IMF board approves $7bn loan programme for Pakistan [Post Updated #474]

[MenInG]

The country’s external debt servicing will remain over $10 billion a year for the next two years, as the government weighs its debt-related foreign inflows position to meet the mounting foreign obligations that keeps it dependent on global lenders.

The $10 billion a year external debt servicing is exclusive of the foreign loans that Pakistan has taken in the shape of deposits from the United Arab Emirates (UAE) and China, the ministry of economic affairs informed the finance ministry on Tuesday.

The $2 billion of the UAE and China’s $4 billion are expected to be rolled over, reducing the repayments by the same amount.

The ministries of finance and economic affairs held a meeting to take stock of the situation, which suggested that the government would have to keep the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB) on its right side, sources told The Express Tribune.

Finance Minister Shaukat Tarin and Economic Affairs Minister Omar Ayub Khan led their ministries to the review of the inflows and the outflows.

The meeting was informed that against the current fiscal year’s expected inflows of $14.4 billion, the disbursements of loans might remain around $12 billion, the officials said. Up to $2.5 billion shortfall will be because of only $500 million disbursements by the IMF and no disbursement from the $1 billion Saudi oil facility.

The IMF programme remained derailed for one year and is again being reviewed just after one month of its revival. Tarin is currently weighing his options to keep the economy afloat, as he has already showed his reservations over the harsh IMF conditions.

The finance minister on Monday hoped that the IMF staff would understand Pakistan’s position as the government requested for a sympathetic view due to the pandemic. Tarin is opposed to further increasing the electricity prices and slapping new taxes – the two conditions that Pakistan has agreed in writing to meet by March this year.

Tarin said that the IMF target could be met through alternative measures, as higher electricity rates were only promoting corruption. The finance minister said he did not believe in increasing taxes to increase revenue collection but those outside the tax net would be tapped.

Another $1.5 billion lending by the World Bank was also at stake due to Pakistan’s inability to meet some of the conditions, including notifying increase in electricity prices.

Tarin has held meetings with World Bank officials to secure the $1.5 billion loan, as the country does not have an immediate solution but to take more loans due to the failure in enhancing exports and foreign direct investment.

The government has received loans worth $10.4 billion during July-March period of this fiscal year, including $2.5 billion Eurobonds. However, the World Bank has so far disbursed only $938 million as against annual estimates of $2.3 billion.

Pakistan will also have to pay $3.8 billion to external creditors during the last quarter (April-June) of the current fiscal year and any shortfall against the projected disbursements might put some strain on the foreign exchange reserves, which have largely been built by taking loans.

Along with exports, the foreign direct investment is also not picking up. The Chinese investment under the special economic zones is also not materialising after the government has failed to finalise an SEZs incentive package. China has also showed reluctance to sign an Industrial Framework Agreement, according to the sources.

The ministerial meeting also reviewed the possibility to fast track disbursements of over $16.5 billion foreign loans that Pakistan has signed but remain undisbursed due to long gestation periods of the projects and not fulfilling conditions.

The meeting was informed that these loans would be disbursed subject to resolution of all the outstanding issues. The government also does not have sufficient fiscal space in the budget to provide rupee cover to these foreign loans.

Prime Minister Imran Khan had set up a National Coordination Committee on Foreign-Funded Projects (NCC-FFP). The committee had been set up after the existing government bodies and approving authorities failed to undertake measures that are needed for swift disbursements of stuck-up foreign loans.

At present, 14 foreign-funded projects – including power generation, transmission and distribution amounting to $3.4 billion are under implementation.

Foreign funding would be utilised for supporting social protection and skill development programmes to protect under-privileged groups of the society and to empower youth by imparting valuable skills, Tarin said during the meeting.

https://tribune.com.pk/story/2298393/external-debt-servicing-to-stay-above-10b-next-fiscal

 

[MenInG]

The cost of debt servicing jumped to Rs2.1 trillion in just nine months that consumed 82% of government’s net revenues, resulting in a steep cut in development budget and containing defence spending.

The money left after paying for interest cost was hardly sufficient to meet 60% of nine-month defence expenditures, reveals the fiscal operations summary for July-March of 2020-21.

The remaining defence and other expenses for running the affairs of the government were met by taking new loans, the finance ministry report, released on Thursday, showed.

“The finance ministry numbers are always different from the planning ministry numbers but this year during the first nine months the spending is lower,” said Planning Minister Asad Umar. He said that the full-year spending was still expected to be Rs650 billion.

The failure to enhance revenues and the central bank’s decision to fix interest rate at 13.25% in the last fiscal year despite core inflation at around 6% has led to a massive increase in the government’s debt servicing cost.

Finance Minister Shaukat Tarin also said on Wednesday that the central bank went overboard when it kept the interest rate at 13.25% when core inflation was around 5-6%.

There was 22.5% drop in the federal development spending, which amounted to a mere Rs264 billion during the first three quarters of current fiscal year.

Development spending was equal to only 40% of the annual Public Sector Development Programme (PSDP) of Rs650 billion. The federal development spending was also Rs255 billion less than the annual spending plan approved by the Ministry of Finance.

Also, defence spending remained Rs18 billion or 2.2% less than the last fiscal year and stood at Rs784 billion.

Interest payments grew nearly 12% to Rs2.1 trillion - the highest increase under any head of the budget during the July-March period.

Combined expenditures on debt and defence stood at Rs2.9 trillion, which was Rs312 billion more than the net income of the federal government despite a decent growth in revenues.

The constant high bill of debt and defence once again highlights that the Pakistan Tehreek-e-Insaf (PTI) government still lacks fiscal space for stimulating the economy and spending on human development. Finance Minister Tarin’s plan to achieve higher economic growth in the next fiscal year through public sector spending may face many fiscal challenges.

The cumulative spending of Rs2.9 trillion on debt servicing and defence needs was equal to 85% of total taxes collected by the Federal Board of Revenue (FBR) in the nine-month period. The FBR pooled Rs3.4 trillion during the period.

Net federal receipts are calculated after excluding the share of four provinces from the gross federal receipts. Gross federal receipts stood at Rs4.6 trillion, which increased by 5.1% over the same period of previous year.

The share of provinces in federal collection slightly increased by 2.8% to Rs2 trillion despite an increase in tax collection by the FBR. The four provinces get 57.5% of federal taxes as their share under the National Finance Commission (NFC) Award.

The overall budget deficit widened to 3.6% of gross domestic product (GDP), or Rs1.65 trillion, in the first nine months.

However, the government has showed a huge statistical discrepancy of Rs167 billion in expenditures. After adjusting this discrepancy, the overall budget deficit would shoot up to 4% of GDP or Rs1.8 trillion, up 7% than the last fiscal year.

A finance ministry official said that the Rs164-billion discrepancy was in the provincial fiscal operations and the numbers were being reconciled.

Alarmingly, the interest payments were equal to 4.6% of GDP, which was higher than both the federal and overall budget deficit in the nine-month period.

The federal budget deficit in the first nine months stood at Rs2.06 trillion, which was equal to 4.5% of GDP.

Former finance minister Dr Abdul Hafeez Shaikh had claimed to have achieved fiscal discipline despite booking over Rs3 trillion in budget deficit every year.

Revenues are falling short of the needs even though the government is heavily burdening the people with taxes on fuel, electricity and consumer goods.

The petroleum levy collection stood at Rs369 billion, up 86% or Rs171 billion, in just nine months.

Non-tax revenue collection increased to Rs1.2 trillion, showing 13% growth in the period under review. The central bank’s profit dropped to Rs498 billion, a reduction of 22% in nine months against earnings of Rs636 billion in the same period of last year due to the overall reduction in interest rate.

After paying Rs2 trillion to provinces, the net federal revenues amounted to Rs2.6 trillion, which was better than the first nine months of previous fiscal year.

Total federal expenditures stood at Rs4.63 trillion, which were higher by Rs201 billion or 5% over the same period of last fiscal year. There was an increase of 7% in current expenditures in nine months, which stood at Rs4.2 trillion.

Published in The Express Tribune, May 7th, 2021.

 

[MenInG]

The Asian Development Bank (ADB) and the government of Pakistan on Friday signed a $300 million loan to finance the construction of a 300-megawatt hydropower plant in Balakot, Khyber-Pakhtunkhwa province.

ADB Acting Country Director Cleo Kawawaki and Economic Affairs Division Secretary Noor Ahmed signed the loan agreement for the project, which was approved by the ADB on March 30.

Minister for Economic Affairs Omar Ayub Khan, Khyber-Pakhtunkhwa Chief Minister Mahmood Khan and ADB Director General for Central and West Asia Yevgeniy Zhukov witnessed the inking of the agreement.

“As Pakistan’s largest development partner in the energy sector, ADB has been supporting Pakistan as it aims to build its renewable energy resources and cut its heavy dependence on fossil fuels,” said Zhukov.

“The Balakot hydropower project will play an important role in helping to advance this objective. ADB will continue to support Pakistan to diversify its energy sources, implement critical reforms, increase energy security and grow the share of clean power in its energy mix.”

The Balakot hydropower project will generate economic activity and improve the skills of local communities.

During construction, the project will generate more than 1,200 jobs, about 40% of which will be sourced locally. A community development programme will help to improve livelihood opportunities for the affected households in the project surroundings.

Pakistan is rich in hydropower resources, but only around 16% of its identified hydropower potential has been harnessed. The country’s power sector is reliant on imported fuel-based power generation and is burdened with a stressed transmission and distribution network.

To balance the energy mix and reduce its dependence on imported fuel, the government is committed to increasing its untapped renewable energy potential in the areas of hydro, solar and wind.

The project will help meet future national demand for clean and affordable energy and generate revenue for Khyber-Pakhtunkhwa. It is expected to be commissioned by 2027.

The ADB has helped Pakistan undertake wideranging energy sector reforms designed to boost generation, transmission and distribution capacity by rehabilitating the aging power infrastructure.

The ADB is also supporting energy efficiency initiatives and public and private sector led clean energy development projects.

The ADB is committed to a prosperous, inclusive, resilient and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members – 49 from the region.

 

[MenInG]

Prime Minister Imran Khan on Monday formally launched Pakistan's first green Eurobond by the Water and Power Development Authority (Wapda) at a ceremony in Islamabad.

The prime minister — who was the chief guest — began his address by congratulating the authority on the achievement. He also expressed satisfaction at the progress on Mohmand and Bhasha dams.

"Unfortunately, one of Pakistan's biggest weaknesses is the implementation of projects. In my government I am also seeing that some things lag behind when it comes to implementation."

PM Imran lamented the fact that Pakistan's potential had not been utilised. "When Shaukat Tarin and I were growing up in Pakistan, the country had a different status in the world. Our economy at one point was at the fourth spot in all of Asia."

We were progressing rapidly and a major part of that was due to the Planning Commission, he said. "Long-term planning was being done [...] they were thinking about future generations. And this is what builds the foundation of a great nation.

"A nation can't progress if you carry out planning from one election to the next." He said that there was a need to invest in the country's children and think about where the country is headed.

"When I used to come back from playing cricket in India, even in the 80s, it used to feel as though I have come back from a poor country to rich one. There was such a contrast between India and Pakistan."

He said that after 1985, India started progressing rapidly, adding that Bangladesh also managed to progress by implementing long-term planning.

The premier said that the government was planning to build 10 dams in the next 10 years in an effort to produce clean energy. "Pakistan is vulnerable to climate change, and we need to think of our future generations."

Commenting on the government's 10 Billion Tree Tsunami Programme, PM Imran said that one billion trees have been planted since 2018. "Nurseries have been created and we are hopeful that we will complete our goal by 2023," he said, adding that this will also have an impact on people's livelihoods and on tourism.

He said that the government was also introducing a core syllabus for the education system to bring social cohesion. "We are also integrating madrassahs into the mainstream," he said.

He concluded his address by stating that the government was focusing on wealth creation and industrialisation.

Last week, Wapda launched its first green Eurobond, called Indus bond, for 10 years to raise $500 million at a competitive price of about 7.5 per cent interest rate.

The launch of the bond attracted a number of international investors, who offered Wapda investments worth $3 billion — six times more than its need — through the Indus bond.

“This kind of willingness shows the belief and confidence the international investors have in Wapda in particular and Pakistan in general,” the authority’s chairman, retired Lt Gen Muzammil Hussain, had told Dawn. “This is unprecedented, as I have never seen such a favourable and congenial response for Wapda.”

Out of the nearly $2.2bn that Wapda needs over five years ($1.1bn in the first two years) it is initially raising $500m through the Indus bond. The number of bonds will be gradually increased based on the financial needs of the projects to be funded — Diamer-Bhasha and Mohmand dams.

DAWN

 

[MenInG]

The government has planned to take nearly $16 billion gross foreign loans in next fiscal year to meet requirements of maturing external public debt and finance the budget deficit.

The estimated $15.7 billion borrowings in fiscal year 2021-22 are higher by nearly 10% over this year's revised estimates of foreign economic assistance, said sources in the Ministry of Finance. The final figures may slightly change in light of ongoing discussions with the International Monetary Fund (IMF), they added.

Nearly two-third of the foreign loans will be taken to return the maturing external public debt, excluding interest payments, said the sources.

The Ministry of Finance has estimated the gross receipts of $15.7 billion from bilateral and multilateral lenders, commercial banks, issuance of Eurobonds and the IMF for fiscal year 2021-22, according to the sources. The new plan consists of floating $2 billion Eurobonds, contracting a record $4.9 billion foreign commercial loans and about $3.1 billion lending by the IMF, said the sources.

The estimated roughly $16 billion borrowings will be the highest-ever taken by the country in a single year, highlighting challenges that every government faced due to the deepening debt trap.

Because of inability to enhance non-debt creating inflows, Pakistan's now $16 billion gross official foreign currency reserves held by the State Bank of Pakistan (SBP) are largely built through borrowings, which is also a reason for constant surge in foreign loans. This has weakened the country's debt bearing capacity.

Read more: State Bank set to launch collateral-free loan scheme

For the next fiscal year, the federal budget deficit is also estimated over Rs4 trillion - the highest ever - and the government plans to bridge some portion of this yawning gap through foreign loans.

For fiscal year 2021-22, the IMF has projected SBP's reserves at $17.8 billion in its April report, which will again be impossible without borrowings due to no major increase in exports and foreign direct investment in the next fiscal year.

During the outgoing fiscal year, the government has estimated receiving $14.3 billion foreign loans, which were so far highest in the Pakistan Tehreek-e-Insaf's (PTI) tenure. Cumulatively, the PTI government has taken $38.7 billion during its three-year tenure. The central bank data showed that the PTI government has added $15 billion in external public debt from July 2018 through March 2021 and the rest of loans were utilised to repay the maturing loans. There has been a 20% increase in external public debt in three years, according to the SBP.

The government is currently in negotiations with the IMF for the next loan tranche of $1 billion that will be disbursed at the beginning of new fiscal year, subject to an agreement between the two sides.

Pakistan expects to receive $3.1 billion from the IMF in the next fiscal year, subject to successful completion of quarterly reviews. This year the IMF gave $500 million loan.

The materialisation of about $16 billion external loans will also depend upon the continuation of the IMF programme, as the government has included loans from the IMF and budgetary support from the World Bank and the Asian Development Bank (ADB).

The government has planned to take highest-ever foreign commercial loan of $4.9 billion, which will essentially be rollovers of the existing commercial loans. For this fiscal year, the revised estimates of foreign commercial loans are $4.7 billion, also highest so far. The commercial loans are expensive and of short tenure.

The bilateral inflows are estimated at just $312 million due to completion of major ongoing projects of the China-Pakistan Economic Corridor (CPEC) and shifting focus of the western powers. The loan from China is estimated at only $67 million in the next fiscal year - down by 72% over this year's revised estimates.

Pakistan has estimated $5.4 billion loans from the multilateral creditors in next fiscal year. The ADB is expected to lend $1.6 billion, slightly less than this fiscal year. The World Bank may extend $2.3 billion in new loans, said the sources.

The Islamic Development Bank is expected to extend $1 billion in fresh loans and $357 million receipts are estimated from Asian Infrastructure Investment Bank (AIIB), said the sources.

The government also has a plan to float $2 billion Eurobonds in the next fiscal year after it sold $2.5 billion Eurobonds this fiscal year. Pakistan has not estimated any new short-term loan by Saudi Arabia. It has so far not shown any receipt on account of Chinese safe deposits, said the sources.

 

[MenInG]

Pakistan will get only $800 million in budget support loans this month as the two largest lenders have postponed approval of another $1 billion due to delay in meeting some conditions and deadlock in talks with the International Monetary Fund (IMF).

The World Bank would approve $800 million in policy loans on June 28 against the original plan of $1.5 billion, sources in the Ministry of Finance told The Express Tribune on Monday.

Pakistan and the World Bank had negotiated three loans, each valuing at $500 million, they added.

However, the World Bank postponed the approval of one loan - under the second Resilient Institutions for Sustainable Economy (RISE-II) programme - and reduced the size of other two loans from $500 million to $400 million each under the Securing Human Investments to Foster Transformation (SHIFT-II) programme and the Programme for Affordable and Clean Energy (PACE), said the sources.

The World Bank decided to cut the loan amount after Islamabad could not fulfill some of the conditions, the sources said. Similarly, the Asian Development Bank (ADB) has delayed the approval of second tranche of the $300 million Energy Sector Reforms and Financial Sustainability programme, finance ministry sources said.

The Ministry of Finance did not respond to the request for official version.

The World Bank board is scheduled to consider the second series of SHIFT and PACE on June 28, a spokesperson for the bank’s local office confirmed to The Express Tribune.

The spokesperson said that “RISE-2 has been delayed to accommodate the processes required by the government to implement the reforms outlined in the programme.”

Responding to another question on reducing the size of loans, the spokeswoman added that the amount reflected had been agreed jointly by the government of Pakistan and the World Bank.

The delay would not adversely affect Pakistan’s external sector position in the short term due to $16 billion in gross foreign exchange reserves, although they have been largely built by taking loans.

However, the rupee came under some pressure on Monday and lost 44 paisa to Rs156.18 to a dollar.

Pakistan has already planned to take $17 billion in foreign loans in the next fiscal year. However, the borrowing plan hinges on the country’s ability to remain in the IMF programme, which has been restored just three months ago.

Sources said that prolonged talks with the IMF also became a reason for the delay in finalising the remaining two loans - one each by the World Bank and the ADB.

Pakistan-IMF talks under the sixth programme review were scheduled to conclude before the announcement of the budget.

However, there is a deadlock over the issue of imposing more taxes and an increase in electricity prices by another 46%. Finance Minister Shaukat Tarin said on Saturday that the sixth review might now conclude by September.

Some of the conditions, which are part of the IMF plan, have also been included in the ADB and World Bank programmes. The World Bank has set tough conditions such as an increase in electricity tariffs and the introduction of new power and tax policies, which has put the government in a tight spot.

Sources said that the $500 million RISE-II loan got delayed due to a lack of progress on conditions like issuance of notifications by provincial governments for adopting the Federal Board of Revenue (FBR) valuation tables applicable to the urban immovable property taxes to keep the assessment ratio at 85% of market value.

The signing of performance contracts with the board and management of all power companies is also part of the RISE loan conditions.

There is also a condition that the federal and provincial finance departments should issue implementing regulations following the approval of common general sales tax (GST) laws passed by the federal and provincial assemblies to generate a harmonised GST for goods and services across the country.

“The (RISE-II) operation focuses on strengthening fiscal and debt management institutions and inter-governmental arrangements to improve macro-fiscal stability,” said the World Bank documents.

RISE-II also supports reforms to improve the financial viability of the power sector, through the reduction and ultimate elimination of the sector’s circular debt, which were initiated under RISE-I.

It further aims to improve the investment climate through the implementation of a nationwide harmonised GST, a competitive national tariff policy, an inclusive digital payment system that allows fintech companies to undertake electronic money operations, and a better-regulated banking system, according to the World Bank.

Published in The Express Tribune, June 15h, 2021.

 

[Napa]

Prime Minister Imran Khan on Monday formally launched Pakistan's first green Eurobond by the Water and Power Development Authority (Wapda) at a ceremony in Islamabad.

The prime minister — who was the chief guest — began his address by congratulating the authority on the achievement. He also expressed satisfaction at the progress on Mohmand and Bhasha dams.

"Unfortunately, one of Pakistan's biggest weaknesses is the implementation of projects. In my government I am also seeing that some things lag behind when it comes to implementation."

PM Imran lamented the fact that Pakistan's potential had not been utilised. "When Shaukat Tarin and I were growing up in Pakistan, the country had a different status in the world. Our economy at one point was at the fourth spot in all of Asia."

Living in the past without an understanding how the economies of the modern world work. There were no modern industries in Pakistan when IK was growing up, it was dominated by feudal agriculture, so to think that time was ideal in some manner is foolish.

We were progressing rapidly and a major part of that was due to the Planning Commission, he said. "Long-term planning was being done [...] they were thinking about future generations. And this is what builds the foundation of a great nation.

"A nation can't progress if you carry out planning from one election to the next." He said that there was a need to invest in the country's children and think about where the country is headed.

"When I used to come back from playing cricket in India, even in the 80s, it used to feel as though I have come back from a poor country to rich one. There was such a contrast between India and Pakistan."

He said that after 1985, India started progressing rapidly, adding that Bangladesh also managed to progress by implementing long-term planning.

I was waiting for him to start talking about his obsession India, and he didn't disappoint.

He is totally clueless about economies of the modern world. India has progressed economically not because of government planning, but because it finally got rid of its economy being directed by its "Planning Commission" with its "5-year plans".

If IK thinks that Pakistan's economy will get better with even more government "planning" and "control", I feel sorry for Pakistanis.

 

[MenInG]

ISLAMABAD: Ruling out any disagreement, Finance Minister Shaukat Tarin has said that it is not possible for Pakistan to get out of the International Monetary Fund (IMF) programme at this time when the economy is reviving.

In a testimony before the Senate Standing Committee on Finance chaired by Senator Talha Mahmood on Wednesday, Mr Tarin also held out an assurance that the language of the proposed section 203-A on powers of taxmen to arrest will be changed and all objectionable things will be removed. Earlier, the committee unanimously turned down the arrest powers of the Federal Board of Revenue (FBR).

The minister informed the committee that the government estimates economy to grow by 7 per cent by FY23 when the country will go for new elections with projection of 5pc-5.5pc for upcoming 2021-22.

Opposition parties have blamed the government that the budget 2021-22 is laden with tax measures suggested by the IMF, which are anti-poor and will jack up consumer inflation.

“It is not possible to get out of the IMF programme at this time,” Mr Tarin said, adding “We were forced to go to the IMF”. “This time the IMF was not friendly with us and the programme was front-loaded and tough,” he further said while comparing with the previous programmes with the lenders.

He said that the power sector measures would be sustainable and will increase revenue. “This is what IMF want from Pakistan,” he remarked.

Mr Tarin said the country was in a dire need of inclusive and sustainable growth for which we need to enhance revenues and promote productive sectors, including agriculture.

Unfortunately, the country at present had become a net importer of food products and that was why the international food prices were having direct impact in Pakistan, he added.

On the issue of giving power to income tax officer to arrest any tax evader, Mr Tarin said that FBR’s authorisation to make arrests is not intended to make arrests. “The purpose of this law is to create fear among the defaulters,” he said.

The minister, however, suggested that government will consider recommendation of the committee on this specific issue.

Increasing tax ratio

As per the proposed plan, the minister said that the government will take steps to increase tax-to-GDP ratio by 1pc every year. If these steps had been taken earlier, the tax revenue would have exceeded Rs10,000 billion, he said.

The tax ratio is currently at 10pc and would go up to 11.5pc next year as the government was using technology and innovations for widening the tax base.

He said the FBR had obtained profile data of 7.2 million people, who would be approached to pay the tax. He mentioned that there were some sectors like agriculture and retail where tax base could be enhanced.

He said that a third party audit system is being introduced in the FBR to end tax harassment. “We have also removed the role of FBR in the audit,” he added.

Senator Sherry Rehman mentioned that share of indirect taxes has increased during the tenure of this government. On this Mr Tarin replied that indirect taxes have also been raised in China, Turkey and other countries.

The committee has strongly opposed government’s decision to increase sales tax on gold, diamonds and precious stones as well as on dairy products, bricks, aircraft, plants and machinery, importing aircraft and spare parts, withdrawal of exemption on LED lights, cotton seeds, soyabean meal, soyabean seeds, raw cotton, ginning cotton, plant, machinery, packaged flavored milk, cream, yogurt, poultry machinery and many other items. Member Policy FBR informed the committee that the government has abolished all reduced sales tax rates on the non-essential and luxury items, which were taking undue advantage of the concessionary sales tax regime.

Published in Dawn, June 17th, 2021

 

[MenInG]

The World Bank has approved a $442 million loan for improving access to water and sanitation services for the most vulnerable rural communities in Punjab, as the lender predicts “sizable increase” in poverty across the country.

The World Bank board of directors approved the Punjab Rural Sustainable Water Supply and Sanitation Project (PRSWSSP) to upgrade water supply and sanitation infrastructure and services for sustainable access to drinking water and safe wastewater management, a handout issued by the local office of the World Bank stated.

The project prioritises rural settlements, where water contamination and poor sanitation practices are more prevalent, causing high levels of illness and child stunting.

The World Bank approved the project the day the government decided to reverse its earlier decision of increasing tax incidence on the dairy products, which would have reduced their consumption. In the budget, the government has proposed to increase the sales tax rate on dairy products from 10% to 17%.

“The authorities concerned assured the Pakistan Dairy Association (PDA) delegation that the sales tax rate on the value-added products of the dairy sector would be reversed to 10%,” said PDA Chairman Ali Ahmed Khan while speaking at The Express News Show -The Review - on Saturday.

Khan said that the finance minister has also assured that the zero rating facility on some of the inputs that had been withdrawn four years ago would now be restored.

When asked if dairy products’ prices would be reduced if both these promises are fulfilled, Khan said now the prices would not be significantly increased.

The finance minister asked the Federal Board of Revenue (FBR) chairman to ensure that the above changes are incorporated in the final budget to be passed by the parliament. The PDA said the decision would help the government achieve its nutrition related targets.

“The PDA will work closely with the prime minister’s programme to promote safe, healthy and nutritional dairy products, fight against stunting and malnutrition, improve the livelihood of farmers and provide safe milk to build a strong nation,” said Ali Ahmed Khan

One of the project goals of the $442 million new World Bank loan is “reduction in the incidence of stunting among children aged 0-3 to 40%, according to the World Bank.

The World Bank project documents underlined that the Covid-19 pandemic crisis is expected to lead to a sizable increase in poverty, reversing the sustained reduction observed over the past 20 years.

It said that deterioration of health indicators is expected due to demand-side issues induced by the crisis, such as lower utilisation of non-Covid-19 healthcare due to fear of contagion and income constraints. The pandemic has also resulted in an increase in the number of out-of-school children, said the World Bank.

The absence of significant investment in safe management and disposal of fecal waste coupled with virtually no investment in the treatment of drinking water in rural areas is responsible for the anomaly of persistently high rates of diarrhoea and stunting, said the World Bank.

Punjab has fared well in terms of overall poverty reduction, close to 48% of the country’s poor live in Punjab, which is broadly proportional to Punjab’s share in Pakistan’s total population.

“There is significant spatial disparity in poverty across Punjab and human development outcomes are similarly skewed,” said the World Bank.

The loan proceeds will also be utilised to provide wastewater treatment facilities that mitigate risk of fecal contamination of water resources in heat stressed and water-scarce areas by generating safe effluent to 2,000 villages. The percentage of households that have the World Health Organization (WHO) quality drinking water at point-of-use will be increased to 75%.

“PRSWSSP will help more than six million rural residents in the poorest districts of Punjab to reduce child stunting and address areas at high risk to droughts and water scarcity,” said World Bank Country Director for Pakistan Najy Benhassine.

PRSWSSP Task Team Leader Farhan Sami said the project will reduce water borne illnesses and ensure service quality and customer care through a financially sustainable public company.

According to the World Bank, the project will cover 16 districts, with 50% of districts from south Punjab, and 25% each from central and north Punjab.

Published in The Express Tribune, June 20h, 2021.

 

[MenInG]

The World Bank has approved $800 million in loans to finance Pakistan’s budget deficit after the government accepted conditions like increasing electricity prices to reduce circular debt and giving targeted subsidies - measures the lender said would increase poverty in the country.

The board of directors of the World Bank approved financing for two programmes - Pakistan Programme for Affordable and Clean Energy (PACE) and the second Securing Human Investments to Foster Transformation (SHIFT-II), totalling $800 million, stated the World Bank.

The board approved the $400 million PACE loan only after the government accepted at least six prior conditions like ensuring reduction in power generation cost, competitive bidding for all new power generation projects, shift to clean energy, Rs1.95-per-unit increase in electricity tariffs, reduction in circular debt and appointing independent boards of power distribution companies, according to World Bank documents.

The World Bank, in a statement, said that PACE loan focused on measures to improve financial viability of the power sector and support the country’s transition to low-carbon energy.

PACE prioritises actions needed to initiate critical power sector reforms focused on reducing power generation costs, better targeting of subsidies and tariffs for consumers, and improving efficiencies in electricity distribution with the participation of the private sector, it added. The project information document listed six prior conditions for the board meeting.

The first prior action was about reducing power generation costs in government generation companies, contributing to reduced consumer tariffs and signalling the government’s commitment to equitable treatment and burden sharing for tariff reduction across all categories of power generation.

The second condition was about ensuring competitive bidding for all new power generation, which would lower future electricity costs for consumers through the National Electricity Policy. It was under a World Bank condition that the Council of Common Interests last week approved the National Electricity Policy. But Energy Minister Hammad Azhar took credit for the electricity policy on social media.

Project documents showed that the third condition of the loan was that the government would ensure transition to 66% renewable energy by 2030 through the adoption of a least cost generation plan (IGCEP).

