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Budget 2022-23: NEC sets 5% GDP growth rate target for next fiscal year

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  • NEC approves national development outlay of Rs2.184tr.
  • Approves slashing limit of approving schemes for CDWP from Rs10b to Rs7.5b.
  • Okays funding of SDGs Achievement Programme at Rs70b to be executed through parliamentarians in coming budget. 

ISLAMABAD: Amid the difficulties faced by the economic team in convincing PM Shehbaz Sharif to restrict the GDP growth target to 5% for avoiding overheating of the economy, the National Economic Council (NEC) on Wednesday approved a national development outlay of Rs2.184 trillion and a macroeconomic framework, including inflation of 11.5% for the next budget.

The NEC also granted approval for slashing down the limit of approving schemes for the Central Development Working Party (CDWP) from Rs10 billion to Rs7.5 billion and Departmental Development Working Party (DDWP) from Rs2 billion to Rs1 billion.

The NEC approved funding of the Sustainable Development Goals (SDGs) Achievement Programme at Rs70 billion to be executed through parliamentarians in the coming budget. It is ironic that the Planning Ministry did not incorporate figures of imports and exports in its macroeconomic framework for the next budget while the current account deficit (CAD) was put at 2.2% of the GDP, equivalent to $9.5 billion for the next financial year.

The macroeconomic framework for 2022-23 seeks that the size of GDP in dollar terms might go up to $414 billion for the next fiscal year. The GDP size in rupee term is projected to go up Rs78 trillion in the next budget. Minister for Finance Miftah Ismail had projected that the gross external financing requirements of $41 billion for next budget, including debt servicing of $21.9 billion, $12 billion current account deficit and remaining for building up of foreign currency reserves.

The NEC, which met under Prime Minister Shehbaz Sharif in the chair and was participated by federal ministers and chief ministers here at the PM Office on Wednesday, directed the authorities concerned to distribute the Public Sector Development Programme (PSDP) allocation of Rs800 billion at the federal level on the basis of 60:40 ratio of funds between the ongoing and new schemes respectively.

The Ministry of Planning proposed PSDP allocations on the basis of 80:20 ratio between the ongoing and new schemes for the next budget. The chief minister proposed that it should be distributed at the ratio of 75:25% between the ongoing and new schemes. However, finally it was decided that the PSDP funding would be divided into 60:40 ratio on ongoing and new schemes. After the NEC, the Planning Commission was forced to bring major changes into the PSDP allocations to provide 40% funding to new projects in the next fiscal year.

The premier insisted that the GDP growth should be fixed on higher side and target should be envisaged at 6% for the next budget. Federal Secretary Finance Hamid Yaqoob argued that it would have to be aligned with other macroeconomic targets and under the IMF programme, it would become problematic. Minister of State for Finance Aisha Ghous Pasha argued in the cabinet meeting that there was overheating of the economy, so the macroeconomics should be aligned with the objective to avoid such developments.

The NEC approved allocation of Rs2.184 trillion for National Development Plan for the next budget 2022-23, including a federal development outlay of Rs800 billion and provincial development plans of Rs1,384 billion. KP’s Minister for Finance asked in the NEC meeting for increasing funding for FATA in the next budget. The government allocated Rs52 billion for FATA areas in the coming financial year.

The NEC approved a macroeconomic framework for the next budget with a real GDP growth rate target of 5% against 5.97% for the outgoing fiscal year ending on June 30, 2022.

The government has projected that inflation will remain in double digits but expected to remain in the range of 11.5% but many economists have termed that the government made projections on lower side in the context of stabilisation programme being pursued under the advice of the IMF programme to withdraw fuel and energy subsidies and then raising taxation in the coming budget. The federal Public Sector Development Programme (PSDP) for outgoing fiscal year 2021-22 was revised downward from Rs900 billion to Rs550 billion and in the working paper, it was projected that the actual utilisation of PSDP funds would be standing at Rs498 billion till end June 2022.

