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Rupee loses ground against dollar in interbank market

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KARACHI: The rupee lost its ground against the dollar in the interbank market on Thursday after recovering for two straight sessions as the “optimism surrounding the government and International Monetary Fund (IMF) talks scaled back”.

During intraday trade today, the rupee depreciated by Rs1.17 and was trading at Rs272.17 around 1pm.

The rupee had closed at Rs268.83 on Wednesday.  

Capital market expert Saad Ali told Geo.tv that reports regarding the rejection of the circular debt management plan (CDMP) presented by the government to the International Monetary Fund (IMF) had dented the market’s confidence.

Ali said that these reports created doubts about the possibility of a bottleneck in the ongoing government-IMF talks. 

An IMF mission is currently in Pakistan holding talks on the ninth review that will continue till February 9 after which a staff-level agreement is expected between the two sides.

Fund rejects circular debt management plan

Earlier today, The News had reported that the IMF has rejected the CDMP presented by the government and asked the authorities to raise the electricity tariff by Rs12.50 per unit in order to restrict the additional subsidy at Rs335 billion for the current fiscal year.

During the second day of technical-level talks, the Washington-based lender termed the revised CDMP as “unrealistic”, which is based on certain wrong assumptions. So the government will have to bring more changes in its policy prescription to restrict the losses of the cash-bleeding power sector.

The IMF and the Finance Ministry will work out a gap on the fiscal front after which different additional taxation measures will be finalised through the upcoming mini-budget.

The revised CDMP envisages an increase in the monster of circular debt to the tune of Rs952 billion for the current fiscal year against an earlier projection of Rs1,526 billion.

The government shared its revised plan with the IMF high-ups on Wednesday, which shows the government required an additional subsidy of Rs675 billion despite raising the power tariff in the range of Rs7 per unit through quarterly tariff adjustment in the first two quarters of 2023 and Rs1.64 for the third quarter from June to August.

“The IMF has opposed the certain basis of the revised CDMP and asks the government to raise the tariff in the range of Rs11 to Rs12.50 per unit, so that the requirement of additional subsidy could be reduced to half from its existing levels of Rs675 billion for the current fiscal year,” sources confided to the publication.

The IMF also raised questions on how the government calculated its additional subsidy requirement figure of Rs675 billion for the current fiscal year. The government has understated the exchange rate for calculating the revised CDMP, so with the existing rate the plan would be changed.

According to the report, the newly developed debt management plan seeks to restrict losses of DISCOs to 16.27% on average during the current fiscal year.

The government has envisaged the target to recover Fuel Price Adjustment (FPA) charges deferred last summer to fetch Rs20 billion into the kitty against estimates of Rs65 billion made on the eve of the last summer.

The markup saving due to IPPs stock payment will bring Rs11 billion while the GST and other taxes on a collection basis will help recover Rs18 billion in the current fiscal year.

The circular debt is estimated to hover around Rs2,113 billion till the end of FY2023, including the amount parked in the Power Holding Limited (PHL), Rs765 billion and Rs1,248 billion payables to power producers and Rs100 billion to fuel suppliers.

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Pakistan receives a $2 billion loan from China, according to the finance minister

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The $2 billion loan was one year ahead of schedule and became due in March. According to reports, Beijing had informed Islamabad of the decision.

The International Monetary Fund granted Pakistan’s cash-strapped economy a $3 billion standby arrangement last summer, but the country is still battling to recover from the financial crisis.

According to ratings firm Fitch, one of the top concerns confronting the next administration would be obtaining funding from bilateral and multilateral partners due to Pakistan’s precarious foreign situation, as was stated last week.

This event occurs one month after Anwaar-ul-Haq Kakar, the acting prime minister, asked for a $2 billion loan to be rolled over for a year in a letter to his Chinese counterpart.

In his letter, Kakar also expressed gratitude for China’s efforts to lessen Pakistan’s load

of foreign payments.

It is to be noted that Pakistan acquired safe deposits of $4 billion from China to address the balance of payments issue.

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“Ready to work with Pakistan’s new government,” the IMF said.

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In response to the former premier’s request, IMF Director of Communications Julie Kozak stated, “I’m not going to comment on ongoing political developments,” during a news conference.

She continued by saying that they “look forward to working on policies to ensure macroeconomic stability and prosperity for all of Pakistan’s citizens with the new government.”

In addition to stating that the plan is “supporting the authority’s efforts to stabilise the economy and to, of course, with a strong focus on protecting the most vulnerable,” Kozack said the lender increased the total disbursements under the Standby Arrangement (SBA) to $1.9 billion.

This has been accomplished by closely adhering to budgetary constraints and safeguarding the social safety net. In order to keep foreign exchange reserves growing and rein in inflation, a strict monetary policy stance has been maintained, the speaker stated.

The PTI founding chairman decided to write a letter to the international lender, asking it to demand an audit of the election held on February 8 before it proceeds with discussions with Islamabad for a new loan programme. This move prompted the IMF to release its statement.

In response to the former premier’s request, IMF Director of Communications Julie Kozak stated, “I’m not going to comment on ongoing political developments,” during a news conference.

She continued by saying that they “look forward to working on policies to ensure macroeconomic stability and prosperity for all of Pakistan’s citizens with the new government.”

In addition to stating that the plan is “supporting the authority’s efforts to stabilise the economy and to, of course, with a strong focus on protecting the most vulnerable,” Kozack said the lender increased the total disbursements under the Standby Arrangement (SBA) to $1.9 billion.

This has been accomplished by closely adhering to budgetary constraints and safeguarding the social safety net. In order to keep foreign exchange reserves growing and rein in inflation, a strict monetary policy stance has been maintained, the speaker stated.

The PTI founding chairman decided to write a letter to the international lender, asking it to demand an audit of the election held on February 8 before it proceeds with discussions with Islamabad for a new loan programme. This move prompted the IMF to release its statement.

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In a new IMF agreement, Pakistan would “raise” the FBR tax-to-GDP ratio to 15%.

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The state bank reserves will be maintained at a level equivalent to three months’ worth of import bills, according to sources in the Finance Ministry.

According to sources, the ministry has also set a goal to maintain the primary balance surplus and reduce the current account deficit.

The ministry insisted that once the existing agreement expires, a new one would be negotiated with the IMF, and that the IMF will also be guaranteed that the requirements will be implemented prior to the agreement being finalised.

The founder of Pakistan Tehreek-e-Insaf (PTI) demanded that an audit of the election results be conducted before the International Monetary Fund (IMF) approved any additional loans for Islamabad. However, the IMF showed earlier today that it was eager to cooperate with the new administration in Pakistan by disregarding the demand.

According to Bloomberg News yesterday, Pakistan is to apply for a fresh $6 billion loan from the International Monetary Fund to assist the next government in paying off billions of dollars in debt that comes due this year.

According to the article, the nation would attempt to negotiate an Extended Fund Facility with the IMF, and it was anticipated that discussions with the international lender would begin in March or April.

Thanks to a short-term IMF bailout, Pakistan avoided defaulting last summer. However, the plan expires next month, and the next administration will need to negotiate a long-term deal to keep the $350 billion economy steady.

The IMF forced the South Asian country to enact a number of reforms prior to the rescue, including raising its benchmark interest rate, changing its budget, and raising the cost of natural gas and electricity.

According to a fund spokeswoman, the IMF staff is still in communication with authorities on the necessary longer-term reform initiatives. The fund is also prepared to assist the post-election government in addressing Pakistan’s ongoing issues by means of a new arrangement, should that request be made.

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