The government accepted two conditions about rationalising electricity prices and minimising subsidies. The documents stated that the government would break the pattern of non-poor and vested interests benefitting from poorly targeted subsidies, additionally constraining fiscal space, and distorting the subsidy schemes of the government.

The prior actions support the Ministry of Finance and Ministry of Energy’s careful management of the financial situation of the power sector in the recovery period of Covid-19, while minimising the impact on circular debt through the notification of re-based consumer tariffs and cabinet approval of the updated circular debt management plan.

According to another condition, the government will ensure full authority and autonomy for the boards and management of all distribution companies.

“The rationalisation of electricity tariffs and subsidies may have a small negative impact on the private sector and poverty in the short term as consumers will need to bear some of the burden to reduce the circular debt, but this impact is limited,” according to the World Bank.

“It added that broadening the base for tariff increases through retargeting of subsidies and rebasing the electricity tariff will mean that some user categories will face increased tariffs,” said the World Bank.

In particular, the latest rebase of Rs1.95 per unit applied to all consumers is expected to increase poverty by 0.34-0.50 percentage point, stated the World Bank.

The International Monetary Fund (IMF) is seeking a further increase of Rs4.95 per unit in electricity prices, which would mean poverty situation would further deteriorate.

However, the lender has cautioned that there were political, macroeconomic, technical design, and institutional capacity risks in implementation of these conditions. Implementation of PA5 (CDMP), especially actions related to consumer tariff increases, budgeting subsidies and transfer of circular debt stock to public debt, is at risk if power costs increase due to higher oil price and rupee depreciation, and if fiscal space is tightened by external shocks, said the lender.

“Power sector reforms are critical to resolving Pakistan’s fiscal challenges,” said Rikard Liden, World Bank Task Team Leader for the PACE programme.

The World Bank also approved $400 million for SHIFT-II which supports a federal structure to strengthen basic service delivery for human capital accumulation.

The programme would help improve health and education services, increase income-generation opportunities for the poor, and promote inclusive economic growth, said the World Bank. The SHIFT-II reforms increase budget reliability for sustainable financing of child immunisation and quality primary healthcare programmes, promote student attendance - especially for children who are out of school due to Covid-related closures - and support data-driven decision-making.

The programme supports reforms to encourage women’s participation in the economy by improving working conditions and empowering those in the informal sector.

It supports the enhancement of national safety net programmes and better targeting to protect the most vulnerable, building resilience to shocks like the Covid-19 pandemic.

“The reforms underpinning PACE and SHIFT can contribute to facilitating sustainable investments and generate welfare gains for those most in need,” said World Bank Country Director for Pakistan Najy Benhassine.

Pakistan has already planned to take $17 billion in foreign loans in the next fiscal year. However, the borrowing plan hinges on the country’s ability to remain in the IMF programme, which is again in trouble.

 

[MenInG]

The International Monetary Fund (IMF) has approved allocation of new funds for its member countries, including Pakistan, to help them combat the challenges arising from the Covid-19 pandemic and put the global economy on a sustainable growth path.

Under the new allocations, Pakistan is estimated to receive $2.8 billion during the current month (August 23). The inflows are projected to lift the country’s foreign currency reserves to a new record high of over $20 billion.

Besides, the inflows will not only improve the country’s capacity to make payments for imports and repay foreign debt, but will also help arrest the rupee depreciation against the US dollar and other major currencies.

The State Bank said last week (July 27) “in August, Pakistan’s reserve buffers are expected to rise by another $2.8 billion through the IMF’s planned new global SDR (Special Drawing Rights) allocation.”

Earlier, the Washington-based lender disbursed $1.4 billion to Pakistan in April 2020 under its first global SDR allocation to member countries to cope with the contagious disease. The IMF board of governors approved a general allocation of SDRs equivalent to $650 billion (about SDR 456 billion) on August 2, 2021 to boost global liquidity, according to an IMF press statement.

“This is a historic decision - the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis,” IMF Managing Director Kristalina Georgieva said in the statement available on its official website. “The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence and foster the resilience and stability of global economy.”

It would particularly help the most vulnerable countries struggling to cope with the impact of the Covid-19 crisis, she said. The general allocation of SDRs will become effective on August 23, 2021. The newly created SDRs would be credited to IMF member countries in proportion to their existing quotas in the Fund, it added.

“Currently, Pakistan’s quota (percentage of the total) is around 0.43%,” Arif Habib Limited (AHL) analyst Sana Tawfik said in a post-IMF SDR allocation commentary.

“SBP’s foreign exchange reserves currently stand at $17.82 billion and the (new) inflows can potentially take them past $20 billion - the highest in Pakistan’s history,” Topline Research Director Syed Atif Zafar said in comments on the IMF allocation.

To date, the highest level of SBP reserves was recorded at $19.46 billion in October 2016.

The foreign currency reserves have been on the rise for the past two years due to robust inflows of worker remittances, improvement in export earnings and growth in investment by the non-resident Pakistanis through the Roshan Digital Account (RDA).

The country’s reserves are partly maintained through deposits by friendly countries like Saudi Arabia, Qatar and China and through central bank’s short-term borrowing from commercial banks.

Almost half of the current foreign currency reserves of $17.82 billion “have been built through long-term borrowing from the international financial institutions, friendly countries and short-term borrowing,” Economist Shahid Hasan Siddiqui said the other day. The reserves have dropped slightly by around $200 million to the current level from the four-and-a-half-year high of $18.05 billion recorded in the week ended July 16, 2021.

The central bank said last week that imports might continue to remain high during the current fiscal year, meaning that the uptrend in demand for US dollar may persist and it will impact the rupee-dollar parity and foreign exchange reserves.

Accordingly, the State Bank of Pakistan (SBP) projected the current account deficit to increase to 2-3% of GDP in the current fiscal year compared to a 10-year low of 0.6% recorded in the previous fiscal year.

It, however, said the deficit at 2-3% was sustainable. It would allow the economy to grow by 4-5% in FY22 compared to 4% in FY21.

The increased demand for dollar for imports and foreign debt repayment took a toll on the rupee as the value of local currency dropped to a 10-month low of Rs163.89 against the US dollar in the inter-bank market on Tuesday.

The IMF said about $275 billion (SDR 193 billion) of the new allocation totalling $650 billion would go to emerging markets and developing countries, including the low-income countries. “We will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve sustainable growth,” Georgieva said.

Published in The Express Tribune, August 4th, 2021.

 

[MenInG]

Confirming that Pakistan will receive $2.77 billion ‘unconditional’ funds from the International Monetary Fund (IMF) on Aug 23, Finance Minister Shaukat Tarin on Thursday said the government would address the global lender’s concerns over its proposed Rs1.6 trillion worth of Kamyab Pakistan Programme (KPP) and take forward the $6bn Extended Fund Facility currently “in recess”.

Speaking at a hurriedly called news conference after a long post-budget gap because of his health issues, Mr Tarin said he had been promised by the prime minister to make him senator to continue as finance minister and he had no reason to doubt it would not materialise before the expiry of the remaining two-month constitutional window.

The minister said the IMF would transfer $2.77bn of the country’s share to the State Bank of Pakistan (SBP) account on Aug 23 out of $650bn general allocation the Washington-based lending agency made to all its members to boost international liquidity challenged by the global health pandemic.

“Pakistan’s share in the general allocation is 0.43 per cent and $2.77bn would be transferred to our account,” he said. “This support is unconditional, has no cost, will increase our reserves and will have salutary effect on Pakistani rupee.”

Minister says global lender’s concerns over Rs1.6tr Kamyab Pakistan Programme to be addressed

The finance minister said the government would now decide how to utilise the additional funds, but made it clear that he would not allow wastage and ensure their productive use so that fiscal sustainability achieved so far was not affected.

Mr Tarin said he would not comment on the earlier $1.2bn Covid-19 emergency support as the Auditor General of Pakistan had written 34,000 audit paras and a lot of people would be writing replies, but “what I can assure is that these additional funds would be utilised with proper consultation to avoid any distortion in the economy. Nobody will be allowed to go shopping in malls while I am around”.

Responding to questions about the IMF programme, the finance minister said he had a different approach to the programme when he assumed the charge and did not allow increase in power tariff and personal income tax as demanded because it was not progressive approach. Both demands would have impacted the economy while the country required economic growth, he added.

Mr Tarin said there was no economic growth over the past three years that created a surplus power syndrome, but even 7-8pc growth might not have absorbed the full capacity. “We have been able to defer Rs850bn payables to independent power producers (IPPs) to create fiscal space and address some cash flow problems,” he said.

Because of different approaches on revenue and power sector, the IMF was asked to have a recess in the programme while the authorities show growth in revenue in two to three months. Fortunately, revenue performance in July has been 24pc higher than the target. The rationalisation of power tariff subsidies has also been submitted to the power regulator for proper targeting and will be settled in a month or so, he added.

“So the Fund programme is currently in recess but hale and hearty,” the minister said, adding that dialogue with the IMF was also in progress on the Kamyab Pakistan Programme on which the Fund had certain normal and genuine concerns which were being addressed. He said revenue numbers for two-three months starting from June 2021 would be shared with the IMF soon for completion of its sixth review.

The Fund had raised some questions about the KPP and wanted their answers, but these could not be described as ‘misgivings’, he added. The questions pertained to the capacity of partner financial institutions and whether or not the government’s guarantee would be 100pc, but these were no big issues and would be answered through a two-way dialogue, he said.

The minister said the programme would not be rolled back as it’s the first-ever initiative taken for the poor and lower and middle classes and all risk mitigation measures had been put in place. He explained that agencies like Akhuwat, NRSP and Kashf had proven track record and had even delivered 99pc recovery rate during Covid-19 assistance. There would also be a proper oversight mechanism.

Conceding that the geo-political situation is not in Pakistan’s favour in terms of IMF’s engagements as had been a few years ago, Mr Tarin said the government was making honest efforts to show performance through structural reforms, increased revenues and improved power sector.

Responding to a question, he said he would soon share good news about Saudi oil facility. He also affirmed that inflation remained a challenge mainly because of higher food prices, role of middlemen and imported inflation. He said administrative actions to contain prices of sugar, wheat flour, ghee, etc, had been hampered by stay orders and the government was not creating strategic reserves through imports to flood the market.

The finance minister agreed that current account would be in the negative as growth picked up but would stay under 2.5pc of GDP unlike 6-7pc in the past. He also conceded that the Rs610bn revenue collection target through petroleum levy would not be achieved, but this would be compensated by some other sources which had not been disclosed in the budget. There would also be a major progress on the IPPs front to address some power sector challenges, he added.

Published in Dawn, August 13th, 2021

 

[MenInG]

WASHINGTON: The International Monetary Fund’s (IMF) largest-ever allocation of $650 billion in Special Drawing Rights (SDR) became effective on Monday and can bring about $2.7 billion of additional funding for Pakistan as well.

“The largest allocation in history … is a significant shot in the arm for the world,” IMF Managing Director Kristalina Geor*gieva said in a statement issued in Washington. “If used wisely, (this is) a unique opportunity to combat this unprecedented crisis.”

The total amount of $650 billion will be distributed among member states in accordance with their quota of the Special Drawing Rights (SDRs). The break-up can bring about $2.7 billion to Pakistan, diplomatic sources say.

The SDR is an interest-bearing international reserve asset created by the IMF. A basket of currencies determines its value. The SDR value in terms of the US dollar is determined daily. SDRs can be held and used by member countries.

In December 2019, the IMF approved a 39-month, $6 billion Extended Fund Facility (EFF) for Pakistan.

The enhanced funding, approved on Monday, aims to mitigate the crisis caused by the Covid-19 pandemic, which has already killed 4.44 million people and infected more than 212 million across the globe.

“The SDR allocation will provide additional liquidity to the global economic system — supplementing countries’ foreign exchange reserves and reducing their reliance on more expensive domestic or external debt,” the IMF managing director said. “Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the crisis.”

The IMF will distribute SDRs in proportion to a country’s quota shares in the IMF. This means about $275 billion is going to emerging and developing countries, of which low-income countries will receive about US$21 billion – equivalent to as much as 6 percent of GDP in some cases.

“SDRs are a precious resource and the decision on how best to use them rests with our member countries. For SDRs to be deployed for the maximum benefit of member countries and the global economy, those decisions should be prudent and well-informed,” the IMF chief said.

The IMF is providing a framework for assessing the macroeconomic implications of the new allocation, its statistical treatment and governance, and how it might affect debt sustainability. The IMF will also provide regular updates on all SDR holdings, transactions, and trading including a follow-up report on the use of SDRs in two years.

“To magnify the benefits of this allocation, the IMF is encouraging voluntary channeling of some SDRs from countries with strong external positions to countries most in need,” Ms Georgieva said.

Over the past 16 months, some member states have already pledged to lend $24bn, including $15 billion from their existing SDRs, to the IMF’s Poverty Reduction and Growth Trust, which provides concessional loans to low-income countries. The IMF pledged to continue to work with other members to build on this effort.

Ms Georgieva said the IMF was also engaging with its member countries on the possibility of a new Resilience and Sustainability Trust, which could use channelled SDRs to help the most vulnerable countries with structural transformation, including confronting climate-related challenges. Another possibility could be to channel SDRs to support lending by multilateral development banks, she added.

She said this SDR allocation was a critical component of the IMF’s broader effort to support countries through the pandemic, which included: $117 billion in new financing for 85 countries; debt service relief for 29 low-income countries; and policy advice and capacity development support to over 175 countries to help secure a strong and more sustainable recovery.

According to the IMF, members can exchange SDRs for freely usable currencies among themselves and with prescribed holders. Such exchange can take place under a voluntary arrangement or under a mandatory designation plan on members with sufficiently strong external positions, which serves as the ultimate backstop for the SDR market.

Since 1987, the SDR market has functioned through voluntary arrangements without the need to activate the designation plan. IMF members can also use SDRs in a range of other authorised operations among themselves (loans, payment of obligations, pledges) and in operations and transactions involving the IMF, such as the payment of interest on and repayment of loans, or payment for quota increases.

India, which initially opposed the idea of general allocation of SDR but softened its stand at the last minute, will receive $17.94bn worth of additional SDR.

Published in Dawn, August 24th, 2021

https://www.dawn.com/news/1642285

 

[OMB]

Govt to borrow Rs4.8tr from commercial banks

Will issue PIBs, T-bills to repay previous debt, finance projects

The government has planned to borrow Rs4.80 trillion from commercial banks over the next three months against issuing its sovereign bonds like Pakistan Investment Bonds (PIBs), T-bills to partly repay previous debt and partly to finance its projects.

The breakdown suggests, the Ministry of Finance is scheduled to repay Rs3.92 trillion against maturing T-bills of three to 12-month tenures and PIBs (eg three to 20-year tenure) during September to November 2021, according to Pakistan’s central bank on Friday.

The rest of the raised amount at Rs872 billion “may be utilised to finance new and/or ongoing development projects (like roads and dams), finance defence requirements, and issue funds to different ministries,” Arif Habib Limited Head of Research Tahir Abbas said while talking to The Express Tribune.

The government has to rely on debt to finance projects in the wake of relatively low collection of revenue in taxes and nontax revenue compared to prevailing requirements for funds in the economy which is on expansion mode.

Govt to borrow Rs103.8b from banks

The latest debt planning (Sept-Nov) suggests, the government is gradually implementing its strategy to raise larger portion of debt through auctioning longer-tenure securities like PIBs (eg two to 30- years) and lesser its reliance over the short-term debt instruments like T-bills.

Besides, it would raise part of the long-term debt through issuing PIBs of floating interest rate (variable rate of return) instead awarding a fixed rate of return on the investment.

The shifts in the strategy are aimed at reducing the cost of borrowing, make debt profile sustainable and give the government enough time to increase number of taxpayers till the time the long-tenure bonds get matured.

The breakdown suggests the government would raise Rs450 billion through issuing three to 30-year PIBs at a fixed rate of return ranging from 7-11% against maturity of mere Rs18 billion during Sept-Nov 2021.

It would raise another Rs450 billion through issuing two to five-year PIBs on floating rate ranging between 7.2293-7.6463% against zero maturity, as they remained relatively new in Pakistan.

It would raise Rs3.90 trillion against issuing three to 12-month T-bills against maturing of such bonds amounting to Rs3.91 trillion, according to the central bank. “The debt is used to finance and fiscal deficit,” Abbas said.

more SBP hits eight banks with penalties

The government has set economy growth target of 4.8% for the current fiscal year 2022; started July 1. For the purpose, it announced a budget amounting to Rs8.5 trillion.

The outlay was planned to be financed through a targeted collection of revenue at Rs5.82 trillion and borrowing (fiscal deficit) worth Rs3.42 trillion.

The government has set the target of fiscal deficit at Rs3.42 trillion (or 6.3% of GDP) for current fiscal year 2022 against 7% last year. It has targeted to collect 17.4% higher revenue in taxes through the Federal Board of Revenue (FBR) at Rs5.82 trillion in FY22 compared to Rs4.96 trillion in FY21.

Pakistan total debt and liabilities (including external debt and private sector debt) surged to Rs47.82 trillion in the fiscal year ended June 30, 2021 compared to Rs44.59 trillion on June 30, 2020.

In terms of percentage of GDP, however, it reduced to 100.3% in FY21 compared to 107.3% in FY20, as the economy grew by 4% in FY21 compared to a contraction of 0.5% in FY20 amid Covid-19.

https://tribune.com.pk/story/2318565/govt-to-borrow-rs48tr-from-commercial-banks

 

[Last Monetarist]

https://tribune.com.pk/story/2323104/talks-to-revive-6-billion-imf-package-next-week

Pakistan and the International Monetary Fund (IMF) are set to resume talks for the revival of a $6 billion derailed programme next week, in which both the sides would try to find a middle ground on the contentious issue of increase in electricity prices.

The five-day round of technical discussions will virtually begin on October 4, with the IMF team joining from Doha, Qatar. Sources said that Finance Minister Shaukat Tarin was keen to conclude the parleys on a positive note during face-to-face meetings with the top IMF management in Washington on October 15.

The IMF has not yet shown its willingness for the face-to-face meetings and instead proposed virtual meetings for October 13 to 15. Therefore, the schedule of the policy-level talks remains tentative and it will be finalised next week, according to finance ministry sources.

The policy level talks are coinciding with the annual IMF-WB meetings that will take place from October 11 to 17th. The Pakistan’s embassy in Washington and the State Bank of Pakistan (SBP) governor are trying to get dates from the IMF top management for a physical meeting.

The finance ministry did not respond to a question whether the October 13-15 round in Washington would also be held virtually. The ministry also did not respond to another question regarding Pakistan’s request for a meeting with the IMF managing director.

Finance Minister Tarin has already announced that he would visit Washington from October 12 to 17 to hold talks with the top IMF management on the sidelines of the annual meetings.

The sources said that during recent interaction, the finance ministry showed some leniency in accepting the IMF’s demands, as the four-month deadlock in talks was proving costly for the government, which is heavily dependent on the foreign loans to remain afloat.

One indication was that the finance minister, who had not met the local IMF staff, held a long meeting with the Resident Representative Teresa Daban two weeks ago. But they said that the real test will be during the policy-level talks over the questions of increasing electricity prices, reducing the circular debt and the central bank autonomy.

The sources said that IMF’s local staff also wanted to revive the programme and recently hinted at giving some space to the government, subject to the condition that it was also provided face saving.

The IMF resident representative is completing her stint in Pakistan next month and would be replaced by Esther Ruiz, who was on a week-long introductory visit to Pakistan.

The successful conclusion of the talks would facilitate immediate disbursement of $1 billion by the IMF.

Pakistan and the IMF had signed the $6 billion deal in July 2019 but the programme was derailed in January 2020 and restored briefly in March this year before again going off the track in June. From June to August there were no serious discussions between the two sides.

Another crucial question that will be decided in the coming two weeks is whether Pakistan wants to exit from the IMF programme at its original schedule of September 2022 or it needs extension to get the remaining $4 billion loan.

So far, the inclination is that the government wants the IMF to advance the disbursement calendar and increase the size of the loan tranches. Pakistan has budgeted over Rs400 billion or $3.1 billion from the IMF in this fiscal year and its disbursement is only possible with the completion of the remaining reviews.

The sources said that there was also some back paddling on the state-owned enterprises law on the part of Pakistan, which is creating confusion in the IMF circles.

During recent interactions, the IMF conveyed that Pakistan would have to increase power tariffs, as the staff could not budge from its position taken before the management and the IMF board.

In June this year, Tarin told a parliamentary committee that there were two outstanding issues of introducing Rs150 billion worth of personal income tax and Rs4.95 per unit increase in electricity prices. Tarin said the IMF had demanded that the government should increase Rs1.39 per unit price in June and Rs3.56 per unit in July.

The PTI government has already increased the average power tariff by over 40% or Rs4.72 per unit to Rs16.44 in the last three years, according to the energy ministry. Tarin said on Friday that the government would put other proposals before the IMF instead of only relying on tariff increase.

The power sector circular debt has jumped to Rs2.324 trillion as of July 31, 2021, which is more than double as compared to three years ago, despite increasing electricity prices.

The assessment of Pakistan’s gross financing needs was another critical area amid a 373% increase in current account deficit during July-August this year as compared to the same period of the last year.

The IMF would also like to see fiscal and monetary tightening policies to be adopted by Pakistan to reverse the increase in public debt and external sector stability.

The finance minister wants to attain a growth rate of over 6% but the government is now considering a sustainable economic growth rate to avoid a repeat of the 2017-18 situation.

Both the sides will also hold Article-IV discussions, which are broader in scope and will allow the IMF to have a detailed review beyond the scope of the conditions agreed for the 6th review of the economy, the sources added.

The last Article-IV review had been completed in 2017, which had heavily focused on Pakistan’s economic and commercial ties with China in addition to gauging the future stability of the economy.

 

[Napa]

The power sector circular debt has jumped to Rs2.324 trillion as of July 31, 2021, which is more than double as compared to three years ago, despite increasing electricity prices.

The assessment of Pakistan’s gross financing needs was another critical area amid a 373% increase in current account deficit during July-August this year as compared to the same period of the last year.

As the government is not being able to get the economy to develop, debt and CAD are exploding. IK in the meantime spends his time ranting about India.

 

[MenInG]

The International Monetary Fund (IMF) has asked Pakistan to impose income taxes worth around Rs225 billion, while questioning the sustainability of the revenue performance due to a shift in policy to curb imports.

The IMF plan seeks to reduce the number of income tax slabs and withdraw income tax exemptions currently given under the second schedule of the Income Tax Ordinance that also include pensioners, according the government sources.

The Fund has also asked for withdrawal of sales tax exemptions to those whose revenue impact is in addition to Rs225 billion, the sources said, adding that the final decision to accept or reject the demands would be taken during the policy level talks with the IMF set to begin in Washington on October 13.

During four days of the technical talks, the IMF has pressed Pakistan hard to increase the electricity prices on account of annual and quarterly adjustments in tariffs, as it termed the measures to contain circular debt insufficient, the government sources told The Express Tribune.

The demand for increasing taxes was surprising, particularly after the FBR exceeded its first quarter tax collection target by a margin of Rs187 billion, which has positioned it to achieve the annual target of Rs5.829 trillion.

The sources said that the IMF has asked Pakistan to increase the personal income tax rates for the salaried and individuals by scaling down the numbers of tax slabs and also urged the authorities to withdraw the sales tax exemptions. Majority of the salaried individuals were paying taxes, which according to the IMF were below their income levels, the sources said.

Read Senate panel seeks strict action against taxmen

Responding to a question from The Express Tribune whether the IMF had asked for imposing personal income tax, FBR Chairman Dr Mohammad Ashfaq said that “it is an upfront issue and we are discussing it with the IMF”.

When press further whether these tax measures would be taken immediately, the FBR chairman replied that the matter was still under discussion and “our view is that if it needs to be done, it should be done from July next year”.

According to a commitment by Pakistan given in April, the government was supposed to reduce the number of income tax slabs to around five and rationalise the income tax rates for salaried and business individuals from July this year.

However, Finance Minister Shaukat Tarin had then refused to accept this demand. The sources said that the IMF was not convinced with the quality of the FBR tax collection and doubted that the healthy trend would continue due to curbing the imports.

Pakistani authorities projected that despite reducing imports, the annual import bill would still be around $72 billion. The IMF was of the view that the curbs might reduce the bill to $60 billion, they added.

The FBR showed a 44% growth in sales tax collection in the July-September period due to heavy reliance on import taxes. It collected Rs624 billion in sales tax in three months, up Rs190 billion or 80%.

However, almost entire increase came at the import stage, as the domestic sales tax collection remained almost flat. The FBR collected Rs200 billion in domestic general sales tax (GST) compared with Rs198 billion last year, after adjusting for refunds.

The IMF is urging Pakistan to immediately take revenue measures, while the Pakistani authorities are seeking time.

The IMF technical level talks will conclude on Friday (today) and the outstanding issues will now be decided during Finance Minister Shaukat Tarin visit to Washington, where policy-level talks will be conducted between October 13 to 15.

Tarin will leave Pakistan on Monday as finance minister but when he will return on October 24 his status will be reduced to adviser on finance, because the government could not get him elected senator within six months constitutional term.

Tarin had been appointed as ad-hoc Finance Minister for six months as he is not an elected member of the parliament.

Power Sector review

The IMF shared its initial assessment of the power sector that did not paint a good picture, according to people familiar with these negotiations.

The sources said that the IMF asked Pakistan to honour its commitment and increase pending annual tariffs for the month of June and July.

The Fund also asked for implementing the remaining quarterly adjustments after the government increased electricity prices by Rs1.69 per unit last week. The sources said that there was possibility the that in addition to increase in annual base tariff, the government will have to pass on 85 paisa per unit quarterly adjustment somewhere around December-January.

But the Fund was looking for immediate increase in tariffs on account of annual base tariff adjustment. The IMF also got an update on the subsidy rationalisation plan.

Read more Govt to review concerns over tax law

Last month, the National Electric Power Regulatory Authority (Nepra) approved the first part of three-phased subsidy rationalisation plan, envisaging creation of four new tariff slabs and a slight expansion in the definition of lifeline consumers to 100 units per month for gradual reduction of subsidies.

The new slab mechanism would lead in the next and third phase to the imposition of higher electricity rates and surcharges in a gradual manner or subsidy payments to the lowest income groups through the Ehsaas cash cards. The IMF has been informed that the second phase of subsidy withdrawal will be enforced from the next fiscal year.

The sources said that the IMF was also not happy with the performance of the power distribution companies. It argued that the structural plan for Discos did not deliver the desired results and these companies could not disconnect the electricity connection of the defaulters.

The IMF was of the view that the impact of formulation of new board of directors and appointment of chief executive officers were also not producing the results that could stem the losses being incurred by these companies.

The bottom line of the IMF’s assessment was that the pace of the power sector reforms was slow and it was not enough to stem the losses, they added. But the energy ministry officials were of the view that some power distribution companies have shown improvement in curtailing losses and in January 2023 new targets on technical and distribution losses would be given by the Nepra.

The IMF also asked for expediting the work on privatisation of the power sector. In spite of significantly increasing electricity prices, the circular debt has almost doubled within three years to Rs2.28 trillion due to the government’s failure to stem systemic losses, an energy ministry report showed.

When the Pakistan Tehreek-e-Insaf (PTI) came to power, the circular debt was Rs1.148 trillion that has doubled within three years. The PTI had promised to bring the circular debt to zero by December 2020 but the numbers showed that there was an increase in both the flow and stock of the circular debt compared with June 2018.

The power distribution companies’ uncontrolled losses added another Rs67 billion to the circular debt – up by 59% over the preceding year. This shows that the PTI government has failed in bringing improvement in governance of these power distribution companies, nor it could privatised them.

The IMF was informed that the issues of K-Electric and Azad Jammu and Kashmir electricity tariffs will be addressed by January next year. This will help reduce the circular debt by Rs170 billion.

 

[MenInG]

The International Monetary Fund (IMF) on Tuesday said that Pakistan’s economy might grow by 4% in the current fiscal year but projected the current account deficit at 3.1% of the gross domestic product (GDP) or over $10 billion, a figure that is far higher than the official estimates.

The global lender has given three-year estimates of major economic indicators of Pakistan in the World Economic Outlook (WEO) report that it released on the eve of the annual IMF-World Bank Group meetings.

The projections carry mixed news for Pakistan. Unlike its sister organisation the World Bank, the IMF has given a better economic growth projection for this fiscal year and endorsed the last fiscal year’s economic growth estimates of 3.9%.

Pakistan’s economy, which saw a 3.9% growth in the last fiscal, is projected to grow by 4% in 2021-22, the WEO report showed. However, the 4% growth rate was less than the official target of 4.8% yet it is higher than the projections made by the World Bank.

Pakistan on Friday termed the World Bank’s estimate of 3.5% economic growth in the previous fiscal year “unrealistic” and also stated that the Washington-based lender underestimated the current fiscal year’s economic growth rate at 3.4%.

The WEO report stated that the average inflation rate in Pakistan could be 8.5% this fiscal year. And on an annualised basis, the IMF has projected inflation in Pakistan at 9.2% this fiscal year.

Inflation remained the biggest concern for the incumbent government and any further increase in the administrative prices under the IMF conditions may stoke inflation rate to double digits.

The IMF report came a day before Finance Minister Shaukat Tarin is scheduled to meet the fund’s management in Washington. Sources said that Tarin will seek concessions against harsh conditions put forth by the IMF staff, during October 4-8 talks for the revival of the stalled programme.

Tarin is also scheduled to meet IMF Managing Director Christalina Georgieva on Friday, the sources added.

The WEO report showed significant increase in the current account deficit during the current fiscal year. The IMF stated that the current account deficit might widen to 3.1% of the GDP or $10.1 billion at the projected size of the economy for this fiscal year.

The 3.1% of the GDP current account deficit is almost five times of the 0.6% of the GDP deficit in the previous fiscal year.

The official target for the current account deficit was 0.7% of the GDP or $2.3 billion, which has already been breached during just first two months of the current fiscal year. Over $10 billion deficit was still on the lower side compared with some of the internal assessments of the finance ministry and the independent economists.

