NEWS COVERAGE PERIOD FROM APRIL 27TH TO MAY 3RD
ECC APPROVES RS50BN SUPPORT PACKAGE FOR SMES
Khaleeq Kiani Updated April 28, 2020
ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet on Monday approved a support package of over Rs50 billion for small and medium enterprises (SMEs) and allowed negotiations with 11 countries for putting on hold repayment of $1.8bn debt for about a year.
A meeting of the ECC presided over by Adviser to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh also approved Rs3.02bn additional funding for fencing the Pakistan-Iran border on a demand made by the Ministry of Defence.
Minister for Industries and Production Hammad Azhar told reporters after the meeting that the Rs50.69bn package approved by the ECC would provide indirect cash flow support to the SMEs through pre-paid electricity and would benefit about 3.5 million people. He said the cumulative bills of May, June and July of last year would be used as a benchmark to be financed by the government whenever these businesses start working. The facility would remain available for six months.
The minister said the scheme titled ‘Chota Karobar-o-Sanat Imdadi Package’ was prepared by the Ministry of Industries and Production in consultation with the Small and Medium Enterprises Development Authority and it targeted to cover approximately 95 per cent commercial consumers with connected load of up to 5KW and 72pc of industrial consumers with connected load of up to 70KW.
Authorises economic affairs ministry to start negotiations with 11 G20 creditors for suspension of bilateral debt
The amounts will be credited to the consumer accounts of 3.2 million commercial and 350,000 to 400,000 small industrial connections. The Ministry of Finance said commercial consumers would be given support of up to Rs100,000 and industrial consumers up to Rs450,000 for three months under the scheme.
The base period for estimating electricity consumption would be May-July 2019 and for meters whose electricity consumption data is not available for the full base period, appropriate average will be used. Pre-paid electricity bills of three months or total bills during the base period will be required for availing of the facility. The period of consumption of the extended financial support would be six months starting from May-June 2020.
The ECC also allowed Rs2.5bn block allocation for Azad Kashmir and Gilgit-Baltistan for disbursement through special arrangement under the scheme. It directed the Ministry of Industries and Production to introduce similar relief packages for the agriculture sector, including tubewells, as well as transporters and the microfinance sector.
Hammad Azhar said the government was also working on a loan package without security or collateral for small businesses once the two packages — Rs75bn for labourers and daily wage earners announced a few days ago and Rs50bn approved on Monday — came into full effect after which applications would be invited.
The ECC authorised the Ministry of Economic Affairs to engage with G20 countries for debt relief announced by them for poor countries and formally start negotiations with 11 creditors for suspension of bilateral debt payable between now and June 2021. The meeting decided that agreements with the bilateral creditors (G20 members) would be subsequently brought to the ECC for approval.
A senior official of the Economic Affairs Division told Dawn that the overall debt relief would mean suspension of $1.8bn payable by Pakistan to 11 countries from May 2020 to June 2021 in the shape of principal loan and interest. These amounts would then be built into the remaining repayment schedule. He said Pakistan’s total payable to these nations amounted to about $20.7bn under 155 loans.
Pakistan does not have any loan from the remaining nine members of G20.
The ECC was informed that about $415 million, including $320m principal and $95.3m interest, was due for payment in May and June 2020. Likewise, an amount of $1.380bn, including $1.178bn principal, would become payable between July and December. As such, total payable between now and December works out at $1.795bn, including $1.409bn principal and $386m interest.
The country’s total debt payable to 11 bilateral lenders between May 2020 and June 2021 currently stands at $2.580bn. The biggest amount payable during this period is $625m to Saudi Arabia, followed by $615m to China, $578m to Japan, about $281m to France, $193m to the United States and $148m to Germany. Other debt payable during this period includes $73m to Korea, $34.5m to Canada, $21m to Russia, $9m to Italy and $ 1.32m to the United Kingdom.
The ECC also approved a credit loss subsidy of Rs30bn as Risk Sharing Facility for State Bank of Pakistan’s Refinance Scheme to support employment and prevent layoff of workers.
Under the scheme, financing would be extended to businesses with maximum sales turnover of Rs2bn, while the government would bear 40pc first loss on distributed portfolio (principal portion only) for eligible borrowers, in case of repayments, after being classified as “loss” as per classification criteria under the respective SBP prudential regulations. The banks and development finance institutions assigned limits under the SBP scheme would be eligible executing agencies.
Published in Dawn, April 28th, 2020
REMITTANCES ESTIMATED TO REACH $20-21B IN FY20
By Our Correspondent Published: April 29, 2020
ISLAMABAD: The measures taken by the government to enhance remittances have paid off as they have touched $17 billion in first nine months of the current fiscal year (Jul-Mar FY20) against $16 billion in the same period of last year, registering a growth of 6.2%, said the Ministry of Finance.
In a statement on Tuesday, the ministry added that the current trend showed that the apprehensions and estimates, claiming there would be no inflow of remittances from March onwards, were highly unrealistic.
“On the basis of current trend and estimated Covid-19 impact, the remittances inflow is expected to reach $20-21 billion in fiscal year 2020,” the statement said.
The Finance Division noted that in order to encourage and facilitate overseas Pakistanis in sending money through official banking channels, various initiatives had already been taken by the government.
Giving details of the initiatives, it said the prevailing rate of TT charges had been enhanced from 10 riyals to 20 riyals for transactions between $100 and $200, which would cost an additional Rs3 billion to the government.
The existing incentive scheme for the marketing of home remittances ie Re1 against $1 of remittance amount beyond 15% growth over last year may now be based on tiered growth ie Rs0.5 on 5% growth, Rs0.75 on 10% growth and Re1 on 15% growth, added the statement.
This would cost an additional Rs600 million to the government, it said.
“To leverage home remittance customers, withholding tax will be exempted from July 1, 2020 on cash withdrawal or issuance of banking instruments/transfers from a domestic bank account to the extent of remittances amount received from abroad in that account in a year,” it said.
“The Federal Board of Revenue (FBR) has been requested for an amendment to the Income Tax Ordinance through the Finance Bill.”
Published in The Express Tribune, April 29th, 2020.
CASH WITHDRAWALS GOVT DECIDES TO ABOLISH 0.6PC WHT
ZAHEER ABBASI April 29, 2020
ISLAMABAD: The government has decided to abolish 0.6 percent withholding tax on cash withdrawals from banks/issuance of banking instruments by customers bringing foreign remittances into Pakistan from July 1, 2020 to encourage use of formal (banking) channels.
Adviser on Finance Dr Abdul Hafeez Sharikh has asked FBR for amendment in Income Tax Ordinance through finance bill.
The adviser sought that to leverage home remittance customers and encourage them to use banking channels, withholding tax will be exempted from July 1, 2020 on cash withdrawal or on issuance of banking instruments/transfers from a domestic bank account to the extent of remittances amount received from abroad in that account in a year.
Sources said that the adviser on finance has recounted government’s measures so far taken to increase foreign remittances through banking channel in the context of the World Bank (WB) forecast that the COVID-19 may heavily impact remittances inflow and stated that the WB estimates were based on unrealistic facts without considering government’s efforts to give a boost to remittances during the current fiscal year.
The government was optimistic to achieve $24 billion foreign remittances in the fiscal year (2019-2020) in pre-COVID scenario as result of various incentives provided to boost remittances through bank channels, however, now the remittances are being projected $20-$21 billion in the current fiscal year, less by US $3 to US $4 billion from the $24 billion target for the current fiscal year.
The adviser on finance also stated that a “National Remittance Loyalty Program” will be launched from September 1, 2020 with the collaboration of major commercial banks and government agencies through which various incentives will be given to remitters through mobile apps and cards, and a technical supplementary grant of Rs.9.65 billion would be made available to reduce the lag time from 12 to six months in reimbursement of TT charges to banks on home remittances.
Additionally, he stated that the present government has improved its diplomatic relations with the Gulf States, which helped to restore the confidence of foreign employers in Pakistani workforce.
Resultantly, export of manpower has increased to 491,854 during July-February, 2020.
On January 12, 2020, after remittances were $11.4 billion for July-December 2019-20, Finance Ministry stated that the growth in foreign remittances are likely to continue for the rest of year due to host of government measures that may help to achieve $24 billion target set for the current fiscal year.
The Finance Ministry recounted these measures to encourage and facilitate the overseas Pakistanis to send their remittances through official banking channels, various initiatives have already been provided by the government, which include; (i) the prevailing rate of TT charges has been enhanced from SAR 10/- to SAR 20/- for transactions between USD 100-200. It would cost an additional amount of Rs3 billion to the government; (ii) the existing incentive scheme for the marketing of home remittances i.e Re1 against USD 1 of remittance amount beyond 15 percent growth over last year may now be based on tiered growth i.e Rs0.50 on 5 percent growth, Rs0.75 on 10 percent growth, and Re1 on 15 percent growth.
It would cost an additional Rs600 million to the government.
On Tuesday, however, the Ministry of Finance stated that remittances inflows are expected to reach $20-$21 billion in fiscal year 2020.
The government measures announced recently to boost remittances have paid off with remittances touched $17 billion level during the first nine months of the current fiscal year (Jul-Mar, fiscal year 2020) against $16 billion last year, registering a growth of 6.2 percent.
“This trend shows that apprehensions and estimates as reported recently in the media with regard to estimates of the World Bank that there will be no inflows of remittances from March onwards, are highly unrealistic and on the basis of current trend in remittances and estimated COVID-19 impact, the figure of remittances inflows is expected to reach $20-$21 billion in fiscal year 2020,” the ministry added.
The Finance Division has also pointed out that while the media reports quoted the World Bank as projecting 23 percent decline in remittances, totaling about $17 billion in 2020, “compared with $22.5 billion in 2019, due to the economic crisis induced by the Covid-19 pandemic and shutdown as well as decline in oil prices.” However, in reality, the remittances inflows during fiscal year 2019 stood at $21.7 billion instead of $22.5 billion.
The Finance Ministry further maintained that the WB estimates are based on unrealistic facts without considering government’s efforts to give a boost to remittances during the current fiscal year.
There is no doubt that the COVID-19 has created multiple economic challenges owing to lockdown, a slowdown in business and declining oil prices, hence, it may also slowdown inflow of remittances.