The government inserted Mainline-1 (ML-1) as part of the PSDP and made allocation of just Rs5 billion in the next budget. The government allocated Rs18 billion for the Diamer Bhasha Dam (for dam part) and Rs7 billion for land acquisition for Bhasha Dam. The total cost of the Bhasha Dam is estimated at Rs479.686 billion. For ERRA, the government made zero allocation in the next budget.

Out of Rs 800 billion allocation for the PSDP for 2022-23, the government earmarked Rs433 billion for infrastructure, including Rs84 billion for energy, Rs227 billion for transport and communication, Rs83 billion for water and Rs39 billion for physical planning and housing sector. The government made allocation of Rs144 billion for social sector in the coming budget against an allocation of Rs103 billion in the outgoing fiscal year. Out of the total, Rs144 billion allocation for social sector, the government earmarked Rs23 billion for health & population, Rs45 billion for education, including Higher Education Commission (HEC), SDGs achievement programme Rs70 billion and others Rs16 billion. For provinces and special areas AJK and GB, the government made allocation of Rs96 billion and merged districts of KP Rs50 billion. The government allocated Rs 16 billion for governance, food and agriculture Rs13 billion and industries Rs5 billion.

The large multipurpose dams particularly Diamer Bhasha, Momand, Dasu, Naigaj dams, K-IV and command area projects have been adequately funded. Whereas, small scale provincial nature dams, drainage schemes etc. were discouraged for financing except those located in less developed districts/areas. An amount of Rs83 billion has been proposed for the sector.

The focus of the federal government is on core projects on infrastructure, including PPP mode projects. The ongoing projects of major roads for industrial linkages, promoting trade and commerce in the country have been assigned due priority for funding like projects of NHA, railways, maritime affairs, etc. for modernisation of infrastructure, inter-provincial/ regional connectivity, including initiatives under CPEC. New schemes in the sector have been discouraged unless critical. The allocation of Rs202 billion have been proposed.

The focus remained on projects of power evacuation, expansion and improving transmission and distribution system to minimise line losses and circular debt. Projects for supply of power to newly-established SEZs have been financed adequately. Besides, appropriate rupee cover against foreign funded projects has also been provided to self-financed power sector schemes.

Higher education is one the priority sectors of the federal government to meet the challenges of 21st Century. The emphasis was on completion of ongoing projects with adequate funding. New projects of universities have been discouraged unless those located in marginalised areas. An amount of Rs42 billion has been proposed.

Health sector remained priority post COVID-19 to provide improved health services, prevention and control of communicable diseases, production of medical devices, vaccination and capacity enhancement of institutions including provision of primary and tertiary healthcare facilities. An allocation of Rs23 billion has been proposed for the sector.

The subject of education stands devolved after 18th Amendment in the Constitution of Pakistan. Nevertheless, the federal government is making interventions in the sector for funding projects for improvement of uniform education system. Rs3 billion have been proposed for this sector.

To train the manpower in emerging technologies, establishment of incubators and accelerators to enhance the capabilities of researchers and research institutes for innovation and creation of knowledge products, focus of E-governance, IT enabled citizen services, promotion of IT software products, IT experts, freelancing, IT oriented startups and entrepreneurship, launching of 5G service in near future, information technology driven new initiatives are being promoted for young professionals, laptop distribution among university/college students to orientate and facilitate IT is also included in the PSDP. Rs38 billion have been proposed for this.

For modernisation and mechanisation of agriculture sector, productivity enhancement of major crops production through efficient irrigation practices, provision of laser land levelling machines, reduction in cost of agricultural inputs/ production by adopting right combination of fertilisers and certified seeds, promote agro-based industry to enhance export of value added agri based products are the initiatives incorporated into the PSDP, Rs13 billion have been proposed.

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‘IMF giving Pakistan tough time’: Dollar soars to historic high of Rs279 after PM’s comments

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The rupee on Friday plunged to a historic low against the dollar after Prime Minister Shehbaz Sharif’s said that the International Monetary Fund (IMF) is giving Pakistan “a tough time” — as the lender wants the government to do more on the economic front.

“As we speak, an IMF delegation is in Islamabad [holding parleys on loan programme] and giving a very tough time to the finance minister and his team,” the prime minister said while speaking at the Apex committee meeting in Peshawar, and termed the economic challenges “unimaginable”.