The current account deficit was widening due to unprecedented increase in imports during the first quarter of this fiscal year. The higher deficit could lead to higher and expensive foreign borrowings, particularly at a time when Pakistan’s relations with the IMF are at a stage of make or break.

On August 13, State Bank of Pakistan (SBP) Governor Dr Reza Baqir had said that the current account deficit would not increase in a way that it would make the economic growth unsustainable.

He had also said that the current account deficit would be between 2-3% of the GDP in this fiscal year, which roughly means between $6.5 billion to 9.5 billion for this fiscal year. However, within a month, the governor had to take some measures to contain the growing imports.

The IMF has projected that the global economy was marginally slowing down to 5.9% in 2021 but it has maintained the 2022 forecast unchanged at 4.9%. It said that modest headline revision, however, masks large downgrades for some countries.

The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions.

The dangerous divergence in economic prospects across countries remains a major concern, according to the IMF. Aggregate output for the advanced economy group is expected to regain its pre-pandemic trend path in 2022 and exceed it by 0.9% in 2024.

By contrast, aggregate output for the emerging market and developing economy group, excluding China, is expected to remain 5.5% below the pre-pandemic forecast in 2024, resulting in a larger setback to improvements in their living standards.

These economic divergences are a consequence of large disparities in vaccine access and policy support, the IMF said. While almost 60% of the population in advanced economies is fully vaccinated and some are now receiving booster shots, about 96% of the population in low-income countries remain unvaccinated.

https://tribune.com.pk/story/2324594/imf-forecasts-4-economic-growth

 

[MenInG]

In a bid to remain in the International Monetary Fund (IMF) programme, the government on Thursday sought the federal cabinet’s approval to increase electricity tariff by Rs1.68 per unit or nearly 14%, reneging from a four-month-old stance to not further raise the rates.

The development spending under the Public Sector Development Programme (PSDP) may also be curtailed around Rs200 billion or over one-fifth to meet another IMF condition, according to the government sources.

The government seemed not to have an option but to accept the IMF’s harsh conditions due to increasing external sector vulnerabilities.

The maximum per-unit electricity price is proposed at Rs24.33 per unit for domestic consumers – that is almost double the average per-unit cost of generation of Rs12.96 per unit.

The maximum hit has been given to the monthly consumers of over 700 units and the domestic consumers who were forced to use Time of Use metres.

The power tariff decision will result in the reduction of electricity subsidies by Rs72 billion during the remaining period of this fiscal year, according to the summary circulated among the cabinet members. The government has proposed to increase the electricity prices with effect from November.

Instead of putting the summary before a regular cabinet meeting, the government has circulated the summary among the ministers and many of them gave their consent during the same day, sources told The Express Tribune.

It is the second time in the past nine months that the Pakistan Tehreek-e-Insaf government has decided to increase the electricity prices. In February this year, the government had also increased the electricity prices by Rs1.95 per unit or 25% on account of annual tariff adjustment.

After assuming the responsibility of the finance minister, Shaukat Tarin had vowed that he would not further increase the electricity prices and would instead convince the IMF to accept Pakistan’s plan to reduce the circular debt through other means.

In July this year, the then Special Assistant to the Prime Minister, Tabish Gohar had revealed in Express News show – The Review – that the premier refused to increase electricity prices before January next year. The Rs1.68 per unit increase is over and above the monthly and quarterly increase in prices.

Sources said that Energy Minister Hammad Azhar on Wednesday also told the World Bank vice president for South Asia that the government had decided to increase the average prices by Rs1.39 per unit. Azhar did not respond to a request for comments.

The decision to increase the prices was taken during the time when Tarin was in Washington to conclude the talks with the IMF under the 6th review that began in Islamabad on October 4. The successful culmination of the talks would pave the way for the release of the next loan tranche of $1 billion.

“We are still negotiating. Nothing is final”, said Tarin from Washington while responding to questions about the increase in prices and rationalisation of the PSDP.

For the current fiscal year, the Parliament had approved Rs900 billion PSDP. Sources said instead of formally slashing the PSDP size, the Ministry of Finance would slow down the release of funds.

During the first two months of this fiscal year, the actual PSDP spending was only Rs52 billion, according to a briefing to the cabinet.

The Express Tribune has already reported that the IMF demanded to levy over Rs525 billion additional taxes and the Pakistani authorities showed inclination to immediately withdraw over Rs300 billion sales tax exemptions.

The acceptance of three key demands – the increase in electricity prices, levy of additional taxes and reduction in the PSDP spending could pave the way for successful conclusion of the 6th review during the second attempt after the first attempt failed in June this year.

A delay in announcement of successful conclusion of talks by the IMF could create more uncertainty in Pakistan particularly at a time when the rupee is already hitting the historical low of Rs171.20 to a dollar.

Tariff increase

The Power Division has proposed to the federal cabinet that based on consolidated revenue requirements of DISCOs as well as the economic and financial policy of the federal government, the tariff differential subsidy is proposed to be modified and reduced.

Read more FBR to give reward for meeting target

For the period of July-October 2021, the net subsidy amounts to Rs102 billion and for the period effective from November till June, subject to implementation of this proposal, the net subsidy for November 2021 to June 2022 amounts to Rs67 billion, it added.

In aggregate, the subsidy requirement will be reduced from Rs240 billion to Rs168 billion – a net reduction of Rs72 billion for the remaining eight months of this fiscal year.

On an annualised basis, the government has decided to withdraw Rs108 billion subsidies at current year’s revenue requirements.

“This would effectively pass on average Rs1.39 per unit to the consumers, remaining within the revenue requirements of the DISCOs as per NEPRA determination,” according to the Power Division.

The summary showed that for electricity consumers of up to 200 units there would not be any increase in prices. But with the applicable tariffs for consumers of up to 300 monthly units, the prices would go up from Rs12.15 to Rs13.83 per unit – a surge of Rs1.68 or 13.8%. For consumers of 301 to 700 units, the prices are proposed to be increased by Rs1.68 per unit to Rs21.23 – an increase of 8.6%.

For consumers of over 700 monthly units, the prices are proposed to be increased to Rs24.33 per unit – an increase of Rs1.68 per unit.

For domestic time of use metre consumers, the prices will go up from Rs22.65 per unit to Rs24.33 per unit – also an increase of Rs1.68 or 7.4%. The off-peak rates are set at Rs18.01 per unit from the existing applicable rates of Rs16.33 – an increase of 10.2%.

For the commercial consumers, the prices are proposed at Rs21.23 per unit and Rs23.02 per unit – depending upon the load factors. The rates for the industrial consumers have also been recommended to increase further.

 

[MenInG]

Pakistan and the International Monetary Fund (IMF) have again failed to reach a staff-level agreement at the scheduled time because of differences over the macroeconomic framework and deepening uncertainty over the future roadmap of the economy.

The fresh round of talks from October 4 to 15 for the release of the $1 billion loan tranche and receiving a good economic health certificate remained inconclusive.

The talks failed despite Pakistan having implemented a prior condition of increasing electricity and petroleum products prices. However, both sides have shown resolve to remain engaged.

In his attempts to conclude talks on a positive note, Finance Minister Shaukat Tarin (whose tenure expired on Friday) met with IMF managing director Christalina Georgieva and US Assistant Secretary of State for South and Central Asia Donald Lu. However, it seemed both these meetings also remained unproductive.

“The IMF team remains engaged with our Pakistani counterparts on moving forward our work agenda and we are looking forward to our continued discussions with the Pakistani authorities on the set of policies and reforms that could form the basis for the completion of the 6th review under the EFF [Extended Fund Facility],” Teresa Dabán Sanchez, the outgoing resident representative of the IMF told The Express Tribune.

It was for the second time that Pakistan and the IMF could not find “basis for the completion of the 6th review”, as its first attempt made in June also remained futile.

Pakistan and the IMF have so far failed to agree on the Memorandum of Economic and Financial Policies (MEFP) -- which becomes the base for the bailout programme. Sources told The Express Tribune that both sides have not yet exchanged the final macroeconomic positions -- a job that should have been completed on October 8.

The uncertainty over the fate of the IMF talks may unnerve the markets and bring the rupee-dollar parity under more pressure. Pakistan and the IMF could not agree on the quantum of additional taxes and the roadmap for fiscal stability of the power sector, the sources added.

There were also issues about increase in gas prices and the measures needed to contain the current account deficit to a manageable level. The talks began in Islamabad on October 4, but Tarin wanted them to conclude in Washington on October 15.

READ Govt seeks hike in power tariff to salvage IMF package

Pakistan had shared some statistics with the IMF on power and gas tariffs and tax collection and “they are validating the numbers we shared with them and will get back to us”, said Tarin while addressing a news conference in Washington at the conclusion of his visit.

Usually, the numbers are agreed upon, at least in principle, before the start of the policy-level talks.

However, both the two sides did not exchange the critical tables related to the general government budget due to the nature of differences, the sources said.

The IMF had demanded to impose additional taxes equal to at least 1% of the GDP or over Rs525 billion but the government was willing to take measures to the tune of Rs300 billion, the sources added.
They said that the round of talks on Saturday on the quantum of additional taxes too remained inconclusive.

This year, the Federal Board of Revenue (FBR) would achieve a tax collection target of Rs5.8 trillion, Tarin told the media. He added that in the next fiscal year, the tax-to-GDP ratio would be increased to 13.75% of the GDP.

The tax-to-GDP ratio was only 11.1% at the end of the last fiscal year.

Finance Secretary Yousaf Khan would stay in Washington to continue the talks till Tuesday, Tarin said during his news conference. According to the original plan, the finance secretary was scheduled to join his office from Monday. Tarin said he and the State Bank governor would be in New York and join the talks virtually.

“If need be, I can return to the US,” he added.

As per his original plan, Tarin was scheduled to spend two days in New York and then one week in the UK, before either going to a Gulf country or returning to Pakistan.

In July 2019, Pakistan and the IMF had signed a 39-month EFF for $6 billion but the programme remained largely off track, resulting in disbursements of only $2 billion in two years.

The 6th review talks are for the disbursement of the next loan tranche of $1 billion but it seems that both sides still have to cover a lot of ground despite holding two rounds, first in June and then second this month.

Pakistan has already accepted two conditions of the IMF. It has increased the electricity prices by Rs1.68 per unit or up to 14% and also jacked up the petroleum products prices to the new historical level of Rs137.79 per litre.

Tarin said the IMF wanted the cost of fuel to be passed on to the consumers and the government only did so while increasing prices by Rs10 per litre.

The federal government on Saturday raised the price of petrol by Rs10.49 per litre and high-speed diesel (HSD) by Rs12.44 per litre to Rs135.

 

[MenInG]

NEW YORK:
Prime Minister's Adviser on Finance and Revenue Shaukat Tarin has said the talks between the International Monetary Fund (IMF) and Pakistan for the resumption of $6 billion Extended Fund Facility (EFF) have not failed.

Tarin made these remarks in conversation with reporters after addressing the Pakistani community at the New York consulate general on Sunday evening.

"The government was working hard for an inclusive and sustainable economic growth that benefits all segments of the society, especially the poor," the adviser said, adding that the reports regarding the failure of talks were "completely wrong".

“I don’t know what’s the basis on which an impression has been given by some that the talks have failed— they are totally wrong,” he claimed.

According to Tarin, "At this stage, final details were being worked out and the negotiations would, inshaAllah, conclude successfully."

Tarin said the finance secretary was still in Washington pursuing the talks with the relevant IMF officials, and that he was in contact with the FBR chairman as well as with him for any advice.

"There was an atmosphere of positivity and the next few days would show a productive outcome from the talks," Tarin added.

Read Govt drops petroleum bomb

In this regard, the adviser said his meeting with IMF Managing Director Kristalina Georgieva and other fund officials was “useful and positive”. “The nation shouldn’t be disillusioned by some unfounded negative reports,” the finance minister added.

Asked whether the IMF was demanding that Pakistan do more, Tarin said that every banker would put similar demands when someone applies for a loan.

Tarin said Pakistan had its red lines to protect its interests, although it has been made clear to the IMF that the government would pursue the reform process for sustainable growth.

Earlier, speaking to community members, Tarin and State Bank Governor Dr Reza Baqir, who accompanied him to the US, urged them to invest in the Roshan Digital Accounts (RDA) under which they can directly invest into the shares of companies in Pakistan and units of funds.

In his remarks to the community members, Tarin highlighted the economic priorities of the government, saying that Prime Minister Imran Khan had taken "bold decisions that have resulted in stabilising the economy".

He claimed that forward-looking fiscal reforms had helped to improve the tax-to-GDP ratio, bring down the current account deficit and fiscal deficit while improving revenue generation.

"Increasing tax collection and broadening the tax base were key targets of the government’s fiscal agenda," he added.

Tarin thanked the overseas Pakistanis for their role in sustaining the economy through high levels of remittances.

Tarin also shared steps taken to help the underprivileged through the Kamyab Pakistan programme, which he said would help them achieve self-sufficiency and realise PM Imran Khan’s vision of a prosperous Pakistan.

Read more IMF chief fights to keep her job

It may be noted here that the Finance Division had issued a similar statement regarding the IMF talks on Sunday. It had also rejected the media reports, saying that the talks with the Fund officials were underway in Washington amid a positive atmosphere.

According to the statement, technical teams of both sides were continuing detailed discussions in virtual format after an exchange of relevant data sets.

The Finance Division claimed that no time frame was set at any stage for the conclusion of talks.

IMF talks 'fail'

Earlier on Sunday, it was reported that Pakistan and IMF had again failed to reach a staff-level agreement at the scheduled time because of differences over the macroeconomic framework and deepening uncertainty over the future roadmap of the economy.

The fresh round of talks from October 4 to 15 for the release of the $1 billion loan tranche and receiving a good economic health certificate remained inconclusive.

The talks failed despite Pakistan having implemented a prior condition of increasing electricity and petroleum products prices. However, both sides have shown resolve to remain engaged.

“The IMF team remains engaged with our Pakistani counterparts on moving forward our work agenda and we are looking forward to our continued discussions with the Pakistani authorities on the set of policies and reforms that could form the basis for the completion of the 6th review under the EFF [Extended Fund Facility],” Teresa Dabán Sanchez, the outgoing resident representative of the IMF told The Express Tribune.

It was for the second time that Pakistan and the IMF could not find a “basis for the completion of the 6th review”, as its first attempt made in June also remained futile.

Pakistan and the IMF have so far failed to agree on the Memorandum of Economic and Financial Policies (MEFP) -- which becomes the base for the bailout programme. Sources told The Express Tribune that both sides have not yet exchanged the final macroeconomic positions -- a job that should have been completed on October 8.

 

[MenInG]

Finance Adviser Shaukat Tarin on Wednesday said the government was still reeling from the conditions met to receive the previous loan tranche of $500 million from the International Monetary Fund (IMF), dropping a hint as to why talks with the global lender could not be concluded.

“I am still facing the brunt of the previous $500 million tranche,” Tarin told journalists while addressing a news conference, along with Energy Minister Hammad Azhar, to share the details of the $4.2 billion one-year loan deal between Pakistan and Saudi Arabia.

The finance adviser clarified that the $4.2 billion bailout package that the Riyadh had agreed to give to Islamabad “has nothing to do” with the delay in the finalisation of the IMF deal.

Tarin added that “one or two outstanding issues” remained between Pakistan and the global lender for the conclusion of the 6th review, without elaborating anything about them.

The completion of the review will pave the way for the release of the $1 billion next tranche in addition to the $1.6 billion injection by the World Bank and Asian Development Bank.

IMF Resident Representative Teresa Daban did not comment on the question as to whether or not Pakistan took the global lender into confidence before securing a $4.2 billion short-term deal from the Kingdom but only said that “discussions and the understanding will continue”.

The IMF monitors Pakistan’s inflows in the context of overall debt sustainability of the country.

To qualify for the $500 million tranche that the IMF disbursed in April this year, Pakistan had accepted five prior actions.

They included the imposition of income tax to the tune of Rs140 billion, submission of a controversial State Bank of Pakistan amendment bill in the parliament and changes to the National Electric Power Regulatory Authority (NEPRA) Act to automatically increase electricity prices.

The other two conditions were Rs1.95 per unit increase in electricity prices and the approval of the Circular Debt Management Plan envisaging further increase of Rs5.65 per unit.

While responding to a question, the adviser assured that talks with the international lender were in the final phase.

“We will have to rationalise taxes, but I will not give any further details,” the finance adviser replied to a question about withdrawing sales tax exemptions on the IMF demand.

Read More: Shehbaz asks govt to brief parliament on IMF talks

He said the IMF had inquired about bridging the gap against the Rs600 billion petroleum development levy target. “We have informed that the low petroleum levy collection will be compensated by an increase in tax revenues collection.”

The Express Tribune had reported 11 days ago that Pakistan and the IMF had failed to reach a staff-level agreement within the scheduled time.

The delay in finalisation of a deal between Pakistan and the IMF had adversely affected the markets. However, the $4.2 billion Saudi injection may temporarily calm the markets.

The adviser said that the Saudi financial support package of $4.2 billion was for one year and would prove to be useful especially when the local currency was under pressure and international oil prices were soaring.

He said the new deal had been secured on the same terms that Pakistan accepted for the previous $6 billion Saudi package. The country had paid 3.2% interest rate on the cash deposits.

In a late-night development, the Saudi Fund for Development (SFD) announced that it had deposited $3 billion in the State Bank of Pakistan (SBP) and provided a $1.2 billion oil facility on deferred payments.

“The State Bank welcomes the support from the Saudi authorities. This support will go a long way in improving the outlook for the country’s balance of payment position”, SBP Governor Dr Reza Baqir told The Express Tribune.

Sharing details, Tarin said Prime Minister Imran Khan had made a request to Crown Prince Mohammad Bin Salman that Pakistan needed assistance because of the increase in global crude oil prices.

He added that the premier had reminded the crown prince that the request for oil on deferred payments was pending decision for a long time and Salman immediately approved it.

“Saudi Arabia has given a $100 million a month facility, although we had sought $150 million,” said the finance adviser.

However, he added that the $3 billion cash assistance would more than compensate for the requested oil facility amount.

“The Saudi finance minister called me yesterday to inform me about the decision of approving the $4.2 billion package.”

Pakistan’s request for a second bailout package from Saudi Arabia in three years confirms that the economy cannot survive independently and will remain either in the clutches of the IMF or friendly countries.

The central bank’s reserves had depleted to $17.5 billion during the week ending on October 15.

The government was currently in the process of raising $1 billion debt from the international market by floating Sukuk bonds.

The federal cabinet on Wednesday approved to exempt all taxes on profits that the investors will receive on the $1 billion Sukuk-based loan to Pakistan.

Energy Minister Hammad spoke about the reasons behind the increase in inflation in the country and the measures the government was taking to reduce people's problems.

“Since August last year, the government gave Rs450 billion relief in taxes by keeping the petroleum levy and GST rates lower – a move which has now built fiscal pressure,” said Hammad.

The minister, however, expressed optimism that in the coming six months, the global commodity cycle would weaken, and the rates of all commodities including food and energy would come down in the international markets.

“That would be translated locally.”

 

[MenInG]

The second round of dialogue between Law Minister Dr Farogh Naseem and International Monetary Fund mission chief for Pakistan Ernesto Ramirez Rigo for the revival of its $6 billion Extended Fund Facility (EFF) ended inconclusively, as both sides could not agree on a new consensus draft of the State Bank of Pakistan (Amendment) Bill, 2021.

The meeting, held on Tuesday, lasted about an hour in which Pakistan proposed that the federal government would retain the right to set policy direction and give inflation targets to the central bank, the participants of the meeting told The Express Tribune.

The draft bill, which was approved by the cabinet, was silent on the question of the inflation target. The SBP bill appears to be an attempt to consolidate power in the name of autonomy.

The finance ministry on Wednesday gave the final read to its position vis-à-vis the SBP amendment bill while keeping in mind the discussions that took place with the IMF a day earlier, the constitutional requirements, and the prevailing legal framework, they added.

“The position will be shared with the IMF mission chief and on the basis of it a final meeting on the subject of the SBP bill will take place soon.”

Read IMF seeks closure of public entities’ accounts in banks

Sources said the IMF mission chief asked the Pakistani team to provide details about the clauses of the bill that were ultra vires of the Constitution and laws, like the Companies Act of 2017.

The sources said that the IMF mission chief’s hands were also tied as the IMF board would seek implementation of the loan conditions agreed upon at the time of the 5th review of the programme. The sources said that the authorities concerned considered December 22 and January 14, 2022, as alternate dates for the board meeting, subject to the implementation of all prior actions.

When contacted, Teresa Dabán Sanchez, the Resident Representative of the IMF, said that the IMF code of conduct does not allow interaction with the media on details of discussions.

She had been requested to comment whether it was correct that a meeting between IMF mission chief and the law minister on the issue of the SBP bill remained inconclusive on Tuesday and that the government told IMF that it cannot get the SBP amendment bill passed in its present form from parliament.

“The IMF team and the Pakistani authorities remain engaged and are conducting discussions on the set of policies and reforms needed to complete the 6th review under EFF,” said Teresa.

Finance Ministry Additional Secretary (in-charge) and official spokesman Yusuf Khan did not reply to the questions, including whether it was still possible that the 6th review can be completed and approved by the IMF board in the calendar year 2021.

The government again told the IMF that it would retain the option to borrow from the central bank, as the government cannot afford to even default on local currency or let commercial banks exploit it. “The IMF mission chief was not ready to accept this change,” said the sources.

The sources said that as the majority shareholder, the government also wanted to retain the finance secretary on the board of the central bank which it earlier had agreed to withdraw.

 

[MenInG]

ISLAMABAD: Adviser to the Prime Minister on Finance Shaukat Tarin has said Pakistan will have to complete about five “prior actions” before the Inter*na*tional Monetary Fund (IMF) calls a meeting of its board of directors to approve revival of its $6 billion Extended Fund Facility suspended in April this year.

Talking to journalists at the launch of Corporate Philanthropy Survey here on Tuesday, Mr Tarin said all issues with the IMF staff had been settled on the basis of which they gave “us a list of five prior actions” to complete so that they could call a board meeting on Pakistan’s case. “Don’t ask me [about] dates but IMF deal is done,” he added.

Mr Tarin said these prior actions included State Bank of Pakistan (Amendment) Bill, withdrawal of tax exemptions and increase in energy tariff. He said the action pertaining to tariff adjustment had already been met for now with a recent Rs1.39 per unit increase while bills to end tax exemptions and give autonomy to the SBP had been prepared. The next tariff increase would take place by February-March 2022.

Actions include SBP bill approval, withdrawal of tax exemptions, increase in energy tariff

The finance adviser said the two bills were being fine-tuned for finalisation by the Ministry of Law and Justice after the two sides completed discussions. When pointed out that the IMF board may meet on December 17 as earlier scheduled and then delayed until February, he explained that the IMF board could be called anytime provided prior actions were complete.


Sources said Mr Tarin had also asked the public sector entities involved in circular debt to announce dividends based on receivables on their accounts. The government will divert its dividend share to clear payables. This will reduce circular debt by over Rs200bn and clear balance sheets of the entities on the basis of which the government will raise global depository receipts (GDRs) in the international market.

The sources said Mr Tarin had been able to convince the IMF staff to significantly alter the SBP amendment bill that former finance minister Dr Hafeez Shaikh and SBP Governor Dr Reza Baqir had committed to the IMF ahead of $500 million disbursements in March this year.

The sources said the IMF wanted Rs170bn worth of tax exemptions in addition to improved petroleum levy collections for which the government had set Rs610bn target for the year but could collect about Rs50bn in the first four months. The saving grace on this front was revenue collection that was significantly higher than the target.

But there are still certain things which cannot be changed given the disbursement of $500m is approved by the IMF board on the basis of those commitments. Also, the IMF is no more ready to accept ordinances as prior action for removal of tax exemptions and unprecedented powers and protections to the SBP management and has now linked approval of the bills by parliament as prior actions.

Responding to a question about prior actions required from the central bank, Mr Tarin said the monetary policy and exchange rate were the domain of the SBP and the monetary policy committee and he would neither like to interfere nor comment.

In reply to another question, he said the shifting of various accounts of a number of federal and provincial government entities worth trillions of rupees into a single treasury account was also a condition of the IMF programme, but this was not a prior action and would be gradually complied with. It is now a matter of record that those at the helm of economic affairs at the time had pushed through the SBP law that is now being seen in violation of the Constitution.

The central bank management had tried to secure complete autonomy for its acts of omissions and commissions without any accountability. The initial draft amendment law shared by the IMF and reconciled by the Ministry of Finance and the central bank was still under vetting of the Law Division and the Cabinet Committee on Disposal of Legislative Cases (CCLC) when a new draft reached the cabinet seeking exemption from mandatory review by the CCLC in rush.

The cabinet granted the exemption from CCLC review and, without a detailed presentation or discussions, also cleared the controversial bill on the premise that it would strengthen institutions and was unavoidable to secure revival of the IMF programme and disbursement of $500m.

The criticism that followed compelled the government to realise why the CCLC review had been bypassed and hence decided to backtrack.

The unmet condition has now become a ‘prior action’ that the said bill should be passed by parliament to qualify the government to draw another billion dollars with the approval of the IMF board.

Shaukat Tarin and Law Minister Farogh Naseem had explained to the IMF staff that not only such legislation was ultra vires of the Constitution, but the time required for the legislation was also insufficient given the processes involved.

Published in Dawn, November 17th, 2021

 

[MenInG]

ISLAMABAD: Prime Minister Imran Khan said on Thursday that the country would not need the International Monetary Fund (IMF) programme in future, if it is able to tap the full potential of the overseas Pakistanis whom he termed the “biggest asset” of the country.

Addressing after the launch of digital portal for attestation of power of attorney for overseas Pakistanis, the premier said that beneficiaries of the current system have been resisting the reforms and automation. He referred the use of EVMs, and automation in Utility Stores Corporation (USC) and Federal Board of Revenue (FBR) in this regard.

He said that when the government tried to bring about automation in the USC, the people from within the organisation moved court against the reform.

Similarly, he said that people from within the FBR are not allowing automation because some people are making money from the current system.

Efforts are made to implement Track and Trace system for the last 15 years but successive governments have failed and now for the first time, next week, Track and Trace system would be introduced.

The prime minister said that overseas Pakistanis have been sending US$30 billion every year to help their country bridge the trade deficit.

He said he was feeling glad that another facility for them after succession certificate was being provided.

Overseas Pakistanis are patriotic and have always been on the fore to help Pakistan in difficult times and even generously contributed for Shaukat Khanum Memorial Hospital, the prime minister said.

He further stated that the overseas Pakistanis are the biggest asset of the country, and if their full potential is tapped, the country would no longer need the IMF. However, he regretted that the governments had created problems for them instead of creating facilities.

He said that although the overseas Pakistan remittances have been a blessing for the country, actual potential of their investment is not coming to Pakistan, solely because they were not being facilitated.

The government policy, he said, from day one is that this asset of overseas Pakistanis would be protected at all costs and in this regard embassies in the Middle East and the other countries have been instructed to extend services to them. He f stated that the foreign minister has created a portal for the overseas Pakistanis, so that they could directly complain on this portal about their problems.

The prime minister regretted that the two main political parties of the opposition have opposed and even tried to block the government law the other day during the joint sitting of the parliament, to allow nine million overseas Pakistanis the right to vote.

Parliament allows use of EVMs and voting rights for overseas Pakistanis, opposition says will knock SC’s door

He said overseas Pakistanis are being allowed the right to vote and now it would be important for every government to cater their needs. The governments would be sensitised about overseas Pakistanis’ problems, he added.

He was very happy that overseas Pakistanis have been included in democracy and now they would be important for every government and would not be ignored like in the past.

The prime minister said that opposition parties have been opposed to the use of EVM and technology in the elections because they were a beneficiary of the current system, knowing that it would end the fake votes and other issues that have been making the election controversial.

He said that the government sought open votes in the senate election and both the main political parties opposed it, he said that the use of EVM would not benefit the government.

He said that technology has made the life of the people easier and there would be nothing more unfair than not to benefit from it.

Copyright Business Recorder, 2021

 

[MenInG]

Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement on taking needed steps for completion of pending sixth review of the economy, laying the foundation for approval of new legislation by the Parliament to secure the loan of slightly over $1.

“The Pakistani authorities and IMF staff have reached a staff-level agreement on policies and reforms needed to complete the sixth review under the EFF”, according to a statement issued early Monday morning by the IMF from Washington.

The statement suggests that Pakistan is still only halfway to securing the $1 billion loan, as the IMF’s Executive Board approval is formally linked with the implementation of pre-conditions, already spelt out by Finance Adviser Shaukat Tarin and also underscored by the IMF in the handout.

Pakistan will be required to introduce a mini-budget to meet another condition on achieving primary surplus - which means revenues have to be more than the expenditures after paying interest on the loans.

The government will also have to get the State Bank of Pakistan amendment Bill 2021 passed from the Parliament.

Read: Tax hike, SBP bill IMF’s preconditions

The IMF underscored that “the agreement is subject to approval by the Executive Board, following the implementation of prior actions, notably on fiscal and institutional reforms”.

The fiscal prior action is related to mini-budget and institutional reforms are related to SBP amendment Bill approval.

Both sides reached the agreement on taking needed steps after prolonged rounds of talks spanning over six months, which included two rounds of formal parlays, first in June and then in October.

The IMF said that the external pressures have started to “emerge” and inflation “remains high” -the two weakest points that will now require tough actions on part of Pakistan. The IMF has projected the economic growth to reach, or exceed, 4 percent in the current fiscal year and 4.5 percent in the next fiscal year.

Completion of the review would make available SDR750 million or about $1.059 billion, bringing total disbursements under the EFF to about $3 billion and helping unlock significant funding from bilateral and multilateral partners, said the IMF.

