IMF terms discussions with Pakistan on ninth review ‘productive’
- Pakistan-IMF talks are underway for ninth review.
- Ester Perez says discussions have enabled a revision to macroeconomic outlook post floods.
- Govt hopes staff-level agreement will be finalised soon.
ISLAMABAD: The International Monetary Fund’s (IMF) Country Representative Ester Perez has termed the discussions with the Pakistani government on the ninth review “productive”.
“Discussions have enabled a revision to the macroeconomic outlook post floods as well as an in-depth evaluation of fiscal, monetary, exchange rate, and energy policies adopted since the completion of the combined seventh and eighth reviews,” said Perez.
The IMF Pakistan chief said that the global lender is looking forward to continuing dialogue over policies that adequately address the humanitarian and rehabilitation needs from the floods while also preserving fiscal and external sustainability given available financing.
On the other hand, a top Pakistani government official told The News that the talks have been continuing positively with IMF and both sides would be able to strike a staff-level agreement soon.
Pakistan seeking budget deficit increase
On the other hand, sources told the publication that Pakistan has requested the lender to allow an adjuster of Rs320 billion in the budget deficit for the current fiscal year 2022-23 as the said amount was the expenditures on flood rescue and relief.
To boost its tax collection target, the government is considering imposing a flood levy in the ongoing fiscal year and different proposals are under consideration for finalising its exact modalities.
Although the political leadership has agreed in principle to take additional taxation measures but they want to adopt them in such a way there is no extra burden on the common man amid higher inflation and low growth trajectory.
“We are considering imposing flood levy on those in higher income brackets who are earning lofty profits in recent years. We have not yet firmed up modalities but it’s actively under consideration at the moment within the higher functionaries of the government,” a government official confirmed to The News.
The government has informed the IMF of the flood expenditures including BISP and those utilised on relief and rehabilitation during the current fiscal year including the Public Sector Development Programme (PSDP) and Annual Development Plans (ADPs) of the provincial governments. Now the adjuster will be used to hike the budget deficit target envisaged at 4.9% of GDP on eve of the budget for 2022-23.
Pakistan and the global lender continued ongoing talks virtually but differences still persisted over tax collection targets, and non-starter energy reforms including hiking of gas tariff, rising circular debt, and expenditure overrun, making consensus harder to strike on a staff-level agreement for completion of the 9th review under $7 billion Extended Fund Facility (EFF).
The IMF had asked Pakistan for hiking the gas tariff because the government kept the prices unchanged which resulted in an increase in the circular debt of the gas sector.
Although the government made plans for improving the gas sector no progress was witnessed in the power sector. The monster of circular debt in the power sector went up to Rs2.4 trillion and all targets agreed with the IMF for reducing it on a monthly and quarterly basis could not be achieved. The subsidy on tube wells alone would cause an increase of Rs200 billion in the accumulated Circular Debt in the ongoing financial year.
The IMF also raised objections over Kissan Package as well as the government’s decision to grant power and gas tariff reduction for five export-oriented sectors and the agriculture sector.
The decision regarding deferred payment of electricity bills continues to be another bone of contentions among the Ministry of Finance and Ministry of Power if the move was meant for subsidy.
The Finance Ministry argues that it was deferred payment with the understanding that the payment would be recovered during the winter. But there is a difference of opinion on interpretation between the two ministries.
The IMF has also assessed that the FBR would not be able to collect its annual envisaged tax collection target of Rs7.47 trillion so it asked for a revised projection in the wake of import compression and slowing down of the economy.
The Fund staff also inquired when the nominal growth jumped to in the range of 25% to 27% and why it did not reflect in FBR’s collection. The IMF has projected that even if the FBR achieved its annual target of Rs7.47 trillion, the tax-to-GDP ratio would decline in the current fiscal year.
But the FBR argued before the IMF that its collection was on track and they would be able to achieve the desired target.
However, the revenue collection might be staggered in the wake of litigations whereby the stuck-up revenues to the tune of Rs250 billion might be materialised in coming months because currently, the courts granted stay orders.
The FBR has sent out written requests to the chief justice of Pakistan for early disposal of the pending cases before the courts where billions of rupees were involved.
Not consulted on petrol subsidy for low-income groups: IMF
- IMF seeks details on operation, cost, targeting, protections against fraud and abuse, and offsetting measures.
- Govt, a day earlier, had announced subsidy help inflation-hit masses.
- IMF says Islamabad has made “substantial progress” on policy commitments.
The International Monetary Fund (IMF) said that the Pakistani government did not consult the global lender on its petrol subsidy for low-income groups, reported Bloomberg on Tuesday.
Esther Perez, the IMF’s resident representative for Pakistan, told the publication that the lender was not consulted on the government’s plan to raise fuel prices for wealthier motorists to finance a subsidy for lower-income people.