The magnitude of pandemic impact on remittances is, however, dependent on the intensity and duration of COVID-19.
It seems that the World Bank has taken a hypothetical worst-case scenario without considering ground realities.
BUSINESSMEN WELCOME RELIEF PACKAGE FOR SMES, LABOURERS
By MUHAMMAD SALEEM on April 28, 2020
Welcoming relief package of Rs125 billion for SMEs and daily-wage workers amid the COVID-19 lockdown, business community has expressed optimism that these steps would help overcome difficulties of small businesses and labourers.
The LCCI President, Irfan Iqbal Sheikh, Senior Vice President, Ali Hussam Asghar, and Vice President Mian Zahid Jawaid Ahmad said on Tuesday that the relief package of Rs50 billion for Small and Medium Enterprises (SMEs) and Rs75 billion for labourers would help small traders and workers combat the challenges posed by the coronavirus.
They said that all the authorities would have to utilize all their energies to achieve the desired goals. Under the package, the federal government would pay the power bills of small businesses across the country for the month of May, June and July benefiting nearly 3.5 million shopkeepers across the country in addition to Rs12,000 each for laborers, they said.
They maintained that the government would have to take some additional measures to address the grievances of small businesses; the interest payments of the small businesses should be deferred for a period of six months. They said that the government should also introduce a scheme of interest-free loans for the registered SMEs.
“The credit limit for registered SMEs should be ten times of their respective electricity bills,” they said. “We would also advocate introduction of supportive measures for the shopkeepers across the country so that they only have to pay 50 percent of their rent each month for the next 6 months while the remaining rent is waived off,” they said.
They hoped that government would also give relief to the trade, industry and the masses on utility and petroleum products prices. They said that oil prices in the international market have fallen heavily while prices in US market have gone negative.
Meanwhile, Chairman Faisalabad Industrial Estate Development and Management Company (FIEDMC) Mian Kashif Ahsfaq while talking to a delegation of retailers said the government was well aware of the problems facing the business and traders community due to the lockdown.
He said that business community must be taken on board while finalizing the SOPs as the coronavirus had hugely damaged the businesses and the revival of routine business can only be possible if extensive relief package was offered to the business community.
He suggested that sales tax rate has to be 5 percent, and income tax and interest free loans should be offered to business community so that they can feed their family and their workers.
Copyright Business Recorder, 2020
NEWS COVERAGE PERIOD FROM APRIL 20TH TO APRIL 26TH
THE PANDEMIC’S SOCIAL AND ECONOMIC COSTS
By ShahidJavedBurki Published: April 20, 2020
In the report issued on April 13, on the eve of the annual spring meeting of the International Monetary Fund (IMF) and the World Bank, the former institution totally reversed its view of the future of the global economy. It said that the coronavirus pandemic would cause the worst economic slowdown since the Great Depression of the 1930s. It didn’t buy the forecast made by Donald Trump the day before, that normal activity in the United States would begin to return by or about May 1. It would take months before that happened. Jamie Dimon, the chief executive of JP Morgan Chase, agreed with the Fund’s suggestion. He said Americans will begin to return to work only gradually, depending upon conditions in individual regions and industries.
The IMF said that the global economy would shrink by 3% in 2020 before staging a partial rebound in 2021. Only three months ago, the institution had said that the world economy would expand in 2020 by 3.3%. The IMF said that the US economy will contract by 5.9% in 2020 and grow by 4.7% in the year that follows, leaving it still worse off than was the case when Covid-19 arrived. According to Gita Gopinath, the IMF chief economist, world output over the next two years will fall by $9 trillion. “This makes the ‘Great Lockdown’ the worst recession since the Great Depression and far worse than the global financial recession of 2008-09,” she said. However, the expected contraction is not likely to be as severe as in the 1930s when the world economy shrank by an estimated 10%. By April 17, 25 million Americans will have filed for unemployment benefits for which the US Congress has provided funding with its $2 trillion emergency package. All the 22 million jobs created since the end of the 2009 recession have been obliterated.
This is the first time since the Great Depression that advanced nations such as US, Europe and Japan as well as developing nations in Africa, Asia and Latin America are together in a slowdown. Some outside experts are skeptical of the prospects of a quick recovery the Fund expects. Dani Rodrick, a highly regarded development economist at Harvard University called the Fund’s projections “crazy” and “beyond wishful thinking”.
There was great worry that the Covid-19 pandemic could produce a number of unexpected consequences. In the weeks since the novel coronavirus came out of China, more than 90 countries appealed to the IMF for assistance. Pakistan is among those who have called for help. According to the Washington-based institution, $2.5 trillion would be needed in 2020 for the countries already in financial stress to meet their foreign obligations. Kristalina Georgieva, managing director of the IMF, secured from the institutions’ board one emergency funding programme. This would be fast disbursing assistance and unlike traditional IMF resources, will carry few conditions. On April 13, the board approved grants from a $500 million “Catastrophe Containment and Relief Fund” to cover six months of debt payments for 25 impoverished countries including Afghanistan and Somalia. But this would not be enough to stem the tide that is coming. It is not only that Covid-19 would do untold damage to the developing world but also the coming financial crisis.
Even before the pandemic arrived, developing countries were in economic trouble. Instead of badly needed foreign capital coming into these states, it was leaving, and going back to rich nations. Developing countries with large and reasonably open markets were attractive for foreign firms that made consumer goods. They also had cheap labour that would provide workers in the increasingly labour-short economies of rich countries.
In a video message to the international community broadcast on TV on April 12, Prime Minister Imran Khan asked the developed world to give financial assistance to developing countries to deal with the Covid-19 crisis. The countries that carried heavy debt burdens need special attention, he said. “In the developing world, apart from containing the virus and dealing with the economic crisis, our biggest worry now is to save people from dying of hunger,” he said. “The dilemma on the one side is to save people from Covid-19 and on the other to save them from dying of hunger due to prolonged lockdowns.”
Ruchir Sharma, the chief global strategist at Morgan Stanley Investment Management, supported the position Imran Khan had taken. Many officials in the emerging world say “they cannot simply copy the measures adopted in wealthy countries,” he wrote. “Imran Khan, the Prime Minister of Pakistan recently tweeted that South Asia is ‘faced with a stark choice’ between a ‘lockdown’ to control the virus and ‘ensuring that people don’t die of hunger and our economy doesn’t collapse’. Many emerging world-leaders are counting on warm weather and youth to slow down the contagion at their borders.”
Global finance ministers and heads of central banks in their meeting on April 14 agreed to provide debt relief for the world’s poorest countries while the finance chiefs from the Group of Seven said that they would suspend debt service payments poor countries owe. In a follow-up statement, finance leaders endorsed efforts to get global banks to offer similar relief to the 76 countries eligible to receive low-interest and long-term credits from the World Bank Group’s International Development Association, the IDA. The objective of all these moves was to free up the money needed by poor nations to fund medical care and support their economies during the pandemic. “The scale of this health crisis is generating unprecedented challenges for the global economy,” said the G-7 finance ministers while IMF officials said that “governments should combat the pandemic by spending freely on medical care and aid for the unemployed before pivoting next to stimulating economic growth.”
An article written by Gordon Brown, former prime minister of Britain, and Lawrence H Summers, the former US Treasury secretary, echoed Imran Khan’s sentiment. “The next wave of the Covid-19 crisis will be in the developing world, where often overcrowded slums make effective social distancing difficult. Without a basic social safety net, choices are narrowed and stark: Go to work and risk disease or stay home and starve with your family.” They presented an action plan that includes several components. It would include a significant increase in lending by the World Bank and regional banks and also a significant increase in the resources at the disposal of the IMF. A systematic approach would be needed to restore debt sustainability in the developing world. “The current proposal on the table is that creditor nations would offer a six- or nine-month standstill on bilateral debt repayment at the cost of $9 billion to $13 billion. But this proposal is constricted both in time and the range of creditors included. We propose relieving more than $35 billion that is due to bilateral creditors over this year and the next. Here the role of China, which holds over a quarter of bilateral debt will be crucial.”
Published in The Express Tribune, April 20th, 2020.
ECONOMIC SITUATION MAY FURTHER DETERIORATE, FEARS BUSINESS COMMUNITY
By N H ZUBERI on April 21, 2020
The business & industrial community of Karachi, which was already largely pessimistic about the business and economic conditions for 2020 before the outbreak of Coronavirus, fears that the economy is taking a beating at the hands of the Covid-19 Pandemic, hence they expect the situation to deteriorate further from bad to worse.
According to Karachi Business Sentiment Survey conducted by Karachi Chamber’s Research & Development Department which collected responses from the business & industrial community of Karachi between 1st January 2020 and 15th March 2020, “The business and industrial community of Karachi has painted an eye-opening picture of the pace of business activities in 2019 and has signified low expectations for 2020.”
The initiative was launched on the directives of Chairman Businessmen Group (BMG) & Former President KCCI SirajKassamTeli and General Secretary BMG A Q Khalil, besides being supported and facilitated by President KCCI Agha Shahab Khan, Senior Vice President KCCI Arshad Islam and Vice President KCCI Shahid Ismail. However, it is categorically stated that the survey report has been compiled purely on aggregate inputs received from businesses and industrialists who participated in the survey and their opinion may differ from KCCI’s viewpoint.
The bilingual questionnaire was filled by a total of 1,103 unique manufacturers, service providers and traders representing more than 34 sectors including automobiles, textiles and real estate based on different scales of establishment from small traders to large multinational organizations.
The report, which also features sections in Urdu, revealed that with the exception of a few institutions, a large majority of Karachi based businesses experienced at least some degree of friction in the pace of business activities in 2019, regardless of the sector to which they belonged to.
The report states that only a few companies employed additional workers in 2019 while the remaining were either unable to provide additional employment opportunities or had to lay-off employees. In fact, 50 percent companies claimed to have reduced in terms of the number of employees in 2019 while as a consequence of the outbreak and disaster caused by coronavirus pandemic, a sharp growth in unemployment is being anticipated.
