Business

Cabinet approves power tariff hike, ends subsidies ahead of virtual IMF talks

Published

8 months ago

Farwa

Pakistan-IMF to start virtual talks today.
Staff-level agreement with IMF expected this week.
Islamabad facing difficulties in securing external finances.

ISLAMABAD: The federal cabinet on Sunday approved a plan to increase the power tariff and end subsidies ahead of virtual talks with the International Monetary Fund (IMF) starting today on the Memorandum of Economic and Financial Policies (MEFP).

The cabinet also okayed a revised circular debt management plan through circulation in this regard, The News reported Monday.

A team of the Washington-based lender concluded policy-level talks last week but the two sides could not strike a deal due to differences over fiscal measures that needed to be taken before the staff-level agreement.

According to the plan okayed by the cabinet yesterday, to be presented to the IMF, the government will jack up power prices by Rs7.91 per unit in four quarterly adjustments — February-March 2023, March-May 2023, June-August and September-November.

Under the plan, the government will charge Rs3.21 per unit from now onwards, Rs0.69 from March-May and increase it again by Rs1.64 per unit from June onwards to August of 2023. From September-November, the government will hike the power tariff by Rs1.98 per unit.

The consumer base tariff will be increased from Rs15.28 per unit in June 2022 to Rs23.39 per unit till June 2023.

The government also approved to end electricity subsidy of Rs65 billion given to exporters, with effect from March 2023.

The government will be able to get Rs51 billion from the withdrawal of subsidy on electricity for exporters while Rs14 billion will be collected by ending the subsidy on electricity under the Kissan Package from March 2023. For the export sector, the Rs12.13 per unit subsidy on electricity will be taken back.

About Rs250 billion will also be recovered from electricity consumers by June 2023. Under the plan, a surcharge of Rs3.39 per unit will be levied, sources said, according to the publication.

Rs73 billion will be obtained from the increase in quarterly adjustments till June. In the quarterly adjustment, electricity will become more expensive by up to Rs4.46 this month, the sources said.

Virtual meeting

Meanwhile, the IMF has shared its menu on the table with the Pakistani authorities but gaps still exist in finalising the exact taxation measures, increase in base tariff for electricity and securing confirmation on gross external financing.

The menu, suggested in the MEFP, has remained under discussion in the last two days among the policymakers in Islamabad.

The Pakistani side will talk to the IMF side through a virtual meeting today to finalise specific taxation measures, resolving the lingering controversy over power base tariff and incorporating gross external financing requirements and Net International Reserves (NIR) target for the end of June 2023.

It is not yet known how much time both sides will take to resolve these lingering issues.

“The IMF shared its menu and virtual discussions will kick-start Monday evening to finalise details on relevant important fronts. Once all gaps are filled, then the staff level agreement will be struck,” top official sources confirmed while talking to The News on Sunday.

Now everything is on the menu table and open to discussion for finalising measures. The question here is what the authorities had done in the last 10 days of talks with the IMF review mission when it stayed here. It seems nothing could be concluded.

Flood levy was a priority of the government but the IMF was opposing all those measures which were on-off. The IMF insists upon “permanent revenue measures”, including the raising of GST from 17 to 18%, slapping GST on POL products, and jacking up petroleum levy on energy.

Tax Laws Amendment Ordinance 2023 is expected to be promulgated within this week probably from February 15, in order to fetch an additional tax of Rs170 billion in the remaining four and a half months period of the current fiscal year.

The increase in 1% GST rate from 17 to 18% will fetch Rs60 to Rs65 billion, raising withholding tax on banking transactions to Rs45 billion, hiking Federal Excise Duty (FED) on sugary drinks (it’s still under consideration), hiking FED on locally manufactured and imported vehicles and increasing FED on cigarettes, etc.

Some proposals triggered a heated debate between the two sides. At one stage, a special assistant to the prime minister had to play a role to pacify the sentimental environment, as one participant from the Pakistani side argued before the IMF mission last week that why the Fund mission was asking for all kinds of regressive taxations measures amid rising inflationary pressures.