An IMF mission led by Ernesto Ramirez Rigo held virtual discussions from October 4 to November 18, 2021, in the context of the 2021 Article IV consultations and the sixth review of the programme, stated the IMF

To win a press statement from the IMF, Pakistan has already increased the electricity prices by Rs1.68 per unit, increased the petroleum levy rates by Rs4 per litre and above all jacked up the interest rates by 1.5%. Another increase in interest rate is also expected before the meeting of the IMF board that will approve the staff-level agreement. The government also notified all the pending increases in electricity prices on account of quarterly tariff adjustments.

After the release of $1 billion, the total loan amount will still be $3 billion in over two years, which is far less than what had been agreed in May 2019 due to derailment of the programme, first in January 2020 and then in June this year.

However, the agreement has yet to be approved by the Executive Board of the IMF, which will take up Pakistan’s request only after the government implements all prior actions.

The introduction of the Finance Bill in the National Assembly to increase taxes and approval of the State Bank of Pakistan (SBP) Amendment Bill are pre-conditions for the revival of the International Monetary Fund (IMF) loan programme, Finance Adviser Shaukat Tarin said on Tuesday.

The IMF said that despite a difficult environment, progress continues to be made in the implementation of the EFF-supported programme.

“All quantitative performance criteria (PCs) for end-June were met with wide margins, except for that on the primary budget deficit”, said the IMF.

Pakistan will have to secure a waiver from the IMF on violation of the primary budget deficit target for the end of June.

The IMF said that notable achievements on the structural front include the finalization of the National Socio-Economic Registry (NSER) update, parliamentary adoption of the National Electric Power Regulatory Authority (NEPRA) Act Amendments, notification of all pending quarterly power tariff adjustments, and payment of the first tranche of outstanding arrears to independent power producers (IPPs) to unlock lower capacity payments fixed in renegotiated power purchase agreements (PPAs).

The IMF said that on the macroeconomic front, available data suggests that a strong economic recovery has gained hold benefiting from the authorities’ multifaceted policy response to the COVID-19 pandemic that has helped contain its human and macroeconomic ramifications.

The Federal Board of Revenue’s (FBR) tax revenue collection has been strong.

External pressures build-up

The external pressures have started to emerge: a widening of the current account deficit and depreciation pressures on the exchange rate—mainly reflecting the compound effects of the stronger economic activity, an expansionary macroeconomic policy mix, and higher international commodity prices, said the IMF.

The IMF said that Pakistan has started adjusting policies, including by gradually unwinding COVID-related stimulus measures.

The SBP has also taken the right steps by starting to reverse the accommodative monetary policy stance, strengthening some macroprudential measures to contain consumer credit growth, and providing forward guidance, it added.

Inflation

However, inflation remains high, although it should start to see a declining trend once the pass-through of rupee depreciation is absorbed, and temporary supply-side constraints and demand-side pressures dissipate. However, the current account is expected to widen this fiscal year despite some export growth, reflecting the rising import demand and international commodity prices. However, this economic outlook continues to face elevated domestic and external risks, while structural economic challenges persist.

Monetary policy needs to remain focused on curbing inflation, preserving exchange rate
flexibility, and strengthening international reserves, said the IMF.

As economic stability becomes entrenched and the independence of the SBP is strengthened with the approval of the SBP Act Amendments, the central bank should gradually advance the preparatory work to formally adopt an inflation targeting (IT) regime in the medium term, underpinned by a forward-looking and interest-rate-focused operational framework, it added.

Fiscal Measures

On the fiscal policy front, staying on course on achieving small primary surpluses remains critical to reducing high public debt and fiscal vulnerabilities, said the IMF.

Continued efforts to broaden the tax base by removing remaining preferential tax treatments and exemptions will help generate much-needed resources to scale up critical social and development spending.

In addition, the government plans to introduce a package of fiscal measures targeting a small reduction of the primary deficit with respect to last fiscal year based on: (i) high-quality revenue measures to make the tax system simpler and fairer (including through the adoption of reforms to the GST system); and (ii) prudent spending restraint, while fully protecting social spending.

Energy Policies

Advancing the strategy for the electricity sector reforms, agreed with international partners, is important to bring the sector to financial viability, and tackle its adverse spillovers on the budget, financial sector, and real economy, said the IMF.

It said that in this regard, steadfast implementation of the Circular Debt Management Plan (CDMP) will help guide the planned management improvements, cost reductions, timely alignment of tariffs with cost recovery levels, and better targeting of subsidies to the most vulnerable.

 

[MenInG]

The government took $3.8 billion worth of new foreign loans in the past four months, up 18%, as it saw a further uptick in lending by the multilateral lenders once the International Monetary Fund (IMF) obstacle was crossed in a couple of months.

The government obtained $3.8 billion in gross foreign loans during the July-October period of fiscal year 2021-22, according to the Ministry of Economic Affairs.

The borrowing was higher by $580 million, or 18%, compared with the loans taken in the same period of last fiscal year.

The $3.8 billion of foreign loans did not include the borrowing made through the highly expensive Naya Pakistan Certificates at up to 7% interest in dollar terms for only one year.

Finance Adviser Shaukat Tarin said on Monday that the revival of IMF programme would help secure more loans from the bilateral and multilateral lenders.

Official statistics showed that bilateral lending to Pakistan almost dried up in the current fiscal year, standing at a mere $77.4 million so far for project financing.

Out of this, $73.4 million was given by China, which was very low compared with the huge Chinese lending at the peak of China-Pakistan Economic Corridor (CPEC) project.

The Pakistan Tehreek-e-Insaf (PTI) government has not yet been able to secure a fresh commitment of $6 billion from China for financing the Mainline-I railway project of CPEC.

About three-fourths of the officially declared disbursement, or $2.7 billion, were on account of budgetary support and oil procurement, which meant that no asset was created by using the loans and the money would be paid back by obtaining more loans.

An amount of $866 million was received in foreign commercial loans during the first four months of current fiscal year.

The government borrowed $61 million from Ajman Bank, $215 million from Dubai Bank and another $320 million from Standard Chartered Bank, London, according to the economic affairs ministry.

A financing of $270 million was secured from Credit Suisse AG during October.

The government took $446 million in loans from the Islamic Development Bank for crude oil imports but no fresh financing came in October. The Asian Infrastructure Investment Bank released $36 million for project financing.

The multilateral lenders gave $1.8 billion in loans in four months. Amongst the multilateral development partners, the Asian Development Bank (ADB) disbursed $580 million during the July-October period, including the money for vaccine procurement.

Owing to the increasing reliance on loans to increase the country’s foreign exchange reserves and finance the budget deficit, the cost of debt servicing has gone up significantly.

The steep rupee devaluation has also made matters worse for the government, as the depreciation has already added Rs1.6 trillion to the stock of external public debt as of June this year.

A report of the State Bank of Pakistan revealed that during the first three years of its tenure, the PTI government added Rs14.9 trillion to the public debt, which was 60% more than the debt stock in June 2018.

The World Bank released $782 million in four months, including a withheld loan of $400 million under the Programme for Affordable Clean Energy (PACE) after the government approved a new power generation expansion plan under the loan condition.

 

[Hassaan HS]

PM terms rising foreign debt a ‘national security’ issue

Prime Minister Imran Khan on Tuesday said that the rising foreign debt and low tax revenue had become an issue of “national security” because government did not have enough resources to spend on people’s welfare.

“Our biggest problem is that we don’t have enough money to run our country due to which we have to borrow loans,” he said while addressing the inaugural ceremony of Track and Trace System (TTS) of FBR for sugar industry in Islamabad.
The FBR's TTS will ensure electronic monitoring of the production and sale of important sectors including tobacco, fertilizer, sugar and cement sectors. This will help bring transparency in the system and enhance the country's revenue.

Under the system, no production bag of sugar will be taken out from the factory and manufacturing plant without stamp and individual identity mark.

In the next phase, the FBR was planning to introduce the track and system in petroleum and beverages sector.

PM Imran while appreciating the FBR for introducing TTS said that this system will have “far reaching” impact on the tax collection of the country.

Citing examples from Western countries, the premier said tax to GDP ratio in Scandinavian countries was approximately 50 per cent. “But in Pakistan unfortunately the tax culture was never developed,” he said, adding that the ruling elite of the country never took measure to encourage masses to pay taxes.

The PM was of the view that Pakistan could only overcome the “vicious cycle” of debt by paying taxes.

Terming Pakistanis one of the most generous nation in the world, PM Imran said people will start paying taxes when they are assured that their taxes are not being misused by rulers.

He appreciated the FBR for collecting record taxes, saying that his government was aiming to achieve tax target of Rs8 trillion.The government took $3.8 billion worth of new foreign loans in the past four months, up by 18%, as it saw a further uptick in lending by the multilateral lenders once the International Monetary Fund (IMF) obstacle was crossed in a couple of months.

The government obtained $3.8 billion in gross foreign loans during the July-October period of fiscal year 2021-22, according to the Ministry of Economic Affairs.

The borrowing was higher by $580 million, or 18%, compared with the loans taken in the same period of last fiscal year.

The $3.8 billion of foreign loans did not include the borrowing made through the highly expensive Naya Pakistan Certificates at up to 7% interest in dollar terms for only one year.

Via : https://tribune.com.pk/story/233072...RCMHZFeS1HVnpTSTdlOXdJV19VSmJRbzRROVktUFZYUlI

 

[MenInG]

The International Monetary Fund (IMF) has rejected Pakistan’s request to keep a door open for borrowing from the central bank and also did not agree on any meaningful accountability of the State Bank of Pakistan (SBP).

The central bank’s profit would also not be transferred 100% to the federal government until the SBP gets cover to back its monetary liabilities. At least 20% of the SBP profit will now remain in the central bank’s coffers until it gets the desired cover.

The IMF has rejected almost all major proposals of Pakistan for amendments to the SBP Act 1956, except for accepting the federal government’s right to appoint SBP board members and retaining finance secretary on the board.

However, the federal finance secretary, who would represent 96% of shareholding, would not have the right to vote on any issue, sources told The Express Tribune.

Finance Adviser Shaukat Tarin on Monday told the media that approval of the SBP bill was part of the IMF’s prior actions that the government would have to implement to secure approval of a $1 billion loan tranche by the IMF board in January next year.

The global lender turned down the government’s proposal to allow it to take loans equal to 2% of the gross domestic product (GDP) in a fiscal year. The IMF did not budge despite the government’s opinion that it was its constitutional right to take loans to finance its operations.

Although there is a ban on government borrowing from the SBP under the IMF programme till September 2022, the government has now given up and agreed to permanently close this door through legislation.

“The bank shall not extend any direct credit to or guarantee any obligations of the government, or any government-owned entity or any other public entity,” said a draft of the bill approved in March this year. This clause remains unchanged.

The bank shall not purchase securities issued by the government or any government-owned entity or any other public entity in the primary market. The bank may purchase such securities in the secondary market, according to the draft.

The ban on borrowing from the central bank has left the government at the mercy of commercial banks that have in recent weeks demanded an interest rate that is significantly higher than the key policy rate.

Sources said that the IMF also did not accept a proposal that the federal government would give an inflation target to the central bank. The government had proposed that the target should be set by it and the central bank should achieve it under its primary objective of price stability.

A major concession that Tarin managed to secure was the right of the federal government to appoint the SBP board of directors.

According to the draft approved in March, “In case of appointment of non-executive directors, the recommendation of the federal government shall be based on a panel of three candidates, who comply with the eligibility criteria for each vacant position proposed by the board of directors.” Now, this clause will be amended.

However, the IMF has agreed to keep the finance secretary on the IMF board but without the right to vote. The IMF had proposed that the finance secretary should be an observer but the federal government did not agree.

Another concession that the government got from the IMF was that it could remove the SBP governor on misconduct without course to the “court of law”. Earlier, the government had agreed that the governor could not be removed without an order by the court of law in case of misconduct.

Law Minister Farogh Naseem had termed the earlier clause about the court of law unconstitutional.

A change has also been made in another clause related to future amendments to the SBP law with consent of the central bank. Now, prior consultation will be required before making such changes as against the earlier clause that “the bank shall be consulted ex ante on any proposed legislative act related to the bank”.

The IMF also did not agree to change the SBP profit distribution formula. The March 2021 amendment will remain intact.

“An amount equivalent to 20% of the distributable profit shall be credited to the general reserve account until the sum of the capital and general reserves equals 8% of the total monetary liabilities of the bank.”

The bank is short by about Rs500 billion compared to the threshold of 8% of total monetary liabilities, according to the sources.

“So much of the amount as may be determined by the board, following consultation with the bank’s external auditors, from time to time shall be transferred to the special reserves account created for any of its specific, identified liability, contingency or expected diminution in the value of assets.”

Though the SBP board will be deciding about the special reserves account, the finance secretary will not have the right to vote under the new understanding with the IMF.

Sources said that unlike in the past when the government gave a waiver from vetting of the bill by the Cabinet Committee on Legislative Case, this time the agreed draft of the SBP bill would go to the cabinet body.

In March, The Express Tribune had raised the issue of giving absolute autonomy to the central bank and approval of the bill by the federal cabinet without even studying it.

On Monday, Shaukat Tarin said that the government would ensure that the legislation pertaining to the SBP autonomy was passed.

Tarin said that the IMF did not accept Pakistan’s demand to retain the Monetary and Fiscal Policy Coordination Board. But he said that there would be a liaison between the finance minister and the SBP governor.

Unlike the previous proposal, it had been agreed that the National Accountability Bureau (NAB) law would also be applicable on the SBP, as it was applicable on the Prime Minister, said Tarin.

The governor SBP will also now be answerable to NAB, raising hopes that the NAB may finally conclude the six-year old case of KASB merger.

Published in The Express Tribune, November 24th, 2021.

 

[mazkhan]

There you go cat is out of the bag, after cutting subsidies , increased inflation

Now they want income tax

Someone should tell the deluded Khalifa that majority of pakistanis are poor so trying to compare their income , skills and education levels to Scandinavians is ridiculous.

He wants the awam to pay for the loans that have been taken by the Oxford elite and army and deposited in private accounts and foreign accounts , now awam has to pay off their yashian and the money that has been squandered.

70 yrs of misrule a bloated military that has lost every war and is now making a deal with ttp a war that cost billions and 10000s of dead , a country that is even behind Nigeria , and awam should trust them and their imf masters pulling the strings .

 

[gani999]

The International Monetary Fund (IMF) has rejected Pakistan’s request to keep a door open for borrowing from the central bank and also did not agree on any meaningful accountability of the State Bank of Pakistan (SBP).

The central bank’s profit would also not be transferred 100% to the federal government until the SBP gets cover to back its monetary liabilities. At least 20% of the SBP profit will now remain in the central bank’s coffers until it gets the desired cover.

The IMF has rejected almost all major proposals of Pakistan for amendments to the SBP Act 1956, except for accepting the federal government’s right to appoint SBP board members and retaining finance secretary on the board.

.

This is something I don't understand. How can the IMF not allow the Pakistan government to borrow from its own Central Bank?

 

[MenInG]

The Islamic Development Bank (IDB) has approved a $252 million loan for Pakistan in order to bridge the financing gap for construction of Mohmand dam and partially finance the vaccine procurements.

The regional bank approved the two separate loans last week and the agreement for $72.5 million lending for vaccine procurements was signed on Monday in Islamabad.

The agreement was signed during the visit of Dr Muhammad Al-Jasser, the president of the Islamic Development Bank (IDB), who is in Islamabad on a four-day visit to attend the 17th Extraordinary Session of the OIC on Afghanistan. The IDB president called on Federal Minister for Economic Affairs Omar Ayub Khan.

The bank’s financing for the procurement of Covid-19 vaccine will help contain the its spread, according to an announcement by the Ministry of Economic Affairs .

Meantime, in a separate development on December 13, 2021, the IDB, also approved $72.5 million of funding to support Pakistan’s nationwide vaccination efforts in the face of the ongoing Covid-19 pandemic.

Under this approval, the country’s IVAC Covid-19 Vaccine Support Project – also co-funded by the World Bank and the Asian Development Bank - will receive $70 million from IDB as well as $2.5 million from IDB’s Islamic Solidarity Fund for Development (ISFD).

This comes in the framework of the second track (R2) of IDB Group’s $4.56 billion Strategic Preparedness and Response Programme (SPRP), specifically designed to support member countries with their health and economic recovery programme against the Covid-19 pandemic.

The funding will contribute to Pakistan government’s efforts in vaccinating 70% of the population (18 years and above) eligible for vaccination, including health care and frontline workers and other priority groups. So far, 40% of the eligible population has been vaccinated.

“Chaired by IDB President and Chairman of the Board Dr Muhammad Al Jasser, the Board of Executive Directors of the bank, on December 18, 2021, gave the green light to the allocation of $180 million to contribute to financing of the strategic Mohmand Dam and Hydropower Project in Pakistan’s Khyber-Pakhtunkhwa (KP) province,” according to the ministry.

Once completed, Mohmand Dam will be the fifth highest Concrete-Face-Rock-Filled Dam (CFRFD) in the world and will add 800 MW to the country’s installed hydropower capacity. It will also provide sustainable clean potable water to two million residents in Peshawar while boosting food security through vital support for irrigation and agricultural activities on 6,773 ha of new farmlands.

To date, Pakistan’s energy sector has received the largest share of IDB Group development interventions by absorbing 68.4% or about $9.3 billion of the group’s investments, the ministry stated.

The IDB’s financing for Pakistan is covering all the major sectors of economy such as energy, industry, agriculture, transport, health and financial services. The IDB president assured of strong commitment to further strengthening and expanding its partnership with Pakistan.

Al-Jasser reiterated that the IDB is one of the leading development partners of Pakistan and fully supports the government of Pakistan’s development vision and priorities. He assured the minister that the bank will continue to mobilise more financial resources for developing infrastructure, uplifting social sector and achieving sustainable economic growth. It was also assured that the IDB will continue to leverage private financing to support trade needs including import of petroleum products.

Ayub thanked the IDB president for visiting Islamabad and his continued support to Pakistan. He applauded IDB’s role in supporting the member countries in Covid-19 response, recovery and procurement of vaccine and saving lives and livelihood amid the pandemic. The minister also thanked the IDB president for his resolve in supporting the financing needs of the country in future.

He appreciated IDBs support in green and clean energy development projects, like Mohmand Dam Hydropower Project, which will not only generate 800 MW electricity, but also enhance Pakistan’s Water Storage Capacity by 1,293 million acre feet (MAF), create food security buffer, provide clean drinking water to the residents of Peshawar and will create more than 6,000 direct new employment opportunities for the local people. The economic affairs minister appreciated the role and endeavours of the IDB president and his team for arranging this financing at a very challenging time.

The IDB president assured of further strengthening the partnership with Pakistan. It was also highlighted that the IDB did not have a regional office in Pakistan like in Turkey and some other member countries. During the discussions, the economic affairs minister underlined the need to have a regional office in Islamabad for better collaboration and engagement with the bank.

https://tribune.com.pk/story/2334917/idb-approves-252m-loan-for-pakistan

 

[transparent opacity]

Foreign loans surge to $4.6b

ISLAMABAD:
Foreign loan disbursements surged to $4.6 billion in the past five months – three-fourths of them were taken for budget deficit financing and foreign exchange reserves building – amid the government’s admission that it was taking new loans to pay back previous debt.

The government received $4.6 billion in gross foreign loans during the July-November period of current fiscal year 2021-22, the Ministry of Economic Affairs stated on Thursday.

The $4.6 billion of foreign loans did not include the borrowing made through the highly expensive Naya Pakistan Certificates at up to 7% interest in dollar terms for only one year.

The loan details have been made public two days after Information Minister Fawad Chaudhry highlighted the gravity of the situation, saying that the government was taking new loans to pay off the old debt secured by the previous government.

However, a significant amount of new debt is being taken to retire the obligations of the ruling Pakistan Tehreek-e-Insaf (PTI) government. The minister also said that the government was taking fresh loans on a long-term basis.

But the economic affairs ministry bulletin showed that one-third of the new gross loans were on account of short-term foreign commercial borrowing.

An amount of $1.53 billion was received in foreign commercial loans from banks during the first five months of current fiscal year, including $663 million in November.

The government borrowed $61 million from Ajman Bank and $720 million from Dubai Bank, including a fresh contract for $505 million.

Another loan of $478 million was taken from Standard Chartered Bank, London, including $158 million last month, according to the economic affairs ministry. A financing of $270 million was secured from Credit Suisse AG.

Overall, three-fourths of the loans, or $3.4 billion, were taken for non-productive uses like budget financing, crude oil import and foreign exchange reserves building.

Owing to the increasing reliance on loans to enhance the country’s foreign exchange reserves and finance the budget deficit, the cost of debt servicing has gone up

The steep rupee devaluation has also made matters worse for the government, as the depreciation has already added Rs1.6 trillion to the stock of external public debt as of June this year.

A report of the State Bank of Pakistan (SBP) revealed that during the first three years of its tenure, the PTI government added Rs14.9 trillion to the public debt, which was 60% more than the debt stock in June 2018.

Finance Adviser Shaukat Tarin said last month that the revival of the International Monetary Fund (IMF) programme would help secure more loans from the bilateral and multilateral lenders.

The government is targeting to implement the pre-conditions set by the IMF by the end of this month for resuming the IMF programme by January 12. Missing the deadline will have serious implications for the credibility of the government.

The government took $468 million in loans from the Islamic Development Bank for crude oil imports and $1 billion worth of bonds were floated in July this year.

The Asian Infrastructure Investment Bank released $37 million for project financing.

Official statistics showed that bilateral lending to Pakistan almost dried up in the current fiscal year, standing at a mere $84 million so far for project financing. This included $73.4 million in project lending by China.

The government has not yet been able to secure a fresh commitment of $6 billion from China for financing the Mainline-I railway project of China-Pakistan Economic Corridor (CPEC).

The multilateral lenders gave nearly $2 billion in loans in five months, which had started picking up on hopes for revival of the IMF deal.

Amongst the multilateral development partners, the Asian Development Bank (ADB) disbursed $619 million during the July-November period, including the money for vaccine procurement.

The World Bank released $825 million in five months, including a withheld loan of $400 million under the Programme for Affordable Clean Energy (PACE) after the government approved a new power generation expansion plan under the loan condition.

https://tribune.com.pk/story/2335384/foreign-loans-surge-to-46b

 

[MenInG]

ISLAMABAD: The government on Saturday said it would introduce the Finance (Supplementary) Bill 2021 and the State Bank of Pakistan (Amendment) Bill 2021 in the parliament for approval on Tuesday to ensure its sixth review of the $6 billion Extended Fund Facility (EFF) gets cleared by the International Monetary Fund’s (IMF) executive board on Jan 12, paving the way for the disbursement of about $1bn tranche.

Finance and Revenue Adviser Shaukat Tarin told Dawn that all fiscal, monetary and reform measures agreed with the IMF as prior actions had been completed. All arrangements were in place to ensure that the entire package — including the supplementary finance and State Bank of Pakistan (SBP) bills — is approved by the cabinet during its meeting on Tuesday.

“We will take it to the parliament the same day in the afternoon,” he said.

An official earlier said the government was ready to get the Finance (Supplementary) Bill 2021 passed by the National Assembly to ensure there is reasonable time before the IMF board’s meeting. The Fund’s directors traditionally require two weeks to review the memorandum of economic and fiscal policy measures.

Mr Tarin committed to the IMF that Pakistan will complete all five “prior actions” before requesting for a meeting of the board of directors to approve the revival of $6bn EFF suspended in April this year.

Under those prior actions, the government, through the supplementary finance bill will, effect a net fiscal adjustment of almost Rs550bn during the remaining part of the current fiscal year through a 22 per cent cut in development funds, about Rs360bn worth of withdrawal of tax exemptions with a revised tax target of Rs6.1 trillion and increase in petroleum levy on major petroleum products by Rs4 per litre per month.

Making an upfront announcement about the five prior actions to secure approval of the IMF board for the disbursement of about $1.06bn and revival of the IMF programme in January, Mr Tarin said recently the government would also ensure “approval” of the parliament to grant autonomy on matters of monetary policy, exchange rate and recruitments to the SBP, which would remain answerable to the parliament as it was now.

These prior actions included State Bank of Pakistan (Amendment) Bill, withdrawal of tax exemptions and increase in energy tariff. The action pertaining to tariff adjustment has already been taken while bills to end tax exemptions and give autonomy to the SBP have been finalised.

Under the supplementary finance bill, the Federal Board of Revenue (FBR) is seeking amendments to all the three key tax laws relating to customs, sales tax and income tax, besides the services tax law for the federal capital.

The underlying purpose of the reform exercise, as pushed through by the international lenders, is to “rebuild the tax system on ideal principles of taxation and without any distortions” as far-reaching structural and administrative reforms had already been initiated by the present government to “achieve economic and financial stability through inclusive reforms and sustainable economic growth”.

In terms of revenue generation, withdrawal of exemptions and removal of different rates under the sales tax law appear to be the biggest sources of additional tax. There is a long list running in hundreds of items that would attract higher sales tax rates and application of fresh tax.

“Under the Sales Tax Act 1990, zero-rating under the Fifth Schedule is proposed to be streamlined and certain entries are to be withdrawn,” documents suggest. “Exemption regime under Sixth Schedule is proposed to be curtailed including the pharmaceutical sector and restricted to import and local supply of essential commodities only.”

Moreover, “reduced rates of sales tax under Eighth Schedule on certain items are proposed to be streamlined in order to achieve equity in the tax system”.

There are hundreds of items in the schedule on which different sales tax rates at 1pc, 2pc, 5pc, 6pc, 7pc, 8pc, 10pc and 12pc are applicable at present instead of the standard sales tax rate of 17pc.

“Likewise, sales tax on the import of completely built high-end mobile phones under Ninth Schedule is proposed to be rationalised,” the FBR chairman said, adding that the “scope of Tier-I retailers is also proposed to be rationalised”.

Under the Islamabad Capital Territory (Tax on Services) Ordinance 2001, a few notifications issued from time to time prescribing reduced rates in respect of some services were not consolidated, which is now being done in the schedule to the ordinance.

The summary reports that “minimal amendments in the Income Tax Ordinance 2001 are aimed at promoting digital economy, documentation and facilitation measures”. Additionally, advance tax on foreign drama serials is proposed to be introduced and slightly enhanced on cellular services.

Disclosure of information in respect of high-level public officials is proposed in the income tax law in line with the requirements of the development partners, rule of law and integrity.

Published in Dawn, December 26th, 2021

 

[Last Monetarist]

https://tribune.com.pk/story/2336792/fawad-says-revival-of-imf-programme-will-put-an-end-to-immediate-worries

Information Minister Fawad Chaudhry on Sunday said there was no rift within the government over the mini-budget, saying the passage of the Finance Supplementary Bill 2021 will revive the International Monetary Fund (IMF) programme.

Addressing a press conference in Karachi, the federal minister said that the finance bill will likely pass by Jan 20 and the subsequent release of a $1b tranche by the IMF will stabilise the economy and the Pakistani rupee.

Along with the IMF, the bill will also pave the way for the release of money from other global money lending institutions that would play a key role in the economic revival. “With the release of the IMF tranche, our immediate worries will be over,” the minister hoped.

In a comment on the autonomy of the State Bank of Pakistan (SBP), Fawad said giving the SBP autonomy was part of the PTI’s manifesto. “We are not subletting the central bank to the IMF,” he said, adding that the board of governors of the SBP will be appointed by the government.

According to Fawad, the PTI government didn’t borrow even a single rupee from the SBP over the past three years unlike the PML-N government that had “asked [the] SBP to print trillions of rupees”.

“We believe in independent institutions and autonomy granted to the SBP will benefit Pakistan,” the minister added.

Speaking about inflation, he said that in the global market energy prices were showing a downward trend that would eventually translate into relief for the public. He further said that global food prices were also coming down, which would consequently ease inflation in Pakistan.

As per the minister, there was hyperinflation in Pakistan because of the hike in global prices. He said Pakistan had to import ghee, cooking oil and pulses because the agriculture sector was ignored by previous governments.

“However, [the] PTI has revived the sector over the past two years and we had five bumper crops this year,” he added. As a result of these bumper crops, farmers got Rs1,100 billion, the minister added.

He said that the Pakistani economy is on the mend and claimed that it would grow at a rate of five per cent during 2022. “We have revived the agri and industrial sectors,” he said, adding, “the economy is back on track [and] 2022 is the year of Pakistan’s prosperity.”

Talking about the economic growth, Fawad said 100 major companies of Pakistan, including that owned by PML-N leader Miftah Ismail, earned Rs929b in profits whereas the profits of media houses witnessed a 33 per cent increase.

He said that the private sector was not increasing the salaries of their workers despite record profits and urged them to give their employees a pay raise amid these times of inflation.

The information minister criticised the PML-N and PPP government for taking over Rs27 trillion in loans in 10 years. He said that the total debt of Pakistan rose from Rs6 trillion in 2008 to Rs27 trillion in 2018. According to Fawad, the PTI has returned $32 billion in loans and is expected to repay $55b.

About the return of Nawaz Sharif, the minister said Shehbaz Sharif who had given a guarantee for the return of his brother should be asked by the court to bring him back. If Shehbaz fails to do so then he should be jailed for not complying with terms of the affidavit, he added.

Earlier in the day, Fawad said that the health cards facility has become fully available in the Lahore division and in the next 45 days families across Punjab would be eligible for treatment up to Rs1 million annually as well.

He said that with this “revolutionary programme” the health expense of the public would no longer come out of their budget, rather the government would take the responsibility. Fawad said that under this initiative every citizen would be eligible for the medical facility without any discrimination.

He said that the health card facility was being implemented across Pakistan, except Sindh. He urged the Sindh chief minister to initiate this facility in the province along with the ration card that provides a 30pc subsidy on flour and pulses.

 

[saeedhk]

PTI has taken $41 billion dollars in loans in the last 41 months. This is unprecedented and shows the utter incompetency of Khan. All promises of not going to the IMF were to win votes. It was a huge scam!

 

[MenInG]

The International Monetary Fund (IMF) has asked Pakistan to renegotiate its loan programme in return for getting three weeks of extension in the process of implementing prior actions but the government did not agree, Finance Minister Shaukat Tarin disclosed on Monday.

