Experts warn of ‘tough time’ ahead as Pakistan-IMF talks end without agreement
Pakistan and the visiting International Monetary Fund (IMF) mission failed to arrive at a staff-level agreement after talks aimed at unlocking critical funds needed for the ailing South Asian economy concluded on Thursday with both sides agreeing to continue negotiations virtually.
The mission was in Islamabad since January 31 to sort out the differences over fiscal policy that have stalled the release of more than $1 billion from the $6.5 billion bailout package originally signed by the government of prime minister Imran Khan in 2019.
However, at the end of the 10-day “tough parleys”, Pakistan failed to strike the deal with the Fund mission. Although Secretary Finance Hamed Yaqoob Sheikh confirmed that “actions and prior actions have been agreed, but the staff level agreement will be signed subsequently.”
It should be noted that the IMF’s loan is critical for the country’s $350 billion economy as the State Bank of Pakistan (SBP)-held foreign exchange reserves have fallen to $2.91 billion — enough to provide an import cover of 0.58 months.
Uzair Younus, director of the Pakistan Initiative at the Atlantic Council’s South Asia Centre, while commenting on the development, told Geo.tv that the communications strategy of the [Ishaq] Dar-led Ministry of Finance has been atrocious from the very beginning.
He warned that this was “only the latest in a series of fiascos” that have destroyed the ministry’s credibility and undermined confidence in the economy.
The economic expert predicted that a bloodbath will be seen in the markets, as players earlier refrained from assuming fresh positions in the last few sessions on hopes of the revival of the stalled programme.
‘Tough days ahead’
Vaqar Ahmed, deputy executive director at Sustainable Development Policy Institute (SDPI), told Geo.tv that the MEFP shared has a broader framework which hints that in the days to come Pakistan would have to meet certain conditions.
“The Fund has rejected the gradual approach proposal of Pakistan, saying the time for this has gone and Islamabad now needs to do everything upfront,” he said, revealing that the conditions which are currently on the table incorporate all those promises made during the past reviews, including those related to energy sector, power and gas tariff, levy on diesel, and tax gaps.
The economist said that the Washington-based lender first wants to see action on all these things before it concludes the review, their board gives the approval and transfers the money.
“I believe that there are tough days ahead and the government will first have to show that they can walk the line and then probably the IMF will come through and a board level agreement will be reached,” Ahmed said, adding that he thinks all of this will take approximately one month.
Meanwhile, former adviser to Finance Ministry Dr Khaqan Najeeb lamented that Pakistan should have inked a staff-level agreement with the IMF mission before their departure.
“Still, it is heartening to note that considerable progress has been made on the set of policy reforms that are needed to move forward to complete the review,” he said, adding that it was for authorities to undertake the prior actions, complete reading of the MEFP document received to enable a staff-level agreement.
The former adviser highlighted that dwindling reserves do not leave much option but to expedite this process already delayed since early November.
“The actions on revenue, energy, monetary and exchange rate management are quite clear along with the need to firm up commitments for external financing from bilateral and multilateral partners.
“It is implementation time for the country to address domestic and external imbalances and to regain macroeconomic stability,” he maintained.
Gold rate declines for second consecutive day
- Rate of gold reaches Rs232,800 per tola.
- International rate up by $11 per ounce.
- The silver price remains unchanged.
Despite an increase in the international rate, gold’s value declined in Pakistan for the second consecutive day Tuesday.
Data provided by the All Pakistan Sarafa Gems and Jewellers Association (APSGJA) showed the price of gold (24 carats) decreased by Rs1,700 per tola and Rs1,458 per 10 grams to reach Rs232,800 and Rs199,588, respectively.
The gold rate cumulatively lost Rs1,100 per tola last week, and a further Rs1,700 on the opening day this week.
Meanwhile, the international price went up $11 to settle at $1,956 per ounce.
The safe-haven bullion’s value has remained volatile in the international market recently. However, it bounced back from its lowest level in over two months Tuesday after the US dollar’s value declined from a high and investors remained anxious about negotiations on the US debt ceiling.
If the debt ceiling — which is currently capped at $31.4 trillion — is not raised in the next few days, it would trigger the first-ever US default.
Investors also remained wary about a possible hike in the interest rate, which would negatively affect gold’s value.
Meanwhile, the gold rate has been volatile in Pakistan recently amid continued political and economic uncertainty, high inflation, and currency depreciation. People prefer to buy the yellow metal in such times as a safe investment and a hedge.
