Business

IMF to review PM Imran Khan’s relief package in talks with Pakistan this week

Published

2 years ago

wajahat

Pakistan and the International Monetary Fund (IMF) are meeting this week to review the relief package Prime Minister Imran Khan announced to lower POL and electricity prices in the face of a difficult international environment. Both sides will talk about the benefits of the package, The News reported.

The IMF team will kick-start virtual parleys with Pakistani authorities on March 4, 2022, and these talks will continue for two weeks for the completion of the 7th Review under the $6 billion Extended Fund Facility (EFF) program.

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When contacted about the relief package announced by PM Imran Khan, the IMF’s Resident Chief in Pakistan, Esther Perez Ruiz, said that Pakistani authorities and the IMF would discuss during the upcoming 7th review of the EFF the merits of the recently-adopted relief package and other measures to promote macroeconomic stability amidst a challenging external environment.

This scribe also contacted the Ministry of Finance high-ups and got confirmation that the IMF team would hold virtual review talks from March 4, 2022, which would last for a two-week period.

Premier Imran Khan announced a reduction in petrol and diesel prices by Rs10 per litre and the electricity tariff by Rs5 per unit. It is estimated that the government will dole out Rs 360 billion on these two fronts of POL and electricity during the remaining four-month (March-June) period of the current fiscal year.

During the current fiscal year, the government will provide a direct subsidy of Rs200 billion on electricity and Rs160 billion on POL prices.The PTI-led government is going to replicate one old program, first introduced during the Musharraf government and later on during the PPP-led government in 2008 and 2009, which was known as Price Differential Claims (PDCs), to reduce the prices of POL products. However, these claims were largely never reimbursed to Pakistan State Oil (PSO) and the amount was still due after a 12-year period. With these measures, it seems that the government has entered into election mode. It is yet to be seen how the IMF will respond to this massive doled out package, as apparently it seems like a total reversal of the Fund-sponsored program. The initial estimates suggested that the cost of other measures such as the internship programme for almost 150,000 graduates with a monthly stipend of Rs30,000 and the doling of interest-free loans under the much-hyped Kamyab Pakistan Program were not included in the cost estimation of the relief package announced by the PM in his televised speech on Monday night.

One member of the high-profile Macro Economic Group, Dr Ashfaque Hassan Khan, told this scribe that the relief package was discussed in detail in the last two months and claimed that it would have no negative impact on the budget deficit nor the ongoing IMF program. He said that the relief package was fully financed and that savings would be utilised to finance the relief package.

The IMF provided $1 billion for COVID-19, which would be diverted towards the relief package. A second unnecessary development project-related allocation would be provided for execution of the package. Thirdly, he said that the BISP money would be fully utilised, and fourthly, the FBR’s increased collection of Rs281 billion would be utilised for this package. He said that there were some suggestions to provide targeted subsidies during the Macro Economic Group meeting, but he had asked for a general subsidy by reducing the prices for all because the government did not have the capacity to provide targeted subsidies.

When contacted, Dr. Khaqan Najeeb, former Director-General, Economic Reform Unit, Ministry of Finance, said general subsidies are less welfare-enhancing for the vulnerable, and that is the reason governments should always promote targeted subsidy regimes. Pakistan has just completed a National Socio-Economic Registry in June 2021 with a door-to-door survey of 33 million households. A good initiative indeed. This should be the right data to use for any future subsidy targeting.

Dr. Khaqan emphasised that a general subsidy on fuel and electricity can have substantive fiscal implications. Electricity consumption in the summers (March to June) is the highest during the year. The Rs5 subsidy will be used to adjust the fuel price adjustment monthly for residential and commercial consumers. In a sense, the government has temporarily abolished the fuel price adjustment for four months.

Assuming a sale of 40 billion GWh of electricity in four months, this can translate into a subsidy of Rs200 billion. If not paid for, this would be taken as a prior year adjustment in the next year’s electricity tariff, thereby increasing it further. He concluded that if there was a reduction in the price of oil, its consumption could further impact the high $7MFY22 $11.6 bn current account deficit, which the government has been trying to curtail through various measures. In the short run, the government can reduce the Petroleum Development Levy for the Rs10 reduction. However, a funded subsidy from the current budget would have to be created to fund this.

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.