After analyzing a number of factors, the report concluded that Rupee depreciation, unprecedented rise in utility costs and Pakistan’s outdated and complex tax system are the biggest challenges for businesses. In addition to this, high import duties, hike in utility costs, rising fuel costs, inflation, high interest rates, smuggling and Karachi’s weak infrastructure also had an adverse impact on the daily operations of businesses in Karachi. Furthermore, the report found that FBR’s CNIC condition is considered a road block for business operations and that the condition should be deferred.
However, popularly debated topics such as FATF and anti-encroachment drive did not necessarily have an impact on most businesses whereas CPEC has failed to generate enthusiasm among Karachi based businesses as most believe that they have not experienced any positive effects of the multi-billion Dollar project.
Using the feedback section of the report, businesses voiced their opinion regarding a wide range of topics from general complaints to policy suggestions as well as issues specific to some businesses. The report conveys comments related to FBR’s CNIC condition, tax refunds, call for fair and unitary taxation system, poor planning and maintenance of infrastructure, incentivising local manufacturing and more. The report states that the people of Karachi have asked the government to refrain from sudden changes in policies, indulge in deliberations with policy stakeholders and consider setting up a one window solution for businessmen.
The survey report states that the Karachi Business Sentiment Survey proved to be a useful tool and KCCI would continue its survey series for the betterment of Karachi’s business and industrial community.
Copyright Business Recorder, 2020
PAKISTAN FAILS TO ASK G20 FOR RELIEF
By ShahbazRana Published: April 21, 2020
ISLAMABAD: Contrary to claims made by a few ministers about securing a substantial debt relief, the International Monetary Fund (IMF) resident representative said on Monday that Islamabad had not made an official request to G20 countries for payment relaxation.
Teresa Daban Sanchez, IMF Resident Representative, also said that inflation in Pakistan would remain in double digits this year due to inflationary expectations and expected revision in prices.
She did not take sides in an ongoing tug of war between the State Bank of Pakistan (SBP) and the finance ministry on the issue of removing the central bank governor from the SBP board.
Sanchez was speaking about Pakistan-IMF relations in the aftermath of Covid-19 at a webinar organised by the Sustainable Development Policy Institute (SDPI).
Pakistan has neither made any official request to G20 countries nor has it made any announcement in this regard, she said. She was responding to a question about the quantum of debt relief for Pakistan from the G20 countries.
Sanchez said only those countries could avail debt relief that had made requests for forbearance to the G20 nations – the club of 20 big economies of the world.
False news was fed to the electronic media that Pakistan would secure $12 billion worth of relief, although a story published in The Express Tribune stated that Islamabad could avail debt relief of $1.5 billion at best.
Foreign Minister Shah Mehmood Qureshi had claimed that Pakistan had secured a substantial debt relief from the G20 countries. But Finance Adviser Dr Abdul Hafeez Shaikh and Economic Affairs Minister MakhdoomKhusroBakhtiar did not make any announcement.
Bakhtiar also did not respond to a question sent by The Express Tribune on Monday, asking whether Pakistan had a plan to seek debt relief.
On April 15, the G20 nations announced a freeze on debt repayments by 76 countries including Pakistan only from May to December 2020, subject to the condition that each country makes a formal request.
Sanchez also spoke at length about near-term prospects for Pakistan’s economy and the policies it needed to implement to put the $6-billion IMF loan programme back on track.
Inflation would still be in double digits because of inflationary expectations and prices being revised sometimes down the line, said the IMF resident representative.
The IMF country representative said monetary accommodation also needed to commensurate with inflation that was still in double digits.
She advised the central bank to limit interventions in the exchange rate market to only disorderly market conditions after the SBP pumped dollars to stop a sharp decline of the rupee against the US dollar.
The rupee had fallen to 170 to a dollar but gradually recovered to Rs163.49 in the past few days. To a question about Pakistan’s response to the Covid-19 and its implications for the economic health, the resident representative said “fiscal and SBP measures must be targeted and temporary”.
The relaxation in regulations by the SBP should not continue forever and the construction sector support package was also supposed to be temporary, she said.
Sanchez said the outward capital flight would continue but hoped that hot foreign money would start coming back once stability returned to global markets. She clarified that the risky hot foreign money was never part of the IMF programme.
The SBP had encouraged risky inflows of hot foreign money that once surged to $3.4 billion but the moment markets panicked, about $2.6 billion of hot foreign money returned from where it came.
She declined to comment on the fate of the Extended Fund Facility (EFF) after the IMF board delayed approval of the third loan tranche of $435 million on April 10. But she said the government and the IMF had to sit together and agree to new targets. She repeatedly made it clear that there would not be reversal of reforms introduced under the 39-month programme. “We will complete the second review as soon as it is possible.”
She also reiterated that the circular debt reduction plan remained an integral part of the IMF programme and its implementation was crucial for reducing fiscal risks.
Questions were also asked about proposed amendments to the SBP Act of 1956 that had created differences between the Q-block and the SBP.
“I do not have an opinion,” said Sanchez, when asked whether the IMF supported an independent chairman of the SBP board instead of it being headed by the SBP governor.
The Ministry of Finance has proposed that in order to ensure check and balance the SBP board chairman should not be the governor of the central bank. The SBP law needs changes in line with international best practices and “we need to wait until work on SBP amendments is done”, said the country head.
“I do not know whatever is proposed in the SBP law is line with the expert advice given by the IMF,” she added.
Published in The Express Tribune, April 21st, 2020.
NEWS COVERAGE PERIOD FROM APRIL 13TH TO APRIL 19TH
80PC OF INDUSTRIES TO REOPEN TOMORROW
The Newspaper’s Correspondent April 13, 2020
SHANGLA: The Khyber Pakhtunkhwa government has decided to reopen 80 per cent of the industries and labour departmenthospitals after a prolonged closure amid the coronavirus pandemic.
Talking to mediapersons at Bisham on Sunday, minister for labour and culture Shaukat Yousafzai said that about 80 per cent of the province’s industries would be opened from April 14 (Tuesday), while 28 hospitals of the labour department would be reopened from Monday (today) to reduce rush on other major hospitals.
“We have asked the industries to pay the wages to the workers suffering due to the lockdown,’’ he said, and added that though Covid-19 was so far under control people should observe the official guidelines till end of this month.
Meanwhile, a teenage boy died and his two cousins sustained injuries after they were hit by a speeding vehicle at Kunshi Chowk in Bisham city on Sunday.
Bisham SHO Mohammad Ali said the injured were taken to hospital where one of them, Ramiz of Kohistan, succumbed to injuries. The rest were referred to a hospital in Swat.
He said a case had been registered against the driver.
Published in Dawn, April 13th, 2020
IMF SEES NEGATIVE 1.5PC GROWTH IN PAKISTAN THIS YEAR
Khaleeq Kiani Updated April 15, 2020
ISLAMABAD: The International Monetary Fund (IMF) on Tuesday projected economic recession for Pakistan following the coronavirus-related ‘The Great Lockdown’ that would sharply contract the global economy this year.
The fund projected Pakistan’s economy to shrink by 1.5pc during this fiscal year, compared to 3.3pc growth in 2018-19. These estimates are generally comparable with 1.3pc decline in the country’s economic output forecast by the World Bank on Sunday.
“As a result of the pandemic, the global economy is projected to contract sharply by 3pc in 2020, much worse than during the 2008–09 financial crisis,” said the IMF in its annual flagship World Economic Outlook (WEO) released on Tuesday.
“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago. The Great Lockdown is projected to shrink global growth dramatically,” it said, adding the output loss associated with this health emergency and related containment measures likely dwarfs the losses that triggered the 2008-09 crash.
For FY21, the IMF expects the country’s economy to grow by 2pc amid a global rebound of 5.8pc. Meanwhile, the World Bank had said Pakistan’s growth will remain muted at 0.9pc in 2020-21 before reaching 3.2pc in FY22.
The fund’s estimates suggest almost all the major economies and regions plunging into the negative zone with few exceptions like China and India who would grow by 1.2pc and 1.9pc this year respectively, despite facing massive setbacks. Both these countries are projected to rebound by 9.2pc and 7.4pc respectively.
The IMF forecast Pakistan’s consumer price index rising by 11.1pc this year before easing to 8pc next year. It also estimated the current account deficit at 1.7pc of GDP in 2019-20 which will increase to 2.4pc next fiscal year.
Moreover, the country’s unemployment rate is projected at 4.5pc in FY20 and 5.1pc the next fiscal year.
The fund estimated the economies of the United States and European Union to suffer the most among the developed nations, shrinking by a massive 5.9pc and 7.5pc respectively compared to 1.7pc and 1.2pc growth posted last year.
In a baseline scenario, which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5.8pc in 2021 as economic activity normalises, helped by policy support.
A partial recovery is projected for 2021, with above trend growth rates, but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound.
Much worse growth outcomes are possible and maybe even likely. This would follow if the pandemic and containment measures last longer, emerging and developing economies are even more severely hit, tight financial conditions persist, or if widespread scarring effects emerge due to firm closures and extended unemployment, the WEO noted.
The IMF also emphasised the need for strong multilateral cooperation to overcome the effects of the pandemic, including to help financially constrained countries facing twin health and funding shocks, and for channeling aid to countries with weak health care systems.
Meanwhile, the IMF has approved immediate debt service relief for 25 countries to help them address the impact of Covid-19.
The grants come from the IMF’s revamped Catastrophe Containment and Relief Trust (CCRT), which has been set up to assist member states deal with the pandemic which it says will have a devastating impact on emerging markets.
More than 90 countries, including Pakistan, are seeking financial lifelines as the deadly virus continues to spread across the globe.
Published in Dawn, April 15th, 2020
SBP FOR FURTHER STRUCTURAL REFORMS FOR SUSTAINABLE GROWTH
By RIZWAN BHATTI on April 15, 2020
The State Bank of Pakistan (SBP) has emphasized for further structural reforms to ensure that the stabilization measures lead to a sustainable growth path for the country.
According to SBP’s Second Quarterly Report for FY20 on “The State of Pakistan’s Economy”, the stabilization efforts and regulatory measures yielded notable improvements during the first half (July-Dec) of FY20. However, further improvements will require deep structural reforms to put the economy on a firm path towards sustainable growth. In effect, greater policy vigilance and more vigour are required for the needed transition from stabilization to growth, it added.
