ISLAMABAD: The caretaker government will deliver on the International Monetary Fund (IMF) programme to secure $700 million under the SBA and on external financing requirements, the interim government is working to secure concessional funding from multilaterals (WB, ADB, IsDB) of $6.3 billion and bilateral assistance of around $10 billion from China and KSA as well as oil facility on deferred payment.
While briefing the Senate Standing Committee on Finance presided over by Saleem Mandviwalla, Dr Shamshad Akhtar said structural reforms agreed with the IMF are for the country’s own economic interest and not for the Fund. “We are here for the short-term and want to ensure continuity,” she added.
She explained to the committee that speculation of dollars has been arrested subsequent to the government's action to prevent the smuggling of dollars.
However, the minister said that it would be ambitious to bring down the inflation given the increase in the prices of commodities in the global market. Additionally, the caretaker finance minister said that the depreciation of the rupee has been a major reason for record inflation.
She said that modernisation of FBR is being undertaken, tax policy is one portion that is being shifted to the umbrella of the Finance Ministry and the FBR should just be the tax collecting agency. She said bringing retail and agriculture sectors in the tax net is critical, otherwise, no government would manage the twin deficits issue.
Shamshad Akhtar said that the retail sector has been extremely profitable since Covid-19 and agriculture, of course, is the provincial subject but the real estate sector is joint responsibility and tax wealth is also one area and tax exemptions have to be done away with as it were Rs1.3 trillion in fiscal year 2023.
The minister said that the public debt has increased significantly during the last two years due to the deprecation of exchange depended on borrowing.
She added that the domestic debt is larger and external debt is unsustainable. The minister said that the government is spending more compared to its income.
The caretaker finance minister added that the caretaker government has taken proactive measures to stabilise the economy and build market confidence and stabilisation efforts are anchored around the IMF stabilisation package.
The government has relaxed import restrictions, leading to the opening of L/Cs for imports and the backlog of import payments (Jan-July) has now been cleared. Similarly, foreign investors have been allowed to repatriate profits (withheld since 2022), with $49.2mn repatriated during July-August and have taken appropriate actions to stabilise the volatility and speculations in the exchange rate market.
Actions taken by the SBP on exchange companies and crackdown against illegal transactions have helped to reduce the spreads between interbank and open market.
As a result, the country’s rupee has strengthened to Rs289 against the US$ in the interbank market following an appreciation of 6.4 percent from 307.1 (on 5th September). In the open market, PKR has strengthened by 13 percent to 290. The spread between the interbank and open market has declined to less than one per cent (from over nine per cent).
The caretaker government has worked to fast-track the concessional project and programme loans from the multilateral institutions (WB, ADB, IsDB, AIIB).
We have a pipeline for $ 6.3billion in the current fiscal year. We are working to bring back remittances through the banking channels and have launched incentives schemes and has allocated Rs80billion budget to banks to increase remittances, of which, Rs20billion has been disbursed.
We are targeting an ambitious target of $32 billion in remittances in fiscal year 2024 against $ 27 billion in fiscal year.
The caretaker finance minister said that the SBP has issued approval of five digital banks, and RAAST online payment system will enhance financial inclusion and support growth.
The minister said that steps are being taken to tackle inflation, with the government not passing the entire burden of increase in power and gas tariffs to the public for which around Rs1 trillion in subsidies is budgeted with bulk for the power sector.
She said that inflation has declined to 27.3 percent in August and SBP forecasts of 20-22 percent inflation in 2024 at this point in time appear ambitious given the rise in the prices of food commodities and oil in the intentional market.
She said that the government is optimistic that improved agricultural output, and administrative measures taken to curb volatility in the forex markets would help reduce inflation.
The caretaker finance minister said the growth outlook has improved with a pickup in some industrial activity and higher crop production. Power generation, petroleum sale indicating a recovery in economic activity, whereas, cement dispatches were recorded at 7.7 million tons from July to August, auto sales witnessed an increase in August due to the easing of import restrictions on CKD units.
Additionally, she added that fertiliser (urea) offtake has rebounded with a growth of 18 per cent in August, cotton production and credit to farmers increase also indicating a strong pick up in farm activity.
The gap between the demand and supply of dollars is reflected in the current account deficit (CAD) which in the first two months of the current year has declined to $ 0.9 billion. The ongoing fiscal year CAD is projected to stabilise around $ 6.5billion (1.5 per cent of GDP) as trade and investment flows normalise.
The minister said that to meet the external financing requirements, the government is working to secure concessional funding from multilateral (WB, ADB, IsDB) of US$6.3billion, IMF $3billion has already been approved, and bilateral assistance of around US$ 10billion.
The government targets an increase in SBP FX reserves to US$ 12 billion (three months of import cover) by June 2024 based on higher official inflows and pick-up in FDI under the SIFC.
The key risk to external stability comes from the rise in international commodity prices and crude oil as its prices have jumped to $ 95/bbl in September following an increase of 27 percent from $74/bbl in June 2023.
Copyright Business Recorder, 2023