Finance Department

GOVERNMENT OF PAKISTANFINANCE DIVISION(BUDGET WING) No.F.4(1)/2002-BR.II                                                                         Islamabad, the 2nd July, 2003 OFFICE MEMORANDUM Subject:          DEPOSIT OF WORKING BALANCES AND INVESTMENT OF SURPLUS FUNDS BELONGING TO PUBLIC SECTOR ENTERPRISES AND LOCAL/ AUTONOMOUS BODIES UNDER FEDERAL GOVERNMENT: The undersigned is directed to issue the following consolidated instructions for depositing working balances as well investment of surplus funds of the public sector enterprises and local/autonomous bodies. These instructions supersede all previous instructions issued from time to time in this regard. 2.                    As a part of its programme for further development of the financial sector, the Government is pursuing actively a policy of privatizing public sector banks and creating an even playing field for public and private sector financial institutions. In view of this, it has been decided to revise the policy on banking facilities for public sector enterprises and local/autonomous bodies. Working Balances: 3.                    Under the new policy, public sector enterprises and local/autonomous bodies can deposit their working balances required for their operations with any public or private bank subject to the following requirements: (a)         For the sake of the safety and security of deposits, the bank/financial institutions taking a deposit should have a minimum “A” rating (long-term) as appearing on the web-site of the State Bank of Pakistan. This “A” rating refers to the rating scale used by Pakistan Credit Rating Agency and JCR-VIS Credit Rating Company for banks incorporated in Pakistan and Moody’s, Fitch’s and Standard & Poor’s rating for foreign banks operating in Pakistan. Rating scales of other agencies acceptable to the State Bank should be equivalent to the rating of the above mentioned companies. Information and clarification on this matter may be obtained from Banking Policy Department of the State Bank of Pakistan; (b)         The process of selection of bank/(s) should be transparent. Therefore, prior to placing deposits with a bank under this new policy, and in case the total working balances exceed Rs.10 million, the selection of the bank/(s) as well as the terms of 2 deposits will be approved by the concerned Board of Directors/Governing Body on the basis of competitive bids from at least three independent banks; (c)         The risk associated with keeping deposits should be diversified. Therefore, in cases where total working balance of an enterprise exceeds Rs.10 million, not more than 50% of such balance shall be kept with one bank; (d)         In case the rating of the deposit taking bank drops below “A”, the concerned enterprise/local/autonomous body will shift new deposits within a period of one month and old deposits within a period of two months to a bank/(s) with at least “A” rating; (e)         The working balance limit of each organization should be determined with the approval of the administrative ministry in consultation with Finance Division. The account of this working balance may be maintained in a current or savings bank account. Surplus Funds: 4.                     It has been decided to allow the public sector entities to invest their surplus funds in the non-government securities/TFCs/shares also, upto a maximum of 20% of the total funds under management. This relaxation will not be available to public sector enterprises/autonomous bodies that have statutory restrictions on their investing in non-government securities. Corporate entities, which receive support from the current budget, are also excluded from the policy. Public sector entities, which are holding trust funds such as pension funds, benevolent funds or insurance funds, will devise their investment policies through their own Boards. 5.                     Eligibility criteria of non-government investment instruments will be as follows: (a)        Non-government debt instruments should have a major rating category of A and above; (b)       Public listed shares/units should have a total return comprising the dividend paid and appreciation in value, which exceeds the average six months Treasury Bill rate for the last three years. The formula for the calculation of the total return would be provided by the Securities and Exchange Commission of Pakistan (SECP) from time to time; (c)        Initial Public Offerings (IPOs) of shares of existing companies should have a track record of three year profitability at least equal to the average of twenty best performing companies on Karachi Stock Exchange; (d)       Total investment in debt instrument of a company not to exceed 10% of size of the issue or 10% of the total size of funds managed by the public sector entity, whichever is lower; (e)        Total investment in the shares of a company not to exceed 5% of the paid up capital of that company or 5% of the total funds managed by the public sector entity, whichever is lower; (f)        Investment in shares of Greenfield projects/companies will not be eligible. 6.                     Before making any investment under this policy, it would be necessary for public sector entities to set up in-house professional treasury management functions. Specifically, they would need to have an Investment Committee (IC) with defined investment approval authority. Transactions above the approval authority of the IC will be subject to approval of the Board of Directors or an equivalent forum. The IC should be assisted by an Investment Management Unit employing qualified staff with at least 3-5 years of experience of managing investment in debt/equity instruments. However, it will be necessary for public sector enterprises to use the services of professional fund managers approved by SECP. 7.                     The Principal Accounting Officer of the ministry concerned will be responsible for the implementation of the above instructions regarding the PSEs/local/autonomous bodies under his control. The Chief Executive of PSE/Local/Autonomous body will be required to issue a certificate on annually basis that the above instructions are being followed in respect of the working balance and surplus funds of the organization. 8.                     All the PSEs/local/autonomous bodies under your administrative control may please be directed to keep their working balances and invest their surplus funds in accordance with the above mentioned policy instructions. 9.                     This issues with the approval of the Finance Secretary. Asstt. Economic Adviser (BR.II) GOVERNMENT OF PAKISTANFINANCE DIVISION(BUDGET