The report said the current account deficit contracted to a six-year low, foreign exchange reserves increased, the primary budget recorded a surplus, and core inflation eased. Importantly, export-based manufacturing showed signs of traction and construction activities picked up, indicating that the economy was on the path of recovery. Progress under the IMF programme remained on track and the credit rating agencies maintained their stable outlook for Pakistan during the review period.
In case of balance of payments, the report noted that the improvement in current account mostly stemmed from a reduction in the import bill with some contribution from export earnings. Depressed international commodity prices had partially offset the gains in export volumes offered by a competitive exchange rate. With the exception of the telecommunications sector, foreign direct investment (FDI) inflows were also about the same level as last year. The report emphasized that reforms needed to be prioritized to attract and sustain higher FDI inflows into the country.
Regarding the fiscal sector, the report noted that the primary budget recorded a surplus, while the fiscal deficit was contained during H1-FY20 compared to the same period of last year. This was due to a significant growth in revenues despite a slowdown in the economy and the compression in imports.
The reversal of earlier tax concessions and implementation of new levies helped increase the revenue collection. Nonetheless, the overall revenue target was missed, highlighting the scope for greater efforts to broaden the tax base and increase documentation in the economy, the report added.
The report further highlighted the challenges pertaining to the agriculture sector. The sector appears less resilient to challenges like constrained water availability and climate change. The cotton crop, in particular, was hit by unfavorable weather, pest attacks and low water availability. Though the prospects for the wheat crop and livestock are encouraging, the decline in cotton production is likely to undermine the agriculture sector’s performance in FY20. On the inflation front, the report noted that the inflationary pressures continued to build up throughout the first half of FY20. While the non-food-non-energy (NFNE) inflation exhibited stability amid subdued demand conditions in the economy, food inflation surged steeply in both the quarters.
Given that the surge in inflationary pressures was mostly an outcome of supply disruptions, which are typically seasonal and temporary and core inflation did not rise by a commensurate amount, the SBP’s projections for the average headline inflation for FY20 remained broadly unchanged at 11-12 percent.
The report emphasizes that the ongoing efforts must be complemented with further structural reforms to ensure that the stabilization measures lead to a sustainable growth path for the country. In this regard, the Special Section of the report identifies the state of competition in the domestic economy as an area needing attention of the policymakers. It assesses the current state of competition in the country, and highlights the importance of competition in achieving economic growth and price stability. The section argues that the overall competitive environment in Pakistan has been unfavorable for productivity enhancement and growth. In this context, a rethinking is needed with respect to the regulatory structure of the economy.
According to report, the role of the public sector should generally be limited to addressing market failures through structural reforms, and only providing broad institutional support to businesses. Where targeted interventions are inevitable to support activity in the presence of market failures, it may be ensured that these do not become entrenched.
Copyright Business Recorder, 2020
GLOBAL ECONOMY TO CONTRACT 3% IN 2020, SAYS IMF
By Panay News -Wednesday, April 15, 2020
THE global economy is projected to contract by three percent in 2020 from a year before due to the coronavirus pandemic, a far more severe setback than during the 2008 to 2009 financial crisis, the International Monetary Fund said Tuesday.
The IMF slashed its projection by 6.3 percentage points from its estimate in January, when the spread of the coronavirus was just about to intensify in China. But the global economy could bounce back if the epidemic recedes in the second half of this year, with the IMF projecting 5.8 percent growth next year.
The United States – now the epicenter of the pandemic that was first detected in China late last year – will see its economy shrink 5.9 percent in 2020, the worst contraction since 1946. The Japanese economy is projected to contract by 5.2 percent, the worst downturn since 2009, according to the IMF’s World Economic Outlook report.
The latest forecasts underscore the economic toll stemming from the highly contagious virus, which has prompted countries around the world to shutter businesses, cancel events and keep people at home in efforts to prevent its spread.
“The COVID-19 pandemic differs markedly from past triggers of downturns…There is a de facto shutdown of a significant portion of the economy,” the Washington-based institution said, noting that the global economy has not faced “a crisis of this magnitude” since the Great Depression in the 1930s.
The IMF also pointed to the “extreme uncertainty” around the global growth forecast, which would be affected by the intensity and efficacy of containment efforts, the extent of supply disruptions and changes in people’s behavior due to the pandemic, among other issues.
“Risks of a worse outcome predominate,” it said.
Disruptions of economic activity are expected to concentrate in the April to June quarter of 2020 for most countries except China, which was devastated in the preceding quarter and is now gradually reopening for business amid signs that the outbreak is receding.
Even with a sharp rebound over the remainder of the year and sizable fiscal support, the world’s second largest economy is projected to grow at a subdued 1.2 percent in 2020.
The eurozone is projected to log a negative growth of 7.5 percent.
For 2021, growths for both the United States and the eurozone are projected at 4.7 percent, while China is expected to hit 9.2 percent growth and Japan 3.0 percent, with all figures higher than in the January forecast.
But the IMF warned that the recovery of the global economy could be weaker than current estimates, touching on the risks of a second outbreak and uncertainties over the contagion that could lead to persistent voluntary social distancing and restrained consumer demand for services.
Growth in trade of goods and services across the world was revised downward by nearly 14 points from the January projection to a drop of 11.0 percent in 2020, but upgraded 4.7 points to an 8.4 percent rise in 2021.
The IMF said the “immediate priority” is to contain the fallout from the COVID-19 outbreak, especially by increasing health care expenditures.
It also said fiscal responses have been “swift and sizable” in many advanced countries such as the United States and Japan, but such stimulus needs to be “scaled up” if the halt of economic activity is persistent, or if recovery is too weak after restrictions are lifted.
An economic recovery will require strong multilateral cooperation to complement national policy efforts, the IMF said, calling for the need to reduce tariff and nontariff barriers that impede cross-border trade and global supply chains.
According to IMF data, the last time the world economy shrank was 2009, when it logged a contraction of 0.1 percent amid the global financial crisis triggered by the collapse of Lehman Brothers the previous year.(Kyodo News)
GOVT DEBT IMF PROJECTS 1.9PC INCREASE
TAHIR AMIN April 16, 2020
ISLAMABAD: The Intern-ational Monetary Fund (IMF) has projected an increase in government gross debt by 1.9 percent to 85.4 percent of the Gross Domestic Product (GDP) in 2020 against 83.5 percent in 2019. According to the IMF report, “Regional Economic Outlook Update: Middle East and Central Asia”, it is projected that the government gross debt would rise to 85.4 percent of the GDP in 2020, and decrease to 83.3 percent in 2021.
The IMF Executive Board is scheduled to meet on Thursday (today) to consider Pakistan’s request for $1.4 billion loan under the Rapid Financing Instrument (RFI).
However, the report maintained that in April, the IMF granted Pakistan financial support under its RFI.
The total government net debt has been projected at 78.3 percent of the GDP for 2020 against 75.2 percent in 2019 i.e. an increase of 3.1 percent of the GDP.
The fund has projected total gross external debt at 43.8 percent of the GDP for 2020 against 43 percent in 2019 that is an increase of 0.8 percent.
The report stated that a further deterioration of risk sentiment could sharply reduce capital flows to the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region, especially portfolio flows, which are highly sensitive to global risk sentiment.
The region’s oil importers where fiscal space is constrained, governments could consider re-orienting spending priorities, by reducing or delaying non-essential expenditures, or seeking external financing support or aid.
The IMF is already providing financial support to Jordan, the Kyrgyz Republic, Pakistan, and Tunisia, and debt relief from international creditors to Somalia, giving each country extra policy space to combat the pandemic.
Strong headwinds – the coronavirus disease (COVID-19) outbreak, tighter financial conditions, and weaker growth prospects in oil-producing countries – exacerbate secular challenges facing oil-importing countries in the MENAP region.
The onset of the pandemic has dramatically altered the outlook for 2020.
Average growth in 2020 is expected to contract by 1.0 percent, 4.5 percentage points below 2019.
In addition to the pandemic, this also reflects continued macroeconomic imbalances in Sudan, a temporary slowdown given stabilisation policies adopted in Pakistan, a sovereign default in Lebanon, and effects from slowing growth in key trading partners, and countries sourcing remittances.
Additional demand and supply shocks – through trade, tourism, remittances, tighter global financial conditions, and spillovers on domestic credit conditions, along with confinement measures – would severely curtail trade (Djibouti, Egypt, Mauritania, Pakistan, Tunisia) and net tourism credit (Egypt, Jordan, Lebanon, Morocco, Tunisia) in the region, affecting domestic production and businesses.
Given weak healthcare capabilities in some countries (Afghanistan, Mauritania, Pakistan, Sudan) and reliance on private expenditure of healthcare in some others, scaling up health expenditure (including for migrants and refugees) is needed urgently.
Morocco has chosen to draw on its precautionary liquidity line to help manage needs from the current shock.
In March, the IMF Executive Board approved a new arrangement under the Extended Fund Facility for Jordan and an Extended Fund Facility and Extended Credit Facility for Somalia, after the latter successfully reached the Heavily Indebted Poor Country decision point.
In April, it granted Pakistan and Tunisia financial support under its RFI.
INDUSTRIES WILL BE SHUT DOWN IF INTEREST-FREE LOANS NOT PROVIDED: UBG CHIEF
By RECORDER REPORT on April 16, 2020
Patron-in-Chief of the United Business Group (UBG) and former president of the FPCCI, S. M. Muneer, has said that the government should provide interest-free loans to industrialists for 4 years otherwise all industries will be shut down, and the unemployment rate will be one of the worst.
He said that the State Bank’s introduction of the Temporary Refinance Scheme was a good move. This feature would be able to prevent dismissal of employees during the spell of the coronavirus, but its duration was less than three months (April to June 2020) while the situation demanded that it continued for at least a year, he said. S. M. Muneer said that no businessman could earn in Pakistan because the markup rate was one of the highest in the world.
In the present scenario the markup rate was one percent in many countries and even zero percent in some countries.
In order to compete with other countries in the present scenario, no industrialist could afford to pay such a high markup, he said.
Giving his own example, he said that he had four textile factories in Lahore, and all four of them were lying closed.
“I pay Rs7 crore [Rs70 million] in salaries every month,” he said. S. M. Muneer said that he saluted PM Imran Khan who was fighting to improve the situation of the country.
