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Pakistan In Focus

Despite IMF loan, China stays country’s lifeline

Pakistan will meet a dozen conditions in six months to stay in the $6 billion International Monetary Fund (IMF) programme but its economic endurance still hinges upon an $11 billion continued Chinese lifeline.

The international lender on Thursday released its staff level report of the $6 billion programme, confirming that the government was in process of increasing electricity prices by Rs5.65 per unit or 36 percent from now till October.

This increase will put an additional burden of Rs884 billion on the consumers by June 2023, according to the circular debt management plan, which the cabinet approved last month as part of the actions to meet the IMF conditions.

Additionally, the government will slap new taxes equal to 1.1 percent of GDP or around Rs600 billion in June as part of the IMF condition, according to the report.

These conditions are among 11 actions that the government will take by September this year.

They are in addition to the five prior actions that the government took to convince the IMF board to approve its case.

They included the introduction of the Rs140-billion mini-budget, an increase in electricity prices by Rs4.97 per unit from December 2020 to January 2021 on account of quarterly and annual tariffs, introduction of amendments to the SBP Act and the approval of the circular debt management plan by the cabinet.

The government is implementing these actions to remain in the $6 billion IMF programme but at the same time, the report shows that Pakistan’s external financing needs are still largely met by Chinese continued support.

IMF projects FBR’s target at PKR 6 trillion

The Federal Board of Revenue’s (FBR) tax collection target for next fiscal year is projected to be nearly Rs6 trillion that the government will try to achieve by increasing rates of income and sales tax and withdrawing exemptions, confirms a new International Monetary Fund (IMF) report.

The tax burden of salaried class will mount and the cost of consumer goods will also go up due to withdrawal of sales tax exemptions with effect from July.

The target of petroleum levy is shown at Rs607 billion for fiscal year 2021-22, according to the report that the global lender released two weeks after its board revived Pakistan’s $6 billion loan programme.

For this fiscal year, the petroleum levy target is Rs450 billion, but the IMF report has projected the collection at Rs511 billion on the back of higher petroleum product prices.

The report suggests FBR’s tax collection target at Rs5.963 trillion – higher by Rs1.3 trillion or 27 percent over current year’s downward revised tax collection target.

The report also confirms that the Pakistan Tehreek-e-Insaf (PTI) government will not be able to achieve its tax collection target for the third year too and the collection for this year is projected at less than Rs4.7 trillion.

“The programme requires significant revenue efforts from the beginning, as there is little room on the expenditure side,” said IMF Mission Chief to Pakistan Ernesto Rigo while responding to a question through video link.

“Pakistan’s peace budget has increased by 80 percent since the beginning of the IMF programme,” said Rigo.

Overall size of the next budget is estimated to be around Rs7.7 trillion, including debt servicing cost of nearly Rs3.1 trillion.

Development budget spending is shown at only Rs627 billion for the next fiscal year, which is almost equal to the petroleum levy target.

However, over half of next year’s tax collection will go to servicing the existing pile of public debt, which will leave little money for productive purposes.

“We remain committed to broadening the tax base and gradually increasing the taxto-GDP ratio by more than 3 percent of GDP through FY 2023, with a cumulative fiscal primary adjustment of 3.3 percent of GDP,” states the Memorandum of Economic and Financial Policies (MEFP).

Ministry of foreign left out of loop on cotton import from India

The Economic Coordination Committee (ECC)’s decision to allow import of cotton and sugar from India sparked a lot of discussion as it was considered a move to normalise relations with the neighbouring country through backdoor diplomacy.

However, officials in the Ministry of National Food Security and Research revealed that the decision had in fact been taken by bypassing the Ministry of Foreign Affairs.

Planning Minister Asad Umar and Adviser to Prime Minister on Institutional Reforms and Austerity Dr Ishrat Husain backed the move as far as economic benefits were concerned.

However, they termed it a political decision and suggested seeking opinion of the foreign ministry on the matter.

However, ECC Chairman and newly appointed Finance Minister Hammad Azhar took the decision by ignoring their concerns.

The Ministry of Commerce proposed to the ECC that import of cotton and cotton yarn from India may be allowed through land and sea routes till June 30, 2021 – until the arrival of new cotton crop.

During discussion, Umar said that economically, it was a good decision, however, the proposal needed to be seen from the political angle also.