Following the PM’s comments, the local currency depreciated further against the greenback in the interbank market.

During intra-day trade, the rupee was changing hands at 279 against the dollar at 12:48pm, according to the Exchange Companies Association of Pakistan (ECAP), up from Rs271.35 a day earlier.

Analysts have stressed that the country needs the Washington-based lender’s bailout programme to avoid default — a threat that has been looming over Islamabad for some months now.

AA Commodities Director Adnan Agar told Geo.tv that the rupee’s downward spiral is expected till Pakistan secures a staff-level agreement with the Washington-based lender.

The analyst said that the market is reacting to the reports coming on the demands being put forward by the IMF to the government.

Agar warned that if the government fails to secure a staff-level agreement with the Fund, then the rupee will incur further losses.

“If the IMF deal is done timely then it would appreciate but not that much,” said Agar.

In a bid to curb the black market and meet IMF demands, the government and exchange companies removed the dollar cap — imposed to stabilise the dollar’s value.

But that did not have a substantial effect on the local currency as the investors remain wary due to a surge in terrorism and the decline in State Bank of Pakistan-held foreign exchange reserves — which now stand at just $3.08 billion and will provide an import cover of 18.5 days.

ECAP General Secretary Zafar Paracha told Geo.tv that when the dollar cap was removed, it was estimated that the rupee would hit 270 and rebound, however, circumstances changed.

“Our reserves are at their lowest in nine years and terrorism — which isn’t restricted to Peshawar — is also surging,” he said, explaining the reason behind investors’ lack of confidence in the government.

The ECAP general secretary added that the ongoing political turmoil was also adding to the country’s woes as opponents are being arrested every other day and being put behind bars.

Paracha added that the black market gap has been met to a certain extent, but since the government has not opened the letters of credit (LCs) for importers, it will persist.

“The government has asked the importers to arrange dollars on their own […] this is why the black market is still active. If this does not stop, the gap might even increase,” he warned, urging the authorities to move towards import rationalisation.

Paracha added that amid the terror threat and other underlying reasons, the exports have not released their payments yet, resulting in the scarcity of dollars in the market.

Pakistan-IMF talks

A day earlier the IMF rejected the government’s circular debt management plan. 

And today it was reported that the Fund has conveyed to the authorities to undertake substantial qualitative and sustainable tax and non-tax revenue measures to fetch additional revenues for filling the projected gap of Rs600 billion in the fiscal framework.

The IMF delegation has asked the government to jack up the Federal Board of Revenue’s (FBR) tax collection target to align it with the projected nominal growth in the current fiscal year mainly with the help of a surge in the CPI-based inflationary pressures.

The Fund seems ready for providing an adjuster on flood expenditures once the fiscal framework is finalised. But it will depend on how much expenditures could be occurred on floods both on the development and non-development side of the budget especially through disbursements of stipends through the Benazir Income Support Programme (BISP).

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Pakistan may face shortage of x-ray films, warns importer

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  • Forex crisis worsens in Pakistan.
  • X-ray films importer says banks not opening LCs.
  • Industry has only 20-30 days of stock x-ray films.

KARACHI: A healthcare crisis may take ground in Pakistan as commercial banks are unable to open the letters of credit (LCs) for the import of x-ray films in future — which are used on a daily basis for nearly every medical diagnosis — The News reported on Thursday, quoting an industry insider.

Limited stock of the remaining films strengthens the assumption of a healthcare crisis looming in the near future as these are used for computed tomography (CT) and magnetic resonance imaging (MRI) scans, according to an official from Fujifilm Pakistan, a major supplier of medical x-ray films in the country

“The industry has only 20-30 days of stocks and after that, hospitals will run short of films and diagnoses will be impossible then,” he said.

“Around a month’s stock was stuck at the ports or high seas, which should be cleared at the earliest,” he added.

The official also explained that “medical x-ray films have a yearly import requirement of $20 million or $1.6 million in a month, and urged the government to take measures before the situation gets worst.”

