Ministries squabble over EDF

Ministry of Commerce and Textile is likely to approach the federal cabinet against Finance Ministry for putting Export Development Fund (EDF) on ice, which is meant to be spent on the export-oriented industry. The federal government collects 0.25 percent as EDF on almost 85 percent exports and deposits it in the accounts of Finance Ministry - a fund to be utilised for the development of export-oriented sectors. Contribution of textile sector in EDF is 55 percent.
Annual collection of EDF hovers around Rs5 billion per annum but the Finance Ministry has released about Rs1 billion per annum to the Commerce Ministry for different projects. Insiders claim that Finance Ministry was sitting on Rs30 billion of Commerce Ministry collected through the Export Development Surcharge (EDS). According to the existing mechanism, the funds of EDF were not treated as lapsable but this year Finance Ministry had asked the Ministry of Commerce that it would not release the funds until it is not transferred in lapsable account.
The Commerce Ministry, sources said, took the stance that transfer of EDF amount in lapsable account from non-lapsable account was a clear violation of EDF Act. Auditor General of Pakistan has already declared that this fund cannot be lapsed and credited to next year. However, Finance Ministry has quoted reference of a clause of Constitution to defend its decision.
"Finance Ministry has not released EDF funds for first two quarters of current fiscal year due to dispute on transfer of amount into lapsable account," the sources added. Commerce Ministry is of the view if the new mechanism is implemented, Finance Ministry which is already unkind with respect to release of EDF''s funds would not be made available allocated amount before November each year, which implies all the projects being funded from EDF would be delayed.
The sources said if the federal cabinet gives decision against the proposal of Commerce Ministry, it would open lapsable account which would take at least a month time. According to sources, installments of at least around 30 projects were stalled due to non-release of EDF funds by the Finance Ministry. Commerce Ministry habitually utilises EDF for projects approved by the EDF Board headed by the Minister for Commerce. However, instances are available where EDF was misused on leisure trips of commerce ministers and even on blue-eyed commercial counsellors. Textile Division Ministry was of the view that EDF should be divided into textiles and non-textiles to read as "The Export Development Surcharge levied at the rate of 0.25 percent shall be proportionally divided into Textile Development Fund (TDF) for the use of the Ministry of Textile Industry and EDF (non-textiles) for the Ministry of Commerce."
In 2011, Finance Ministry had proposed third party audit of EDF but Commerce Ministry refused to support any such proposal fearing massive irregularities in utilisation of funds.
Finance Ministry releases money to Commerce Ministry which subsequently goes to Trade Development Authority of Pakistan (TDAP) and then to different associations and chambers for projects. In 2005, the National Assembly approved an amendment to the EDF Act, according to which the entire amount of EDF should be transferred to the Commerce Ministry but the Finance Ministry continues to violate the amendment.
Finance Ministry maintains that the entire EDF collection is part of federal consolidated fund which implies all financial rules and regulations will apply and Finance Ministry will release the amount to Commerce Ministry in four quarters.
Commerce Ministry time and again raised this issue at the highest level on a number of occasions but Finance Ministry provides different justifications to retain the amount. During PPP government, the EDF Board had also recommended that finance secretary should be summoned to the board meeting to brief the members on the reasons for holding the EDF amount but he didn''t.