“Fund staff are seeking greater details on the scheme in terms of its operation, cost, targeting, protections against fraud and abuse, and offsetting measures, and will carefully discuss these elements with the authorities,” said Perez.
‘This is not subsidy’
A day earlier, Minister of State for Petroleum Musadik Malik announced that the federal government in order to cushion the effect of high petrol prices on inflation-hit masses decided to subsidise petrol up to Rs100 for motorcyclists and owners of vehicles up to 800cc.
“Prime Minister Shehbaz Sharif has directed to provide subsidy on petrol to low-income people up to Rs100 per litre,” Malik told journalists in Lahore.
Earlier, it was decided to provide a subsidy of Rs50 per litre.
The minister said under a comprehensive strategy, subsidised petrol will be available to motorcyclists and owners of vehicles up to 800cc.
Malik further said owners of vehicles above 800cc would be charged full price.
He said the decision to provide fuel at subsidised rates will be implemented within six weeks, adding that the government will make petrol cheaper for the poor.
“The owners of big vehicles will pay more for petrol. The rich will pay Rs100 more for petrol while the poor will pay Rs100 less. 210 million people are poor in a population of 220 million, we stand with poor Pakistan.”
He said that the decision on the gas tariff has been implemented from January 1. “We have separate tariffs for the poor and the rich.”
Pakistan has made ‘substantial progress’: IMF
On the staff level agreement, the IMF said that Islamabad has made “substantial progress” in meeting the policy commitments required to unlock billions of dollars in loans.
“A staff-level agreement will follow once the few remaining points are closed,” said Perez told Bloomberg.
“Ensuring there is sufficient financing to support the authorities in the implementation of their policy agenda is the paramount priority.”
Last week, Finance Minister Ishaq Dar had said that the global lender wanted to see countries finalise commitments they have promised to help Pakistan shore up its funds before signing off on the bailout package. Pakistan needs to repay about $3 billion of debt by June, while $4 billion is expected to be rolled over.
Pakistan has taken tough measures including increasing taxes and energy prices, and allowing its currency to weaken to restart a $6.5 billion IMF loan package. The funds will offer some relief to a nation still reeling from last year’s devastating floods and help pull the economy out of a crisis ahead of elections this year.
Pakistan-Russia final crude oil import talks start today in Karachi
- PSO has been nominated on behalf of Pakistan for talks.
- Russia’s PSC has been nominated for the talks by Moscow.
- The PSC delegation arrived in Karachi on Monday.
ISLAMABAD: A Russian technical delegation will hold talks today (Tuesday) with Pakistan State Oil (PSO) officials in Karachi, to give final touches to a crude oil import deal at a government-to-government level (GtG), a senior Energy ministry official told The News.
“In case of successful talks, both the state-owned nominated companies will sign the commercial agreement the next day (March 22),” said the official who spoke on the condition of anonymity.
PSO has been nominated as the state-owned company on behalf of Pakistan for talks and signing of the Russian crude oil import deal. The Operational Services Center (PSC), which is a state-owned company of Russia, has been nominated for the talks by Moscow.
The PSC delegation arrived in Karachi on Monday.
Both the PSC and PSO may ink the deal, as the delegation from Moscow will hold talks on March 21-22.
“The current price of Brent crude has come down to $73 per barrel whereas the Russian crude oil price remained at $52 in February 2023, which has further lowered between $42-48 in the international market,” sources within the industry told the publication.
They urged Pakistan refineries to purchase Russian oil on their own in compliance with the G7 countries’ regulations. However, the government is trying to secure a GtG deal below the $60/barrel price cap imposed by G7 countries.
Under the GtG deal, Petroleum Division wants to lock the deal at close to $50/barrel, $10/barrel below the cap price. The G7 countries had imposed a price cap on Russian oil in the wake of the war on Ukraine.
Some official sources say that Russia wants to confirm if Pakistan really wants to purchase its crude as there is no written direction from Pakistan’s top man to purchase the Russian crude. However, Pakistani officials are exploring options to purchase crude from Moscow under the direction of Pakistan’s prime minister.
“So far Russia has not indicated what discount it will offer.”
The Russian side will finalise with PSO all the prerequisites before inking an agreement that includes the mode of payment, shipping cost with premium, and insurance cost. The officials said that Russia’s PSC may offer a discount on the base price in its talks with the PSO’s technical team.
They added that the shipping of crude oil from Russian ports would take 30 days and an additional per barrel transportation cost would be $10-15/barrel.
The government does not want to divulge the mode of payment to Russia against the import of crude oil. However, the authorities are weighing their options to either use Pakistan National Shipping Corporation ships for transporting crude from the Russian port or to use the Russian tankers.
“We also have to keep in mind the landed cost of Russian crude as the crude vessel will arrive in 30 days, owing to which per barrel shipping cost would hover at $10-15,” the official said, adding that Moscow has not agreed on the discount yet. “We fear that the maximum discount would be offset by the shipping cost of the crude oil.”