No.F.2(4)-B.S/2000-1146 GOVERNMENT OF PAKISTANFINANCE DIVISION(BUDGET STATISTICS SECTION) Islamabad, November 25, 2002 OFFICE MEMORANDUM Subject: NEW PROCEDURE FOR THE MAINTENANCE AND OPERATION OF REVOLVING FUND ACCOUNTS OPENDED FOR IDA, IBRD, AND ADB CREDITS/LOANS The undersigned is directed to refer to this Division’s O.M. No.F.2(3)-B.S/84-93, dated 23- 10-1993 and to say that a new foreign aid Accounting Procedure for donors share of financing have been devised (copy enclosed). The new Procedure would be applicable to the projects accounts opened after 1st December2002.2000-1146, dated 25-11-2002 on the subject noted above. It has been observed 2.                    The Executing Agencies for the ongoing projects shall be responsible to submit monthly classified account of expenditure (function and object-wise) to the concerned A.G./AGPR by the 10th of the following month with advice to adjust the same against their Budget Demand. Deputy Secretary (BR) ANNEX TO FINANCE DIVISION O.M. NO.F.2(4)-B.S./2000-1146, DATED 25-11-2002 Government of PakistanFinance Division(Budget Statistics Section) Subject:          NEW PROCEDURE FOR THE MAINTENANCE AND OPERATION OF REVOLVING FUND ACCOUNTS OPENDED FOR IDA, IBRD, AND ADB CREDITS/LOANS Debit              :        “Head of Account and Demand No., as indicated in the copy of Withdrawal Application”. Credit :           :     “3905006-Assignment Account (for Revolving Fund under IDA/IBRD and 3905007-Assignment Account for ADB Credit/Loan No……. for Project ………………….. )”. The National Bank of Pakistan will immediately report the receipt in US Dollars as well as Rupees to the project director with copy to Provincial Finance and Development Departments, Economic Affairs Division and Finance Division, Government of Pakistan as well as to Accountant General of Pakistan Revenues. (VIII) a)          The persons authorized to sign Withdrawal Applications and operate ‘Revolving Fund Accounts’ simultaneously shall furnish copies of the Withdrawal Applications to their Administrative Ministries / Divisions as well as to the Economic Affairs Division, National Bank of Pakistan, Head Office, Karachi and State Bank of Pakistan, (Accounts Department), Karachi. The endorsements of Withdrawal Applications shall indicate the Demand No. and head of account under which the rupee equivalent of the amounts authorized for credits into Revolving Fund Accounts in Dollars is to be debited. b)     The person authorized to sign the withdrawal application and operation of Revolving Fund Account relating to the Provincial Projects, shall furnish copies of the withdrawal application to his administrative Department as well as to the Provincial Finance, Planning & Development Departments and State Bank of Pakistan, (Accounts Department), Karachi. The endorsements of withdrawal application will indicate the (Provincial) budget Demand No. and head of Account to which the rupee equivalent of the amounts authorized for credit to Revolving Fund Accounts in dollars, is to be debited. (b)     The Project Director shall verify the expenditure reported by the National Bank with his record and prepare a function- cum-objective wise statement of expenditure and submit it to the concerned A.G alongwith vouchers by 21st of the following month. The A.G will get the expenditure agreed and reconciled with the figures reported by the State Bank. In case any variation is found, the Project Director will be asked by the A.G to reconcile and remove the said variation. (c)       The A.G shall also carry out necessary post audit of the paid vouchers. The observations, if any, shall be communicated to the Project director with copies to Federal/Provincial Finance/Planning and Development Division/Department. After post audit, the A.G will return the vouchers to the Project Director for external audit purpose by the Auditor General of Pakistan. (XII)    The Project Director shall be personally responsible for the adjustment of disbursements made direct by the donors/lenders in Government Accounts. On receipt of intimation of payments from donors/lenders duly supported with necessary documents, the Project Director will advise the AGPR and concerned A.G of the Provincial Governments to adjust the expenditure against his Budget Demand by credit to Account-I of the respective Government under head “2331000-Foreign Debt (Permanent)”. (XIII)(a)      The National Bank of Pakistan will not require permission of the Finance Division (External Finance Wing) for making payments in Foreign Exchange from Revolving Fund Accounts on account of consultancy contracts under the credit/loan. However, in case of Foreign Training prior approval of concerned Ministries/Divisions will be required. (b)       The consultancy charges payable by the donors shall be paid after verification of services rendered by the Consultant, by the concerned Project Director/ Ministries/ Divisions or by the Provincial Governments. (XIV)       The advance payments made by the National Bank of Pakistan to the project authorities shall be reimbursed within two days by SBP to the Provincial Headquarters of the National Bank of Pakistan by debiting the head “Assignment Account”. (XV)        The controlling Ministries/Divisions shall reconcile expenditure on account of Foreign aid with AGPR, EAD and SBP on monthly basis. The controlling departments of the Provincial Governments will similarly reconcile the expenditure on foreign aided projects with the AG/Provincial Finance Department. In case of non-reconciliation by 21st of the following month, AGPR/Provincial A.Gs to advise the donor through the EAD to take appropriate action as per the donor’s “Financial Management Guidelines”.