The government has planned to overhaul bilateral development financial institutions that have come under scrutiny for nepotism and mismanagement.Â
These institutions, initially established to promote industrial growth and foreign investment, have instead shifted their focus to investing heavily in government debt, often through loans from the State Bank of Pakistan (SBP).
As per a media report, Finance Minister Muhammad Aurangzeb has initiated the restructuring of these institutions and their boards. These institutions, created in partnership with countries such as China, Saudi Arabia, Iran, Oman, Libya, Kuwait, and Brunei, have faced criticism for appointing favoured bureaucrats to their boards. These board members are paid between $3,500 and $5,000 (Rs 1 million to Rs1.4 million) per meeting, despite many lacking relevant expertise.
Official statistics reveal that as of December last year, these companies had invested Rs1.9 trillion in government debt, after borrowing nearly Rs2 trillion from the SBP. This marks an increase from their Rs338 billion investment in 2021.Â
The SBP’s decision to allow these institutions to participate in Open Market Operations further fueled this shift, despite the International Monetary Fund’s (IMF) goal of limiting direct lending to the federal government by the SBP.
These development financial institutions, originally intended to implement the government’s foreign development policies, have seen nearly all new investments directed into government securities, with such investments growing by 72.4% to Rs1.9 trillion last year.Â
In contrast, loans to the private sector grew by only 0.1% in 2023, highlighting a significant departure from their intended purpose.
Concerns over nepotism have also plagued these institutions, with many board members being favoured politicians and bureaucrats. Despite a federal cabinet decision in June limiting board fees for bureaucrats to Rs1 million per annum, retired bureaucrats remain exempt from this rule, continuing to receive substantial fees.
The Ministry of Finance has faced criticism for its slow response to these issues, including delays in filling vacant board positions and in addressing allegations of misconduct by senior executives.Â
The Senate Standing Committee on Finance has directed the finance ministry to provide details of vacant positions and the current directors at these institutions as part of its ongoing investigation into their governance.
The restructuring efforts led by Finance Minister Aurangzeb aim to refocus these institutions on their original mandate of lending to industries and supporting foreign investment, while addressing the governance issues that have undermined their effectiveness.