Copyright Business Recorder, 2020
PAKISTAN’S BUDGET DEFICIT MAY HIT RECORD HIGH DUE TO CORONAVIRUS
By Shahbaz Rana Published: April 16, 2020
ISLAMABAD: Pakistan’s budget deficit is expected to rise to the highest level in history to 9.2% of the size of national economy or Rs4 trillion in current fiscal year due to the impact of deadly contagion on revenues and expenses, says a new report of the International Monetary Fund (IMF).
In the Middle East and Central Asia Regional Economic Outlook (REO) Update released on Wednesday, the global lender also urged Pakistani authorities to ramp up spending on the health sector that remained the lowest in the region. Fiscal expansion is expected in all countries as the fight against the virus and its economic effects is scaled up, stated the report.
Pakistan’s budget deficit that in pre-Covid-19 situation had been projected at 7.3% of gross domestic product (GDP), may increase to 9.2%, according to the report. In absolute terms, the deficit will be equal to Rs4 trillion, higher by Rs800 billion than previous estimates.
Inflation is projected to remain at 11.1% this year and 8% next year.
The deficit is expected to rise because of revenue shocks as the government has not yet announced any major increase in budgetary expenditure, according to finance ministry sources.
For fiscal year 2020-21, the IMF has projected 6.5% budget deficit, higher by 1% compared with the pre Covid-19 analysis of the IMF staff.
The budget deficit is expected to be the highest in Pakistan’s history after the Pakistan Tehreek-e-Insaf (PTI) government booked the highest deficit in 28 years in its first year in power.
The PTI government exceeded its budget deficit target by 82%, which stood at Rs3.444 trillion in previous fiscal year 2018-19. The target was just Rs1.9 trillion or 5.6% of GDP.
The IMF has already said that Pakistan’s economy will fall into recession in this fiscal year and growth is expected to contract by 1.5% before it recovers to 2% in the next fiscal year. The IMF said temporary economic slowdown as part of stabilisation policies adopted by Pakistan under the $6-billion loan programme also contributed to the post-Covid-19 economic situation.
The IMF said oil importers in the Middle East, North Africa and Pakistan region were expected to see an increase, on average, to 8.5% of GDP because of the impact of lower growth on tax revenues in most countries and scaled-up spending.
It said it would not be compensated by savings in subsidy accruing from lower international commodity prices and an increase in tax revenue in some countries including in Pakistan.
The challenges posed by the coronavirus would be particularly daunting for countries with weaker health care infrastructure like Afghanistan, Mauritania, Pakistan and Sudan, said the IMF.
Health expenditures in Pakistan are the lowest in the Middle East and Central Asia region, standing at round 2.2% of GDP. These also include private expenditures.
The IMF said many countries including Pakistan had increased transfers and subsidies for targeted households while using existing social protection programmes and are giving cash to unemployed and self-employed workers.
Assistance to affected firms in the tourism or exporting sectors and to small- and medium-sized enterprises has been granted through guaranteed and subsidised lending, and through tax exemptions.
But “given weak health care capabilities in some countries (Afghanistan, Mauritania, Pakistan, Sudan) and reliance on private expenditure on health care in some others, scaling up health expenditure (including for migrants and refugees) is needed urgently”, said the IMF.
As the coronavirus pandemic sweeps across the world, growth in the Middle East and Central Asia region is projected to fall from 1.2% in 2019 to negative 2.8% in 2020 – lower than the growth rates during the 2008 global financial crisis, according to the report.
A further deterioration of risk sentiment could sharply reduce capital flows to the Middle East, North Africa, Afghanistan and Pakistan (MENAP) region, especially portfolio flows – which are highly sensitive to global risk sentiment, it added.
Pakistan has already witnessed $2.5-billion outflow of hot foreign money out of investment of $3.4 billion in government securities by foreign investors.
In order to offset the impact of low inflows, the IMF said it was providing financial support to Jordan, the Kyrgyz Republic, Pakistan and Tunisia. The IMF board is expected to approve $1.4 billion in emergency relief for Pakistan on Thursday.
The IMF is also providing debt relief from international creditors to Somalia and 24 other nations. Pakistan is not among these countries.
Published in The Express Tribune, April 16th, 2020.
IN SURPRISE MOVE, SBP SLASHES KEY RATE BY 200BPS
Khurram Husain Updated April 17, 2020
KARACHI: Industry leaders were taken by surprise when the State Bank of Pakistan (SBP) announced a sharp cut of two percentage points in the key policy rate after an emergency meeting of the Monetary Policy Committee (MPC) on Thursday.
The rate cut has turned the clock back to the fall of 2018, when the newly arrived Pakistan Tehreek-i-Insaf government had just entered into talks for a large bailout package with the International Monetary Fund (IMF) and the key target policy rate was raised from 8.5 per cent to 10pc. For its part, the IMF had asked for a six percentage point hike in the rate as a prior condition for programme accession, according to then finance minister Asad Umar.
Thursday’s action took the policy rate down to 9pc, back in single digit territory for the first time since that fateful fall. It is the third rate cut in 30 days, and the second time that the State Bank has called an emergency meeting of the MPC in the past 30 days. By itself this makes the move historic since nobody can recall when in the last decade and a half at least, the policy rate was reduced so sharply and in so hurried a fashion.
Trigger for the decision was the projections contained in the World Economic Outlook report released by the IMF on Tuesday. The report said the world economy is set to contract by 3pc this year — “worst downturn since the Great Depression” — and Pakistan’s economy will see a contraction of 1.5pc in the ongoing fiscal year.
In a third cut in 30 days, policy rate comes down to 9pc
“Moreover, there are severe risks of a worse outcome,” the SBP said in a statement issued after the meeting. Meaning things are likely to get worse still.
This was an alarming projection. Pakistan’s economy has been seeing a growth rate of roughly 3pc in the quarters of the ongoing fiscal year thus far, so a net contraction by the end of the year would mean the fourth quarter, that runs from April to June, will see a contraction so sharp as to negate the effects of all three preceding quarters and push the growth of real output of the economy into negative territory. This was worse than what had been projected in the last emergency MPC meeting on March 24.
The State Bank, after acquiring further detailed data from the IMF on which the projection was based, and combining it with its own collection of high frequency indicators — “retail sales, credit card spending, cement production, export orders, tax collections, and mobility data from Google’s recently introduced Community Mobility Reports” as per the statement released after the meeting — ran its own models on the revised data to ascertain the depth of the contraction that the economy is about to register.
The results showed that growth would indeed be negative 1.5pc this fiscal year, while inflation is likely to descend to 9pc monthly average by June, where it was projected to be between 11pc and 12pc on March 24. For the next fiscal year, the State Bank’s projections showed inflation coming in between 7pc and 9pc by the end of the year.
Economists generally agree that interest rates should be at least equal, if not slightly above, the projected monthly inflation rate. Given the revised projections that the SBP was looking at in light of the new data, it was concluded that an immediate rate cut of 2pc was possible.
The projections were all run on Wednesday and by Thursday morning requests were sent out to all MPC members for an emergency meeting. According to various members who participated, the meeting lasted “a few hours” and ended somewhere around 5pm. The analysis that was shared with the meeting participants, who were assembled via digital platform, was that the State Bank is now seeing a collapsing growth rate, decline in inflation and a relative easing of the external situation, which creates the space and rationale for a possible rate cut.
“From here the decision was whether to wait for the scheduled MPC meeting in May, or move now,” says one participant. “Given the emergency times we are passing through, it was decided to move now.”
The IMF data was showing that the current account deficit will shrink from 5.0pc last year to 1.7pc this fiscal year, and come in closer to 2.4pc next year.
“Despite the growth challenges, the external position showed relative easing in the months ahead because of large multilateral inflows that are already scheduled, coupled with the debt relief under the G20 plan for which Pakistan has already qualified,” says the participant.
These are the wages of recession, falling inflation and external deficits. And this is what the State Bank reacted to on Thursday, for the second time in three weeks.
Published in Dawn, April 17th, 2020
Editorial April 17, 2020
SINCE Pakistan is now set to participate in the debt relief plan just approved by the G20 group in its meeting on Wednesday, it is reasonable to expect a significant amount of support for the external sector in the months ahead. This is undoubtedly good news for the country as the Covid-19 battle looks set to intensify. For now, all debt-service obligations that will be due between May 1 and Dec 1, 2020, are eligible for relief under the terms agreed to, but there are very good chances that this period will be extended to June 2021. The G20 have left the door wide open for precisely this extension by allowing for two reviews, one in July and another in November, during which the possibility of an extension can be considered. The IMF and the World Bank both played a key role in drafting the terms of the plan and championing it at the meeting, in consultation with a grouping of African countries that had raised a collective voice for this debt relief and advanced the diplomacy required to bring it to fruition. The G20 had a decision to make about which countries to include in the plan, and it had a choice between using the UN list of Least Developed Countries or the World Bank’s list of countries eligible to borrow under the International Development Authority. The G20 chose to run with the latter list, to Pakistan’s good fortune because the country does not feature on the UN list.
Good fortune has landed us on the eligibility list for this debt relief, but it would be a big mistake to leave it up to fortune to decide how the ensuing comfort on the external side will be used. To some extent, the State Bank has already used up some of the space opened up by slashing interest rates in a second emergency announcement on Thursday. This is a fair move because there are rapidly diminishing reasons for why interest rates should remain elevated. But going forward, whatever comfort opens up on the external sector will be eyed greedily by vested interests, and the temptation to manage the exchange rate will be large. Such temptations must be resisted. There is no telling how long the fight will be, how deep the recession will actually go, and how much longer the taps of external support will remain open. It would be better to use the savings to build reserves.
Published in Dawn, April 17th, 2020
POLICY RATE CUT TO 9 PERCENT ON VIRUS FEARS
By RIZWAN BHATTI on April 17, 2020
The Monetary Policy Committee (MPC) of State Bank of Pakistan (SBP) in its emergency meeting held on Thursday decided to further cut the key policy rate by 200 basis points (bps) to 9 percent to minimize the Coronavirus shock on economic growth. This is the third cut since last month.