The rupee gained Re0.07 or 0.02% against the US dollar in the interbank market Tuesday, closing at Rs285.35, according to State Bank of Pakistan data.
Data shared by the jeweller’s body showed that the rate of silver remained unchanged at Rs2,850 per tola and Rs2,443.41 per 20 grams, respectively.
France launching electric car battery factory to dent Chinese dominance
Under a plan of reindustrialisation by President Emmanuel Macron, France is to inaugurate a factory for manufacturing batteries for electric cars Tuesday in Billy-Berclau — the first of its kind — challenging the Chinese dominance in the industry, according to an AFP report.
Battery industry buildup is a component of the plan by Macron with a clutch of factories set to emerge in the north of the country over the next three years.
The “gigafactory” is owned by Automotive Cells Company, a partnership between French energy giant TotalEnergies, Germany’s Mercedes-Benz and US-European automaker Stellantis, which produces a range of brands including Peugeot, Fiat and Chrysler.
The inauguration will be attended by French Economy Minister Bruno Le Maire and the country’s energy transition and industry ministers along with German and Italian officials.
The heads of Mercedes, Stellantis and TotalEnergies will also be at the event.
The factory is as large as football pitches in which production will commence this summer.
Elected officials and business leaders intend to turn the Hauts-de-France region into “Battery Valley” — the electric car industry’s answer to Silicon Valley.
AESC-Envision — a Sino-Japanese group — is building a plant near the city of Douai which will supply French automaker Renault from early 2025.
French startup Verkor is scheduled to begin production at a facility in Dunkirk from mid-2025 while Taiwan’s ProLogium has also chosen the coastal city for its first European factory, with output to start in 2026.
Competition between US and China
As European Union (EU) has marked a deadline of 2035 to phase out fossil fuel-run cars, the countries are racing to step up the production of batteries and electric vehicles to meet the target of electric vehicles within the deadline.
In recent years, around 50 battery factory projects have been announced in the EU and the French government has set a target of producing two million electric vehicles per year by 2030, as per the economy ministry.
The ministry said that “the ACC plant will supply 500,000 vehicles per year by then.”
China is the world leader in electric car battery production and also dominates the production of the raw materials needed to make them.
Europe also faces stiff competition from the United States, which is heavily subsidising the sector through the Inflation Reduction Act, which includes $370 billion in clean energy incentives.
Govt mulls slashing duty on mobile phones in budget
ISLAMABAD: The Federal Board of Revenue (FBR) is mulling options to reduce the duty on mobile phones in the federal budget for the fiscal year 2023-24 — which is expected to be unveiled on June 9 — keeping in view the suggestions of Pakistan Mobile Phone Traders, The News reported Monday.
Previously, the government was obliged to raise the duty on mobile phones by 100% to 150%, and resultantly, only Rs5 billion to Rs10 billion were being deposited in the national exchequer instead of Rs85 billion.
The number of mobile phone users in Pakistan has exceeded 186.9 million.
In order to cope with the financial crisis of the current financial year, in the new budget, a proposal for a conspicuous reduction in the rates of duties on cellular phones is under consideration, which is about 100% to 150% at present on small and big mobile phones.
The mobile industry is on the brink of collapse due to an increase in taxes. It not only affected traders but also made the life of millions of people difficult to earn a livelihood.
It has been learnt that a delegation of the Mobile Phones Traders Association has given recommendations to Finance Minister Ishaq Dar and other senior officials.
The delegation ensured that efforts would be made to include the recommendations in the budget. These proposals and recommendations are being reviewed to make them a part of the new budget.
It has been learnt that a 75% duty was imposed on cellular phones in Pakistan as compared to other countries of the region like Singapore, Bangladesh and Turkey where it is not at that level. That is the reason people are using smartphones without paying duties in connivance with FBR.
The additional 100% to 150% duty on cell phones has made it out of reach of the poor, labourers, daily wagers, students, professionals, the lawyer community, and civil society.
All Pakistan Mobile Phones Traders Association General Secretary Munir Beg Mirza said that due to the ban on the import of used mobile phones, smuggling has increased to give favour to a few companies.
Also, people are using smartphones illegally without paying heavy taxes to enjoy all functions of smartphones, which is inflicting a loss on the national kitty.
He said that not only every consumer would pay tax but also the government would get Rs100 billion instead of Rs5 billion on phones if an appropriate duty was imposed in the new financial year.
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