Tarin gave the statement in a meeting of the Senate Standing Committee on Finance, which completed clause-by-clause reading of the Finance Supplementary Bill 2021, introduced to impose Rs375 billion worth of new taxes under a condition of the IMF loan programme.

The sixth review date was January 12 but Pakistan took a three-week extension since both bills were in parliament for approval, Tarin said. “When I approached them for extension, they (IMF) asked to renegotiate the programme,” he added.

The minister said that he did not agree to renegotiations, fearing that the IMF might impose new conditions. He added that the IMF had now agreed on January 28 or January 31 date for taking Pakistan’s case to its board and “the final date will be conveyed to us soon”.

The IMF’s desire to seek renegotiations suggests that the government does not have much time to meet all prior actions, posing it a challenge to secure approval of the SBP Amendment Bill 2021 from the Senate before the new tentative dates.

Under Article 70 (3) of the Constitution, any house of parliament has 90 days to approve a bill from the date of introduction. The National Assembly Standing Committee on Finance on Monday approved the SBP Amendment Bill, which once approved by the National Assembly, will be laid before the Senate for approval.

If the Senate approval is not secured this month, it could create problems for the government, which is also facing a new challenge in the shape of replacement of IMF Mission Chief to Pakistan Ernesto Rigo.
The sixth review was scheduled to be approved by the IMF board in June last year but has been lingering on due to delay in implementing the IMF’s conditions.

The Senate Standing Committee on Monday finalised recommendations for the Finance Supplementary Bill 2021 and the report would be laid in the committee for final review and approval by committee members on Tuesday. The standing committee rejected a budget proposal to publicly disclose the asset declarations filed by politically exposed persons, civil servants and their spouses, except the armed forces.

Tarin promised that he would look into the proposal again in light of the Senate committee recommendation. According to the proposal, the details submitted by high-level public office-holders and civil servants will be made public to ensure transparency and the government will omit the secrecy clause from the tax law to ensure public disclosure of the information.

The Senate panel unanimously rejected the tax imposed on “naan” and “bread”, including the one prepared in bakeries. “Bread is consumed by all classes of society, and children of the middle class society use them for lunch,” Senator Farooq Naek stated, while debating the proposed amendment.
The committee also rejected the proposed imposition of tax on yogurt, butter, Desi ghee and milk, by a majority vote, while the tax had been imposed on flavoured milk, cheese, cream and whey.

The committee unanimously rejected the proposal of binding the corporate sector to make payments only through the digital mode on the plea that digital payments could not be enforced. Unlike the National Assembly Standing Committee on Finance, which approved the SBP bill in one sitting without reading it, the Senate committee members discussed each clause at length. The Senate panel rejected a number of taxes by a majority vote and gave recommendations on the way forward.

The standing committee proposed to impose tax only on imported bicycles of over Rs25,000 against the government proposal to impose taxes on all imported bicycles. Tarin showed his surprise over the inclusion of bicycles in the list of items, which would now be subject to 17% GST.

Speaking about the impact of mini-budget, Tarin said that there would be a slight increase in inflation but he did not quantify its exact impact. “The mini-budget has disrupted the entire economy of the country,” stated Senator Talha Mehmood, Chairman of the standing committee, while showing his dismay over the imposition of new taxes.

The imposition of tax on oilseeds, meant for sowing, was also omitted by the committee. Senator Musaddik Malik stated that it was imputative to agricultural production and innovations. Tax imposition on tillage and seedbed preparation equipment was also rejected through a majority vote. Cool chain machinery and equipment tax imposition was also opposed by the committee. Tax on plants for relocated industries was also unanimously omitted by the committee.

https://tribune.com.pk/story/2338153/imf-seeks-to-renegotiate-loan-programme

 

[MenInG]

The National Assembly on Thursday approved a controversial Supplementary Finance Bill -- also dubbed as the “mini-budget” -- worth Rs360 billion with a majority vote and bulldozed the State Bank of Pakistan (SBP) Amendment Bill to give absolute autonomy to the central bank -- both moves aimed at meeting two critical conditions set by the International Monetary Fund (IMF).

The government succumbed to pressure exerted by local car assemblers and increased the sales tax rate to 12.5% on the import of electric vehicles -- even higher than the initial 5% rate it had proposed while introducing the “mini-budget”.

It also waived off 15% income tax in favour of a couple of wealthy families of the country.

The government suspended the rules of the National Assembly that require a minimum of two-day debate on any piece of legislation and approved the SBP Amendment Bill in haste -- in just 48 minutes.

However, the government allowed a debate on the mini-budget and approved minor amendments to the Sales Tax Act, the Income Tax, the Customs Act and the Federal Excise Duty.

Prime Minister Imran Khan, who before coming into power had vowed that he would not go to the IMF, remained present in the lower house of parliament till midnight to make sure that his disgruntled party members and allies vote to pass both the bills to meet the IMF conditions.

The opposition twice forced the government to count the vote while passing the mini-budget. There were a maximum of 168 members of the treasury present in the House compared with 150 of the opposition, giving an 18 vote edge to PM Imran.

The IMF has set five prior conditions for the revival of the $6 billion stalled programme, including the passage of the mini-budget and giving absolute autonomy to the central bank with the federal government keeping no check on its functioning.

In its desperation to seek the next loan tranche of $1 billion, the government overlooked the objections raised by the PM Office and Finance Minister Shaukat Tarin on the central bank bill, which was passed to the satisfaction of the IMF and the SBP governor.

The IMF’s board meeting was planned for January 12 but was postponed due to a delay in the approval of these bills.

Finance Minister Tarin said the next tentative board meeting date was either January 28 or 31.

PML-N MNA Khurram Dastgir Khan said there was a storm of inflation, as the prices of 51 most essential items affecting the poorest had gone up by 22% just last week.

“The inflation is slaughtering people now,” he added.

Where the government withdrew the Rs335 billion sales tax exemptions that will affect every segment of the society, it has approved income tax exemption for the richest people, who own real estate investment trusts (REITs).

Out of Rs360 billion, Rs335 billion worth of sales tax exemptions have been withdrawn.

Around Rs7 billion income tax measures have been taken in the shape of increasing the income tax rate on telephone calls by 50% and enhancing advance income tax on registration of cars by 100%.

A tax of Rs3 million has also been slapped on foreign-produced dramas.

In addition to that, the government has also increased federal excise duties on the purchase of locally-made and imported cars to raise another roughly Rs20 billion in revenue.

Read More: PM Imran, Khattak engage in 'heated argument' during parliamentary meeting

The government has imposed 17% general sales tax (GST) on infant milk if it was valued over Rs500 for a 200 gram of powder.

It has withdrawn 17% GST which was earlier proposed to slap on bicycles.

The government has also withdrawn 17% GST on red chilies and iodised salt.

However, it has imposed 17% GST on breads, vermicelli, naan, chapatti, sheer mal, bun, and rusk sold by all food shops, bakeries and restaurants that were integrated with the Federal Board of Revenue (FBR) through ‘Point of Sales’ machines.

While giving up to pressure exerted by local car assemblers, the government increased the sales tax rate on imported electric vehicles to 12.5%.

It kept the GST rate on hybrid vehicles of up to 1800 cc cars unchanged at 8.5% and set the rate at 12.75% on hybrid vehicles above 1800 cc.

Similarly, the government has significantly increased the federal excise duty rates on locally produced and imported cars. On imported cars of 1001-1799cc engines, the FED has been doubled from 5% to 10%, on 1800-3000cc engines, the rates have been increased from 25% to 30% and from 3001cc engines and above, they have been jacked up from 30% to 40%.

The government kept the federal excise duty rate on up to 1300 cc cars unchanged at 2.5% but increased the rate on 1301 to 2000 cc to 5% and above 2000 cc to 10%.

The National Assembly also gave the nod to slap 17% sales tax on raw material for pharmaceutical products to generate Rs160 billion.

The premixes of growth stunting have been taxed at 17%.

Tax on prepared foodstuff and sweetmeats supplied by restaurants, bakeries, caterers and sweetmeat shops has been increased from 7.5% to 17%.

Imported edible vegetables have been taxed at 17%. Imported cereals have also been slapped with the 17% tax.

Matchboxes are taxed at 17% rate. Whey excluding those sold in retail packing under a brand name and sausages and similar products of poultry meat or meat offal excluding those sold in retail packing under a brand name or trademark are taxed at 17%.

The tax rate on flavoured milk sold in retail packing under a brand name has been increased from 10% to 17%.

The rates of yoghurt, cheese, butter, cream, desi ghee, whey, milk and cream sold in retail packing under a brand name have also been increased from 10% to 17%.

Machinery and equipment related to dairy products has been taxed at 17% as against the existing 5%.

Mobile phones have been taxed at the standard 17% rate as against the current fixed rate.

Supplies made from retail outlets as are integrated with the FBR’s computerised system that are currently taxed at 10% will now be taxed at 12%.

The tax rate of frozen prepared or preserved sausages has gone up from 8% to 17%.

Seeds, fruit and spores of a kind used for sowing have been taxed to generate Rs4 billion.

The import of newsprint, newspapers, journals, periodicals, books – with the exception of directories – has been taxed at 17% for Rs1.5 billion every year.

The government approved the SBP amendment Bill in haste in just 48 minutes by suspending the assembly rules.

The finance minister had moved the bill at 10.06pm and the NA speaker announced its approval at 10.54pm.

The PML-N and PPP first pleaded the National Assembly speaker to let the debate take place and then in sheer frustration gathered in front of his desk to stop him from bulldozing the parliament’s proceedings.

However, nothing could stop the PTI-led government from handing over absolute autonomy to the central bank, which PPP’s Syed Naveed Qamar said would “compromise national security”.

“I beg you… please do not suspend the rules and allow the house to debate on the most important bill in the country’s history for at least two days”, said PML-N’s Ahsan Iqbal.

However, even this could not move the speaker, who kept on bulldozing one after another amendment suggested by the opposition.

PPP Chairman Bilawal Bhutto Zardari, while referring to another condition set by the IMF, raised the question as to when defence expenditures would be made from one account, would it not be easy for international institutions and powers to scrutinise the country’s nuclear programme spending.

The bill, which will now be taken up by the Senate for approval, has allowed the central bank to target price stability as it primary objective but does not set the explicit inflation target.

The new bill has given the autonomy to the SBP, but neither parliament nor the federal government has the authority to remove the governor for missing the inflation target.

The government has made a few changes in the final draft approved by the National Assembly.

This includes a bar on the governor and deputy governors of the SBP for two years to seek employment in any of the institutions that they have dealt with or negotiated during the term of their office.

Dual nationals cannot become governors and deputy governors of the SBP.

Parliament and its standing committees can call the SBP governor in meetings.

However, the SBP will be completely independent to set the monetary policy, the exchange rate policy and will largely work in isolation from the federal government.

The SBP governor and its officers cannot take instructions from any person of the federal government, including the prime minister.

The governor has been made all-powerful. He will chair the executive committee, head the Monetary Policy Committee and also be the chairman of the SBP Board.

The governor’s term has been increased to five years and his salary will be determined by the SBP board.

The finance minister’s authority to appoint the deputy governor has been withdrawn and the Monetary and Fiscal Policies Coordination Board has been disbanded.

https://tribune.com.pk/story/2338659/govt-takes-giant-step-for-imf-conditions

 

[MenInG]

Pakistan on Monday raised a $1 billion loan through the Sukuk bond at a 7.95% interest rate -- which is the highest cost that the country has agreed to pay in its history on an Islamic bond.

The government went to international capital markets after it consumed nearly $2 billion out of the $3 billion borrowed from Saudi Arabia one-and-half months ago. This pulled down the gross official foreign exchange reserves to $17 billion as of January 14.

Pakistan has issued the 7-year tenor asset-backed Sukuk bond to raise $1 billion at an interest rate of 7.95%, the Ministry of Finance confirmed to The Express Tribune.

The rate is almost half per cent higher than even the 10-year Eurobond that the government had floated in April last year.

The key difference between the Islamic Sukuk and traditional Eurobond is that the Islamic bond is backed by an asset that attracts less interest rate. However, the government has paid the interest rate on an asset-backed bond, which is higher than the traditional tenor bond.

Pakistan has agreed to pledge a portion of the Lahore-Islamabad motorway (M2) in return of the loan -- a national asset built in the 1990s that is now used to raise debt from the international capital markets.

However, the Ministry of Finance officials said that a nearly 8% interest rate should be seen in the context of a rise in the interest cost around the globe after the US Federal Reserve indicated increasing the interest rates from March.

The ministry officials further said that the country had to raise the loan to keep the official foreign exchange reserves at their levels ahead of some major foreign loans repayments.

The Ministry of Finance received over $3 billion bids at the indicated rates. Bloomberg had first reported to its investors that the government of Pakistan has set the benchmark rate in the range of 8.25% to 8.375%. But the government managed to strike the deal at a lower range -- at nearly 8% interest rate.

In the fiscal year 2017, Pakistan had borrowed $1 billion for five years through Sukuk at a 5.625% interest rate -- which at that time was 5% higher than the benchmark five-year US paper.

Nearly 8% interest rate is not only significantly higher by the previous Islamic bond deal but is also nearly 6.3% higher than the seven-year US benchmark rate.

It is the highest rate that Pakistan has ever paid in its history on an Islamic bond, which indicates the desperation of the country that has long been building its official foreign exchange reserves by taking expensive foreign loans.

Last month, Pakistan had taken a $3 billion Saudi loan on very tough conditions after its official gross foreign exchange reserves dipped below $16 billion. However, the reserves again fell slightly over $17 billion as of January 14, indicating that the government has already eaten up nearly $2 billion of Saudi loan.

The current account deficit has widened to $9.1 billion during the first half of the current fiscal year -- a figure that is almost equal to the level State Bank Governor Dr Reza Baqir had projected for the full fiscal year.

In August last year, Dr Baqir had told a gathering of journalists that the current account deficit would remain in the range of $6.5 billion to $9.5 billion in the current fiscal year 2021-22. But the threshold is almost breached six months before the close of the fiscal year.

The SBP is also playing a gamble by offering 7% interest on loans that Pakistan is raising through Roshan Digital Accounts. The government is also using nearly $5 billion private foreign exchange reserves of the citizens parked in commercial banks at almost zero cost. But it has paid nearly 8% cost to foreigners in the shape of interest on Sukuk and 7% on Roshan Digital Account.

Compared with short-term expensive commercial borrowing, long-term bonds are considered the preferred choice of instruments due to their longer maturity and no conditions attached. However, the kind of interest rates that the PTI government is offering to foreign investors is unprecedented in the history of the country.

It is the second time in the current fiscal year that the government is conducting the capital market transaction. Earlier it had raised $1 billion in July last year.

The government has set the $3.5 billion borrowing target through the issuance of the international Euro and Sukuk bonds during the current fiscal year.

The government chose to test the global markets just four days before the executive board meeting of the International Monetary Fund that will review Pakistan’s request to revive the stalled programme and consider approving the $1 billion next loan tranche.

Out of $6 billion, the government has so far remained able to avail only $2 billion of the IMF package due to its inability to meet the agreed conditions. Out of the two major conditions set for the approval of the loans, so far, one condition to get the approval of the SBP amendment bill remains partially implemented. The Senate has not yet approved the SBP bill.

The government is heavily dependent on external borrowings to meet its financing needs and to keep the gross official foreign exchange reserves at a minimum threshold. Despite claims about an increase in exports, the earnings are not sufficient to finance the growing import bill.

The foreign direct investment also remained shy of $2 billion annually -another area where the PTI has badly failed despite changing many chairmen of the Board of Investment in the past three and half years.

Pakistan’s foreign exchange reserves are currently sufficient for 10 weeks of import cover amid a surge in the import bill that crossed remained on an average at $7.8 billion during the past two months. The reserves remain low despite the SBP has offered abnormally high-interest rates to overseas Pakistanis investing in government securities.

The rupee is currently depreciating against the US dollar and is trading at around Rs176 to a dollar.

https://tribune.com.pk/story/2340335/pakistan-raised-1b-through-sukuk-bond

 

[Forward Defensive Push]

7.95 percent interest rate for a federal loan!!! Where are we heading! Scary times

 

[MenInG]

The government borrowed $10.4 billion in the past six months, which was higher by 78% over the same period of last year, as it struggled to address the growing current account imbalance and keep the debt-financed foreign exchange reserves at current levels.

Gross foreign loan disbursements during July-December of current fiscal year remained at $9.3 billion, the Ministry of Economic Affairs reported on Wednesday.

In addition to this, the government received $1.1 billion in foreign loans from the overseas Pakistanis through the Naya Pakistan Certificates, the central bank data showed. The cumulative gross foreign loans secured in the first half of current fiscal year were higher by $4.5 billion, or 78%, from the same period of previous fiscal year, showed the official statistics.

The country is sliding deeper into the debt trap and has reached a point where it is now contracting the most expensive foreign loans in its 75-year history. Successive governments, including the current one, have failed to ensure sufficient inflows through the non-debt creating sources, ie exports and foreign direct investment. However, the remittances – another non-debt creating source – have shown a significant improvement over the past two years.

Information Minister Fawad Chaudhry said last month that the government was taking new loans to pay off the old debt.

The Debt Policy Statement 2021-22 showed that contrary to the claims of the government that the debt burden was increasing due to the repayment of old loans, the external debt repayments, in fact, decreased $2.1 billion, or 23.3%, in the last fiscal year compared to the preceding year.

The highly expensive Naya Pakistan Certificates-backed loans are a new debt instrument that the Pakistan Tehreek-e-Insaf (PTI) government has added to the list. The $1.1 billion loan from July through December of current fiscal year was acquired at 7% interest rate in dollar terms. The foreign loans of $9.3 billion, reported by the Ministry of Economic Affairs, are inclusive of the $3 billion short-term loan received from Saudi Arabia last month.

However, despite the Saudi Arabian assistance, the gross official foreign exchange reserves dipped to $17.1 billion by mid-January – sufficient to finance hardly 10 weeks of imports.

An amount of $2 billion was received in foreign commercial loans from banks in the first six months of current fiscal year, including $502 million in December.

The government borrowed $1.1 billion from Dubai Bank, including a fresh contract for $420 million.

Another loan of $487 million was taken from Standard Chartered Bank, London, according to the economic affairs ministry. A financing of $343 million was secured from Credit Suisse AG.

Overall, 84% of the loans, or $8.7 billion, were taken for non-productive purposes like budget financing, crude oil import and foreign exchange reserves’ building.

Owing to the increasing reliance on loans to enhance the country’s foreign currency reserves and finance the budget deficit, the cost of debt servicing has gone up significantly.

The government’s reliance on highly expensive and short-term foreign debt further increased due to its decision to increase the dependency on foreign commercial banks and Naya Pakistan Certificates. As a result, the average maturity time of external debt deteriorated from last year’s level of seven years to six years and eight months by the end of June 2021. The share of foreign commercial loans has already increased from 11% to 13% in the external public debt. Official statistics showed that bilateral lending to Pakistan almost dried up in the current fiscal year, standing at a mere $94 million so far for project financing. This included $73.4 million in project lending by China. The government has not yet been able to secure a fresh commitment of $6 billion from China for financing the Main Line-I railway project of China-Pakistan Economic Corridor (CPEC).

Pakistan also obtained loans worth $2.8 billion from multilateral creditors. The Asian Infrastructure Investment Bank released $36 million for project financing.

Amongst other multilateral development partners, the Asian Development Bank (ADB) disbursed $1.1 billion during the July-December period, including $488 million for vaccine procurement.

The World Bank released $932 million in the six months under review while the Islamic Development Bank disbursed $805 million for crude oil imports. The Ministry of Economic Affairs also booked $291 million worth of publicly guaranteed debt, which China disbursed for Karachi’s nuclear power plants, known as K2 and K3.

The government also took $10 million in loan from NBP Bahrain to finance the losses of Roosevelt Hotel, New York, which was owned by the loss-making Pakistan International Airlines.

Published in The Express Tribune, January 27th, 2022.

 

[MenInG]

Pakistan has set its sight on a loan to the tune of $3 billion from China to stabilise its dwindling foreign exchange reserves and also seeks an investment bonanza in half a dozen sectors during the visit of Prime Minister Imran Khan to Beijing next week.

Government sources said that in addition to political engagement, the premier would also seek Chinese support in areas of finance, trade and investment.

A final meeting to shape the agenda of the visit would take place on Tuesday -- two days before the scheduled visit, the sources added.

The prime minister will depart for Beijing on February 3 and attend the inaugural session of the Winter Olympics there.

A senior finance ministry official said the government was considering requesting China to approve another loan to the tune of $3 billion in China’s State Administration of Foreign Exchange, known as SAFE deposits.

China has already placed around $11 billion with Pakistan in the shape of commercial loans and foreign exchange reserves support initiatives, including $4 billion in SAFE deposits.

The Chinese money is part of the country’s current official foreign exchange reserves recorded at $16.1 billion.

In the last fiscal year, the country had paid over Rs26 billion in interest cost to China only for using a $4.5 billion Chinese trade finance facility to repay the maturing debt.

Last month, Pakistan also received a Saudi loan of $3 billion, which the country has consumed. The foreign exchange reserves that before the Saudi injection stood at $15.9 billion have already fallen to $16 billion by January 21.

The government would also seek Chinese investment in six priority sectors by highlighting the competitive advantages that the country has in areas of cheap but skilled labour, access to the two richest continents of the world and tax exemptions.

“We will market textile, footwear, pharmaceutical, furniture, agriculture, automobile and information technology sectors for Chinese investment,” said Azfar Ahsan, the chairman of the Board of Investment.

The government is expected to tell the 75 Chinese companies that it provided access to trade routes to the Middle East, Africa and the rest of the world – offering greater incentive in shape of reduction in freight cost.

“Unlike in the past when we would only talk about Pak-Sino friendship being higher than the Himalayas and sweeter than honey, this time we are going prepared to China with a structured approach,” Federal Planning and Development Minister Asad Umar told The Express Tribune.

He added that with the involvement of the China Pakistan Economic Corridor (CPEC) Authority, the government had selected those sectors for foreign investment where there was evidence of huge benefits for Chinese investors.

“The study of selected locations shows substantial benefits in transportation times via CPEC.”

Sea freight charges often contribute 2% to 10% of unit cost depending on the product. Pakistan offers substantially better and lower sea freight rates to two of the largest import destinations, according to the CPEC Authority officials.

If imported from Pakistan, the freight costs 4,000 Euros per large container to EU destinations compared with 15,000 Euros from China. Similarly, these rates are 6,700 Euros in case of the US East coast against 12,500 Euros from Chinese port to the US.

These rates were also less when compared with India, Bangladesh and Cambodia.

Cost savings on sea freight can materially reduce costs for transacting parties, make product pricing competitive.

Similarly, Pakistani authorities believe that its labour is two times cheaper than that of China. This offers a greater opportunity for relocation of the dying Chinese industries.

However, all these areas and the competitive advantages are already known to the investors but they remain reluctant to bring in “big money” to Pakistan because of its inconsistent fiscal and energy policies.

China has decided to move into more sophisticated and high-tech-driven textile and apparel industry and engage in more value-added functions under its 2021-25 plan.

The government officials claimed that the electricity tariffs were competitive to the regional peers, 9 cents per unit electricity cost compared with 7.1 cents in Indian Punjab and 7.3 cents per unit in Vietnam.

They added that there was 100% exemption on income tax for 10 years, duty-free import of all plant, machinery and equipment and customs and other duty exemptions available for export-oriented raw material.

However, this month the government has withdrawn tax exemptions on the import of machinery and plants, including for Export Promotion Zones.

However, the Pakistani authorities believe that the country’s textile sector presents the most attractive opportunities for Chinese investors in the value-added segment particularly apparel and made-ups, where there is considerable growth potential.

The investors will be able to take advantage of the “best possible” fiscal incentives in its special economic zones, skilled and inexpensive labour, easy availability of raw material, competitive energy tariffs, low freight costs and preferential access to European markets.

The Pakistan Railways has also informed the prime minister about the hiccups in the execution of the $6.8 billion Mainline-I project -- the largest project of the CPEC that has already faced a delay of more than four years.

The sources said the financing modalities of the project had not yet been finalised. Therefore, no major breakthrough was expected on this front.

The government has shown some progress on the lingering issue of about Rs230 billion withheld payments to Chinese power producers and has so far paid Rs50 billion. Another Rs50 billion are also expected to be paid next month.

https://tribune.com.pk/story/2341112/islamabad-eyes-3b-loan-from-beijing

 

[MenInG]

Fund on Wednesday revived Pakistan’s stalled programme and cleared $1 billion tranche after Islamabad gave absolute autonomy to the central bank and took around Rs800 billion measures.

The executive board, that met in Washington, also waived off few conditions to pave the way for the release of the fourth loan tranche under the sixth review of the $6 billion Extended Fund Facility. The government has missed the primary budget deficit reduction target. The programme was suspended since June last year.

“I am pleased to announce that the IMF board has approved sixth loan tranche of its programme for Pakistan,” tweeted Finance Minister Shaukat Tarin on Wednesday.

The finance minister’s tweet suggested that it was the IMF’s programme however, IMF has always said that it is Pakistan’s programme.

After dragging feet for eight months, the government of Prime Minister Imran Khan signed off all the conditions that it tried to resist first in June and then in October last year.

The government agreed to take Rs800 billion measures through a combination of cut in expenditures and imposition of about Rs500 billion in taxes, including Rs20 per litre fuel tax, to revive the stalled $6 billion IMF programme.

The prior actions for the IMF board meeting that Pakistan met were approval of Rs360 billion mini-budget by the National Assembly, increase in the petroleum development levy rates every month (except in February), approval of the SBP Amendment Bill and the audit of Covid-19 expenditures and sharing of details about the beneficial ownership of coronavirus vaccines.

Earlier, the government had decided to keep the Covid-19 expenditures audit report confidential in violation of the IMF agreement. The report has disclosed Rs40 billion irregularities in the PM’s Covid relief package.

In November last year, Tarin had admitted that as a result of the IMF’s condition, “difficulties of the lower income groups will increase marginally but targeted subsidies will be given”.

The inflation rate in January skyrocketed to 13% -the highest in two years.

To qualify for the tranche, the Public Sector Development Programme was cut by Rs200 billion or 22% and the “contingency grants” were reduced by Rs50 billion, Tarin had said in November.

The tax collection target of the Federal Board of Revenue (FBR) has been increased to over Rs6.1 trillion – an addition of roughly Rs350 billion

The revised petroleum development levy target is now Rs356 billion – down from Rs610 billion that the government had set in the budget.

Pakistan will have to ensure a primary budget surplus after paying the cost of debt servicing against the budget target of Rs376 billion deficit, requiring strict fiscal discipline that would have severe implications for the economy.

The government has given absolute autonomy to the SBP. “Price stability, exchange rate of the rupee and the level of the interest rate will be the responsibility of the central bank in which the government will have no role.

With the approval of the $1 billion tranche, the total IMF lending will increase to $3 billion under the programme. Still $3 billion will remain which the IMF will disburse subject to completion of the remaining programme reviews.

 

[MenInG]

The State Bank of Pakistan has received an installment of $1.053 billion from the International Monetary Fund under the Extended Fund Facility worth $6 billion.

“Following the successful completion of the sixth review of the IMF program, SBP has received the next tranche of $1.053 billion,” the State Bank of Pakistan stated on its official twitter handle.

The executive board of the IMF on Wednesday revived Pakistan’s $6 billion Extended Fund Facility (EFF) programme, paving the way for the disbursement of about $1 billion tranche.

The move came after the Pakistan Tehreek-i-Insaf (PTI) government narrowly managed to get the crucial State Bank of Pakistan (Amendment) Bill passed from the opposition-controlled Senate on previous Friday.

Sources told The Express Tribune that the review largely remained smooth. They said the Indian executive director, who represents a constituency of four countries, abstained from the meeting.

The executive board, which met in Washington, also waived some conditions necessary for the release of the fourth loan tranche under the sixth review of the EFF.

 

[JaDed]

“They said the Indian executive director, who represents a constituency of four countries, abstained from the meeting.

The executive board, which met in Washington, also waived some conditions necessary for the release of the fourth loan tranche under the sixth review of the EFF.“

Unique .. guess BJP is having backdoor policy with Pakistan and fooling the nation as usual or it’s something else.

 

[Angrez Pakistani]

Loans will forever be in our fate as a nation. And we’ll have to make peace with it I guess. I also think that if we make peace with it then any leader in the future who claims otherwise should be identified as a certifiable liar and a fraudster.

 

[MenInG]

The International Monetary Fund (IMF) has slapped six more conditions on Pakistan, including increasing individual income tax rates and power tariffs while also faulted Finance Minister Shaukat Tarin’s first budget for increasing macroeconomic vulnerabilities.

The IMF on Friday released its detailed report on the health of Pakistan’s economy and the status of the implementation of the $6 billion bailout programme that is going to expire in September.

“The approved fiscal year 2022 budget marked a departure from the EFF objectives and contributed to rapidly increasing macroeconomic vulnerabilities,” said the IMF while tracing the roots of the crisis in Tarin’s first budget.

The report further stated that the budget “delivered a significant fiscal relaxation through large spending increases and the unwinding of several EFF tax revenue commitments, notwithstanding the past revenue underperformance”.

“The (IMF) staff regrets recent policy reversals which undermine the ability of the programme to achieve its objectives,” it added.

The report also revealed that Pakistan will have to implement six more conditions till June. The personal income tax rates are related to the salaried class and the individuals doing business.

The government will prepare the draft personal income tax (PIT) legislation this month, according to the report, which will ensure the new tax legislation is ready to come into effect on July 1 with the fiscal year 2023 budget, it added.

The IMF further stipulated that the new personal income tax will reduce both the number of rates and income tax brackets, suggesting that the tax burden of the salaried class will almost double. At present, there are 11 slabs with different rates and a maximum rate of 35 per cent. By reducing the slabs, the people will fall into the higher tax slab.