In the power sector, the IMF wants a hike in the base tariff, as the government approved a revised CDMP for bringing down the baseline scenario to reduce the piling up of debt.

The revised CDMP did not mention anything on increase in base tariff, as the Pakistani authorities argued that they had done it last August 2022.

However, the IMF does not agree to it and asks for an increase in base tariff by Rs4.06 per unit. On gross external financing and the NIR target, a senior official of the State Bank of Pakistan told The News that the NIR target for the end of June 2023 was yet to be agreed upon with the IMF.

External financing

Meanwhile, official sources told the newspaper that the most complex issue being confronted by the economic managers was ensuring to secure external financing needs so that the foreign exchange reserves should be built up from their existing level of $2.9 billion by June 30, 2023.

During the last IMF review done in August/September 2022, the foreign exchange reserves held by the SBP were fixed at $16.2 billion for the end of June 2023.

However, it seemed impossible to jack it up to such a level. This is the most sticking point, as Pakistan is anxiously waiting for the pledges to be materialised by the Kingdom of Saudi Arabia, the UAE, Qatar, and China.

These countries say they will support Pakistan if Islamabad is under the IMF programme while the Fund says that it will only enter into a program once these countries assure assistance to Pakistan.

It is not known how this issue will be resolved in the coming few days and weeks.

Business

Pak Suzuki plans to export cars

Published

2 days ago

Farwa

Company working on hybrid variants, says CEO.
Hiroshi Kawamura calls local participants for joint efforts.
Notable part manufacturers attend meeting.

LAHORE: Pak Suzuki Motor Company Ltd (PSMCL) chief executive Hiroshi Kawamura has said that the company has been working on exports of cars which have been upgraded to many WP-29 standards, The News reported Friday.

Addressing the second round of interactive meetings with the part-makers — held under the banner of Suzuki Motors — Kawamura said that the economic issues were transitory and the automobile company was committed to providing affordable vehicles to common Pakistanis.

The CEO also revealed that the company was working on hybrid variants.

Participants of the meeting, which was attended by notable part manufacturers, unanimously agreed that the automakers should promote localisation, while also reaching out to global markets.

Calling the local participants for joint efforts, Kawamura said: “It is imperative to take stock of the escalating crisis collectively for the automotive industry.”

“Nothing can be achieved without local partners.”

Addressing the meeting, Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) Senior Vice Chairman Usman Aslam Malik assured of complete support to original equipment manufacturers (OEMs) for the export of auto components.

It should be noted that WP-29 standards are a unique worldwide regulatory forum within the institutional framework of the UNECE Inland Transport Committee.

Three UN Agreements, adopted in 1958, 1997 and 1998, provide the legal framework allowing contracting parties (member countries) attending the WP.29 sessions to establish regulatory instruments concerning motor vehicles and motor vehicle equipment.

Those are UN Regulations, annexed to the 1958 Agreement; United Nations Global Technical Regulations (UN GTRs), associated with the 1998 Agreement; and UN Rules, annexed to the 1997 Agreement.

Business

Govt plans austerity measures by slashing Rs1.9tr expenditures

Published

2 days ago

Farwa

Govt decides reducing operational spending on devolved ministries.
Recommends ban on new posts, hiring daily wages/other staff, etc.
Considers implementing cost-sharing mechanism of BISP with provinces.

ISLAMABAD: The caretaker government is planning to take austerity measures by cutting down expenditures by Rs1.9 trillion including banning new posts, purchasing security vehicles, and slashing down allocation for development, The News reported Friday.

The government has also considered making a treasury single account (TSA) and asking the federal ministries and attached departments to shift the money into the federal government account to save up to Rs424 billion.

It has been calculated that 10% of the expenditures incurred on running the federal government in FY22 could save Rs54 billion as worked out by the World Bank.