His views were also supported by the PM aide with remarks that there would be no harm in import of cotton from India at cheaper rates.

However, he suggested obtaining opinion of the Ministry of Foreign Affairs on the subject.

Footwear firm raises pkr 2.17 bn by IPO

Service Global Footwear Limited (SGFL), a leading exporter of footwear, raised Rs2.17 billion through the sale of 40.88 million shares, as investors paid the maximum allowed price of Rs53.2 per share at the Pakistan Stock Exchange (PSX) on Thursday.

The company discovered the share price during a two-day (April 7-8) auction through the book-building process and initial public offering (IPO).

It started the auction at a minimum price (floor price) of Rs38 per share. Laws in place allowed increase of a maximum 40 percent in the floor price to Rs53.2 per share during the IPO.

IPO proceeds will be invested by the company in Service Long March Tyres Ltd (SLM), which is the first all steel radial truck and bus (TBR) tyre manufacturing unit in Pakistan, being set up through a joint venture between Servis Group and Chaoyang Long March of China.

The book building was over-subscribed by five to eight times with the price closing at Rs53.2 per share. It saw a total demand of Rs8.95 billion against the issue size of Rs1.55 billion.

“The book building received a huge demand due to availability of significant liquidity in the market,” Arif Habib Limited CEO Shahid Ali Habib said. Arif Habib Limited was the lead manager and book runner of the IPO.

He said a significant reduction of 625 basis points in the benchmark interest rate from March-June 2020 to 7 percent helped attract a huge liquidity into the market.

SBP reserves surge past $16 bn mark

The State Bank of Pakistan’s (SBP) foreign currency reserves rose above $16 billion after the central bank received $2.5 billion as proceeds of Eurobonds floated by the government.

Pakistan had borrowed $2.5 billion through Eurobonds on March 30 in a bid to build foreign exchange reserves.

Earlier in the day, the SBP reported that its foreign exchange reserves fell 1.06 percent on a weekly basis.

On April 2, the foreign currency reserves held by the SBP were recorded at $13,527.2 million, down $146 million compared with $13,673 million in the previous week.

According to the central bank, the fall came on the back of external debt repayments. Overall liquid foreign currency reserves held by the country, including net reserves held by banks other than the SBP, stood at $20,679.4 million.

Net reserves held by banks amounted to $7,152.2 million. Pakistan received the first loan tranche of $991.4 million from the 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.

SBP launches Islamic Banking plan

Pakistan’s central bank has launched a third five-year plan (2021-25) to support Islamic banks in expanding their outreach nationwide, advising them to increase online banking and “capitalise on fintech to sustain the growth momentum.”

The State Bank of Pakistan (SBP) noted that Shariah-compliant banking had gradually become an important part of the domestic economy with its market share increasing close to one-fifth of the overall banking industry in terms of deposits and assets over the past two decades.

Still, there is enormous potential for the industry to grow fast considering that the Muslim community dominates the population landscape in the country. Increased awareness of Islamic banking may help it achieve the next level of growth.

In a statement issued on Monday, the central bank highlighted that the State Bank aimed to make Islamic banking one-third of the overall banking industry by 2025.

“For more penetration in the market and minimising services delivery costs, IBIs (Islamic banking institutions) need to increase the use of alternative delivery channels,” it said.

“Given the significant contribution of branchless banking towards improving financial inclusion, there is a need for the Islamic banking industry to capitalise on fintech to sustain its growth momentum.”

Over 60pc workers paid below minimum wage

Minimum wage in Pakistan is lower than the living wage and even then, over 60 percent of the workers in the country are not receiving it, said Right activist Naim Sadiq

Speaking at a seminar titled ‘Situation of Implementation of the Minimum Wages Law’ on Saturday, he lamented that despite the existence of minimum wage law in Pakistan, there was no implementation of the ruling.

“There are no social security services or any kind of dearness allowance for workers,” he said. “Over 95 percent of workers in Pakistan do not receive any social security facility from the state institutions.”

He welcomed Sindh High Court’s (SHC) verdict issued on March 10, 2021 which called for payment of minimum wages to janitorial staff and sanitary workers. Keeping the court order in view, he demanded the concerned authorities to ensure payment of minimum wage to all workers.

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