced Persons of erstwhile FATA.

The ECC approved Rs1.8 billion supplementary budget for the Cabinet Division, Rs54.5 million for Geological Survey of Pakistan, Rs1 billion for Pakistan Maritime Security Agency and Rs1.4 billion for Ministry of National Food Security.

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