Interest Payment to State Bank of Pakistan

Federal government at present pays interest on different types of treasury bills held by the State Bank of Pakistan, particularly the ad-hoc treasury bills, and treasury bills are used by the government as ways and means of support. State Bank charges interest on these advances which in reality is no more than a book entry. It is proposed that no interest be paid on resources generated by the government under this account. State Bank received about Rs 5 billion as interest from the government in 1990-91. This amount was about 33 percent of the total intergovemment interest receipts in that year. Removing this amount from the government budget should reduce the budget deficit by a significant proportion.

Dr Faiz Muhammad

Source: Elimination of Riba, Khurshid Ahmad, Khalid Rahman and Zahed A. Valie. Republished with permission.