However, State Minister for Petroleum Musadik Malik in a televised presser said that Pakistan would get a 30% discount on crude oil prices. Malik, while talking on Geo News programme Capital talk last week, said 80-85% of negotiations with Russia were completed.
“Our commercial deal is in the final stages, and by the month of March the entire commercial deal will be negotiated,” he said. “In April, we will give them the first shipping order. The first cargo of crude oil from Russia will arrive in by the end of April,” the state minister said.
The minister revealed that the country would receive one-third of its crude oil imports from Russia at a concessional rate “the impact of which will be translated to the people.”
“The first crude oil vessel from Russia will arrive at the end of next month of April as a test cargo to assess the landed cost of crude as compared to the cargo Pakistan gets from ADNOC and Saudi Aramco. Pakistan has sought a 30% discount in Russian crude base price.”
In case, the test ship’s cost is found low enough to bring down the prices of petroleum products, Pakistan would give a green signal for the import of Russian oil in a month which may be 2-4 cargos.
Since Pakistan is facing a US dollar liquidity crunch, it would pay Russia in the currencies of friendly countries that include China, Saudi Arabia, and UAE. The officials said that the ship carrying Russian crude will have the NICL’s (National Insurance Company Limited) insurance and Pakistan Reinsurance Company Limited (PakRE) will reinsure the asset (ship with crude oil).
The State Bank of Pakistan, which earlier showed hesitance for any transaction with Russian banks keeping in view the G7 regulations and the US and EU countries, has now shown a willingness to talk with the Russian counter bank over a payment mechanism for oil import in three currencies other than dollars.
Banking crisis on cards as Pakistan’s textile sector near brink of default
- APTMA has asked for a Zoom meeting with top functionaries of SBP.
- Commerce ministry says textile industry representatives may hold an urgent meeting SBP officials today.
- APTMA says textile sector already running at less than 50% capacity.
ISLAMABAD: The textile sector has reached the brink of default in the wake of its inability to service the loans it received under TERF (Temporary Economic Refinance Facility) and LTFF (long-term facing facilities) which may also lead to a possible banking crisis, discloses the letter of APTMA to the State Bank of Pakistan written on February 27, 2023.
The State Bank of Pakistan (SBP) during the PTI era provided the TERF and LTFF facilities to help industrialists install more textile units for growth in exports of the country.
However, because of the ongoing LCs crisis, stuck-up consignments of imported cotton at the ports owing to the dollars liquidity crunch and withdrawal of RCET by the government in line with IMF diktat, all the new and expansion units in the sector have become non-functional. This has led to immense pressure on export-reignited units which are unable to generate funds to pay even interest on the loans, leading to massive defaults, curtailment capacity and a possible banking crisis.
The textile industry has asked the SBP to extend the moratorium on debt under TERF and LTFF from June 1, 2023, to December 2023 to avoid large-scale Non-Performing Loans (NPLs) and severe negative impacts on the banking sector.
The APTMA has also asked for a Zoom meeting with top functionaries of the central bank of Pakistan.
Banks are not opening LCs or retiring cotton imports, the letter says, which had led to the non-functioning of the textile units.
“Now loyal international customers are reluctant and asking Pakistani suppliers whether or not they will be able to meet deadlines and ship orders on time resulting in a loss of export orders. The industry is running out of cotton stocks and textile mills have either shut down or will shut down in the very near future if decisive and urgent action is not taken.”
The textile sector also urged the SBP to declare the opening of LCs of cotton imports the status of “Must Open.”
The commerce ministry says that textile industry representatives may hold today (Monday) an urgent meeting with top mandarins of the SBP.
The commerce ministry’s top sources said that the prime minister convened meetings on export sector issues four times but the said meetings couldn’t be held mainly because of the premier’s pressing engagements.
The APTMA also mentioned that the business plan for new industrial units and expansion of the existing units had been carved out based on RCET (Regionally Competitive Energy Tariff) — electricity tariff of Rs19.90 per unit and gas rate at 9 cents per MMBTU.
However, with the withdrawal of RCET, the industry is forced to run on an electricity tariff of 40 per unit owing to which the textile sector has started dying out day by day.
The letter disclosed alarming facts saying that the textile sector is already running at less than 50% capacity. Around 7 million workers in the textile sector and textile-related industry were laid off since last summer and if this sector is closed down it will lead to more layoffs resulting in significant unemployment of more than 10 million workers and further deterioration in the balance of payments in the shape of at least $10 billion exports per annum.
The textile industry also highlighted in its letter the bleak cotton production in the country, saying that the country’s cotton production has declined to a historic low this year dropping to 5 million bales due to heavy rains and floods. The cotton production loss has been worth more than $2 billion.
The textile industry consumes nearly 15 million bales and the current season’s anticipated demand indicates that about 10 million bales will need to be imported. However, banks are not opening LCs for the import of cotton.
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