ECONOMIC TIMES OF PAKISTAN
Pakistan wins $1.4bn IMF emergency loan
The International Monetary Fund (IMF) on Thursday approved an emergency loan of $1.4 billion for Pakistan, as Islamabad is also expected to get around $1.5 billion relief in the shape of delay in repayment of loans to bilateral creditors.
Pakistan is not among the nations whose debts will be written off by the rich nations and multilateral institutions. But it has been offered both, cheap financing by the multilateral creditors and debt rollover by the bilateral creditors.
“The IMF Executive Board approved a purchase of Pakistan under the Rapid Financing Instrument (RFI) equivalent to $1.386 billion (50 percent of quota) to meet the urgent balance of payment needs stemming from the outbreak of the Covid-19 pandemic,” says a statement issued by the global lender in the wee hours of Friday.
“While uncertainty remains high, the near-term economic impact of Covid-19 is expected to be significant, giving rise to large fiscal and external financing needs,” the statement said, adding that the IMF support would help provide a backstop against the decline in international reserves and provide financing to the budget for targeted and temporary spending increases aimed at containing the pandemic and mitigating its economic impact.
It said the IMF remained closely engaged with the Pakistani authorities and as the impact of the Covid-19 shock subsides, it would resume discussions as part of the current Extended Fund Facility Programme.
Dr Reza Baqir, the governor of the State Bank of Pakistan, said, “Pakistan will receive a significant boost to its foreign exchange reserves and fiscal space to combat Covid-19 through $1.4 billion RFI [Rapid Financing Instrument] approval by the IMF as well as the debt relief from official creditors approved by G-20.”
The $1.4 billion RFI is not part of the ongoing IMF programme. The IMF has already cancelled the approval of second review of the programme that had been scheduled for April 10.
The IMF has approved the loan as a low-cost, fast-disbursing loan under the fund’s Rapid Financing Instrument (RFI) to deal with the adverse economic impact of Covid-19.
The G-20 states’ decision to freeze payments of developing countries will also provide temporary relief of $1.5 billion, according to the Ministry of Finance officials. The $1.5 billion figure is preliminary and it may change, subject to further clarity on the issue by the lenders.
The G-20 states – the group of 20 rich economies of the world – has agreed to freeze bilateral government loan repayments for 76 low-income countries until the end of the year.
According to preliminary estimates of the Ministry of Finance, Pakistan may get a relief on payments of around $1.5 billion official credit extended by 12 members of the group.
Pakistan does not have financial relations with eight other member countries like Argentina, Brazil, Indonesia, India, Mexico, Turkey and South Africa.
The G-20 states have approved to defer repayment of principal and interest on loans for eight months period (May-December) 2020. More than half of the relief will come from China on the guaranteed loans.
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Islamabad needs to fast-track TAPI gas pipeline
As Turkmenistan targets to achieve financial close of a multibillion-dollar transnational gas pipeline project in November this year, Pakistan needs to expedite work on its part of the pipeline to ensure energy security.
Turkmenistan-Afghanistan-Pakistan-India (Tapi) gas pipeline project will work as an energy corridor and connect Central and South Asian regions.
Background discussions with officials and experts revealed that the most important part of the project was to kick off construction work on Pakistan’s side as it would diversify sources of energy supply.
Turkmenistan has injected billions of dollars from its own resources to develop the gas field from where gas will be supplied and is also trying to generate funds from financial institutions like the Asian Development Bank (ADB). It is also working to generate funds on the credit supplier model.
Total volume of investment is estimated at around $25 billion that includes development of the gas field and building the pipeline from Turkmenistan to Afghanistan, Pakistan and India.
The cost of developing the gas field is estimated at $15 billion while pipeline laying will cost $10 billion. Turkmenistan will bear 85 percent of the total cost whereas 15 percent of the cost will be borne by all the other participating countries – Pakistan, Afghanistan and India.
“Turkmenistan is hoping to sign loan agreements with prospective financiers in October this year in order to generate funds to kick off construction work on first phase of the project,” a senior government official said.
Tapi project is aimed at bringing gas from the Galkynysh and adjacent gas fields in Turkmenistan to Afghanistan, Pakistan and India. A gas sale and purchase agreement (GSPA) between Inter State Gas Systems (ISGS) and Turkmengaz for the supply of 1.3 billion cubic feet of gas per day (bcfd) to Pakistan was signed in 2012, wherein the pricing was agreed with Turkmengaz.
