Rs 15.082 billion rise in SBP expenses invites audit's objection

General administrative and other expenses of the State Bank of Pakistan rose to Rs 15.082 billion in 2009-10 as compared to Rs 10.907 billion during the previous year, registering a whopping increase of 38.3 percent. According to Audit Report-2010-11, this was mainly due to revision in SBP and SBP BSC officers' compensation (every two years) to counter the impact of inflation (that was worked out to 40.58 percent as per SBP inflation monitor).
Further, during the year SBP inducted two batches of SBOTS (State Bank Officers Training Scheme) compared to the previous year resulting in an increase in expenses by Rs 1.515 million. Audit required that the formula that resulted in 38.3 percent increase in employee compensation booked in a year and, reason for additional batch of SBOTS in 2009-10 needed be explained.
Interest/mark-up expenses were Rs 8.085 billion in the year 2008-09 and increased to Rs 9.697 billion in the year 2009-10 showing an increase of 19.9 percent. The report says that the position in this regard needs to be clarified. The management in its reply dated January 12, 2011, stated that the rise in interest/mark-up expenses was mainly due to increase in borrowing from IMF which stood at Rs 694.77 billion as at June 30, 2010 as compared to the balance of Rs 440.479 billion of previous year, marking a rise of 58 percent over previous year. Audit required SBP's efforts to stabilise balances that resultantly limit and reduce government reliance over external debts and lead to a reduction in interest cost. The Audit report shows that non-interest-bearing financial assets were in deficit of financial liabilities by Rs 1720 billion for maturities up to one year and Rs 1696 billion in total.
Management in its reply stated that this negative gap was offset by excess of interest bearing financial asset over interest bearing financial liabilities. The Audit maintained that management needed to make efforts to minimise its Credit Risk over non-interest bearing financial instruments.
The report further says that certain foreign currency held with the group to meet foreign currency commitments declined significantly by Rs 20.788 billion in 2010 - that was 61.2 percent of 2009. The management reply again referred to the overall increase in foreign currency reserves but remained silent about this specified decline. The report says that State Bank needs to explain this deteriorating situation along with significant decline in exchange gain, as stability in financial system (including exchange management) is one of its main objectives.