Moreover, Pakistan will reduce tax credits and allowances (except those for people with disabilities and senior citizens, and Zakat receipts); introduce special tax procedures for very small taxpayers; and, bring additional taxpayers into the tax net.

The IMF has also imposed the condition that by April, the Ministry of Finance and State Bank of Pakistan (SBP) will establish a Development Finance Institution to support the eventual phasing out of SBP refinance facilities.

The new institution will take responsibility for the SBP refinancing scheme, assess the Export Refinancing Scheme (EFS) by February-end and take needed actions to improve its effectiveness.

The IMF said that as of September 2021, the outstanding amount for all the SBP facilities was Rs1.22 trillion. The “staff warned that this expansion, if not temporary, would undermine the SBP’s efforts to credibly implement monetary policy, achieve its primary objective, and improve monetary policy transmission channels”.

The third condition stated that by May, Pakistan will complete the first stage of recapitalisation of the two private sector banks that are undercapitalised.

As per the fourth condition, which Pakistan is already implementing, by January-end, the cabinet will decide on the second step of the energy subsidy reform for residential consumers.

The IMF said that the first step of reforms in September 2021 failed to reduce total net power subsidies. Now, under the second phase, the government will withdraw the previous slab benefit and increase the effective tariff of the unprotected slabs by at least 50 paisas per unit.

The next step would be for NEPRA to approve the new tariff structure by end of February.

By June-end, the government will take parliamentary approval of new state-owned enterprises law in line with the IMF recommendations, under the fifth condition.

The final condition outlined that by March, the Public Procurement Regulatory Authority will issue new regulations to require collection for publication of beneficial ownership information from companies awarded public procurement contracts for Rs50 million and above.

https://tribune.com.pk/story/2342087/imf-slaps-six-new-conditions-on-pakistan

 

[MenInG]

Pakistan is scheduled to receive the remaining $3 billion under the International Monetary Fund’s (IMF) $6 billion loan programme over the next seven months, which will help stabilise its foreign exchange reserves and strengthen the rupee.

The IMF has released $1.05 billion after completion of the sixth review, taking the total amount to $3 billion so far under the Extended Fund Facility (EFF).

“According to a recently released country report, the remaining $3 billion will be received in three tranches coinciding with March ($965 million), June ($965 million) and September ($1.05 billion) reviews, while the programme will conclude in September 2022, as per schedule,” said Ismail Iqbal Securities Head of Research Fahad Rauf.

In a commentary titled “IMF Sixth Review - Focus on SBP Autonomy, Energy Reforms and GST Rationalisation” on Saturday, he added that the delay in IMF’s programme revival was creating uncertainty in the stock and foreign exchange markets.

“Since the programme has been resumed now, the balance of payments gap is fully financed,” he said.

“The rupee is expected to stabilise (over the next couple of months),” he predicted. “It will also improve investor confidence in the stock market as most of the reform measures are structural in nature and will benefit the economy and listed companies in the long term.”

The commentary, based on IMF’s sixth review of Pakistan’s economy, suggests that the country’s external debt would continue to mount during the ongoing fiscal year, however, it would start receding from next fiscal year (2023) onwards.

“Government’s external debt-to-GDP ratio is expected to reach 30% in FY22 (28.5% in FY21) before gradually coming down to 25% by FY26,” Rauf said.

The IMF’s projections, however, showed that the Pakistani currency would hit Rs199 against the US dollar during fiscal year 2026, maintaining its average depreciation in the range of 3.7-6% per annum.

The currency appreciated Rs1.04 (or 0.6%) and hit a two-and-a-half-month high of Rs174.48 against the US dollar in the inter-bank market on Friday.

Noting that the rupee has maintained its uptrend in recent days, Finance Minister Shaukat Tarin said that the currency would continue to appreciate.

The rupee recovered a total of Rs2.5 (or 1.41%) over the past six consecutive working days, according to the State Bank of Pakistan’s (SBP) data.

IMF’s projections suggest that the collection of tax revenue would increase by a notable 28% to Rs6.1 trillion in the ongoing fiscal year compared to Rs4.764 trillion in the previous fiscal year ended June 30, 2021.

Similarly, Pakistan’s current account deficit, fiscal deficit, exports, workers’ remittances and inflation reading would improve from fiscal year 2023 onwards.

The IMF has urged the SBP to unwind housing and construction incentives such as mandatory lending targets for banks and lower risk weight on REIT (Real Estate Investment Trust) “as it can hurt financial stability.”

“IMF also highlighted this as part of April 2021 review but no action was taken, however, considering the SBP Amendment Bill, it cannot be ruled out now. If implemented, it could impact demand for construction and allied industries (cement, glass, steel and tiles).”

The government, through the mini-budget, unwound numerous incentives provided in the FY22 budget, however, the “IMF has recommended the removal of exemptions on fertilisers and tractors in FY23 budget.”

The government has sought time to replace exemptions with subsidies. This might impact the fertiliser sector as previous subsidy mechanism did not prove to be fruitful and companies have started to book provisions on the same. On the other hand, higher taxation can dent the demand for tractors.”

The increases in the electricity tariff have been made to a large extent, “while further increases are likely in near term. This would impact plants that heavily rely on the power grid like steel industry,” the analyst pointed out.

However, more important would be the increase in gas tariffs, which was last done in September 2020. “As per the document, the government is working on revising the end-user prices.

Moreover, OGRA (Oil and Gas Regulatory Authority) Amendment Act has been made a new structural benchmark which would allow recovery of full gas cost. These measures could impact gas intensive industries like fertilisers, chemicals, and textiles (especially the ones based in southern region of the country).”

Published in The Express Tribune, February 6th, 2022.

 

[MenInG]

The government has decided to seek the cabinet’s nod for an unlimited extension in its programme to raise debt from global capital markets, as the International Monetary Fund (IMF) has assessed Pakistan’s gross external financing needs at a record $35 billion in the next fiscal year.

The Global Medium-Term Note Programme that the government launched in March last year to tap world markets for meeting its soaring external financing needs is going to expire this month, sources in the Ministry of Finance told The Express Tribune.

The programme had been launched to cut the time, being consumed in going to the world markets and arranging loans, from around four months to two weeks. Borrowing programmes are now an essential tool to build reserves, the sources added.

An international capital market transaction requires hiring of financial advisers, local and international legal counsel, paying and listing agents, which often take time. The Ministry of Finance is now conducting multiple transactions with the same set of external sector experts.

Sources said that it had been decided by the finance ministry that it needed flexibility in determining the timeframe of the programme and the amount of funds needed to arrange instead of first seeking the approval of cabinet for a specific loan amount.

Under the present Global Medium-Term Note Programme, the government raised $3.5 billion worth of debt by floating Eurobonds. It also raised another $1 billion via the Trust Certificate Issuance (TCI) programme through Sukuk at the highest-ever rate of 7.95% by pledging motorway.

The Sukuk programme had been launched last month for one year but now the finance ministry is seeking what the source called a “perpetual extension” to allow the government to dive into the international capital markets in a timely manner for its financing needs.

Finance Minister Shaukat Tarin told an international publication that the government has a plan to raise $1 billion within a month through Eurobond.

However, the government has completely ignored the strengthening of the Debt Policy Office that is working without a permanent head and at less than its strength. A director-level officer is looking after the government’s over Rs41 trillion debt portfolio.

The government has been heavily relying on foreign creditors to meet its budget deficit needs and inflate foreign exchange reserves in addition to repaying the maturing debt.

Yet the reserves are not stabilising that are depleting as fast as the government is taking new loans.

In December the government had taken $3 billion from Saudi Arabia that took its official reserves to $19 billion. But the reserves again fell to $16 billion last month, forcing the government to look for new borrowing avenues.

The State Bank of Pakistan (SBP) reported on Thursday that it received $1.1 billion from the IMF and $1 billion Sukuk loan, which took its reserves again to $17.4 billion by February 4, 2022. However, the increase in reserves is less than the amount of new borrowing due to repayment of maturing loans.

The IMF’s staff report of the sixth review of the programme revealed that Pakistan would require a record $35 billion gross external financing to bridge the current account deficit and repay its loans in the financial year 2022-23, starting in July.

The IMF has projected a $12 billion current account deficit in the next fiscal year while the public sector related repayments are estimated at $17 billion, according to the report.

The government will be required to repay $3.1 billion short-term debt and another $13.8 billion long-term debt, according to the report. A $1 billion sovereign bond is also maturing in December this year.

However, the IMF has also assumed that Pakistan will be able to secure a $7.1 billion rollover of the public debt by the international creditors.

The $4 billion rollover of China’s debt in addition to a $5.5 billion additional loan request was also on the agenda of Prime Minister Imran Khan during his visit to Beijing.

During an interview, the finance minister did not directly reply to the question whether China has agreed to give the new loan.

The IMF report underlined that as assessed before, elevated risks – notably from delayed adoptions of reforms, high public debt and gross financing needs, and low reserves – could jeopardise its $6 billion programme objectives, and erode repayment capacity and debt sustainability.

The report also stated that in 2017-18, the external public debt was $72.5 billion that would hit $103 billion by the end of the Pakistan Tehreek-e-Insaf’s (PTI) tenure.

Just 10 months ago, the IMF had projected the external public debt at $92.3 billion, which it has now adjusted upwards along with showing a larger current account deficit and the external financing needs.

The current account deficit that the IMF showed at $5.4 billion at the conclusion of the fifth review in March last year for the current fiscal year is now projected at $13 billion for the current fiscal year.

 

[MenInG]

Finance Minister Shaukat Tarin on Saturday stressed the need to revive the country’s economy in order to avoid approaching the International Monetary Fund (IMF) and other countries to “beg” for loans.

“We want to get out of the circle of repeatedly going to the IMF and other countries to beg for loans,” the minister said while inaugurating the Kamyab Jawan Markaz at the Karachi Chamber of Commerce and Industries.

“The PTI’s economic policy is inclusive and sustainable growth for the next 20 to 30 years so that we can get out of the situation we are in now,” he added.

“Pakistan — a country of more than 200 million people — needs some drastic steps to improve its economy.”

On the occasion, the federal minister said that the government had started another programme named the Kamyab Pakistan Programme (KPP), which had currently been launched in Khyber-Pakhtunkhwa and Balochistan.

It was a big programme amounting to Rs1.4 trillion, he said adding that the KPP was being launched across the country from February 16.

The minister said when he was working at an international private bank, employees belonging to 24 nationalities were working under him and Pakistanis were at par with all of them.

“We have the resilience but not the level playing field.” Tarin maintained that only three million people in the country paid their taxes. One million out of those three million pay withholding tax. That means only two million people pay their taxes. In total, 38 million can pay taxes and now we have data of those people so we will broaden the tax net.”

The minister claimed the country’s retail sector was worth of Rs18 trillion to Rs20 trillion while in the government’s books, it was only Rs3.5 trillion to Rs4 trillion.

“We will bring the rest of the retailers worth Rs16 trillion by introducing fixed taxes under a certain threshold. The FBR [Federal Bureau of Revenue] raids on businessmen are old culture that needs to be changed too.”

Tarin further maintained that the government had recently cleared duty drawback on local taxes and levies refund claims worth Rs100 million.

For inclusive growth, the minister said, the government was focusing on four to five productive areas including agriculture, information technology, housing, trade, etc. “This will give us 5% GDP growth and in future it can take us 6% to 7% too.”

Tarin said in all this process of growth, the government would not leave the people at the bottom of the pyramid to wait for trickle down effects. “That’s too late. The people have been waiting for those effects for last 75 years; now we will work our way from bottom to up.”

Speaking about the Kamyab Jawan Programme, Tarin said it was a base for that bottom to up growth.

“There is another scheme named Kamyab Pakistan Programme, which now exists in Khyber-Pakhtunkhwa and Balochistan to lift the youth of those areas.”

Elaborating further on Kamyab Pakistan Programme, the minister said under the scheme, interest-free loans would be provided to growers and families to set up small businesses and develop technical skills.

“Under this programme, Rs30 to Rs40 billion would be spent every three months and around Rs120 to Rs140 billion per annum.”

Tarin added that a package was being introduced for small-medium enterprises (SMEs) this week.

The minister said Prime Minister Imran Khan in his visit to China had asked its leadership to help now in populating the country’s special economic zones by bringing Chinese companies here. “We also have invited China to invest in our IT sector,” he added. “This year, our IT sector is going to achieve 70% growth but we want 100% growth rate so we can achieve $50 billion IT export soon.”

Businessmen Group (BMG) Chairman Zubair Motiwala, KCCI President Muhammad Idrees and Special Assistant to PM on Youth Affairs Usman Dar were also present on the occasion.

 

[Last Monetarist]

https://tribune.com.pk/story/2344415/govt-eyes-peoples-gold-to-increase-forex-reserves

The government is considering a proposal to borrow gold biscuits and bars from the people to increase foreign exchange reserves that remain on a sliding path despite taking over $5 billion loans in the past three months from bilateral and multilateral creditors.

The proposal has been discussed in the Economic Executive Council (EEC) – the body comprising all economic ministers and the State Bank of Pakistan (SBP) governor, according to the sources in the Ministry of Finance.

According to the proposal, the commercial banks will issue a negotiable discounted instrument to the gold owner and pay an interest rate on the precious metal. The commercial bank will deposit the gold with the SBP that can monetise it to increase the foreign exchange reserves –already largely built by taking expensive foreign loans.

The central bank already has 2.01 million fine troy ounces of gold reserves valued at $3.8 billion, according to the SBP’s reserves position statement of December 31, 2021.

The central bank’s reserves have constantly been on a declining path and further slid to $17 billion as of February 11, according to the SBP statement.

In the past three months, the government took a $3 billion loan from Saudi Arabia, raised the most expensive debt of $1 billion in Pakistan’s history by pledging motorway and received another $1 billion from the International Monetary Fund. But still the reserves could not be stabilised due to lower exports and higher imports along with growing foreign loans repayments.

The Ministry of Finance did not comment on this article.

The proposal to borrow gold from people against a negotiable instrument had initially been floated by an expatriate, Tahir Mehmood, to Prime Minister Imran Khan. The premier then referred the matter to the EEC that has now fine-tuned it to increase reserves and bring more cash into the market against an idle asset.

In the last EEC meeting, Finance Minister Shaukat Tarin said that the objective of the gold-based negotiable instruments was to “translate gold into foreign currency to enhance foreign exchange reserves”.

The minister was also of the view that the proposal would also convert dead gold assets into productive ones in the country. However, the banks would only receive gold biscuits and bars and not accept jewellery, according to the sources.

According to some estimates shared with the EEC, people have roughly 5,000 tonnes of gold bars and biscuits. But there were no firm numbers available, according to the sources.

The issue of cost of borrowing and the need to give an amnesty on gold assets was also discussed during the EEC meeting, as people have not fully disclosed their gold in tax returns filed with the Federal Board of Revenue, the sources said.

There are apprehensions that the scheme to borrow the gold to increase foreign currency reserves may not be very successful due to fear that the owners may be asked to disclose the source of buying the gold.
But the SBP has finalised the proposal after consultation with Pakistan Mercantile Exchange and submitted it to the committee formulated by EEC for its views.

Besides increasing the foreign exchange reserves, the purpose of trading gold with negotiable instruments was also to bring cash into the market against the dead assets to create economic activities. The instrument holders could take a loan against the gold certificate, according to the proposal.

The EEC also discussed the issue of low tax contributions by the jewellers, directing the FBR to prepare a plan for the collection of due taxes from the gold industry. There are roughly 36,000 jewellers and only over 50 registered for the sales tax purposes with the FBR.

Last month, the government slapped 17% sales tax on the sale of gold and jewellery.

The sources said that the government was also considering another proposal to facilitate overseas Pakistanis to invest in real estate in Pakistan through foreign exchange.

The government has already been paying a very high interest rate of 7% in dollar terms on loans that it is receiving from overseas Pakistanis under the Naya Pakistan Certificates. The Economic Advisory Council has recommended the government to reduce the unsustainable interest rates.

There was another proposal to create foreign currency investment insurance pool to incentivise foreign direct investment. But this proposal remains at the infancy stage.

 

[MenInG]

Pakistan’s revised estimates show that its primary budget deficit will breach the recently agreed limits with the International Monetary Fund (IMF) and inflation will remain high but there is positivity in economic growth rate trajectory.

The government has shared its initial assessment of the economy with the IMF during ongoing talks, sources said.

However on Tuesday, it postponed a scheduled meeting between the finance minister and Nathan Porter, new Mission Chief of the IMF, due to pressing engagement of Shaukat Tarin.

The government’s economic and legal team had another meeting at the same time in which the ministers were already committed to the IMF mission for kicking in a crucial round of talks.

The Tarin-Porter meeting was important to set the tone for the main round of talks.

Pakistan and the IMF are negotiating under the seventh review of the programme and talks are planned to be held from March 3 to 11. If both sides converge in their views, the IMF board may approve around $960 million loan tranche next month.

However, a senior official of the finance ministry said that Tarin and the IMF mission chief would meet today (Wednesday).

“The authorities and the IMF continue to discuss recent developments and measures to promote macroeconomic stability in Pakistan," said Esther Perez, country representative of the IMF

As against the requirement of showing Rs25 billion primary budget surplus, the sources said, there could be a primary budget deficit of over 1% of the gross domestic product (GDP) even at the revised base of the economy.

This assessment may change the tone of Pakistan and IMF talks, as the fund may ask the government to either cut expenditures or take more revenue measures. The IMF has not yet shared its assessment, they added.

The primary budget surplus is a measure, which shows that revenues are more than the expenditure after excluding the interest payments.

The numbers deteriorated after Prime Minister Imran Khan announced a relief package last week despite initial opposition by the finance ministry. The circular debt was another problematic area during the talks, as the energy ministry numbers did not add up, said the sources.

During initial discussions, the IMF also inquired about the fiscal impact of expanding the scope of the Kamyab Pakistan Programme across the country.

The government has also shared its assessment about economic growth prospects with the fund. The assessment was that the 4.8% economic growth target would be achieved, as it expects all the three main sectors to post a healthy growth rate.

However, the central bank’s assessment was below the federal government projections.

But there were certain challenges which might impact the growth prospects such as increasing trend in global oil and food prices, which may affect domestic inflation, widening current account deficit due to constantly growing import volume of energy and non-energy commodities.

For the next two years, the finance ministry sees over 5.6% and over 6% economic growth rate, respectively.

Inflation remains a concern, as the finance ministry expects the consumer price index to remain above 10% in the current fiscal year while also updating its medium-term inflation forecast.

The federal government sees medium-term inflation range at 8% to 9% with next fiscal year’s inflation around 9%.

However, the State Bank of Pakistan (SBP) in its monetary policy announcement showed the medium-term range of inflation at 5% to 7%.

“While current real interest rates on a forward-looking basis are appropriate to guide inflation to the medium-term range of 5-7%, support growth, and maintain external stability, the Russia-Ukraine conflict has introduced a high degree of uncertainty in the outlook for international commodity prices and global financial conditions,” according to the statement.

The SBP decided to maintain the policy rate at 9.75%, saying that the outlook for inflation has improved following the cuts in fuel prices and electricity tariffs announced last week as part of the government’s relief package.

At the same time, high-frequency indicators suggest that growth continues to moderate to a more sustainable pace, it added.

Published in The Express Tribune, March 9th, 2022.

 

[MenInG]

Finance Minister Shaukat Tarin acknowledged on Sunday that the International Money Fund (IMF) had asked the government to explain how it would fund a $1.5 billion subsidy package announced by Prime Minister Imran Khan, adding that the Fund was subsequently provided the details.

Embattled PM Imran, facing a no-confidence move to oust him from office by opposition parties, had last month announced a cut in petrol and electricity prices despite a steep rise in the global oil market. The move had raised eyebrows, with experts questioning how it would be justified to the IMF.

“There are no issues. We have given them details as to where the funds would come from,” Tarin said in a press conference in Islamabad today, adding the IMF wanted details of the resources to fund the subsidy in fuel and electricity, which Pakistan has frozen for the next four months until the new budget.

The IMF has begun the seventh review of the $6 billion rescue package agreed with Pakistan in 2019, and Tarin said he will have a final meeting with the lender on Tuesday.

The IMF asked it will need to see the agreements of the dividends of State-Owned Enterprises (SOEs) as well as details of the spare funds the central government will get from provinces.

“We have done our homework,” Tarin said.

Some of the subsidy money would also come from the above-target revenues Pakistan was getting this fiscal year, he had said previously.

Earlier this month, Tarin said revenue would hit Rs6.1 trillion ($34.2 billion), compared to a target of Rs5.8tr.

Pakistan had to undertake fiscal tightening measures to pass its last IMF review, which was delayed by months as the government struggled to complete prior action required by the lender to release $1 billion in February.

DAWN

 

[silentkiller187]

ADB approves $300m loan to develop Pakistan’s capital markets

Programme aims to promote private investment, help mobilise domestic resources to finance sustainable growth


ISLAMABAD:
The Asian Development Bank (ADB) approved a $300 million loan on Tuesday to further develop Pakistan’s capital markets, promote private investment in the country, and help mobilise domestic resources to finance sustainable growth.

According to a statement, the second sub-programme of the ADB’s Third Capital Market Development Program builds on institutional and regulatory reforms put in place under the first sub-programme approved in 2020.

It aims to catalyse institutional investor demand and increase the range of alternative financial instruments, such as derivatives and commodity futures, that are available to investors.

“For several years ADB has been Pakistan’s lead development partner in supporting the evolution of its capital markets,” said ADB Director General for Central and West Asia, Yevgeniy Zhukov.

“By making the country’s capital markets more robust and strengthening government debt management, this new programme will also help mobilize more domestic resources which support the government’s efforts to finance sustainable growth and respond effectively to crises," Director General Yevgeniy Zhukov added.

The statement underscored that Pakistan’s finance sector, dominated by banks and a lack of diversification, increases the risk of the country not being able to withstand financial shocks and periods of uncertainty.

Moreover, the Pakistan Stock Exchange (PSX) lacks depth in terms of the number of investors which access it and the number of companies raising capital, while Pakistan’s bond market is almost completely dominated by government borrowing.

Read more ADB reiterates support for post-Covid recovery

According to the ADB, the programme supports policy actions that will strengthen market stability and attract investor capital to Pakistan. These include structural reforms within the Securities and Exchange Commission of Pakistan (SECP) that will improve governance and regulatory capacity.

The programme supports measures that will strengthen the government debt market and enhance market surveillance systems that facilitate information exchange. It also aims to promote an enabling environment to expedite access to financing for the growth of companies and state-owned enterprises.


https://tribune.com.pk/story/2349110/adb-approves-300m-loan-to-develop-pakistans-capital-markets

 

[MenInG]

The International Monetary Fund (IMF) has proposed tapping the upper middle class and wealthy people having income in the bandwidth of Rs104,000 to Rs1 million a month by taxing them at the uniform rate of 30%.

The proposal indicates inequity in taxation and if accepted has the potential of leaving the majority of the salaried class worse off amid a biting, double-digit inflation.

The proposal also seems unjustified as it equates a person earning Rs100,000 with the one who has 10 times more income and can afford to pay 30% or Rs300,000 every month in taxes.

“Pakistan has not accepted the IMF’s proposals yet due to its adverse political, economic and social impacts,” sources in the Federal Board of Revenue told The Express Tribune. The proposed rate would net additional revenue to the tune of Rs96 billion, bringing the total taxation from individuals to around Rs220 billion.

The sources said in addition to this, the two sides could not converge on the issue of levying tax on pensioners. The IMF has been asking for the pensions to be taxed, either at the contribution or at the withdrawal stage.

About 1.24 million salaried persons have filed income tax returns for the tax year 2021 and out of those 333,000 fall in the income tax exemption slab of Rs50,000 per month.

The government has shared its revised tax slabs for individuals - both salaried and business class - with the IMF that are higher than the existing rates but do not put major burden on the middle and upper middle income groups.
The sources said that the IMF had proposed that the people earning in the range of Rs50,000 to Rs62,500 a month should be taxed at the rate of 5%. This is being charged from the people earning up to Rs100,000 a month currently.

For the middle income group having monthly income of up to Rs79,000, the IMF has proposed 10% income tax rate, which is currently charged to only those who earn Rs150,000 a month.

“The IMF has come up with the proposal to slap 20% tax rate on monthly income of below Rs104,000,” according to the sources. The 20% tax rate is currently charged from the people earning nearly Rs417,000, indicating a massive increase in the tax burden of the middle income groups.

Inflation in Pakistan recorded at 12.3% last month, which is the highest in South Asia and one of the highest in the world. People are exposed to a massive wave of inflation due to surge in the global commodity price and depreciation of the rupee against the US dollar that has lost 49% of its value.

The government’s decision to first export sugar and wheat, and then import these commodities also caused imported inflation. There was also an administrative increase in the prices of electricity and petroleum products due to taxation and on the demand of the IMF.

The IMF’s most aggressive proposal was to slap a uniform rate of 30% on people having monthly income in the range of Rs104,000 to Rs1 million, said the sources. The measure are estimated to cough up Rs160 billion for the FBR.

The proposal is unjustified and unfair and cannot be accepted, according to a person familiar with the outcome of the talks that remained inconclusive.

The 2019 Household Integrated Economic Survey (HIES) revealed that, households of the richest quintile are having average income almost three times the income of the lowest quintile of households in urban and rural areas. The gap between the lowest and the highest quintiles is more pronounced in urban areas, according to the PBS survey.

Currently, the 30% tax rate is charged from those who earn Rs4.1 million a month.

For the people earning over Rs1 million a month, the IMF has proposed 35% income tax rate but it will hardly affect 6,000 persons. “The total tax collection from this group amounts to around Rs45 billion,” said the sources.

Compared to the IMF-proposed rates, the sources said, the government has proposed that for the people earning up to Rs100,000 a month, the tax rate should be 10%, which seems reasonable but higher than the existing rates.

For those who earn over Rs100,000 to Rs333,000 a month, the FBR suggested 15% income tax rate which also seems affordable, although the rate is charged from those who earn over Rs208,000 a month.

The FBR has proposed that the tax rate for those earning up to Rs666,000 should be 20%. According to the FBR recommendation, the tax rate for the people earning up to Rs1.25 million a month should be 30%. It has recommended 32.5% rate for those earning Rs2.5 million a month and 35% for the ones having monthly income of above Rs2.5 million.

Currently, the 35% rate is charged from those who earn over Rs6.25 million a month.

IMF talks hit dead end

The talks between Pakistan and the IMF hit a dead end after the latter refused to accept the government’s decisions to give a blanket tax amnesty scheme to industrialists and a relief package for worth Rs246 billion.

However, the Ministry of Finance on Thursday claimed that “negotiations under the 7th review are continuing as planned and the two sides remain engaged on a regular basis at a technical level through virtual meetings and data sharing”.

The finance ministry said that the focus of the IMF negotiations has been on the agreed targets between the two sides, as well as the recently announced relief and industrial promotion packages.

There is a consensus that all the end-December agreed targets have been achieved, while progress on other actions mentioned in the Memorandum on Economic and Financial Policies (MEFP) for the 6th review has also been found to be satisfactory, it added.

On the relief package, complete details, including financing options, have been shared with the IMF and a general understanding has been developed. The IMF has, however, indicated the need for some further discussions on the industrial promotion package over the next few days.

“An understanding is expected to be developed on the said package subsequent to those discussions,” according to the finance ministry.

It said that upon completion of the technical talks, the text of the Memorandum on Economic and Financial Policies (MEFP) for the 7th review will come under discussion.

The statement is tantamount to an admission that the talks were not progressing, as both the sides could not even begin discussions on the MEFP considered to be a policy document for the programme purposes.

“The government is confident that the finalisation of the MEFP would lead to the IMF Board meeting towards the end of April. The government remains committed to completing the IMF programme successfully in September.”

 

[SportsWarrior]

The International Monetary Fund (IMF) has proposed tapping the upper middle class and wealthy people having income in the bandwidth of Rs104,000 to Rs1 million a month by taxing them at the uniform rate of 30%.

The proposal indicates inequity in taxation and if accepted has the potential of leaving the majority of the salaried class worse off amid a biting, double-digit inflation.

The proposal also seems unjustified as it equates a person earning Rs100,000 with the one who has 10 times more income and can afford to pay 30% or Rs300,000 every month in taxes.

“Pakistan has not accepted the IMF’s proposals yet due to its adverse political, economic and social impacts,” sources in the Federal Board of Revenue told The Express Tribune. The proposed rate would net additional revenue to the tune of Rs96 billion, bringing the total taxation from individuals to around Rs220 billion.

The sources said in addition to this, the two sides could not converge on the issue of levying tax on pensioners. The IMF has been asking for the pensions to be taxed, either at the contribution or at the withdrawal stage.

About 1.24 million salaried persons have filed income tax returns for the tax year 2021 and out of those 333,000 fall in the income tax exemption slab of Rs50,000 per month.

The government has shared its revised tax slabs for individuals - both salaried and business class - with the IMF that are higher than the existing rates but do not put major burden on the middle and upper middle income groups.
The sources said that the IMF had proposed that the people earning in the range of Rs50,000 to Rs62,500 a month should be taxed at the rate of 5%. This is being charged from the people earning up to Rs100,000 a month currently.

For the middle income group having monthly income of up to Rs79,000, the IMF has proposed 10% income tax rate, which is currently charged to only those who earn Rs150,000 a month.

“The IMF has come up with the proposal to slap 20% tax rate on monthly income of below Rs104,000,” according to the sources. The 20% tax rate is currently charged from the people earning nearly Rs417,000, indicating a massive increase in the tax burden of the middle income groups.

Inflation in Pakistan recorded at 12.3% last month, which is the highest in South Asia and one of the highest in the world. People are exposed to a massive wave of inflation due to surge in the global commodity price and depreciation of the rupee against the US dollar that has lost 49% of its value.

The government’s decision to first export sugar and wheat, and then import these commodities also caused imported inflation. There was also an administrative increase in the prices of electricity and petroleum products due to taxation and on the demand of the IMF.

The IMF’s most aggressive proposal was to slap a uniform rate of 30% on people having monthly income in the range of Rs104,000 to Rs1 million, said the sources. The measure are estimated to cough up Rs160 billion for the FBR.