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Government forms panel for review of pay, pension
The federal government has constituted a Pay and Pension Commission to evaluate salary structures of the employees of the federal and provincial governments as well as the armed forces with a view to bringing some uniformity and review the need for further increase.
But it seems that the commission will not be able to finish its work before the next year’s budget, as the government has not fixed any deadline the task. The terms of reference (ToRs) are also broad that may extend the work of the commission to months, if not a year.
The six-member commission will be headed by former finance secretary Abdul Wajid Rana. There is no equal representation of all the provinces despite its wide scope as almost all the members of the commission belong to Sindh.
The members are: Nazar Hussain Mahar, a retired bureaucrat, Dr Noor Alam, also a retired civil servant, Seema Kamil, President United Bank Limited, Zubyr Soomro, Chairman National Bank of Pakistan and Nausheen Ahmad, ICI Pakistan Limited.
The government has setup the commission at a time when it is under increasing pressure to increase the salaries by at least 100-150 percent and end discrimination in pays of various federal and provincial government departments.
The scope of the commission would include federal and provincial civil servants, other government servants, civilians paid from defence budget, all armed forces, civil armed forces and all employees of the public sector enterprises.
The federal government’s pay structure has not remained lucrative after two provincial governments approved additional allowances of up to 150 percent. The federal government also gave special allowances to the Federal Investigation Agency (FIA) and the National Accountability Bureau (NAB) that created unease among the employees of the Pakistan Secretariat –the seat of federal bureaucracy.
The commission will study the adequacy of existing basic pay scale (BPS) system and evaluate the current salaries and recommend measures for uniformity. The commission is also empowered to make recommendations for the streamlining of the exiting classification from BPS 1 to 22.
The commission will also study the separation of existing BPS for specialized departments, occupations and cadres and review special scales such as management cadres, management position scales, project pay scales and propose measures for uniformity and improvement.
It will review admissible regular allowances, special incentives and all other allowances with a view to highlighting the prevalent distortions and recommend corrective measures.
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China ships total 500 tons of hybrid rice seeds to Pakistan
A total of 500 tonnes of hybrid rice seeds from a seed company in east China’s Jiangsu province have landed in Pakistan to help ensure the country’s grain yield this year.
It is estimated that the seeds would be planted on 33,333 hectares of land.
Earlier this year, Jiangsu Hongqi Seed Industry Company, an enterprise engaged in wholesale and retail of crop seeds in China, reached an agreement with Pakistani customers to ship hybrid rice seeds after the spring festival.
However, affected by the coronavirus epidemic, the seeds could not be processed and packaged as planned.
Thanks to the help of Customs of Taizhou city in China’s Jiangsu province, which opened a green channel and streamlined the process, the seeds were finally loaded on a ship and departed for Pakistan.
“If these seeds could not be delivered to our customers in time, our business and reputation could be damaged, while the local grain yield in Pakistan could also be affected,” said Zha Lianqun, General Manager of the company. Since the end of last year, Pakistan has struggled to combat locust plagues which have destroyed crops and threatened the livelihoods of farmers.
“This batch of seeds will help ensure the grain yield of Pakistan this year,” Zha said, adding that China will provide more technical assistance and work with Pakistan to fight the locust disaster. China and Pakistan have seen closer cooperation in agriculture in recent years since the launch of China-Pakistan Economic Corridor.
China’s seed products have become very popular with Pakistani buyers due to high resistance to temperature and diseases, and low yield reduction rate. The company obtained an order of 100 tonnes of hybrid rice seeds from Pakistan in 2017 and expects the export volume will exceed 1,000 tonnes in 2021.
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Public debt may increase to 90pc of GDP
Pakistan’s public debt may rise to 90 percent of national economy or Rs37.7 trillion by June this year and its balance of payments situation may worsen due to severe health and economic shocks in the aftermath of the deadly pandemic, a new International Monetary Fund (IMF) report reveals.
In its report, the IMF has disclosed that Pakistan will have to increase its collection of petroleum levy by 65 percent to Rs489 billion and tax collection by 31 percent to Rs5.1 trillion in the next fiscal year, if the country is keen to keep the troubled $6-billion loan programme on track.