He further mentioned: “Govt hospitals are now asking for the supply of stocks. Our suppliers are ready with the stocks but waiting for LCs to ship the orders.”

While expressing his serious concern over the possible shortages, he said “the situation could lead to smuggling that would rob the government of taxes.” 

“The government is losing revenue of approximately $550,000 per month,” he was quoted as saying. 

The source maintained that a “minimum of $1 million in LCs was required every month to keep the hospitals running.”

X-ray films are used in pinpointing physical injuries among other important diagnoses and such as bone fractures, and chest x-rays for pneumonia or COVID. In operation theatres, the films are used to determine the scope of an operation.

The estimated size of the x-ray market is around 3,500,000 square meters, which translates to almost 100,000 exposures in a day in hospitals across the country.

There are approximately 7,500 govt and private hospitals and clinics in Pakistan, and the entire requirement of medical x-ray films is imported from Europe, Japan, the USA, and China.

The current economic condition of Pakistan, marred by drying foreign reserves, forced banks to be selective in opening LCs even for sectors such as healthcare.

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Rupee loses ground against dollar in interbank market

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KARACHI: The rupee lost its ground against the dollar in the interbank market on Thursday after recovering for two straight sessions as the “optimism surrounding the government and International Monetary Fund (IMF) talks scaled back”.

During intraday trade today, the rupee depreciated by Rs1.17 and was trading at Rs272.17 around 1pm.

The rupee had closed at Rs268.83 on Wednesday.  

Capital market expert Saad Ali told Geo.tv that reports regarding the rejection of the circular debt management plan (CDMP) presented by the government to the International Monetary Fund (IMF) had dented the market’s confidence.

Ali said that these reports created doubts about the possibility of a bottleneck in the ongoing government-IMF talks. 

An IMF mission is currently in Pakistan holding talks on the ninth review that will continue till February 9 after which a staff-level agreement is expected between the two sides.

Fund rejects circular debt management plan

Earlier today, The News had reported that the IMF has rejected the CDMP presented by the government and asked the authorities to raise the electricity tariff by Rs12.50 per unit in order to restrict the additional subsidy at Rs335 billion for the current fiscal year.

During the second day of technical-level talks, the Washington-based lender termed the revised CDMP as “unrealistic”, which is based on certain wrong assumptions. So the government will have to bring more changes in its policy prescription to restrict the losses of the cash-bleeding power sector.

The IMF and the Finance Ministry will work out a gap on the fiscal front after which different additional taxation measures will be finalised through the upcoming mini-budget.

The revised CDMP envisages an increase in the monster of circular debt to the tune of Rs952 billion for the current fiscal year against an earlier projection of Rs1,526 billion.

The government shared its revised plan with the IMF high-ups on Wednesday, which shows the government required an additional subsidy of Rs675 billion despite raising the power tariff in the range of Rs7 per unit through quarterly tariff adjustment in the first two quarters of 2023 and Rs1.64 for the third quarter from June to August.

“The IMF has opposed the certain basis of the revised CDMP and asks the government to raise the tariff in the range of Rs11 to Rs12.50 per unit, so that the requirement of additional subsidy could be reduced to half from its existing levels of Rs675 billion for the current fiscal year,” sources confided to the publication.

The IMF also raised questions on how the government calculated its additional subsidy requirement figure of Rs675 billion for the current fiscal year. The government has understated the exchange rate for calculating the revised CDMP, so with the existing rate the plan would be changed.

According to the report, the newly developed debt management plan seeks to restrict losses of DISCOs to 16.27% on average during the current fiscal year.

The government has envisaged the target to recover Fuel Price Adjustment (FPA) charges deferred last summer to fetch Rs20 billion into the kitty against estimates of Rs65 billion made on the eve of the last summer.

The markup saving due to IPPs stock payment will bring Rs11 billion while the GST and other taxes on a collection basis will help recover Rs18 billion in the current fiscal year.

The circular debt is estimated to hover around Rs2,113 billion till the end of FY2023, including the amount parked in the Power Holding Limited (PHL), Rs765 billion and Rs1,248 billion payables to power producers and Rs100 billion to fuel suppliers.

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