According to a report published in The Express Tribune, Reza Baqir in a meeting of the Public Accounts Committee (PAC) on Tuesday said “people are withdrawing money from banks and they do not want to come in the tax net.” However, he in its first appearance at any parliamentary forum refused to divulge the names of people and institutions that were bringing in hot foreign money, terming the information ‘confidential’.
He further said that the demand for cash was increasing and it was pushing the printing cost higher. While responding to a question on whether the central bank was printing new notes, the governor said that withholding tax on banking transactions was also another reason for the increasing demand for cash.
In the last fiscal year, the total flow of money in circulation was Rs562 billion – a threshold that is likely to be exceeded in the current fiscal year. The income tax base has shrunk 12% in the current fiscal year as only 2.5 million individuals and companies have filed tax returns.
While talking about hot foreign money, Baqir ruled out the possibility of introducing capital controls to manage orderly withdrawal of hot foreign money. He said there might be volatility in portfolio investment but its current level was manageable.
The governor also spoke at length about inflation, high interest rates, and exchange rate policies of government and SBP.