For the current fiscal year, the IMF has projected Federal Board of Revenues (FBR)’s tax collection at only Rs3.908 trillion, lower than even the last fiscal year.
As against the original target of Rs5.555 trillion, the FBR is now projected to collect Rs1.65 trillion less than the target due to the impact of Covid-19, inefficiency of the revenue board and setting of an unrealistic target.
The IMF report also revealed that contrary to the prime minister’s announcement of Rs1.25-trillion economic relief package, the actual size of the “fiscal stimulus package (was) worth 1.2 percent of GDP (Rs500 billion)”.
Despite acknowledging that next fiscal year 2020-21 will also be tough for Pakistan’s economy, the IMF has sought fiscal consolidation efforts to the tune of Rs1.05 trillion or 2.5 percent of gross domestic product (GDP) on the back of again a steep expected increase in tax revenues.
The global lender on Friday released the report prepared for approval of a $1.4-billion emergency loan.
It said public finances were expected to come under significant pressure. The IMF report showed the primary deficit – total expenditure excluding interest payments – at 2.9 percent of GDP or Rs1.2 trillion for the current fiscal year. For the next fiscal year starting July, the IMF has projected the primary budget deficit at 0.4 percent of GDP or only Rs191 billion.
“The Covid-19 shock will unfortunately reverse the decline in public debt in recent months on the back of authorities’ fiscal consolidation efforts,” said the report.
Instead, public debt is projected to increase to around 90 percent of GDP or Rs37.7 trillion in FY 2020, against 85 percent or Rs35.6 trillion prior to the shock, due to a sharp decline in growth and an increase in budget deficit, according to the IMF.
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Budget proposals: KCCI demands main relief in taxes
The business community of Karachi has suggested that the government should make significant cut in taxes in the upcoming budget, which will help revive the businesses on the brink of bankruptcies owing to coronavirus.
During an online meeting between Karachi Chamber of Commerce and Industry (KCCI) and the Federal Board of Revenue (FBR) to discuss the proposals of KCCI for the Federal Budget 2020-21, KCCI President Agha Shahab Ahmed Khan said that the government should focus on extending support to the trader and industries to ensure their survival.
FBR Chairperson Nausheen Javaid admitted that in the prevailing economic scenario the taxation policies and upcoming federal budget should be formulated to help the trade and industry to cope with new challenges.
On the occasion, KCCI proposed to withdraw 3 percent further tax on local sales to unregistered buyers, which was initially 1 percent imposed through the Finance Act 2013. FBR Inland Revenue Policy Member pronounced that a proposal is under consideration to reduce the rate to 1 percent instead of 3 percent in the FY2020-21 and to zero percent in the next fiscal year.
Moreover, the chamber has recommended a reduction in sales tax from 17 percent to a single digit. Inland Revenue Policy member accepted that the FBR will review the rate and recommend rationalising the same in the budget 2020-21. He further added that other relief measures in sales tax and other levies are also under consideration during the prevailing crisis due to Covid-19, which are outside the scope of federal budget 2020-21.
KCCI suggested reducing the WHT rate to 1 percent. The FBR official assured that the rate of WHT on local supply of goods will be rationalised as proposed.
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State Bank of Pakistan slashes monetary policy rate to 9pc
In a surprise move, the State Bank of Pakistan (SBP) on Thursday cut the benchmark interest rate by 200 basis points to a 17-month low at 9 percent to help businesses and people to avert default on loans and help banks to stave off losses.
With this, the central bank has cut the policy rate by a cumulative 425 basis points in the past one month to ease the pressure of interest payment as a majority of businesses stay closed under the lockdown due to the coronavirus pandemic. Otherwise, the central bank’s monetary policy committee (MPC) meets after every two months to determine the interest rate corridor.
Earlier, the SBP allowed businesses and people to defer payment of bank loan principal for one year, but they would continue to pay interest money against the loans.
Global and domestic economic growth outlooks have become negative in response to the Covid-19 crisis. The fast worsening situation led the MPC to hold an emergency meeting to cut the rate significantly, according to the central bank. With the interest rate now in single digit, the “forward-looking real interest rate (defined as the policy rate less expected inflation) stands at around zero, which is about the middle of the range across most emerging markets,” the SBP said in the latest monetary policy statement on Thursday.
