Is govt imposing restrictions on foreign currency accounts?
The government and the State Bank of Pakistan (SBP) Monday rebutted rumours of imposing restrictions on foreign currency accounts, Roshan Digital Accounts, and safety deposit lockers.
In a statement, the central bank assured all account holders in Pakistan that their accounts and lockers were completely safe and that there was no proposal under consideration to put any restriction on them.
The SBP said rumours were circulating on social media that the government or the central bank was considering freezing or placing restrictions on withdrawals from foreign currency accounts, Roshan Digital Accounts, and safety deposit lockers.
“Such rumours are absolutely incorrect and baseless.”
Moreover, foreign currency accounts — including Roshan Digital Accounts — are legally protected under the Foreign Currency Accounts (Protection) Ordinance 2001.
The statement said that the government and the central bank were taking all necessary measures to ensure macroeconomic stability in the country.
“The recent difficult decisions are taken by the government, including the reduction of subsidy on petroleum products, will pave the way to reach an agreement with the IMF and release of the IMF tranche and financial assistance from other multilateral agencies and friendly countries,” it said.
The SBP added that it is confident that these measures would relieve the temporary stress being faced due to elevated global commodity prices and geopolitical tensions, and eliminate uncertainty in the economy.
Pakistan hopes to sign IMF deal before budget: Bloomberg
- Pakistan eyeing secure $2bn in external financing.
- Authorities say secured $4bn out of $6bn requirement.
- Pakistan says committed to completing IMF programme.
In its last-ditch efforts to revive the stalled International Monetary Fund (IMF) loan, Pakistan is eyeing to secure $2 billion in external financing to bridge the $6 billion gap for resuming the bailout programme.
The Ministry of Finance, in an emailed response to Bloomberg, said the government has lined up $4 billion in external financing and hopes to strike a deal with the Washington-based lender before unveiling the budget this Friday.
The government remains on tenterhooks, with urgency growing for resuming the $6.7 billion programme — signed in 2019 and set to expire in June this year — as external financing and exchange-rate policy among the biggest hurdles.
Due to the disagreements between the local authorities and the lender, the ninth review has been stalled for more than six months, one of the longest delays for a review.
“Pakistan remains committed to completing the IMF programme and has already demonstrated its seriousness,” the ministry said.
The ministry further added that it remains committed to mobilising additional liquidity despite a significant contraction of the current-account deficit which has reduced the requirement.
Saudi Arabia and the United Arab Emirates have committed to provide fresh financing of $3 billion to Pakistan. China and its state-owned banks have rolled over $4 billion in loan commitments.
In an email to Bloomberg, IMF’s Resident Representative for Pakistan Esther Perez Ruiz said the programme would restart once the authorities follow the lender’s programme goals, present adequate financing while presenting the budget, and there is “proper market functioning” of the Pakistani rupee.
“IMF staff continues the engagement with the Pakistani authorities to pave the way for a Board meeting before the current programme expires,” said the official.
The South Asian nation has to repay around $22 billion of external loans — five times its foreign exchange reserves — during the next fiscal year, beginning in July, according to Columbia Threadneedle Investments.
The coalition government has taken a host of measures — including raising taxes, hiking energy prices, and allowing the rupee to weaken against the dollar — to meet IMF demands.
Once the IMF loan comes in, it will allow Pakistan to unlock further financing from other multilateral.
These funds will help the $350 billion economy overcome a dollar crunch, ease supply shortages, and pull the South Asian nation out of default risks ahead of the elections — scheduled to take place later this year.
Govt debt swells 34.1% in April to Rs58.6tr
- Debt swells due to growing interest payments, rupee depreciation.
- Debt rises by 22.5% in 10 months (July-April) of this fiscal year.
- Govt is likely to set budget deficit target of 6.4% of GDP.
KARACHI: Owing to high funding requirements, a lack of dollar inflows, currency depreciation, and growing interest payments amid a tight monetary policy, the government’s debt grew 34.1% at the end of April from a year earlier, The News reported citing central bank’s data.
According to the data released by the State Bank of Pakistan (SBP), the total debt reached Rs58.598 trillion as of April 30, compared with Rs43.705 in the same period last year.
The debt increased by 2.6% month-on-month as it stood at Rs57.123 trillion in March.
The public debt is growing at a faster pace owing to the increasing financing needs of the government. The foreign currency inflows remained dried amid the stalled International Monetary Fund (IMF) loan programme.
