Islamabad—In a significant development, the Senate Standing Committee on Economic Affairs has called for strict measures against commercial banks allegedly involved in currency manipulation and over-invoicing while opening Letters of Credit (LCs).
These practices allowed the banks to reportedly pocket Rs65 billion in 2022 by selling US dollars at exorbitant rates, sparking outrage over their role in destabilizing the country’s economy.
During a recent session, the Senate Committee directed relevant chambers to provide a comprehensive report within two weeks, addressing the controversial overpricing of LCs. The meeting’s central focus was to investigate how commercial banks generated extraordinary profits from the manipulation of exchange rates, selling dollars at inflated prices amid a weakening currency and economic distress.
Senator Saifullah Abro, the Senate Committee Chairman, emphasized that the money made from these manipulative practices belongs to the people of Pakistan and should be recovered from the banks. He further criticized the lack of progress in previous meetings, noting that relevant authorities, including the State Bank of Pakistan (SBP), had failed to provide the necessary information despite repeated requests.
“This money belongs to the people and should be returned. We’ve been asking for this information for months, and the delay is unacceptable,” Senator Abro stated.
The Senate Committee engaged in a thorough discussion about the practice of over-invoicing, in which banks manipulated exchange rates to make undue profits. Senator Abro pointed to past statements from the former finance minister acknowledging this issue and directing a full investigation into the matter.
SBP officials presented some details of their actions against regulatory violations but failed to provide a satisfactory explanation of how the Rs65 billion was earned by the banks. Senator Kamran Murtaza pressed officials on whether any punitive measures had been taken, to which they responded that commercial banks had been fined Rs1.4 billion.
However, Murtaza questioned the effectiveness of the fines, saying, “How does a Rs1.4 billion fine hold up against Rs65 billion in illicit earnings? This response is entirely inadequate.”
The Chairman expressed dissatisfaction with the State Bank’s response and made it clear that the investigation would not be concluded without retrieving the full amount. He demanded detailed data on LCs issued between April and September 2022, including specifics on the banks involved, the dollar rates applied, and any corrective actions taken by the SBP.
The Committee’s frustration extended to the Ministry of Economic Affairs and the Federal Board of Revenue (FBR), who have been slow in providing detailed reports regarding the foreign exchange market and the impact of tax policies on forex income. The FBR had imposed a 10% tax on forex income last year, but the matter is currently being contested in court, adding further delays to any resolution.
Senator Abro reiterated that the SBP must provide a comprehensive report on all LCs issued by commercial banks and demanded answers regarding why regulatory actions had been delayed for months. SBP officials requested an extension to provide the data, but the Committee refused to grant more than two weeks.
In addition to scrutinizing currency manipulation, the Committee turned its attention to the usage of loans received from the International Monetary Fund (IMF). The Committee expressed concern over the lack of transparency on how these funds were being used to manage balance-of-payments issues, with Senator Abro stressing the need for clarity on this matter.
The Senate panel also discussed ongoing water sector projects under the Water and Power Development Authority (WAPDA), including the Tarbela 5th Extension Hydropower Project. The project is part of a broader effort to improve Pakistan’s water infrastructure, with significant funding coming from international lenders such as the Asian Development Bank.
The Committee instructed the Economic Affairs Division to establish a monitoring desk to ensure better oversight of projects funded by multilateral development partners, bilateral donors, and UN agencies.
The Senate Committee has vowed to continue investigating the over-invoicing scandal and recover the Rs65 billion from commercial banks, asserting that this is a national issue. With both the Ministry of Economic Affairs and the State Bank of Pakistan under scrutiny, the next session is expected to bring further revelations as the committee pushes for greater accountability and financial discipline in the banking sector.