“The MPC was of the view that this action would cushion the impact of the coronavirus shock on growth and employment, by easing borrowing costs and the debt service burden of households and firms, while also maintaining financial stability. It would also help ensure that economic activity is better placed to recover when the pandemic subsides.”
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PTI govt vows to resolve liquidity crunch, cash flow issues
The government has vowed to resolve liquidity crunch, cash flow and other related issues being faced by the industry and businesses, said Adviser to the Prime Minister on Finance and Revenue Abdul Hafeez Shaikh.
Speaking at a meeting with leading industrialists on Thursday, he added that work in this regard had begun after the government released the sales tax and income tax refunds as well as duty drawbacks, which were held up for the past couple of years.
Shaikh heard various proposals and suggestions from the businessmen to support and provide relief to the industries and assured the participants that the government would carefully study all the proposals and all the major issues being faced by the industry would be resolved.
He further promised that a comprehensive relief package would be offered to the industry. The adviser briefed the meeting that the government had released Rs52 billion of the claimed Rs57 billion to exporters through the FASTER system and Rs25 billion out of the Rs52 billion sales tax refunds for other sectors and industries. “The remaining amount would be cleared within the next one week,” Shaikh said.
Similarly, the government has also cleared about Rs30 billion tax refunds under the DLT while Rs15 billion duty drawbacks had also been paid.
“Not only this, the government has also decided to pay within the next week all income tax refunds held up since 2014 and this measure alone would benefit nearly 100,000 taxpayers who would be paid over Rs50 billion worth of refunds,” he added.
The businessmen and industrialists, while giving proposals and suggestions, called for an inclusive relief package that addressed the needs of the large-scale as well as small and medium enterprise (SME) sectors.
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Coronavirus: how virus weighs on businesses?
The Covid-19 crisis has dragged the global economy into a deep recession and no country has been able to escape its wrath. International economists estimate economic recovery can take anywhere from one to five years.
The rich and developed states can combat the negative impact of the virus through their strong industrial bases, solid infrastructure, financial reserves and advanced technology.
However, the poor countries may see poverty and other economic woes deepen further.
To find out how local businesses have been impacted and what they are planning for the future, a single question was posed by source to a few companies from different segments in order to get a broader picture of the problem and the way forward.
Business segments that directly influence a massive number of people, such as firms offering a wide range of products and services or providing massive direct and indirect employment or adding a major chunk to the national exchequer, were included in the survey.
“Coronavirus outbreak is bound to place a lot of stress on the communication networks,” said a spokesperson for Ufone. “The impact of Covid-19 on networking services is unprecedented.”
He added that with lockdowns in place all across the country, demand for telecom services was on the rise. Over 200 call centre representatives of the company are working remotely. He was of the view that while Pakistan battled with the crisis, it needed to learn from it for the future.
“Covid-19 has turned the need for digitisation into a necessity and as a company this has become our primary area of focus for the future,” he said.
Jubilee Life Insurance CEO and Managing Director Javed Ahmed said the crisis was impacting practically every sector of the economy in Pakistan and globally and no one was fully prepared for that.
He underlined that insurance business was based on extensive public dealing and direct engagement with customers, hence, social distancing measures and lockdown impacted his company.
However, he said, extensive use of technology for customer servicing was mitigating the impact to a great extent.
According to him, this crisis should be a wakeup call for every business to exit their comfort zones and transform into an agile organisation. “The ability to adapt and evolve and modify your business model will be the key to staying on top,” he said.
He stressed that the crisis also showed how important it was for everyone to have life and health insurance. “Your entire secure world can come down like a house of cards in no time,”. he pointed out and emphasised that insurance was a critical safety net which everyone should have.
Long hours of lockdown mean that public is facing constraints to the purchase of goods of daily need, hence, online shopping has spiked all of a sudden.
“The ongoing Covid-19 pandemic has led Carrefour to take a series of proactive measures to ensure that its physical and digital stores remain operational and fully stocked with essential items,” said Carrefour Pakistan Country Manager Jean-Marc Dumont.
“The cumulative impact of social distancing and on and off lockdowns has put immense pressure on our operations, particularly on online orders, which are showing exponential growth.”