The MPC had reduced the interest rate by 75 bps from 13.25 percent to 12.50 percent in its scheduled meeting on March 17, 2020. While, after one week on March 24, the MPC, called an emergent meeting in the wake of evolving economic impact of the Coronavirus and decided to cut the policy rate by 150 bps to 11 percent.
Now on Thursday, the third reduction in key policy rate was announced by the Committee to support the economy, which is expected to contract by -1.5 percent in FY20. Cumulatively, the MPC has cut the policy rate by 425 bps from 13.25 percent to 9 percent in one month to address the economic slowdown.
The Committee noted that while there is exceptionally high uncertainty about the severity and duration of the Coronavirus shock, the developments imply further downward revision in the outlook for growth and inflation. The economy is expected to contract by -1.5 percent in FY20 before recovering to around 2percent growth in FY21, it added.
According to monetary policy statement issued by SBP, the MPC decided at its emergency meeting to cut the policy rate by a further 200 basis points to 9 percent due to reduction in growth and inflation expectations.
This reduces forward looking real interest rates (defined as the policy rate less expected inflation) to around zero, which is about the middle of the range across most emerging markets.
The MPC was of the view that this action would cushion the impact of the Coronavirus shock on growth and employment, including by easing borrowing costs and the debt service burden of households and firms, while also maintaining financial stability.
The Committee believed that the policy rate cut would also help ensure that economic activity is better placed to recover when the pandemic subsides.
The MPC highlighted that this rate cut would complement other measures recently taken by the SBP to support the economy, including concessional financing to companies that do not lay off workers, one-year extension in principal payments, doubling of the period for rescheduling of loans from 90 to 180 days, and concessional financing for hospitals and medical centers incurring expenses to combat the Coronavirus pandemic.
Since the last MPC meeting, the global and domestic outlook has further deteriorated. The world economy is expected to enter into the sharpest downturn since the Great Depression, contracting by as much as 3 percent in 2020, according to projections released this week by the IMF, the statement said.
This is a much deeper recession than the 0.07 percent contraction during the global financial crisis in 2009. Moreover, there are severe risks of a worse outcome. In addition, global oil prices have plummeted further, with futures markets suggesting low prices will persist.
Domestically, high-frequency indicators of activity including retail sales, credit card spending, cement production, export orders, tax collections, and mobility data from Google’s recently introduced Community Mobility Reports suggest a significant slowdown in most parts of the economy in recent weeks.
On the inflation front, the MPC noted that both the March CPI out-turn and more recent weekly SPI releases in April also show a marked reduction in inflation momentum.
Inflation is expected to be close to the lower end of the previously announced 11-12 percent range this fiscal year, and to fall to 7-9 percent range next fiscal year. While there are some upside risks to headline inflation in case of temporary supply disruptions or food price shocks, these are unlikely to generate strong second-round effects due to the weakness of the economy.
Similarly, the inflationary impact of the recent exchange rate depreciation is expected to be contained given low import demand and falling global prices.
It may be mentioned here that the MPC, in its last meeting on 24thMarch 2020, noted the worsening outlook for global and domestic economic activity in the wake of the Corona pandemic. Given the unfolding situation, the MPC said that it “remains ready to take whatever further actions become necessary in response to the evolving economic impact of the Coronavirus.”
With current reduction, the policy rate has come into single digit after a gap of 14-month as previously it was in single digit in November 2018, when policy rate was 8.50 percent.
Copyright Business Recorder, 2020
SC URGED TO ORDER GOVT TO DECLARE FINANCIAL EMERGENCY
The Newspaper’s Staff Reporter Updated April 18, 2020
ISLAMABAD: The Supreme Court was requested on Friday to order the federal government to declare a financial emergency under Article 235 of the constitution in view of the financial crisis due to the continuous lockdown triggered by the Covid-19 pandemic in the country.
Filed by Maulvi Iqbal Haider, the petition requested the top court to order the federal government to formulate a national policy under “One Flag and One Nation”.
Such a policy, the petitioner contended, should be made after consultation with the representatives of provincial governments, opposition parties, economic experts, medical specialists, technocrats, professionals of different fields and traders with an aim to take a unanimous decision to defeat the Covid-19 disease.
The petition also requested the court to order the federal and provincial governments to save the lives of people and bear medical expenses for treatment of all patients suffering from the Covid-19 disease and admitted to government or private hospitals.
The petition urged the Supreme Court to order the federal and provincial governments to convert all educational institutions and marriage halls of the country into quarantine centres with provision of all necessary medical equipment and other necessary items such as sanitisers, masks, gloves for medical staff posted and patients kept there.
Petitioner calls for a national policy under ‘one flag, one nation’
The governments should also conduct fumigation of all cities through local governments’ staff by providing them relevant chemical sprays under the supervision of district deputy commissioners, the petition said.
The governments should also install walkthrough gates equipped with fumigation facilities outside all public offices, mosques and other religious places, the petition pleaded, adding that the governments should also not directly or indirectly pay financial assistance to any needy person except through banks after verification of their CNICs from Nadra under the supervision of the Auditor General of Pakistan.
Likewise, the governments should also submit a list and break-up of the needy people who had received the financial aid and the amount of funds reserved by the governments to face the crisis, the petition said.
The Supreme Court should also order the governments to give subsidy on food items to unemployed people and daily-wage workers to help them weather the calamity, the petition suggested.
The petition said that the priority at this point should be to save the lives of people, which required the federal and provincial governments to make a joint strategy to fight the pandemic as well as its socioeconomic impact.
Regrettably, the federal and provincial governments were engaged in bickering and blame-game which must be stopped, the petition said, adding that wasting of time and energy on petty politics and point-scoring would only put the lives of more people at risk.
The economic hardship, especially of the poor, was of as much concern as the spread of infections, and both sides would need to compromise on it, the petition added.
It said there was an alarming situation with regard to the financial crisis — a situation about which the Constitution provided a way out by imposing financial emergency under Article 235 of the Constitution.
Under the emergency, salaries and allowances of all people serving in government or semi-government offices or holding/serving posts in constitutional offices or employees of corporations/banks/public or private limited companies should be required to be deducted to maintain the economic life and financial stability of the country, the petition suggested.
Published in Dawn, April 18th, 2020
STOCKS SKYROCKET 1,502 POINTS ON RATE CUT, IMF LIFELINE
Dilawar Hussain April 18, 2020
KARACHI: A surprise rally at the stock market on Friday saw the KSE-100 index accumulate massive gains of 1,502 points or 4.80 per cent — the highest single day surge in terms of percentage in 11 years since May 16, 2009. It stormed past several barriers and settled at 32,832.
Giving to watch the trading halt as KSE-30 index took a plunge by 5pc or to the ‘’lower circuit’’ in as many as four previous sessions, it was a whiff of fresh air for investors to witness ‘’trading halt’’ of 60 minutes as the 30-share index hit the “upper circuit” of 5pc touching intraday high by 2,015 points.
The break provided the market time to cool down as investors fell over each other in frenzied buying across all sectors. At the close, which was further marked by shortened due to Friday, 319 of the 362 active shares turned out to be gainers — most making at or close to their ‘upper limit’.
The index-heavy scrips that led the gainers included Engro Corporation, Hub Power, Fauji Fertiliser, Lucky Cement, Oil and Gas Development Company, Pakistan Petroleum and MCB.
The trigger to a sluggish market was provided by the State Bank of Pakistan which in a surprise move on Thursday evening announced a big cut in the policy rate by 200 basis points to 9pc. In doing so, it conceded to the Industrialists clamour for a single digit interest rate.
“The interest rate reduction would provide relief to corporates in lowering their financial charges”, said Arif Habib, the former chairman of the stock exchange. But blessings did not come in singles and he pointed out that concurrently the International Monetary Fund board had approved the $1.4 billion Rapid Financing Instrument as a support to the country in its bid to stave off the COVID-19 damages.
Finally, the G-20 countries included Pakistan among 25 least developed countries which would result in postponement of debt payments of around $12bn for one year. Moreover, the sharp fall in 10-year Pakistan Investment Bonds yield to 7.7pc from 8.65pc encouraged investors to steer funds from risk-free investment to equities.
JS Global CEO Kamran Nasir concurred that the primary reason for the market surge was the decrease in interest rate to single digit which was a “popular sentiment” among investors and industrialists.
Highly leveraged companies would be able to put their balance sheet in better state of health.
He conceded that the people at central bank were making reasonable decisions, but thought that the country was in a Catch-22 situation.
“The country would have to improve reserves and create fiscal space,” he believed. The blessing in disguise was the price of oil which had hit the pit with a major positive impact on import bill. Nasir affirmed that in the end it would be the economy that will determine the direction of the stock market.
But some suspected the surprise rally to be a knee-jerk action. Investors Lounge CEO Baqar Jafri observed that the rate cut just before the rollover week (of future contracts), trapped short-sellers who expected the upcoming week to remain lacklustre amid investors’ concerns over the rising number of infected people in the country and generally low volumes in fast approaching Ramazan.
“The elephant in the room is still COVID-19. If we do not deal with it well, even a further cut in discount rate would not create aggregate demand in the economy” he said.
Published in Dawn, April 18th, 2020
SMUGGLING CAUSING GREAT HARM TO ECONOMY: PM
Posted on Saturday 18th April 2020 by ZAHEER ABBASI
Prime Minister Imran Khan said on Friday that intelligence agencies would be asked to identify people involved in hoarding and smuggling.
While chairing a meeting on smuggling and to discuss the measures proposed in the ordinance to go after hoarders and smugglers and how to deal with the challenge of locust, the prime minister said that the poor people suffered the most due to hoarding as it led to artificial price hike. The prime minister said that smuggling had been causing a great harm to the economy and hoarding to the poor people, therefore, strict action was required against hoarders and smugglers.
He said that the people involved in such activities should be identified and taken to task to make an example out of them for others. The prime minister also directed that relevant departments must appoint honest people in the areas where there was a fear of smuggling and hoarding.
The prime minister also directed that coordination with the provinces must be made effective and situation monitored on a daily basis to make sure availability of essential commodities and make sure that there was no administrative hurdle.
The meeting was given a briefing on ordinance as well as other measures being taken to prevent smuggling, and noted that closure of border led to decline in smuggling.
