State Bank likely to maintain status quo
Pakistan central bank is scheduled to meet on Friday (March 19) to determine the benchmark interest rate for the next two months and outline the possible trend of the rate in the near future in line with the current global practice.
Although the State Bank of Pakistan (SBP) had strongly hinted in January that the policy rate would be maintained at the current level of 7percent in March for the next two months and until the economy fully recovered, a small segment expects the central bank to revise the rate slightly upwards.
Earlier in March, the federal cabinet approved amendments to the SBP Act to make it an independent institution as part of reforms under the International Monetary Fund (IMF) programme in a bid to restart the $6 billion loan facility, which had been on hold since Covid-19 surfaced in Pakistan in late February 2020.
The amended bill is yet to be approved by parliament.
The autonomy will end the central bank’s role of taking care of economic growth and empower it to take policy measures to control inflation, which remains high due to food and energy price hikes in the past several months.
The autonomy is being granted to check government’s expenditures and control fiscal deficit, formulate exchange rate policies, end political interference and stabilise prices of food, energy and other commodities, which have remained a challenge since the Covid-19 outbreak.
Federal cabinet nod awaited to cancel tax break
The government on Thursday moved a summary to secure the federal cabinet’s emergency approval for immediately withdrawing Rs140 billion worth of income tax exemptions to save the one-month-old staff-level agreement with the International Monetary Fund (IMF).
Instead of July 1, as earlier announced by the Federal Board of Revenue chairman, these income tax exemptions will now be withdrawn with immediate effect, subject to the cabinet’s approval.
The members of the federal cabinet would record their opinion for promulgating ‘Tax Laws (Second Amendment) Ordinance 2021’ within 24 hours, a top finance ministry official told.
In order to ensure a swift nod, Prime Minister Imran Khan waived the requirement of first securing the approval of the Cabinet Committee on Legislative Cases (CCLC) before placing a legislative business-related summary before the cabinet for approval.
The cabinet’s emergency approval is expected to be received today (Friday) and the ordinance will be issued soon after, the top government official said. This was being done to keep hopes for revival of the IMF programme alive by mid of next week, he added.
The withdrawal of Rs140 billion worth of income tax exemptions is a prior condition by the IMF to take Pakistan’s request to the Executive Board for approval of the next loan tranche on March 24. The IMF has not yet officially released the board meeting date due to a delay in implementing all the prior actions agreed between both the sides last month.
Government may scrap regulatory duty on oil import
The government is likely to abolish the regulatory duty on import of crude oil as well as remove deemed duty in the new proposed oil refinery policy.
The government is currently charging 5percent regulatory duty on the import of crude oil. Separately, according to officials, oil refineries are allowed to collect 7.5percent deemed duty on high-speed diesel.
Earlier, the deemed duty was imposed on other petroleum products as well, but it was later removed.
The deemed duty incentive was given in order to encourage refineries to upgrade their plants. However, they failed to upgrade their refining units in time despite charging the deemed duty. Now, according to the officials, the government has decided not to give any incentive like the deemed duty and will also abolish the regulatory duty on crude oil import. Oil price will be in line with the import parity price.
The government will also set a deadline for product upgrade. If refineries do not upgrade their plants, the government will not allow the lifting of their products.
Moreover, there is disparity in taxes on the import of petrol and diesel. Taxes are high on diesel because of which some cases have been reported where importers declared their shipment as petrol, though actually it was carrying high-speed diesel.
Trading corporation to import wheat to avert shortage
Trading Corporation of Pakistan (TCP) has been directed to import wheat to meet the looming nationwide shortfall of the commodity, a move that will push prices down at a time when farmers are preparing to harvest the crop. TCP opened bids on March 16 for wheat import in five shipments between April and August 2021. It received a bid of $323.9 per ton for shipment of 110,000 tons of wheat in April 2021. Similarly, it received a bid of $321 per ton for the same quantity for shipment in May, $336.38 per ton for June shipment, $298.75 per ton for July and $285.98 per ton for August.
