Pakistan Introduces New Rules to Control Public Funds, Reduce Fiscal Deficit

The federal government of Pakistan has introduced the 'Cash Management and Treasury Single Account Rules 2024' to tighten control over public funds. The new rules, supported by the International Monetary Fund (IMF) and Asian Development Bank (ADB), allow the finance ministry to take over idle funds in bank accounts to reduce the fiscal deficit.

Under the new rules, which apply to all government entities including ministries, divisions, departments, and agencies, funds in bank accounts will be 'swept' into a non-food account No.1 at the end of each banking day and returned at the start of the next day. The finance ministry will be empowered to use surplus funds to retire public debt, in coordination with the State Bank of Pakistan.

Government offices and public entities must open, maintain, and operate bank accounts only in accordance with the new rules, and existing non-essential accounts will be closed. The rules also require government offices and public entities to provide a quarterly list of bank accounts to the Finance Division.

The State Bank of Pakistan will provide quarterly reports on all government bank accounts and balances to the finance ministry, which will maintain an inventory of these accounts. The rules aim to ensure timely availability of funds for authorized expenditures, allow the Finance Division to utilize surplus funds to retire public debt, and mandate regular reporting of revenue and expenditure data.

The rules also require the establishment of a Treasury Single Account (TSA) system, where the State Bank of Pakistan will host and maintain the TSA on behalf of the federal government. The rules mandate the consolidation of available balances in notified bank accounts into a transitory account at the end of each banking day, which will then be transferred to the TSA Sweeping Deposit Account.

Why this matters: The introduction of the 'Cash Management and Treasury Single Account Rules 2024' constitutes a notable action by the Pakistani government to improve financial management and transparency. The move, supported by international financial institutions, aims to reduce the country's fiscal deficit and better control public funds.

The IMF recently approved the immediate release of the final $1.1 billion tranche of a $3 billion bailout to Pakistan, which the country needs to overcome one of its worst economic crises. As part of the bailout conditions, the Pakistani government was required to reduce subsidies and impose new taxes. The IMF said the country's "determined policy efforts" have brought progress in restoring economic stability, with moderate growth returning and inflation starting to decline.

Key Takeaways

• Pakistan introduced 'Cash Management and Treasury Single Account Rules 2024' to tighten control over public funds.
• The new rules allow the finance ministry to take over idle funds in bank accounts to reduce fiscal deficit.
• Government entities must open/operate accounts per new rules, and existing non-essential accounts will be closed.
• A Treasury Single Account (TSA) system will be established, with the State Bank hosting and maintaining the TSA.
• The move is supported by IMF and ADB, as part of Pakistan's $3 billion bailout to overcome economic crisis.