The meeting was also given a briefing about the availability of wheat, wheat procurement target for the next fiscal year, and availability of bar dana to farmers.
The PASSCO and the Punjab government have been doing timely measures for procurement of wheat and other provinces also need to take effective measures for wheat procurement and against four million wheat procurement for the last fiscal year.
There is a need to expedite the effort for procurement of 8.2 million tons of wheat, however, there were some difficulties due to current spate of rain, Minister for Food and National Security briefed the meeting.
The prime minister directed for timely completion of wheat procurement target and developing a comprehensive plan to make sure availability of wheat flour to the people at all costs. The meeting also discussed to spray in deserts through helicopter and in fields through machines to eliminate the locust and the meeting was told that getting helicopter and machines to deal with the challenge of locust was quite slow and now it was being expedited.
The prime minister said that after coronavirus locust was biggest challenge for the country and every effort must be made to overcome it.
The meeting was attended by Minister for Interior Ejaz Shah, Minister for National Food Security Fakhar Imam, Minister for Planning Asad Umar, Minister for Economic Affairs Division Khusru Bukhtiar, Advisr on Finance Dr Abdul Hafeez Shaikh and others.
Copyright Business Recorder, 2020
NEWS COVERAGE PERIOD FROM APRIL 6TH TO APRIL 12TH
BODY FORMED IN SINDH TO FINALISE GUIDELINES FOR REOPENING INDUSTRIES
Tahir Siddiqui Updated April 06, 2020 Facebook Count
KARACHI: Sindh Chief Minister Syed Murad Ali Shah on Sunday constituted a committee of health experts, labour and industries secretaries and representatives of the police and Rangers to prepare a standard operating procedure (SOP) for factories so that they could be allowed to resume operation.
He took this decision while presiding over a meeting to review the request of industrialists to allow their production units to start operation to meet export orders.
The meeting was attended by provincial ministers Dr Azra Pechuho, Saeed Ghani, Ikram Dharejo, Nasir Shah, Law Adviser Murtaza Wahab, Inspector General of Police Mushtaq Mahar, Home Secretary Usman Chachar, Karachi Commissioner Iftikhar Shallwani, Karachi police chief Ghulam Nabi Memon, Labour Secretary Rasheed Solangi and others.
The chief minister said that he had held a meeting with the industrialists, particularly those producing export goods and they requested him to allow the operation of their factories so that they could honour the export orders.
Murad says he wants every segment of life to follow SOPs if lockdown eases after April 14
“The request is important and genuine, therefore, a way out can be made for them,” he said.
After a thorough discussion and debate it was decided that a SOP should be worked out for making the factories operational.
The chief minister directed the home secretary to form a committee comprising medical professionals/experts, industries and labour secretaries, senior members of law enforcement agencies and other concerned to prepare a well-thought and workable SOP in this regard.
He directed the home secretary to notify the committee and ask the members to take the industrialists on board and frame the SOP.
“I want SOPs for every sectors, including shops, bakeries, transport, superstore, malls and even for Ramzan so that everyone could follow it after April 14, if lockdown is eased out,” he said.
Mr Shah said that he was keen to allow export-based industry to start operation but “this is the question of human health and containment of the novel coronavirus, therefore we would have to be careful”.
He said that committee for other sectors, including social and welfare sectors would also be formed for framing the SOPs.
Govt spends Rs285m from Corona fund
The provincial government has utilised Rs285 million from the Coronavirus Emergency Fund it has established under the chief secretary.
This was emerged in a meeting of the committee of the fund held under the chairmanship of Chief Secretary Mumtaz Shah at the New Sindh Secretariat.
Other members of the committee including Finance Secretary Hassan Naqvi, Dr Abdul Bari of the Indus Hospital, Faisal Edhi of the Edhi Foundation and philanthropist Mushtaq Chhapra also attended the meeting.
The meeting approved an amount of Rs285m utilized for establishment of the Field Hospital Expo Center Karachi.
The committee also approved another Rs5.5m for purchase of kits and necessary equipment for testing and treatment of coronavirus patients.
The meeting was told that till last week Rs3.55 billion had been generated, including Rs2.87bn donated by government entities and Rs68.44m by private entities and people. The donations are pouring in the fund every day, the meeting was told.
It may be noted that the Sindh government had established the Coronavirus Emergency Fund.
The committee, according to its terms of reference, shall roll-out different measures for rehabilitation, long-term welfare and financial well-being of the coronavirus affected persons and their families.
The chief secretary said that each and every penny of the fund would be spent on the recommendation of the committee and the utilisation of the funds would be audited by leading auditors.
Published in Dawn, April 6th, 2020
DIPLOMATIC PUSH FOR LOAN RESCHEDULING ON CARDS
By Kamran Yousaf Published: April 6, 2020
ISLAMABAD: Islamabad has decided to launch a diplomatic initiative seeking rescheduling of bilateral and multilateral loans in order to offset the negative fallout of coronavirus pandemic on its economy.
This was decided in a high level meeting chaired by Foreign Minister Shah Mehmood Qureshi at the Foreign Office on Monday. Adviser to the Prime Minister on Finance Dr Hafeez Shaikh, Federal Minister for Planning Asad Umar and Foreign Secretary Sohail Mahmood attended the meeting.
Pakistan’s permanent representatives to the United Nations in New York and Geneva also joined the meeting through a video link. The meeting discussed the negative implications of the pandemic for the country’s economy.
Imran urges world to consider writing off loans to help cope with coronavirus
Qureshi noted that due to the pandemic Pakistan’s exports have declined while economic activities have come to a halt because of a lockdown. This, according to Qureshi, has made it difficult for the developing countries like Pakistan to go about their business as usual.
“It was because of this reason Prime Minister Imran Khan floated the idea of rescheduling of loans of developing and poor countries,” an official statement quoted Qureshi as saying.
He briefed the meeting about the steps being taken by the foreign office to ensure that developed countries and multilateral organisations pay heed to such ideas.
He said he had spoken to foreign ministers of wealthy countries over the past couple of weeks in order to seek their support for the restructuring of loans. The meeting later decided that a concerted effort would be made to convince powerful countries for this initiative.
COVID-19: Pakistan, World Bank in talks for $200 million loan
For this purpose, Pakistan’s permanent representatives to the UN in New York and Geneva have been directed to launch a diplomatic effort while the foreign minister would continue to reach out to his counterparts in world capitals.
The coronavirus outbreak is taking its toll on Pakistan economy, which was struggling even before the pandemic. The government own assessment suggests that Pakistan’s economy could suffer losses between Rs2 to 2.5 trillion. 18.5 million people would lose jobs if the lockdown persists for 3 months.
Independent economists have put the losses to the economy between Rs890 billion to Rs1.6 trillion.
‘EHSAAS PROGRAMME: 12M FAMILIES TO GET RS12,000 EACH FROM TOMORROW’
BR Web Desk April 08, 2020
The provision of financial assistance among the 12 million deserving families under the Ehsaas Emergency Cash Programme is scheduled to start Thursday (April 9) as part of the federal government’s initiative to financially support the downtrodden segments of the society with a payment of Rs 12,000 to each deserving family.
The cash distribution was earlier scheduled to start from Wednesday (today) but rescheduled to Thursday in order to allow “applicants in maximum number” to register for the programme, it is learnt.
The federal government has upped the recipient locations to 18,065 including retail shops in collaboration with two private banks to distribute cheques, after biometric verification, among the deserving population.
The Ehsaas Emergency Cash Programme is directly executed by the federal government under the supervision of Special Assistant to the Prime Minister on Poverty Alleviation and Social Safety Dr Sania Nishtar.
The programme envisages providing financial assistance to 120,000,00 families from across Pakistan under the 1.2 trillion Economic Relief Package approved by the federal cabinet last week with Prime Minister Imran Khan in chair.
Under Ehsaas Emergency Cash Programme, each family would be provided Rs 12,000 in one go. Previously, the federal government was to provide this amount in instalments; Rs 3000 per month for four months.
Official sources told Business Recorder that over 40 million messages were received (by Monday afternoon) from the applicants seeking financial assistance under Ehsaas Emergency Cash Programme, at the designated official number.
“Scrutinising the applicants in such a big number is a challenging task; to ensure that no undeserving applicant is offered cash grant while ensuring that no deserving applicant is ignored,” officials privy to the matter told Business Recorder.
The scrutiny of the applicants is carried out by NADRA (National Database and Registration Authority) to determine whether the Computerised National Identity Cards (CNICs) that have applied for the cash assistance have any land, property or related assets registered in their names or they are genuine applicants,” sources said.
Moreover, the sources said, NADRA has been tasked to ensure that any employee of the federal or provincial governments as well as any applicant receiving financial assistance from BISP (Benazir Income Support Programme ), Pakistan Bait-ul-Mal (PBM), or any other social welfare programme, is not declared eligible for Ehsaas Emergency Cash Programme.
When the programme was launched, it was allegedly marked with procedural anomalies coupled with bureaucratic hitches related to the registration of those in need of financial assistance that created confusion and panic among the deserving population. However, the officials concerned claim that these shortcomings have been redressed.
Apart from Ehsaas Emergency Cash Programme, the Pakistan Tehreek-e-Insaf (PTI) governments in Punjab and Khyber Pakhtunkhwa have respectively launched the Ehsaas Imdad Programme for the assistance of deserving families.
In Punjab, the Ehsaas Imdad Programme is executed under the supervision of Chief Minister Punjab Usman Buzdar. Earlier, this programme aimed to provide Rs 4,000 each to 2.5 million poor families in Punjab. Now, the amount to be provided to the poor families has been increased from Rs 4,000 to Rs 12,000.
The Insaf Imdad Programme in Khyber Pakhtunkhwa is executed by the KP government under the supervision of CM KP Mahmood Khan. This package aims to provide Rs 2,000 to each poor family. The exact number of families to be provided assistance under this programme would be determined after a detailed survey, official sources told Business Recorder.
Copyright Business Recorder, 2020
ALARM SOUNDED OVER ‘INADEQUATE’ RATION DISTRIBUTION AMONG NEEDY
By News Desk Published: April 8, 2020
The Hari Welfare Association (HWA) has raised alarm over the worsening financial condition of daily-wage workers and other needy persons, especially those hailing from Sindh’s rural areas, during the ongoing lockdown.