During a meeting of the National Assembly Standing Committee on Commerce, Committee Chairman Syed Naveed Qamar was told that there were fears of a nationwide shortage of wheat. Therefore, TCP floated a tender for import.
The Ministry of Commerce told the committee that TCP, a subsidiary of the Ministry of Commerce, had imported 100,000 tons of wheat while Pakistan Agricultural Storage and Services Corporation (Passco) imported 460,000 tons. During the meeting, it was highlighted that the average price of imported wheat stood at Rs45.6 per kg.
Qamar asked whether Pakistan would depend on imports now. He was of the view that wheat scarcity was being witnessed due to policies of the federal government and not because of farmers.
Delay in privatisation programme irks CCOP
A cabinet body on Thursday expressed its anger over lack of progress on the privatisation programme and directed the Ministry of Privatisation to submit timelines for outsourcing the management of power distribution companies.
The Cabinet Committee on Privatisation (CCOP) was furious over the privatisation ministry’s lack of progress on its two-month-old instructions that called for beginning the process of outsourcing the management of power companies to the private sector, according to finance ministry officials.
The Privatisation Division presented various proposals for the award of management contracts for a smooth running of distribution companies in compliance with the earlier directive of the CCOP meeting held on January 4, 2021.
The CCOP underlined the need for speeding up the completion of prior actions pertaining to the award of management contracts for distribution companies and called for presenting a roadmap with firm proposals within a week after seeking requisite approval from the Privatisation Commission (PC) board, according to a finance ministry’s statement.
The CCOP allowed the hiring of a transaction adviser as permissible under the rules.
The CCOP had expected that the privatisation ministry would bring a clear roadmap for outsourcing the management of power companies, which was also a condition of the International Monetary Fund (IMF) programme.
The CCOP was informed that the Ministry of Energy was not cooperating with the privatisation ministry.
State Bank reserves rise $4mn to $13bn
The foreign exchange reserves held by the central bank rose 0.03percent on a weekly basis, according to data released by the State Bank of Pakistan (SBP) on Thursday.
On March 12, the foreign currency reserves held by the SBP were recorded at $13,019.7 million, up $4 million compared with $13,016.1 million in the previous week. The central bank gave no reason for the increase in reserves.
Overall liquid foreign currency reserves held by the country, including net reserves held by banks other than the SBP, stood at $20,159.1 million. Net reserves held by banks amounted to $7,139.4 million.
Pakistan received the first loan tranche of $991.4 million from the International Monetary Fund (IMF) on July 9, 2019, which helped bolster the reserves. In late December 2019, the IMF released the second loan tranche of around $454 million.
The reserves also jumped on account of $2.5 billion in inflows from China. In 2020, the SBP successfully made foreign debt repayment of over $1 billion on the maturity of Sukuk.
In December 2019, the foreign exchange reserves surpassed the $10 billion mark owing to inflows from multilateral lenders including $1.3 billion from the Asian Development Bank (ADB).
Pakistan: digital transactions boom
Once made necessary by Covid-19, online transactions are now becoming a norm for the Pakistanis as the country witnessed a strong growth in such transactions during the second quarter of current fiscal year 2020-21.
The State Bank of Pakistan (SBP) released its report titled “Quarterly Payment System Review” for the second quarter (Oct-Dec) of fiscal year 2020-21, which showed a strong growth in digital financial transactions in the country.
“It is a moment of pride for us as a nation to see such a remarkable growth in this sector,” said SI Global CEO Noman Ahmed.
According to the report, during the Oct-Dec 2020 quarter, 296.7 million e-banking transactions, valuing at Rs21.4 trillion, were carried out, registering a growth of 24percent in volumes and 22percent in value compared to the same quarter of last year.
Most of the rise in e-banking transactions was seen in internet and mobile banking.
“Owing to Covid-19, it is no surprise that the country has seen a boom in digital financial transactions,” he said, adding that for most of the people before 2020, e-banking was a difficult process to handle, which carried with it significant security risks as well.
“Coronavirus lockdown was a forceful phenomenon, but it is now turning into a normal thing,” remarked DH Corporation Research Lead Karim Punjani.