- Minister of State for Finance and Revenue acknowledges country is under stress, but will not default on the external obligation
ISLAMABAD: Minister of State for Finance and Revenue, Dr Aisha Ghaus Pasha Friday admitted that all is not well on the economic front and the country is under stress, but would not default on the external obligation.
The minister while briefing the National Assembly Standing Committee on Finance categorically stated that the International Monetary Fund (IMF) programme is not suspended but there are roadblocks including recovery of energy prices including electricity, gas, the rising circular debt, subsidies as well as tax collection.
Ali Pervaiz, belonging to the PML-N and a member of the committee, also asked the Minister of State to confirm that Prime Minister Shehbaz Sharif has written a letter to the IMF Chief for streamlining the situation, but the minister did not respond.
The government and coalition members took strong note of the government’s economic policies and asked for ground realities to remove panic in the market.
The Committee showed concern regarding the economic situation of the country and lack of structural reforms in the country. It also showed apprehension about increasing inflation due to bad policies, falling FDI, stagnant savings rate and low export to GDP ratio. The Committee recommended that government should come up with a viable strategy and a grievance redressal mechanism for addressing, volatility of exchange rate and L/C issue respectively.
The committee which met under the chairmanship of Qaiser Ahmad Sheikh observed that an informal financial emergency has taken place in the country as evident from the dollar shortage, empty exchequer, billions are in sinking stock market and non-opening of letters of credit (LCs) amounting to even $5,000.
According to the IMF we are not recovering the actual energy price. If we sell energy at less than the rate at which we are buying it, the IMF would not talk: Minister of State for Finance and Revenue, Dr Aisha Ghaus Pasha
The committee members including Ali Pervaiz and Nafisa Shah (PPP) stated that there are extraordinary situations in the country with the importer paying a huge amount for stuck-up goods at ports like soybean.
The minister of state, annoyed over the remarks of the chairman and members of the committee, said I am here as the Minister of State for Finance, adding that she would answer every question.
“We have no fear of default at this time and external obligations are being fulfilled,” said the minister, adding that there is a shortage of foreign reserves, but Pakistan will not go towards economic default.
State Bank of Pakistan Governor Jameel Ahmed informed the committee that challenges exist but the way the situation is portrayed is not correct. This financial year started with an estimated external financing need of $33 billion, of which, $23 billion is debt and $10 billion is a current account deficit.
He further said that the government had projected $34-38 billion from resources identified of which $4 billion has been received so far. In the current financial year, the loan of $6 billion has been paid back while another loan of $4 billion was rolled over i.e. $10 billion already covered, said the SBP governor, adding that discussions are being held regarding the rollover of commercial loans of various countries of $8.3 billion.
The government has to pay back of $4.7 billion of different multilateral including the IMF, the World Bank, the Asian Development Bank (ADB), and others, while the $1.1 billion of foreign commercials banks to be paid back as these would not be rolled over.
Ahmad went on to explain to the committee that $4.5 billion have to be returned instead of $13 billion, while loans of $18 to 20 billion are likely to be received this financial year. The country is expected to face a shortfall in commercial borrowing inflows as well as not going for floating bonds given the current situation, said Ahmad, adding that inflows would be better in the second half of the current fiscal year.
The Minister of State briefed committee about ongoing talks with IMF. She stated that Pakistan is bearing cost of past bad policies such as fuel subsidy. IMF has asked government to work on various matters i.e., circular debt issue, improving tax collection and optimizing subsidies.
Aisha Ghaus Pasha said that the technical dialogues with the IMF were ongoing virtually and a staff-level agreement will be signed after resolving issues.
Replying to a question about the hurdles in completing the 9th review of the Fund programme, the minister replied that the 9th and the 10th review would not be clubbed. She further said that the IMF has concerns over not recovery of energy prices and given subsidies.
The accumulative circular debt of gas and electricity reached to Rs4 trillion and the Fund has serious concerns on it. She further stated that the incumbent government revived the suspended program of the previous government, and paid its political cost by taking tough decisions by reversing subsidies on fuel and electricity.
“According to the IMF we are not recovering the actual energy price,” said Pasha, adding that if we sell energy at less than the rate at which we are buying it, the IMF would not talk. Further, the Fund is asking for an increase in tax reforms and more revenue collection. We brought tax reforms but traders came on road and neither they nor property owners were ready to pay Rs3,000. The current tax structure in the country is not sustainable.
The IMF has objections to subsidies, but the government moved to withdraw but the people like Aptma protested against it. Despite getting subsides for the last 75 years, we are still uncompetitive, she added.
“The problem with our economy is that we are earning less and spending more,” said the minister, adding that our exports are not increasing and imports are increasing and the boost was not seen even after getting GSP status. How the country can be run with $70 billion imports against the combined $60 billion exports and remittances,“ said the minister, adding that till the structural reforms, things would not get better.
The committee members took strong notice of the minister’s statement. It observed that widespread bankruptcy of the private sector is imminent while the government is presenting itself to be helpless.
The minister said that the country reached this stage in several years and would take several years to overcome these crises.
The committee expressed dissatisfaction over the state minister’s briefing as well as at the absence of Finance Minister Ishaq Dar, Chairman FBR, and Secretary Finance from the meeting.
SBP Governor briefed the committee about steps taken by SBP for managing the current economic situation of the country. He informed that SBP has worked with the government to allow L/Cs opened before circulars about restriction. Prior approval is needed for L/C above one hundred thousand dollars. As of Thursday, 30,000 cases dealing with L/Cs have been dealt with. He also stated that SBP will soon have meetings with businesses to better resolve this issue.
Moreover, the committee was informed that the volatility of the dollar exchange rate is also due to smuggling and assisting Afghanistan in its imports. The Governor also stated that no restriction has been imposed on forex needed for education-related expenses.
The committee observed that three tiers of exchange rate are being noted in the country, which were creating panic in the market and speculation resulting in 20 percent inflation.
Replying to a question regarding issues in opening LCs, the governor SBP said that before opening LCs permission from the State Bank was for only 15 percent import under the three HS codes of 84, 85, and 87.
He said that 30,000 LCs cases have been cleared and others will be cleared after consultation with the Ministry of Commerce. All LCs up to October have been resolved by the central bank.
Currently, $300 million of shipments are stalled at the port due to LCs issues, but issues exist in most cases where prior permission of the SBP was not sought.
He further said that there is an element of smuggling in dollars and exports to Afghanistan are in rupees.
“You people have no idea about the market conditions,” said the chairman committee, adding that at present, the situation is chaotic. Check the market. What is the condition of the stock market and exports, he added. The price of raw material has increased by 10 to 15 percent in the market due to speculations, said the chairman committee, adding that many banks are not opening LCs and people have problems.
“I agree that businesses are facing numerous challenges, but until inflows improve”, said the Governor, adding that with time, all problems will be resolved in consultation with the business community and the Ministry of Commerce.
Meetings have been scheduled with the business community and their suggestions would be incorporated. Replying to another question, the governor informed the committee that inquiry against actions taken by State Bank of Pakistan (SBP) about exorbitant profits earned by treasuries of eight banks is still ongoing.
The committee showed reservations about noncompliance of previous recommendations of the committee. The committee recommended the SBP to quickly conclude its inquiry about exorbitant profits earned by treasuries of eight banks and submit its report to the Committee.
Copyright Business Recorder, 2022