The proposal is unjustified and unfair and cannot be accepted, according to a person familiar with the outcome of the talks that remained inconclusive.

The 2019 Household Integrated Economic Survey (HIES) revealed that, households of the richest quintile are having average income almost three times the income of the lowest quintile of households in urban and rural areas. The gap between the lowest and the highest quintiles is more pronounced in urban areas, according to the PBS survey.

Currently, the 30% tax rate is charged from those who earn Rs4.1 million a month.

For the people earning over Rs1 million a month, the IMF has proposed 35% income tax rate but it will hardly affect 6,000 persons. “The total tax collection from this group amounts to around Rs45 billion,” said the sources.

Compared to the IMF-proposed rates, the sources said, the government has proposed that for the people earning up to Rs100,000 a month, the tax rate should be 10%, which seems reasonable but higher than the existing rates.

For those who earn over Rs100,000 to Rs333,000 a month, the FBR suggested 15% income tax rate which also seems affordable, although the rate is charged from those who earn over Rs208,000 a month.

The FBR has proposed that the tax rate for those earning up to Rs666,000 should be 20%. According to the FBR recommendation, the tax rate for the people earning up to Rs1.25 million a month should be 30%. It has recommended 32.5% rate for those earning Rs2.5 million a month and 35% for the ones having monthly income of above Rs2.5 million.

Currently, the 35% rate is charged from those who earn over Rs6.25 million a month.

IMF talks hit dead end

The talks between Pakistan and the IMF hit a dead end after the latter refused to accept the government’s decisions to give a blanket tax amnesty scheme to industrialists and a relief package for worth Rs246 billion.

However, the Ministry of Finance on Thursday claimed that “negotiations under the 7th review are continuing as planned and the two sides remain engaged on a regular basis at a technical level through virtual meetings and data sharing”.

The finance ministry said that the focus of the IMF negotiations has been on the agreed targets between the two sides, as well as the recently announced relief and industrial promotion packages.

There is a consensus that all the end-December agreed targets have been achieved, while progress on other actions mentioned in the Memorandum on Economic and Financial Policies (MEFP) for the 6th review has also been found to be satisfactory, it added.

On the relief package, complete details, including financing options, have been shared with the IMF and a general understanding has been developed. The IMF has, however, indicated the need for some further discussions on the industrial promotion package over the next few days.

“An understanding is expected to be developed on the said package subsequent to those discussions,” according to the finance ministry.

It said that upon completion of the technical talks, the text of the Memorandum on Economic and Financial Policies (MEFP) for the 7th review will come under discussion.

The statement is tantamount to an admission that the talks were not progressing, as both the sides could not even begin discussions on the MEFP considered to be a policy document for the programme purposes.

“The government is confident that the finalisation of the MEFP would lead to the IMF Board meeting towards the end of April. The government remains committed to completing the IMF programme successfully in September.”

It is surprising that an international organization can dictate policy issues to a sovereign nation. Pakistan should push back and don't entertain this. IMF is an economic mafia and hitman

 

[Clueless]

It is surprising that an international organization can dictate policy issues to a sovereign nation. Pakistan should push back and don't entertain this. IMF is an economic mafia and hitman

Its not like IMF is forcing its money to Pakistan. Pakistan is begging for loans here. IMF loans are the cheapest available to sovereign nations, its only reasonable that IMF imposes some conditions for it.

 

[JaDed]

IMF ‘s suggestions are usually on the point, it’s a hard pill to swallow but worth it

 

[Gharib Aadmi]

IMF ‘s suggestions are usually on the point, it’s a hard pill to swallow but worth it

I agree, however unlike in Pakistan no political party, or even the army dictators, have been strong enough to make the necessary reforms. 22 times Pakistan has went to IMF, and without a doubt the 23rd will also happen.

 

[JaDed]

I agree, however unlike in Pakistan no political party, or even the army dictators, have been strong enough to make the necessary reforms. 22 times Pakistan has went to IMF, and without a doubt the 23rd will also happen.

Yeah.. seems so but i think IK might stop after 23rd.. startup scene seems to be picking up and Chinese investment along with tech should do well for
Pakistan.

Pakistan seems to be in a situation similar to India of 1991-1995, progressing the right way, just needs these pushes and stay out of global wars.

Enabling human potential(which was IK’s goal) is the best way to move up in South Asia.

 

[MenInG]

The International Monetary Fund (IMF) on Monday said it will continue to support Pakistan "once a new government is formed" in the country.

The statement from the Washington-based crisis lender comes amid political chaos in the country, especially in the aftermath of President Dr Arif Alvi's dissolution of the National Assembly following the dismissal of the no-confidence against Prime Minister Imran Khan the same day.

According to the IMF-Pakistan spokesperson, the Fund will engage in policies to "promote macroeconomic stability, and enquire about intentions vis-a-vis programme engagement".

The statement clarified that there was no concept of suspension within the IMF programmes.

The IMF had expressed its reservations over the government's recently announced amnesty scheme and shared doubts over the financial impact and financing sources of the prime minister’s relief package on electricity and petroleum prices.

Dawn earlier reported that the Fund’s mission and the government authorities were unlikely to conclude the ongoing seventh review of the $6 billion Extended Fund Facility (EFF) shortly and may lead to the disbursement of about $1.9bn worth of two tranches close to the federal budget due in June.

The mission was completely dissatisfied with the arguments advanced in favour of the money-whitening scheme for the industrial sector.

The Fund is critical of the third tax amnesty scheme introduced by the government despite a recent withdrawal of tax distortions by removing GST exemptions as part of the mini-budget agreed under the sixth review, which led to the revival of the EFF after a nine-month suspension and then disbursement of over a $1bn instalment.

The talks on the seventh review of the $6bn Extended Fund Facility started on March 4. The Fund had been concerned over the “one step forward, two steps back” approach of the government on critical reforms having serious budget implications going forward.

There are three critical areas, including tax amnesty, untargeted subsidy on petroleum products and general subsidy on electricity rates. These are estimated to drive the primary budget account — the gap between revenues and expenditures minus debt servicing — from a targeted Rs25bn in surplus to about Rs650bn in deficit by end-June, when the current fiscal year ends.

Pakistan has so far received little over $3bn out of $6bn worth of the 39-month IMF programme. The Fund earlier expressed concern over expansionary policies adopted in the 2021-22 federal budget, which it said had created fiscal imbalances, leading to the introduction of a mini-budget in December to address these slippages.

The IMF had in June 2019 approved a three-year, $6bn loan "to support Pakistan’s economic plan, aimed at returning "sustainable growth to the country’s economy and improving the standards of living".

The 39-month IMF programme is scheduled to end in September.

DAWN

 

[MenInG]

The United Arab Emirates (UAE) has rolled over $2 billion debt for one year amid central bank’s call to arrange more loans to stabilise foreign exchange reserves that depleted by one-fourth in just two weeks.

In addition to securing the rollover, the Pakistani authorities on Monday managed a statement from the International Monetary Fund (IMF) to calm the jittery markets that could further undermine the value of the rupee against the US dollar.

The UAE has rolled over $2 billion debt for one more year, Finance Secretary Hamid Yaqoob Sheikh told The Express Tribune on Monday. The facility had matured last month and Pakistan had sought a three-year extension.

The outgoing prime minister, Imran Khan, had requested the $6 billion facility in November 2018 but the UAE approved $2 billion for a period of three years that became effective in early 2019. It was the second major facility that a foreign country rescheduled in past 10 days.
Yet the foreign exchange reserves remained on a sliding path despite a major relief from China and the UAE.

Also read: IMF tax proposals to make salaried class worse off

The Finance Ministry spokesman said that the UAE had not yet taken a decision on the rollover of another $450 million debt that matured few weeks ago. Pakistan had not paid back the $450 million debt, although Dubai had demanded its money back.

The foreign exchange reserves that were close to $15 billion till March 18th have already slid to around $11 billion, sources said. The $4 billion or over one-fourth reduction in the reserves within no time has panicked the central bank that is now seeking urgent foreign loans, the sources added.

They said the State Bank of Pakistan (SBP) and the Finance Ministry were discussing options to seek more foreign loans but had very little option in these circumstances.

The government had approached a consortium of foreign commercial banks for a $1 billion loan but the banks were demanding high interest rate, according to the sources. However, in the absence of political leadership, bureaucracy was reluctant to get the loan at higher rate, they added.

Pakistan and the IMF talks were derailed last month – for the third time in as many years -- after the outgoing Pakistan Tehreek-e-Insaf (PTI) government followed the path of fiscal indiscipline and violated its commitments given to the IMF.

The IMF has not yet permanently closed the doors for Pakistan and was willing to engage with the next government. “The Fund looks to continue its support to Pakistan and, once a new government is formed,” Esther Perez Ruiz, the resident representative of the IMF said

“We will engage on policies to promote macroeconomic stability, and enquire about intentions vis-a-vis programme engagement”, Ruiz added. To a question, Ruiz added that the IMF was willing to engage with any government, caretaker or the one formed after the general elections.

However, in July 2018, the Law Division had barred the then caretaker government from entering into a deal with the IMF on the grounds that the interim setup could not bind the country into a longer term contract.

The IMF has not yet disbursed $3 billion out of the $6 billion and the revised scheduled for completion of the 7th review of the programme lapsed last month. The IMF resident representative said that there was no concept of suspension within IMF programmes.

The UAE decision to rollover its loans provided a breathing space to Pakistan, as the economic managers see some additional impact on the external sector due to political instability. The stock market shed over 1,250 points on Monday, as the country grapples with constitutional crisis.

Although China last month agreed to rollover $4.2 billion loan, the procedural formalities for the $2.2 billion commercial loan still remain incomplete.

The finance secretary said that Pakistan was expecting to receive the $2.2 billion from China this month, once all the procedural formalities were done, which would provide a cushion to the foreign exchange reserves.

In case of a delay coupled with higher current account deficit, it could be difficult to manage the situation, the sources said.

The Chinese assistance has helped the central bank to maintain the gross foreign exchange reserves in double digits but any further delay in receiving the promised money could create problems to manage expectations, the sources added.

Former planning minister Asad Umar said on Monday that the current external sector situation was difficult to manage for any government

 

[JaDed]

And yet we keep hearing western dominance is gone , western systems are going down from so many posters.

 

[RajBan]

And yet we keep hearing western dominance is gone , western systems are going down from so many posters.

Add to that the Desis lining up for visas for only Western countries. Not for China.

 

[silentkiller187]

State Bank of Pakistan (SBP) Governor Reza Baqir on Monday said that the central bank is confident that it will soon announce the “good news” of completing the conditions required to obtain the next tranche of the International Monetary Fund (IMF).

In an exclusive interview with Bloomberg, Baqir stated that it is “no surprise” that “unpopular decisions” required by the IMF, such as, increasing fuel and electricity prices, are proving to be difficult given the current political situation.

He added that such problems were not individual to Pakistan but to other developing nations as well.

In light of these “unpopular decisions”, the SBP governor stated that it is not uncommon for institutions to face delays. However, he felt confident that Pakistan will “put the delay behind” it and announce the completion of the upcoming tranche.

Read: SBP reserves drop $728m to $11.32 billion

In response to a question regarding Pakistan’s dwindling forex reserves which are projected to sustain only a few months of imports, the governor extended a message to the investor community. "Such political processes are common in democratic societies and economic policy-making institutions should act in a timely manner to ensure economic stability," he said.

Baqir’s comments are in response to the central bank’s decision to increase the policy rate to 12.25% during an emergency meeting on April 7, a jump not witnessed in the 21st century.

Defending the actions of the SBP, the governor stated that after the decision both the rupee and the stock market rallied.

“The fundamentals of Pakistan remain strong,” he stated, adding that the country’s economy grew 5.5% last year.

It must be noted that last month the talks between Pakistan and the IMF hit a dead end after the latter refused to accept the government’s decisions to give a blanket tax amnesty scheme to industrialists and a relief package for worth Rs246 billion.

However, the Ministry of Finance claimed that “negotiations under the 7th review are continuing as planned and the two sides remain engaged on a regular basis at a technical level through virtual meetings and data sharing”.

https://tribune.com.pk/story/235200...ng-next-imf-tranche-on-the-cards-governor-sbp

 

[MenInG]

Pakistan’s economic fundamentals have continued to remain strong and the unpopular decisions of the government to hike the energy prices in future is likely to get $6 billion International Monetary Fund (IMF) loan programme back on track.

The engagement of the Ministry of Finance and the central bank with the International Monetary Fund (IMF) remains strong.

“In the current political environment, it is no surprise that the unpopular decisions, such as increase in fuel and electricity prices, are proving difficult,” State Bank of Pakistan (SBP) Governor Reza Baqir said in an interview to Bloomberg TV on Monday.

“We are confident that very soon, we will be able to put the delay (in resumption of IMF programme) behind us and announce the good news of attaining the next tranche from the IMF.”

Pakistan has received half of the funding from IMF. It negotiated $6 billion loan package in June 2019 and it has received $3 billion so far. Another $3 billion is left to be received.

“Our goal is to first complete the work which will bring in the remaining $3 billion and after that, if we need (more), we can negotiate it in future,” Governor Baqir said.

IMF is important not just for money but also for the signal that it sends of good housekeeping on the economic policy that catalyses funding from other bilateral creditors as well as private capital markets.

“We are hopeful that with that positive message coming out, we will be able to mobilise funding from other sources other than IMF,” he said.

When domestic political uncertainty was taking toll on local financial markets in the recent past, the central bank considered 250 basis point hike in key policy rate “important to fix the bubble of economic uncertainty,” he said.

It is important that economic policy making institutions act on a timely basis to ensure that the goal of financial stability remains.

“Since the decision (of rate hike), the rupee has rallied nearly 2% and stock market rallied about 1.5% and yields on three and five-year bonds in Pakistan fell about 35 basis points.”

Last year (fiscal year 2020-21), Pakistan’s economy grew by around 5.5%. “Our projection for growth this fiscal year is 4% even with multiple hikes in the interest rate.

Pakistan’s central bank increased the key policy rate by a massive 250 basis points in an emergency meeting as it had “concerns related to price instability and foreign exchange market,”

According to him, there were three main factors that forced the central bank to arrange an emergency monetary policy meeting.

First, uptrend in oil prices has persisted since March and oil futures are about 10-12% higher for next fiscal year.

Secondly, inflation in March for Pakistan was 50-100 basis points higher than the previous month. The headline inflation stood at around 12.7% and core inflation was 9%.

Finally, rupee had lost significantly (over 5%) during the past few weeks owing to political uncertainty, Baqir recalled.

“When we feel that our financial markets are threatened by political instability, we take important steps that are one of the key reasons behind the timing of our (emergency) monetary policy decision last week,” he said.



Published in The Express Tribune, April 12th, 2022.

 

[MenInG]

Prime Minister Shehbaz Sharif has given a go ahead to his economic team to engage with the International Monetary Fund, as the new government grapples with the question regarding the timing of withdrawing the fiscally unsustainable fuel subsidies.

The Ministry of Finance on Thursday briefed the premier about the country’s weakening external sector and budgetary positions and the implications of the irrational decision of the previous government to give Rs372 billion energy subsidies during its last days in power.

“PM Shehbaz has asked me to engage with the IMF, as the government is keen to remain in the IMF programme,” confirmed Dr Miftah Ismail, the former finance minister, who is likely to be inducted into the cabinet to lead the finance ministry.

The IMF programme has been stalled for the third time in the past three years after the 7th review talks collapsed due to the PTI government’s decision to give fuel subsidies and a tax amnesty scheme. Of the $6 billion, the $3 billion loan still remained undisbursed with only five months remaining in the expiry of the programme.

The IMF-World Bank spring meetings are starting from next week in Washington and a finance ministry delegation would go there to meet the IMF officials on the sidelines, the ministry officials said. However, two days ago, Ismail said that he could not leave for Washington until his name was removed from the Exit Control List.

Miftah was among those politicians who had been arrested and his name was put on the ECL by the National Accountability Bureau without evidence of their alleged corruption.

But State Bank of Pakistan Governor Dr Reza Baqir and his Deputy Dr Murtaza Syed have separately planned a visit to Washington, although they did not have any face-to-face meetings during the annual conclave.

Three days ago, The Express Tribune had sent questions to the central bank chief spokesperson, requesting him to share the purpose of the visit of the governor and the deputy governor and whether they had any face-to-face meetings. The SBP did not reply till the filing of the story.

Sources said that the new government had started looking for a replacement of Dr Baqir who is going to complete his term on May 4. There was a possibility of appointing a banker as the new central bank governor, a senior PML-N leader said.

In addition to changing the governor, the government is also shortlisting names for the post of the new chairman of the Federal Board of Revenue.

The prime minister showed concern over the worrisome economic indicators, according to a statement issued by the PM Office. The premier directed the economic team to prepare a comprehensive economic reforms plan to come out of the crisis, it added.

Read IMF programme likely to resume

Pakistan cannot avoid the IMF programme at this stage, as the last PTI government has left behind only $10.8 billion gross official foreign exchange reserves –hardly $1 billion higher than the level in June 2018 and barely sufficient to back seven weeks of import payments. The $10.8 billion reserves include the $4 billion Chinese deposits, $3 billion Saudi deposits and $2.5 billion UAE deposits that the government cannot use.

The finance secretary briefed the PM about the fiscal situation, saying that in the baseline scenario the budget deficit in the current fiscal year could end up at Rs4.8 trillion, excluding the demands for additional supplementary grants. In case of authorising the additional expenditure, the federal budget deficit could jump to Rs5.6 trillion that will be equal to 8.7% of the GDP, the PM was informed.

The ministry sought PM’s instructions whether to incur additional expenditure through supplementary budget that is demanded by various ministries and state-owned enterprises for remaining afloat, the sources added.

The last PTI government had made a promise with the IMF to deliver a primary budget surplus of Rs25 billion but due to its unreasonable expansionary fiscal policies, the finance ministry has now estimated a primary deficit of Rs1.65 trillion, which is equal to 2.6% of the GDP.

The PM was told that the government did not have fiscal space to continue various packages, as there is nothing to give to the IMF in lieu of continuing the fuel subsidies, the sources said.

The ministry informed about the fiscal impact of the fuel subsidies and requested the government to take a decision. The sources said that the PM first wanted to have consultations with the coalition partners, as it will be a politically unpopular decision to increase per liter prices by Rs50 to withdraw subsidies and also partially recover taxes.

However, there is a possibility that the government in the first stage would only withdraw subsidies that too in phases, as per liter subsidy was estimated around Rs35. The previous government had not approved the supplementary budget for April 1 to 15 period to cover these injections.

There was a realisation in the new government that the fuel subsidies could not be continued.

The World Bank on Wednesday urged Pakistan to withdraw the “unsustainable and ineffective subsidies”. In case of a delay in reviving the IMF programme, the new government might also face difficulties in getting around $800 million to $900 million two policy loans from the WB.

The sources said that some of the important decisions were also pending due to a delay in forming the new cabinet.

The PM was also informed about the limited fiscal space for the development activities. The ministry also said that the country would achieve the current year’s economic growth target of 4.8%, although the international financial institutions and the SBP were projecting a lower growth number.

https://tribune.com.pk/story/2352687/shehbaz-green-lights-team-to-engage-with-imf

 

[MenInG]

The International Monetary Fund (IMF) on Tuesday forecast Pakistan’s economic growth rate at four per cent, and higher than estimated inflation and current account deficit during the ongoing fiscal year.

The growth forecast is generally in line with similar estimates by other development lenders — such as the World Bank’s 4.3pc and Asian Development Bank’s 4pc — and credit rating agencies — Moody’s 3-4pc — but significantly lower than a 4.8pc target set in the budget 2021-22.

In its World Economic Outlook (WEO) 2022, the IMF projected an 11.2pc average rate of inflation for the current year against 8.9pc last year. The Washington-based lending agency also worked out Pakistan’s current account deficit at 5.3pc of GDP (up from just 0.6pc last fiscal year) and 7pc unemployment rate, slightly lower than 7.4pc of last year.

This is in sharp contrast to the targets set by the government for the current year at 4.8pc for GDP growth rate, 8pc rate of inflation and current account deficit at just 0.7pc of GDP.

Forecasts GDP growth at 4pc, largely in line with similar estimates by other development lenders

Going forward, the IMF projected the economic growth rate to recover to 4.2pc of GDP during the next fiscal year (FY23). It said the rate of inflation would come down from 11.2pc this year to 10.5pc next year. The Fund also estimated the current account deficit to fall to 4.1pc of GDP in FY23.

The WEO said the rate of unemployment in Pakistan was estimated to come in at 7pc this year against 7.4pc last year and go further down to 6.7pc next year.

It projected global growth to slow down from an estimated 6.1pc in 2021 to 3.6pc in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than its January estimates. Beyond 2023, global growth is forecast to decline to about 3.3pc over the medium term.

The forecast is based on the assumption that the conflict remains confined to Ukraine, further sanctions on Russia exempt the energy sector (although the impact of European countries’ decisions to wean themselves off Russian energy and embargoes announced through March 31, 2022, are factored into the baseline), and the pandemic’s health and economic impacts abate over the course of 2022.

The IMF estimated a subdued 3.3pc growth during 2022 for advanced economies (against 5.2pc last year), including 2.8pc for the eurozone (against 5.3pc last year), 2.4pc in Japan (against 1.6pc of last year) and 3.7pc for the UK (against 7.4pc last year). The growth prospects for emerging market and developing economies were put at 3.8pc, led by 8.2pc in India and 4.4pc in China.

With a few exceptions, employment and output will typically remain below pre-pandemic trends through 2026. Scarring effects are expected to be much larger in emerging markets and developing economies than in advanced economies.

Unusually high uncertainty surrounds this forecast, and downside risks to the global outlook dominate — including from a possible worsening of the war, escalation of sanctions on Russia, a sharper-than-anticipated deceleration in China as a strict zero-Covid strategy is tested by Omicron, and a renewed flare-up of the pandemic should a new, more virulent virus strain emerge.

Moreover, the war in Ukraine has increased the probability of wider social tensions because of higher food and energy prices, which would further weigh on the outlook.

Global inflation is expected to remain elevated for longer than in the previous forecast, driven by war-induced commodity price increases and broadening price pressures.

For 2022, inflation is projected at 5.7pc in advanced economies and 8.7pc in emerging market and developing economies — 1.8 and 2.8 percentage points higher than projected in January.

Although a gradual resolution of supply-demand imbalances and a modest pickup in labour supply are expected in the baseline, easing price inflation eventually, uncertainty again surrounds the forecast.

Conditions could significantly deteriorate. Worsening supply-demand imbalances — including those stemming from the war — and further increases in commodity prices could lead to persistently high inflation, rising inflation expectations, and stronger wage growth.

Published in Dawn, April 20th, 2022

 

[Varun]

Pakistan to resume negotiations with International Monetary Fund

After the new government of Prime Minister Shehbaz Sharif has taken office, ousting the Imran Khan regime through a no-confidence motion, it is now gearing up to re-initiate talks with the International Monetary Fund (IMF) and World Bank (WB) through a high-powered economic team, aiming to restart the IMF programme.

The IMF had recently suspended its programme amid the political turmoil in Pakistan, stating that it would re-initiate talks with the new government that would take charge of the country. Its decision came when then Prime Minister Imran Khan was faced with a major challenge when opposition parties joined together and tabled a no-confidence motion, which later led to his ouster and brought in Shahbaz Sharif as his successor.

As per details, the Pakistan government is sending a high-powered delegation to Washington to participate in the upcoming annual spring meeting of the Breton Wood Institution, such as the IMF and the WB. It is expected to meet with the IMF team on the sidelines in a bid of fresh contacts and open up table talks for revival of the IMF programme.

It is pertinent to mention that Pakistan is far off the target as per the IMF programme in terms of widening current account deficit and budget deficit for the current fiscal year.

"The Ministry of Finance would have a technical meeting with the IMF on coming Friday, but there is no scheduled virtual meeting for review talks at this point in time," said a government official with knowledge about the Pakistani delegation's visit to Washington.

The Pakistani delegation is expected to be led by Miftah Ismail, the probable PM's Advisor on Finance.

"The delegation was scheduled to participate in the upcoming annual spring meeting of BWIs this week. The official delegation will consist of the Finance Secretary, the State Bank of Pakistan Governor and Additional Secretary, External Finance," said Ismail.

"Discussions with the IMF are never halted. There was an interregnum because there was no Finance Minister. We have been sharing date with the IMF. Now with the spring meeting next week, our discussions have become more regular and focused on completing the 7th review," Finance Secretary Hamid Yaqoob said.

Experts believe that revival of the IMF programme and successfully passing through the 7th review will be very difficult for Pakistan as the massing deficits of current account and budget will not allow Islamabad to see through the review.

"The government decision to keep petroleum prices unchanged also sent out wrong signals to the IMF. Without changing the approach and doing away with the relief mechanism, the revival of IMF programme will remain impossible," senior economist Mehtab Haider said.

"POL (Petrol, Oil and Lubricants) prices should be adjusted upward in a staggered or gradual manner. A comprehensive approach needs to be adopted whereby the unjustified subsidies for big industrialists such as for fertiliser, sugar and other sectors to the tune of Rs 1,000 billion per annum should be abolished and diverted towards financing targeted fuel subsidies," another renowned economist Yousuf Nazar said.

Pakistan's crippled economy remains as one of the most difficult challenges for the newly-elected government of PM Shehbaz Sharif and IMF programme compliance will require difficult decisions of inflation increase, something that the current government, which is in power for a short period of time, does not want to do.

Source: https://www.business-standard.com/a...ternational-monetary-fund-122041900009_1.html

 

[MenInG]

The International Monetary Fund (IMF) has set out five major conditions for the revival of $6 billion bailout package, including reversal of fuel subsidies and withdrawal of the tax amnesty scheme, the new finance minister, Miftah Ismail, said on Wednesday.

The other conditions are increase in electricity tariffs, imposition of new taxes and ensuring fiscal savings aimed at bringing down the projected primary budget deficit of Rs1.3 trillion to the earlier agreed limit of Rs25 billion surplus, he said while speaking to journalists.

The government has a plan to get financial assistance from China and secure liquefied natural gas (LNG) on deferred payments from Qatar aimed at taking off pressure from the external sector.

The minister had his first formal interaction with the media hours before departure to Washington where he planned to meet with the IMF management for the revival of the stalled programme. But before flying to Washington Ismail had to approach a court to get his name struck off the no-fly list.

Miftah Ismail has requested a face-to-face meeting with IMF Managing Director Christalina Georgieva. He would also meet with the deputy managing director and staff of the IMF to seek maximum possible concessions against the commitments given by the previous Pakistan Tehreek-e-Insaf (PTI) government.

The IMF programme remains stalled due to the previous government’s back-pedalling on implementation of the condition it had agreed with the Fund in addition to fixing the fuel prices at their March 1st level.

“Pakistan is going to the IMF programme and Prime Minister Shehbaz Sharif has instructed me to make sure that there is least burden on the people in return for revival of the programme,” Ismail told the journalists.

“I have interacted with the IMF staff and it [IMF] has put forth five major conditions related to reversal of fuel subsidies, withdrawing tax amnesty scheme, increasing the electricity prices, imposing more taxes and ensuring fiscal savings,” he continued.

However, the finance minister maintained that Pakistan had not yet accepted these conditions and a decision would be made after holding talks with the Fund.

The conditions have been set out for the next loan tranche of around $960 million under the 7th review of the programme. The finance minister clarified that at this stage, he was not interested in the two programme reviews.

At the moment three programme reviews are pending and their completion will pave the way for the release of a total $3 billion remaining three tranches before the programme is completed in September.

“Former prime minister’s irresponsible action to give fuel subsidies without seeking input from the Ministry of Finance has turned things very sensitive,” Ismail said. “The decision to give the fuel subsidies has put Pakistan’s economic future at stake.

The finance minister added that the revised estimates suggested that the country would need to pay Rs192 billion more in fuel subsidies for the May-June period, bringing the total subsidies to Rs293 billion since March 1st.

According to the minister, the IMF wanted that not only the subsidies be withdrawn but the government should also restore petroleum levy and sales tax on the sales of the petroleum products. “An owner of a Land-Cruiser is availing Rs1,680 subsidy on every fuel tank, he added, endorsing the IMF’s view on withdrawing these subsidies.

The minister did not see any problems in withdrawing the tax amnesty scheme that the previous Imran Khan government had announced. He said that the government was ready to reduce the Public Sector Development Programme (PSDP) to Rs600 billion.

Responding to a question, whether the government would impose inheritance tax as an alternative to taxing the salaried individuals, the minister said that it was not necessary that the son of a rich person should also be rich.

Ismail vowed that the government would not endorse those conditions that could disrupt economic activities. He hoped that the IMF would not push hard to immediately increase the electricity prices and an effort would be made to delay this action too.

About seeking financial help from China, the minister said that Chinese leadership had high regards for the Sharif brothers – Prime Minister Shehbaz Sharif and former prime minister Nawaz Sharif. He hoped that the country would get $4.3 billion breathing space from China in the shape of earlier disbursement of $2.3 billion commercial loan and rollover of $2 billion SAFE deposits.

The finance minister said that his immediate challenge was to sustain the foreign exchange reserves at the current levels and also arrange $4 billion more to pay for the current account deficit.

When asked about the downward slide of the rupee value against the dollar that closed at Rs185.92 on Wednesday, Ismail said that the exchange market was very thin and there was a need for remaining vigilant about any attempts to manipulate the rupee value.

https://tribune.com.pk/story/2353561/imf-sets-tough-terms-for-bailout-revival

 

[daytrader]

IMF agrees to add $2bn to ongoing programme

• Miftah says fuel prices to be raised gradually, hints at different tiers for motorcycle, car owners
• Says SBP autonomy will not be withdrawn
• Fund officials to visit Pakistan by mid-May to conclude staff-level agreement

WASHINGTON / ISLAMABAD: The International Monetary Fund (IMF) has agreed to increase the size of its $6 billion loan programme by $2bn and extend it for another year to prop up Pakistan’s balance of payments position and foreign exchange reserves.