The government has also decided to reduce the operational spending on devolved ministries to save up to Rs328 billion for the whole financial year 2023-24.

In the aftermath of the 18th Amendment, different subjects were transferred to the provinces but the centre continued spending, causing losses to the national exchequer.

A detailed working of the government considered by the high-profile Cabinet Committee on Economic Revival (CCER) so far proposed certain austerity measures to cut down the expenditures by up to Rs1.9 trillion on a short-term basis.

However, it is yet to be seen if these measures will be implemented in letter and spirit.

It recommended that the federal and provincial governments both take austerity measures to reduce the expenditures by Rs54 billion for six months such as slapping a ban on new posts, hiring of daily wages/other staff, ban on purchasing new vehicles including from project funding, ban on purchase of machinery and equipment except medical, ban on travel abroad including official visits, medical treatment, cabinet members to forego pay and government vehicles and security vehicles to be withdrawn.

The ambitious plan also envisages that the triage of 14 loss-making entities will potentially save Rs458 billion for the whole financial year. The reduced operational spending on devolved ministries is going to save up to Rs328 billion during the current financial year.

The Ministry of Finance has estimated that the devolution of the Higher Education Commission (HEC) to the provinces would save Rs70 billion per annum. Education had become a provincial subject in the aftermath of the 18th Amendment but the Center recontinued with the HEC at the federal level.

The caretaker regime has placed it as an agenda to devolve the HEC to the provinces so it is yet to see how much they are going to succeed on this front.

Moreover, it is also considering implementing the cost-sharing mechanism of the Benazir Income Support Programme (BISP) with the provinces to save Rs217 billion on an annual basis.

The federal government is also considering re-focusing the Public Sector Development Program (PSDP) spending only on federally mandated projects which could save Rs315 billion annually.

Caretaker Minister for Finance Dr Shamshad Akhtar had already directed the minister for planning to work out details of projects of a provincial nature for their removal from the list of PSDP to cut down the expenditures by Rs315 billion for the current fiscal year.

The last Pakistan Democratic Movement (PDM)-led regime had allocated Rs950 billion for the PSDP in budget 2023-24.

Business

PKR on track to become top-performing currency this month: Bloomberg

Published

3 days ago

Farwa

Pakistani currency rose around 6% this month against dollar.
Authorities curb leakages happening through illegal channels.
Crackdown on illegal dollar traders helps local currency.

The Pakistani rupee is on track to become the top performer globally in September as the caretaker government continues its crackdown on illegal dollar trade, Bloomberg reported Thursday.

The local currency rose around 6% this month against the dollar — an amazing feat despite the Thai baht and South Korean won tumbling against the greenback.

Major currencies lost ground against the dollar on speculations that the US interest rates will stay elevated for longer.

The rupee increased 0.1% to 287.95 per dollar on Thursday, after sliding to a record low of about 307 this month. Pakistan’s currency market will remain closed for the Eid Miladun Nabi holiday on Friday.

“Many leakages were happening through illegal channels of hawala and hundi trade from the open market,” Khurram Schehzad, chief executive officer of Alpha Beta Core Solutions Pvt Ltd, told Bloomberg.

“When the dollar rate reverses everybody, the hoarders, the exporters who are holding their export proceeds, start selling their dollars,” Schehzad said.

The interim rulers have intensified efforts by launching a crackdown on people involved in the illegal dollar trade, allowing the currency to gain some lost ground.

The Federal Investigation Agency, Bloomberg reported, conducted raids across the country and security officials in plainclothes were deployed at money exchanges to monitor dollar sales as part of the crackdown.

Caretaker Prime Minister Anwaar-ul-Haq Kakar this week said the rupee’s gain is “fostering optimism for stability.”

For its part, the State Bank of Pakistan raised the capital requirements of smaller exchange companies and ordered large banks to open their own exchange companies to make the retail foreign exchange market more transparent and easier to monitor.