The centre was forced to take on more domestic debt as a result of the low revenue and the excessive expenditure requirements. Additionally, the weaker currency caused an increase in external debt measured in rupees.
The debt climbed by 22.5% in 10 months (July-April) of this fiscal year. It had come to Rs47.832 trillion by the end of June. According to the SBP’s data, the increase in public debt was caused by an increase in external debt, which is a result of currency depreciation.
Over the course of a year, the rupee declined by about 53%. In April 2023, it was trading at 283 per dollar, up from 185 in the same month the year before.
At the end of April, the domestic debt surged by 26.4% year-on-year to Rs36.549 trillion. The domestic debt rose by 17.57% during the 10 months of this fiscal year.
The foreign debt sharply increased by 49.1% to Rs22.050 trillion as of April from Rs14.791 trillion a year ago. The external debt grew by 31.6% in the period July–April fiscal year 2022-23.
Pakistan is caught in the debt trap because of its unsustainable levels of domestic debt and markup payments, according to analysts. The government can choose to restructure the debt in order to create fiscal space to boost the economy.
However, there is a significant chance that the exercise may harm domestic banks and the economy as a whole.
‘Unrealistic revenue and fiscal deficit targets’
The government may set unrealistic revenue and fiscal deficit targets in the upcoming budget for the fiscal year 2023-24, according to analysts, who also expressed concern about rising interest costs for domestic debt.
The government is likely to set a tax revenue collection target of Rs9-9.2 trillion for FY2024 (8.6% of GDP), which is up 21% from the target of Rs7.5 trillion for FY23 and 29% higher than expected tax collection in the current fiscal year, said Topline Securities in a report.
“Total tax collection for FY23 is expected to clock in at Rs7-7.1 trillion below the target of Rs7.5 trillion due to the economic slowdown,” it said.
“Government is likely to set aside Rs7.6-8 trillion (7.1-7.5% of GDP) for interest payment for FY24 budget. This is against Rs5.2 trillion (6.2% of GDP) likely in FY23,” it added.
Rising debt and record high-interest rates are responsible for a huge jump in markup payment from Rs3.2 trillion in FY22 to Rs8 trillion in FY24, an increase of 151% in two years limiting government to spend on development, health, education, etc, according to the report.
“This is alarming as markup expenses for FY24 will be 88% of total tax revenue compared to the last 10-year average of 48%,” it noted.
For FY24, the government is likely to set a budget deficit target of 6.4% of GDP, or Rs6.8 trillion.
“We believe that the main reason for the higher budget deficit in FY24 will be higher markup costs and inaccessibility to bumper FY24 SBP profits due to changes in the SBP Act in early 2022,” the Topline report stated.
Industry players urge govt to revoke super tax in budget
- OICCI recommends capping the corporate tax rate at 29%.
- It says general rate for minimum tax should be reduced to 0.25%.
- Body says annual income of up to Rs1.2 million be tax-free.
ISLAMABAD: Overseas Investors Chambers of Commerce and Industries (OICCI) has asked the government to abolish super tax and bring trade, services, real estate and agriculture sectors into the tax net in line with their share in the economy.
The OICCI presented its taxation proposals for the 2023-24 budget to the Minister of Finance Ishaq Dar.
The body recommended the abolishment of super tax for all sectors and capping the corporate tax rate at 29%. It suggested that no further increase in the effective tax rate should be made as it is already greater than the regional competitive rates.
The general rate for minimum tax should be reduced to 0.25% and carry forward of minimum tax credit be allowed for at least five years prior to 2022, recommended by the OICCI.
The overseas chamber also recommended the simplification of the withholding tax regime, with existing 200 different tax rates for 24 withholding tax sections, to make it more convenient and business-friendly.
Given the very high inflation impact on the low-income group, the OICCI has also recommended that the annual income of up to Rs1.2 million be tax-free as compared to the current Rs0.6 million annually.
“The economy is currently under stress and the gross domestic product (GDP) growth forecast including for large-scale industries for the immediate near term is negative to marginally positive, which along with super high inflation and interest rates and fast weakening currency, has the potential to substantially dent the profitability of tax paying sectors next year,” said OICCI President Amir Paracha.
The body stressed the urgency for broadening the tax base to boost revenue collection according to the proportionate share of each sector of the economy, especially trade, services, real estate and agriculture.
It has been estimated that with dedicated efforts to collect revenue from all segments of the economy, the tax-to-GDP ratio can be increased to 16% from less than 10% current rate.
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