Finance Minister Miftah Ismail said on Sunday that Pakistan had asked the IMF to enhance its bailout package from the remaining $3bn to $5bn.

Addressing a news conference at the Pakistan Embassy in Washington, the minister said that the IMF will send a staff-level delegation to Pakistan for talks on this request. Technical talks on Pakistan’s proposal are expected to begin from Tuesday.

“We hope that the staff-level agreement on the enhanced programme will be concluded soon,” Mr Ismail said. However, he could not say if the next tranche of about $1bn would reach Pakistan before the next budget.

The decision, however, is subject to a complete reversal of recently imposed subsidies and other measures for the upcoming budget.

Tiered withdrawal of subsidies

The IMF had consented to give space to the new government to “ensure removal of recently imposed subsidies as soon as possible”, a senior official said.

He said everything committed by the previous government with the IMF would be revived with repairs for the slippages along with additional financial support and time for reforms.

At present, the government is providing about Rs21 per litre out-of-pocket subsidy on petrol, Rs51.52 per litre on diesel, and Rs5 per unit on electricity.

On Friday, Mr Ismail agreed with IMF recommendations to reduce fuel subsidies and end a business tax amnesty scheme.

At Sunday’s news conference, Mr Ismail and Minister of State for Finance Ayesha Ghaus Pasha explained that the government had no option but to withdraw the subsidies, but it would do so in a way that did not burden the ordinary people.

The finance minister hinted that the government would do so “in a staggered way”, hinting at the possibility of fixing two sets of rates, one for the poor and the other for those with big cars.

For instance, he said, the government could fix a quota for motorcyclists, who would be provided petrol at subsidised rates but there would be no subsidy for big cars.

“I get a subsidy of about Rs1,600 every time I fill my tanks. Why should the government pay for Miftah Ismail?” he asked.

Mr Ismail said the next month the government would have to pay about Rs96bn as fuel subsidy, which “cannot be justified”.

Another possibility, he said, was allocating more funds for programmes like the Benazir Income Support Programme.

SBP autonomy

Mr Ismail also indicated that the autonomy the previous government gave to the State Bank would not be withdrawn. “We will not do anything that irks the IMF,” he said.

When asked how the government would keep the economy under the present situation, he said: “We will do so by improving the debt-to-GDP ratio, by enhancing the GDP.”

Mr Ismail said that despite the current government’s differences with Imran Khan, “we will take full responsibility for all his commitments, all sovereign guarantees he made, whether those are CPEC loans or IMF loans.”

Both Mr Ismail and Ms Pasha said that they expected the reserves to improve by next week.

The finance minister also dispelled the impression that the current financial crunch could force Pakistan to default. “We can assure you there will be no default,” both said in once voice. “Pakistan has been facing these situations for the last 75 years and we did not default,” Mr Ismail said.

The finance minister received a call from Prime Minister Shehbaz Sharif during the news conference and later told the media that he was asking about his talks with the IMF and World Bank officials. “He is very strict,” said the minister when asked if the PM got upset with him.

Asked if the next budget would be people-friendly, Mr Ismail said: “We will say it is and the opposition will say it is not.”

Enhancement of EFF

High-level government sources told Dawn the agreement to increase the loan size and duration was reached in principle during Pakistan’s economic team’s meeting with the IMF management on the sidelines of the IMF-World Bank annual spring meetings.

The revised package would enable the government to follow up with IMF-supported reforms until the next elections.

In 2019, the Fund had approved a $6 billion loan over three years for Pakistan, but disbursement has been slowed by concerns about the pace of reforms.

The 39-month Extended Fund Facility (EFF) — provided to countries facing serious payment imbalances because of structural impediments or slow growth and an inherently weak balance-of-payments position — was to end in September this year, but three tranches of about $3bn are still outstanding.

The EFF would now continue until September next year with $5bn support and may lead to larger instalments — for instance, $1.5bn in June-July instead of $1bn due last month.

Budget priorities

The Fund has also set a condition to authenticate the actual financials for the current fiscal year to ascertain how much these have deviated from the targets agreed with the IMF in December 2021, when the programme was revived under former finance minister Shaukat Tarin.

Officials said the gap was about Rs1.3 trillion based on relief measures announced by former prime minister Imran Khan besides other slippages.

The IMF has also asked the authorities to minimise the deviation that emerged, particularly after the Feb 28 subsidy package, by fiscal tightening and revenue measures to make up for some of the subsidy and the deviations from December agreements.

These would be the areas that the authorities would have to work out details and set in motion well before the IMF mission comes to Islamabad by the middle of next month to translate these understandings into a Memorandum of Economic and Financial Policies (MEFP) for formal signing.

On top of that, the IMF has also linked the approval of the revised bailout package to a mutually agreed overall budget strategy paper for the next fiscal year that would also be part of technical-level discussions.

https://www.dawn.com/news/1686702/imf-agrees-to-add-2bn-to-ongoing-programme

 

[MenInG]

Pakistan and the International Monetary Fund (IMF) may begin talks on May 18 in Doha, as the country’s options to avoid insolvency have been limited after it could not immediately receive any major financial support from its three friendly countries.

Subject to the government’s willingness to start withdrawing fuel subsidies from May 15, the two sides have tentatively planned to meet in Qatar for policy level discussions to revive the programme and extend its tenure and size to $8 billion, a senior government functionary told The Express Tribune.

The IMF has informed the government that it could send a mission to Doha for one week on May 18 for talks with Pakistan on the revival of the Extended Fund Facility, said the officials. However, Prime Minister Shehbaz Sharif will have to overcome all obstacles from his cabinet members before that and has to make a decision on fuel subsidies.

The sources said Prime Minister Shehbaz had directed the finance ministry to once again ask the IMF to partially relax its condition of increasing fuel prices.

The development comes amid a delay in finalisation of new loan deals with Saudi Arabia, China and the United Arab Emirates (UAE).

Pakistan is awaiting a rollover of $2.3 billion Chinese commercial loan. Another $1 billion Chinese deposit is maturing this and the next month.

China has now placed a condition for the renewal of its $2.3 billion loan, which Pakistan returned in March on the hope of getting it back in April but still remains undisbursed.

The sources said China wanted that its loans could not be used for any purpose and should only be treated as part of the reserves because of Pakistan’s weakening financial situation.

The government has requested that the loan money should at least be allowed to use for making payments against Chinese imports. The sources added that the decision was pending.

No dates for Prime Minister Shehbaz’s maiden visit to China have been announced but the possibility of visual contact between the heads of the two governments was being explored, said the sources.

The finance ministry did not officially comment on the matter.

The sources said the prospects for immediate additional cash injection by Saudi Arabia before an IMF deal were not very high. However, it is unlikely that the kingdom would withdraw $3 billion cash facility that had been secured in November last year at an interest rate of 4%.

The chances for receiving more oil on deferred payments over and above the existing limit of $100 million per month were also low, they added.

Read ‘Federal govt must share IMF deal details’

Late last year, the country had secured $1.2 billion annual oil facility ($100 million per month) on deferred payment at an interest rate of 3.8%.

Instead, the sources said, Saudi Arabia has offered to facilitate Pakistan in receiving oil facility from Islamic Development Bank’s commercial arm – International Islamic Trade Finance Corporation (ITFC) or from the Organisation of the Petroleum Exporting Countries (OPEC) Fund for International Development.

But the ITFC and OPEC Fund facilities would be different from what Pakistan was seeking. Pakistan is already availing an ITFC oil facility at 4.5% interest rate.

The government had also requested the Saudi Arabia to reduce interest rates on the existing cash and oil facilities, but this seemed difficult.

Last month, Finance Minister Miftah Ismail requested the IMF to extend the programme duration from September 2022 to June 2023 and also increase the loan size from $6 billion to $8 billion.

The country’s external finances situation remain precarious, as it is left with only $10.5 billion gross official foreign exchange reserves while its monthly import bill was $6.6 billion in April.

The $10.5 billion is inclusive of $4 billion of China, $3 billion of Saudi Arabia, and $2.5 billion of the UAE deposits.

Read Market watch: Stocks rally due to clarity about IMF package

Former State Bank of Pakistan (SBP) governor Dr Reza Baqir pumped billions of dollars in the exchange market to defend the weakening rupee but ended up losing the precious reserves, the finance ministry sources said.

The PML-N-led coalition government seems in a fix over its policy choices to steer the country out of the current serious economic crisis. The IMF deal is not possible without first withdrawing the fuel subsidies but there appears to be a deep division within the government.

Some senior party leaders and cabinet ministers have advised the prime minister against increasing petrol and diesel prices, making the job difficult for the finance minister.

Currently, the government is giving Rs29 per litre subsidy on petrol and Rs73 on high speed diesel – which both the finance ministry and the IMF want to reverse.

The previous PTI government had laid landmines as it not only gave these subsidies, but provided wrong estimates of the cost. The former finance minister had initially said the fuel subsidies would cost Rs146 billion for March-June period.

However, the Economic Coordination Committee (ECC) has already approved Rs101 billion subsidies till April 30 and the estimates for May stand at Rs102 billion.

The IMF is also receiving mixed signals, as former finance minister Ishaq Dar has publicly opposed extending the programme to June next year and increasing the fuel prices, arguing that the government should negotiate a fresh deal.

However, the time is running out as the government has made a plan to announce the fiscal year 2022-23 budget on June 10 and before that it needs an agreement with the IMF.

https://tribune.com.pk/story/2355740/pakistan-imf-talks-likely-in-doha-on-may-18

 

[MenInG]

The International Monetary Fund (IMF) has demanded that Pakistan fix next fiscal year’s tax collection target at Rs7.25 trillion, which will require imposition of additional taxes of around Rs300 billion, including withdrawal of agriculture tax exemptions and increase in burden on the salaried class.

The target is nearly Rs350 billion higher than what tax authorities believe can be generated in fiscal year 2022-23 without imposing new taxes. The Rs7.25 trillion tax collection target will be Rs1.15 trillion, or 19%, higher than this year’s revised target of Rs6.1 trillion.

Finance Minister Miftah Ismail on Tuesday visited the Federal Board of Revenue (FBR) headquarters and discussed the revenue collection position in the ongoing fiscal year and the possibility of fixing the next financial year’s target at around Rs7 trillion.

FBR Chairman Asim Ahmad informed the minister that the collection may remain around Rs6 trillion in the current fiscal year, nearly Rs100 billion less than the target agreed with the IMF by the previous government.

The IMF had asked for taking more tax measures to bridge the gap, which was not feasible in the present political circumstances.

The FBR chairman shared the mitigation measures with the finance minister, in case the collection fell further below expectation due to import compression.

The FBR assured the minister of meeting the shortfall through various administrative measures like ensuring collection in the disputed tax matters.

The meeting took place close on the heels of discussions in the Ministry of Finance where the authorities discussed the potential revenue measures and the tax target for the next fiscal year.

The government is also scheduled to begin face-to-face talks with the IMF next week, subject to its ability to withdraw fuel subsidies from the middle of current month.

Sources said that the IMF was asking Pakistan for the Rs7.25 trillion tax target in addition to fulfilling the commitments made by the previous government of Pakistan Tehreek-e-Insaf to withdraw the tax exemptions and revise the tax slabs for the salaried individuals.

The rationalisation of tax slabs will almost double the tax burden on the middle and upper middle-income groups, although the finance minister has already said that the tax burden on the salaried individuals will not be increased.

The last IMF report on Pakistan stated that there was a need to remove exemptions to include fertilisers and tractors, which constitute 23% of the current GST expenditure and whose removal was under consideration as a 2023 budget measure.

But it may not be politically feasible for the PML-N led coalition government to increase the cost of agricultural production.

Sources said that the finance minister asked the FBR to consider taking revenue measures in the range of Rs250 billion to Rs300 billion. But the FBR is said to have told the minister that there was not much room for any policy measures and it was advisable to fix the new target in the range of Rs6.8 trillion to Rs6.9 trillion.

“The minister reiterated that all avenues must be explored and meaningful budget proposals presented before the government to maximise tax collection without creating any additional burden on the common man,” said an FBR statement.

The FBR has collected Rs4.86 trillion in taxes during the first 10 months of current fiscal year, leaving itself with a task to collect another Rs1.24 trillion in just two months to achieve the revised annual target.

Tax authorities now need to collect taxes at an average of Rs20.4 billion a day during May and June to achieve the target.

The FBR’s performance has remained largely dependent on imports that contributed nearly 52% to the total tax collection, which camouflaged the weaknesses in the domestic sales tax collection that remained negative.

The finance ministry is projecting 9.5% inflation and 5.5% economic growth for fiscal year 2022-23, which could increase the revenue collection by around Rs900 billion in the next fiscal year without resorting to additional revenue measures.

The FBR is of the view that the next budget should be prepared by solely relying on the nominal GDP growth rate of around 15% and making efforts for additional Rs200 billion revenue collection through administrative measures. However, the IMF never accepts the administrative measures as a solid strategy to achieve the target.

Unlike the economic theories that talk about increase in tax collection proportionate to the nominal GDP growth rate, the FBRs’ performance in the last 10 months suggested that its sales tax collection at the domestic stage fell by 10% despite average inflation rate of 11%.

Published in The Express Tribune, May 11th, 2022.

 

[MenInG]

The Asian Development Bank (ADB) on Thursday indicated providing $2.5 billion in additional loans to Pakistan, including $1.5 billion before end of year, but the government will have to secure a good economic health certificate from the International Monetary Fund (IMF).

“The ADB indicated the additional support of $2.5 billion for the next fiscal year, from which $1.5 billion to $2 billion can be available in the ongoing calendar year”, according to a statement issued by the Ministry of Finance.

The statement was issued after a meeting between Minister of State for Finance and Revenue Dr Aisha Ghous Pasha and the Country Director of the ADB, Yong Ye.

The finance ministry sources said the ADB indicated that it could provide $1.5 billion under the Counter Cyclical Finance Facility and another roughly $400 million under energy sector policy loans.

However, it will be an uphill task to secure the $1.5 billion facility on priority due to the requirements and a slow-moving bureaucracy in the Ministry of Economic Affairs that has so far failed to even write a formal letter to the ADB for availing the loan.

Read Market watch: Stocks rebound over ADB's $2.5b loan hint

The EAD secretary has not been able to focus on the disbursements of foreign loans that are now falling behind the goals for the third and the fourth quarters, the sources said.

The indicated $2.5 billion additional financing is said to be over and above the regular $2 billion annual envelope in shape of policy and project loans.

Pakistan is currently in dire need of foreign loans due to depleting foreign exchange reserves coupled with growing repayments and import financing requirements. The rupee-dollar parity slipped the lowest ever level of Rs191.77 to a dollar on Thursday amid uncertainty in the market over the fate of the IMF programme.

In order to get the ADB additional financing, Pakistan has to meet many requirements for qualifying for the facility that has been designed to help the member countries to cope with the challenges posed by the Covid-19 pandemic

The ADB board has already approved the Counter Cyclical Finance Facility on May 3 and Pakistan’s share includes a mix of both the concessional and commercial facility. However, the $1.5 billion loan approval by the ADB board will require that Pakistan’s debt burden is sustainable and it is not following imprudent fiscal policies – the two requirements that will need hectic efforts to meet.

Sources said that the negative impact of the Russia-Ukraine war on Pakistan’s economy will also be a factor in deciding the loan approval. The government will also require submitting a sound macroeconomic plan to the ADB board, which means departure from the existing expansionary fiscal policies and withdrawal of the fuel subsidies.

The government will also have to secure an assessment letter from the IMF, which should validate that the country’s economic policies were on the right track.

However, it will not be an easy task to get an assessment letter from the IMF until Islamabad addresses the outstanding issues like withdrawal of fuel subsidies and tax amnesty scheme.

Pakistan and the IMF are scheduled to hold policy level talks for the revival of the IMF programme on May 18 in Doha.

Due to deteriorating external sector situation and resultant reduction in the foreign exchange reserves, China has delayed the processing of $2.3 billion commercial loans and has placed a condition that Islamabad cannot effectively utilise the money.

The finance ministry handout stated that Dr Aisha acknowledged that ADB had always assisted in pursuance of reform and development agenda in the country.

She said that currently Pakistan was facing various fiscal and monetary challenges but the present government was keenly working on various structural reform measures to bring back the economy on an inclusive and sustainable growth path, according to the finance ministry.

The ADB country director briefed the minister of state on ADB’s portfolio and the country strategy. It was shared that ADB was devoted to providing the support for the reform agenda of SOEs governance and regulations, women inclusive finance sector development and PPP frameworks.

Express Tribune

 

[MenInG]

Crucial talks between Pakistan and the International Monetary Fund (IMF) have commenced in Doha today (Wednesday), for revival of the stalled $6 billion Extended Fund Facility (EFF) programme.

“Talks with the IMF Mission started today,” the Finance Ministry tweeted on Wednesday.

The ministry said that Finance Minister Miftah Ismail, Minister of State Dr Aisha Ghous Pasha, Finance Secretary Hamed Yaqoob Shaikh, Acting Governor State Bank of Pakistan (SBP) Dr Murtaza Syed, Chairman Federal Board of Revenue (FBR) Asim Ahmad and senior officers from the Finance Division will attend the talks virtually.

The IMF mission will discuss with the Pakistani authorities policies to further the EFF's 7th review. Pakistan has also requested the IMF to extend the EFF arrangement through June 2023 as a signal of its commitment to address existing challenges and achieve the programme objectives. It has further asked the international lender to increase the funding by $2 billion.

Rupee sinks below 197.5 in inter-bank trading

Experts have pointed out that the revival of the IMF programme is vital for the economic stability of the country, which has been marred with depleting foreign exchange reserves and a rising import bill.

The IMF has said prompt action is needed to reverse fuel subsidies in the country, and the issue has slowed discussions for the fund's 7th review. The newly formed government remains reluctant to do so, possibly because of fears that the removal of subsidies would add to the already high inflation rate and could prove to be a politically unpopular decision.

Economy and IMF’s stalled 7th review

Miftah Ismail has said the government is not doing away with subsidies for now, although it may reconsider this later. Talking to media persons, Ismail hinted at a price hike in the future if oil prices in the international market stay on their current trajectory.

“I am not saying we will not increase fuel prices. But, for now, we are not increasing petrol prices. We cannot afford to burden the masses further. PM Shehbaz has asked me not to increase the fuel prices,” he said.

https://www.brecorder.com/news/40174006/pakistan-imf-begin-crucial-talks-in-doha-as-economy-stumbles

 

[wasim-fan]

If IMF loan doesn't go through, it will quick irreversible collapse. Pretty critical days.

 

[MenInG]

In a nerve-wracking development, the incumbent government, after much deliberations, has finally agreed to implement most of the demands of the International Monetary Fund (IMF), raising the possibility of the country “coming back on track economically” and receiving the next IMF loan tranche.

Talks between IMF and Pakistan continued for the second consecutive day. The Pakistani negotiation team includes Finance Secretary Hamed Yaqoob Sheikh, Federal Board of Revenue Chairman Asim Ahmad and State Bank of Pakistan’s acting Governor Dr Murtaza Syed.

According to sources familiar with the matter, positive discussions were held with the IMF on increasing the amount and the period of the loan term.

The sources went on to add that the technical level talks were still going on between Pakistan and the IMF which will continue until May 23.

During the initial talks, Pakistan has agreed to accept most of the demands laid out by the IMF.

Pakistani authorities have agreed to cut subsidies and the timeframe for privatisation.

Express Tribune

 

[MenInG]

Pakistan’s total debt and liabilities jumped to Rs53.5 trillion – an addition of Rs23.7 trillion under the watch of former prime minister Imran Khan, who failed to meet his promise of bringing down by half the debt pile left behind his arch-rival – the PML-N.

The increase in public debt alone, which is the direct responsibility of the government, was Rs19.5 trillion, as it swelled to Rs44.4 trillion by March 2022, according to the central bank.

The State Bank of Pakistan’s (SBP) latest debt bulletin for the end of March 2022 showed that the debt burden increased both in absolute terms and in terms of the size of national economy, underscoring that Pakistan’s economic viability requires serious long-term reforms.

The debt issue has been politicised for the past 10 years and no government brought meaningful reforms to stop the debt accumulation.

The total debt and liabilities of the country increased to Rs53.5 trillion, a surge of Rs23.7 trillion or nearly 80%, when compared with the statistics before the Pakistan Tehreek-e-Insaf (PTI) came to power.

Imran Khan won the July 2018 elections and promised to curtail the debt burden while also blaming his predecessors for throwing the country under the debt pile.

Imran Khan also formed the Debt Commission to probe the reasons for the surge in public debt from Rs6 trillion in 2008 to Rs24.5 trillion in 2018, suspecting that the debt increased due to alleged corruption by his political opponents – former president Asif Ali Zardari and former prime minister Nawaz Sharif.

But the PTI government never made the Debt Commission report public.

In terms of size of the economy, Pakistan’s total debt and liabilities were equal to 76.4% in 2018 that jumped to 80% by March this year despite the rebasing of the economy.

The SBP report showed that the last PTI government added Rs19.5 trillion to the public debt during its three-and-a-half-year stint, which was more than the liabilities accumulated by any government in 75 years.

The gross public debt stood at Rs44.4 trillion by the end of March 2022, according to the SBP data.

During their previous five-year stints in power, the PML-N added around Rs10 trillion and the PPP Rs8 trillion to the debt burden. But Imran Khan’s party left behind his opponents in just 43 months.

The lower-than-targeted tax collection, steep currency devaluation of around 50%, higher interest rates, higher expenditures along with losses incurred by state-owned companies and debt mismanagement were the main reasons for the surge in public debt during the PTI’s tenure.

Debt breakdown

The federal government’s total domestic debt increased to Rs28 trillion, an addition of Rs11.6 trillion (or 71%) in the last three and a half years. Before Imran Khan took office in 2018, the domestic debt stood at Rs16.4 trillion.

The external debt of the federal government increased at an alarming pace of 91% to nearly Rs15 trillion since July 2018. There was a net increase of Rs7.1 trillion in the external debt, largely due to currency depreciation and building foreign currency reserves through borrowing.

At the end of August 2018, the external debt stood at Rs7.8 trillion.

By March 2022, the rupee-dollar parity was at Rs183.5 to a dollar. In August 2018, the value of the dollar was equal to Rs124.2, showing a massive depreciation of nearly Rs59 or 48%.

By the end of first week of April 2022, when the PTI left office, the rupee dropped to Rs187 to a dollar.

The rupee crossed the 200 mark on Thursday – for the first time ever, which would further deteriorate the external debt situation as the country would need more rupees to service the same amount of debt.

The direct consequence of the mounting debt pile is a huge increase in the cost of debt servicing. The debt servicing, which three and a half years ago was Rs1.5 trillion, is expected to stay above Rs3.2 trillion by the end of current fiscal year.

The IMF debt stood at Rs740 billion before the PTI came to power and it surged to Rs1.4 trillion by the end of March this year.

The new government is in negotiations with the IMF to revive the stalled programme and also increase its size to $8 billion, which means additional borrowing of $5 billion from the IMF, from now till June next year.

The private sector’s external debt, which was Rs1.6 trillion around three and a half years ago, has jumped to Rs3.1 trillion.

The PTI government also failed to bring any reforms to the loss-making state-owned enterprises, resulting in a jump in their obligations coupled with the impact of currency devaluation.

The PSEs’ debt, which was Rs1.4 trillion in June 2018, doubled to Rs2.8 trillion by March, according to the SBP.

The PSEs’ external debt increased 312% to Rs1.34 trillion, suggesting a major impact of the currency devaluation. The domestic debt of the PSEs increased from Rs1.1 trillion to over Rs1.4 trillion, an addition of 35%.

Published in The Express Tribune, May 21st, 2022.

 

[daytrader]

Fate of IMF talks hinges on PM’s ‘big nod’
Economic czars want political leadership to take unpopular decisions

ISLAMABAD:
The talks between the government and the International Monetary Fund (IMF) for the revival of the bailout package are moving at a snail’s pace as the economic managers are still waiting for the ‘big nod’ from Prime Minister Shehbaz Sharif which is crucial to bridging differences with the fund.

Due to indecisiveness of the political leadership, Finance Minister Miftah Ismail, who was originally scheduled to leave for Doha on Sunday, will now go on Monday. Without political commitments for the next fiscal year, talks would remain inconclusive, said sources.

However, Minister of State for Finance Dr Ayisha Pasha is scheduled to fly to Doha on Sunday for the final round.

The economic managers are still waiting for the ‘big nod’ from Prime Minister Shehbaz Sharif which is crucial to bridging the differences with the fund.

Senior members of the ruling party are hesitant in taking tough economic decisions without a clear support from the establishment. They are dropping clear hints that in the absence of no guarantees from the powers that be they are ready to call snap elections.

The IMF and the Pakistani authorities could not build consensus on the macroeconomic framework during the technical level of discussions that began from Wednesday, sources in Islamabad and Doha told The Express Tribune.

There are differences of opinion on the issues of budget deficit, revenue target, power subsidies’ withdrawal plan, rationalisation of expenditures and inflation and economic growth projections. The gaps in the projections can only be bridged once there is a clarity on the status of fuel subsidies and tax measures for the next fiscal year.

The talks are so far scheduled to continue till May 25, with the crucial final round starting from Monday.
“We are waiting for the big nod before going to Doha,” said Dr Ayisha Pasha, Minister of State for Finance.

She said that the finance ministry has prepared two scenarios; one being built on getting permission from the leadership to enforce difficult decisions, and the second is based on the assumption that no nod is received but there is a backup plan,” said Mrs Pasha.

She added the economic team will present both the scenarios to the IMF during policy level discussions.
“I would say that Pakistan and the IMF talks are moving forward,” said the minister of state. To a question about a delay in finalising the budgetary framework, Ayisha Pasha said that there would be a consensus on the framework once there is complete clarity on the outstanding issues, which would come after the ministers reach Doha.

Miftah Ismail was scheduled to leave for Doha from Karachi but he had to rush to Lahore on Saturday to once again convince the prime minister about the need of urgently taking pending decisions. Shehbaz Sharif and former president Asif Ali Zardari also met on Saturday to discuss the unfolding political and economic situation.

Last month, the finance minister had made a promise with the IMF top management that he would start withdrawing fuel subsidies from May 1. But like his predecessors -- former finance ministers Dr Hafeez Sheikh and Shaukat Tarin -- Ismail, too, is unable to fulfil his promise, further widening the trust deficit gap with the fund.

The PML-N’s senior leader and Interior Minister Rana Sanaullah said on Saturday that if anyone stopped the government from performing its duties and suspected the party’s performance, then they will not take responsibility of the mess left behind by Imran Khan and instead consult the allies to call elections.

Maryam Nawaz, the vice president of the PML-N, also said that Nawaz Sharif and Shehbaz Sharif were reluctant to increase the prices of fuel and electricity because if the prices were increased, people may face hunger.

In case, Pakistan remains unable to get the IMF loan, it will also face problems in getting any assistance from Saudi Arabia, China and other nations, besides finding it difficult to retain foreign exchange reserves and stop the steep decline in the value of the rupee.

Former prime minister Imran Khan had capped the fuel prices at February 15 level for a period of four months, which now has tied the hands of the new government. Shehbaz Sharif is facing a choice to increase prices and face people’s wrath or keep giving subsidies and risk the country’s solvency.

However, the sources said that due to a delay in receiving approval from the political leadership, the finance ministry was finding it difficult to agree on a budget deficit figure that is directly dependent on any decision about electricity and fuel subsidies.

The sources said that there was also lack of clarity on the issue of required power tariff adjustments in the next fiscal year and the needed budgetary subsidies to bridge the gap.

There was still disagreement on the next year’s revenue collection target, as the IMF was demanding to fix it at Rs7.25 trillion while the FBR showed different scenarios ranging from Rs6.8 trillion to Rs7 trillion.

One of the reasons behind the disagreement was the projected revenue collection in the current fiscal year, which the FBR is now expecting around Rs5.8 trillion due to adverse impact of the nil taxes on fuel and about Rs75 billion projected shortfall due to a temporary ban on certain imports. The IMF sought further details of the Personal Income Tax proposals.

The determination of the FBR’s tax target will have direct bearing for the next fiscal year’s expenditures.

https://tribune.com.pk/story/2357791/fate-of-imf-talks-hinges-on-pms-big-nod

 

[MenInG]

Finance Minister Miftah Ismail on Thursday said that the Pakistan Muslim League-Nawaz (PML-N) government is "committed to reviving the IMF programme and put Pakistan back on a sustainable growth path."

Ismail had returned from Doha, Qatar, where talks were being held between Islamabad and the fund from May 18th to 25th. Finance Minister Ismail and IMF’s Mission Chief to Pakistan Nathan Porter led their respective delegations.

Upon his return, the minister claimed that the country's finance delegation had "very useful and constructive discussions with the IMF team over the last week".

Contrary to Miftrah's claims, it was earlier reported that the talks had ended on a note of “disappointment”, as Pakistan and the IMF failed to reach a staff-level agreement for the revival of the $6 billion programme.

In a handout, the IMF had emphasised upon “urgency of concrete policy actions, including removing fuel and energy subsidies”.

Miftah in his three-part tweet today said: "We discussed significant slippages in FY 22, caused in part by the fuel subsidies given in February 2022."

"We discussed targets for FY 23, where, in light of high inflation, declining forex reserves and a large current account deficit, we would need to have a tight monetary policy and consolidate our fiscal position."

He added that the IMF team emphasised the importance of rolling back fuel and power subsidies, which were given by the previous administration in contravention of its own agreement with the fund.

However, the Pakistani negotiating team’s hands were tied from Islamabad and London, which was also felt by the IMF team.

It was the second time that Pakistan and the IMF tried to reach a staff-level agreement on the 7th review of the $6 billion Extended Fund Facility but failed. The disagreement may give a serious jolt to the markets.

Earlier, the last PTI government too had failed to convince the IMF to complete the seventh review and release nearly $1 billion loan tranche.

Express Tribune