In a statement issued on Tuesday, the association warned that if the lockdown persisted for long without apt measures being taken to ensure the provision of food and financial assistance to the needy and daily-wagers, it was likely that the situation in most areas would turn out to be like that in Tharparkar, where, on average, two children die of poverty every day.
“The situation has worsened due to economic activity coming to a halt over the past two weeks,” the association lamented.
It maintained that at present, ration disbursement among the needy was being carried out “inadequately,” stating that the ration provided to them wouldn’t suffice to support a family for a week.
The HWA also pointed out that though it appreciated some of the Sindh government’s efforts during the lockdown, in some cases, relief committee members at district, taluka and union council levels were chosen on the basis of political influence.
“These committees have completely ignored those who are genuinely in need [of ration and help] and provide support to individuals based on political motives,” the HWA claimed in the statement. “Among the needy, not more than five per cent are receiving ration and financial support.”
According to the association, Sindh government’s labour policy has set minimum wage at Rs17,500 per month but the provincial government has promised a meagre amount of Rs2,000 as relief to the daily-wagers during the lockdown, which is likely to extend over a month. The HWA has demanded of the government that daily-wage workers be given an amount equal to that of the minimum wage.
The association has also called to attention that sanitary workers assigned the task to clean quarantine centres have not been provided any safety gear, especially in rural areas. It has further highlighted that the cost of threshing wheat has doubled because of the non-availability of tractors and threshers and rural farmers are now looking towards the government for help.
Published in The Express Tribune, April 8th, 2020.
ECC APPROVES RS2.5BN PACKAGE FOR RAMAZAN
Khaleeq Kiani Updated April 09, 2020
ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet approved a Ramazan relief package worth Rs2.5 billion at its meeting on Wednesday and decided to hold a special meeting on Thursday (today) to thrash out a course of action for helping the Pakistan State Oil avoid a default.
The meeting, presided over by Prime Minister’s Adviser on Finance Dr Abdul Hafeez Shaikh, directed the State Bank to hold negotiations with a Chinese consortium working on the Kohala Hydroelectric Project for settlement of a dispute over foreign exchange losses.
It decided to waive taxes on electronic transfer of funds to 1.2 million recipients of Ehsaas programme till June 30.
Measures to help PSO avoid default to be discussed today
An official told Dawn that the government had come up with the Ramazan package to ensure the sale of five essential items through Utility Stores at existing rates. The package will become effective on April 17 — a week before the start of Ramazan.
The meeting noted that there was no need for an additional allocation because a Rs50bn package was already under implementation.
The ECC was told that arrangements had been put in place to ensure that prices of five essential commodities remained unchanged until the end of the holy month. This would mean the sale of sugar at Rs68 per kilogram, wheat flour at Rs800 per 20kg, ghee at Rs170 per kg, gram pulses at Rs130 and two varieties of rice at Rs139 and Rs149 per kg, the meeting was informed.
The ECC approved a Rs50bn technical supplementary grant for the Utility Stores Corporation (USC) announced under the PM’s relief package. The corporation was directed to ensure provision of essential items at reduced prices in view of the Covid-19 crisis and Ramazan.
The meeting noted that Rs21bn had already been disbursed to the USC under the package after December for procurement of essential items. The USC management assured the ECC that it was using its market presence to ensure availability of essential items at affordable rates to the consumer.
A senior government official told Dawn that the state-run Pakistan State Oil was in dire straits and needed Rs61bn urgently to avoid two defaults before April 15 and April 30. He said the receivables of the country’s largest oil and LNG importer had gone past Rs371bn, mostly from the public sector, and the company had even exhausted its local and foreign currency credit limits.
Special Assistant to the Prime Minister on Petroleum, Nadeem Babar, refused to comment on the matter.
An official statement said the ECC approved six technical supplementary grants, including Rs842 million for paying off the executing agencies of the prime minister’s youth loan scheme during the current financial year and Rs90.459m for the Pakistan Nuclear Regulatory Authority to help the organisation meet its obligations.
The technical grants also include a payment of Rs5m to Punjab Rangers for the purchase of helicopter spare parts during the current financial year,
The ECC approved a $1.5m grant for the energy ministry to make payment to lawyers hired to represent the state in a case against Ms Karkey of Turkey.
A Rs300 million grant was approved for the information ministry to help it execute a three-month promotional campaign for the Ehsaas Programme.
On a summary moved by the Economic Affairs Division for recovery of foreign currency loans from Galadari Cement, the ECC asked the division to resubmit the proposal after consultations with the State Bank.
The ECC deferred to Thursday a summary prepared by the petroleum division seeking compensation against foreign exchange losses faced by oil companies, particularly PSO, in oil pricing.
The petroleum division has worked out an increase of 60 paisa per litre in prices of petrol and high speed diesel in order to compensate the PSO for losses suffered over oil imports due to persistent devaluation of the rupee and suggested its permanent build-up in the pricing mechanism.
It has proposed that 60 paisa per litre differential cost based on imports by PSO be adjusted against exchange loss as per actual exchange rate and the cost of actual letters of credit or 60 days of bills of landing whichever is earlier.
The arrangement will be treated as adjustment for other companies for local products in line with import parity price of PSO’s actual weighted average exchange rate for imported products, particularly petrol and HSD.
Published in Dawn, April 9th, 2020
ECC APPROVES RS100B BORROWING FROM BANKS
By Shahbaz Rana Published: April 10, 2020
ISLAMABAD: The government on Thursday approved borrowing of Rs100 billion from banks to offset the impact of deferring increase in electricity prices for six months and also decided to compensate oil importers for exchange rate losses.
The borrowing decision will have an adverse impact on electricity prices on account of recovery of interest on loans from power consumers. Prices of petroleum products will also go up as the exchange rate losses will be built into the prices.
Headed by Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh, the Economic Coordination Committee (ECC) took the decisions, which in the longer run would burden both electricity and petroleum product consumers. The ECC also decided to bail out Pakistan State Oil (PSO) by providing it with cash liquidity to avoid default as the state-owned company’s receivables had surged to Rs257 billion.
On the request of the Power Division for a syndicated term finance facility of Rs100 billion, the request was referred to the finance secretary for facilitation, according to a Ministry of Finance statement.
The government had to raise Rs100 billion to keep power generation and distribution companies afloat after Prime Minister Imran Khan decided in January this year to freeze electricity prices for six months.
The ECC also approved the postponement of monthly and quarterly fuel cost adjustments in electricity bills of consumers till June 2020. The whole exercise would have a total impact of Rs151 billion on the government, said the Ministry of Finance.
However, this amount is recoverable from the consumers and there will be no effect on the budget.
It was a condition of the International Monetary Fund (IMF) to raise power tariffs aimed at controlling the increasing circular debt that has already touched Rs1.9 trillion – an addition of over Rs750 billion during the current Pakistan Tehreek-e-Insaf (PTI) government alone. In total, the government will raise Rs300 billion from banks and the corporate sector within this month aimed at retiring some of the circular debt.
The ECC has already approved borrowing of Rs200 billion by floating domestic Islamic bonds called Pakistan Energy Sukuk-II. Due to some procedural difficulties, the loan could not be arranged earlier.
The ECC approved the appointment of a valuator for Pakistan Energy Sukuk phase-II (Rs200 billion) as the company had already done an extensive exercise for the valuation of multiple government assets, said the Ministry of Finance. This money is also being arranged to pay off circular debt, which the PTI government has failed to control, like its predecessor.
The outstanding unsettled circular debt currently stands at around Rs1.1 trillion, excluding Rs804 billion borrowed from banks but parked in a holding company. The total size of the circular debt comes to Rs1.9 trillion. Loans of Rs200 billion will be obtained from a consortium of Islamic banks against assets of power generation and distribution companies, according to Power Division officials. The assets have been identified by the generation and distribution companies.
In order to cover the losses incurred by PSO and the oil sector due to devaluation of Pakistani rupee, the ECC, in principle, agreed to a maximum period of 60 days for the adjustment of exchange gain or loss with effect from March this year, said the finance ministry.
The ECC directed the Power Division to resolve the issue in consultation with the Finance Division, it added. This will lead to an increase in prices of petroleum products as the losses will be built into the price determination formula.
Special Assistant to Prime Minister on Petroleum Nadeem Babar, who paddled the proposal, did not respond to the question about exact implications of the exchange rate losses for the consumers. The outstanding amount on account of exchange rate losses was Rs29 billion.
A day before, the ECC allowed an increase in electricity prices to compensate for the exchange rate losses being sustained by foreign investors in the power sector.
In order to keep PSO afloat, the ECC also approved the provision of cash to the oil marketing company in the range of Rs45 to Rs50 billion.
The ECC directed the finance secretary to consult with the Power Division and help in retirement of some of the liabilities of PSO for running its business in this difficult situation, according to the finance ministry. The ECC approved Rs13.8 billion in technical supplementary grants for various entities. An additional amount of Rs1.7 billion has been given for parliamentarians’ schemes, taking total annual allocation to Rs30 billion for this year.
For the Special Security Division, (South), being deployed for the China-Pakistan Economic Corridor (CPEC) security, a Rs11.5-billion additional budget was approved by the ECC.
The ECC set up a committee to review the proposal of economic relief package for mitigating the effect of shortfall in recoveries due to reduced demand of energy and late recoveries amid the Covid-19 outbreak. The funds are required for covering fixed costs of the sector.
Published in The Express Tribune, April 10th, 2020.
SBP OFFERS CHEAPER LOANS TO AVOID LAYOFFS
The Newspaper’s Staff Reporter Updated April 11, 2020
KARACHI: The State Bank of Pakistan (SBP) on Friday launched a refinancing scheme to save hundreds and thousands of jobs in the private sector by providing cheaper loans to businesses at 4 to 5 per cent for payment of wages and salaries.
The ‘Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns’ will be available to all businesses across the country through banks and will cover all types of employees including permanent, contractual, daily-wage workers as well as outsourced workers, said the SBP in a press release.
A grace period of six months will be allowed to the borrowers while the repayment of the principal amount will be made in two years. Banks will provide weekly reporting to the central bank on the take up of the scheme and in particular the reasons for any denials of financing requests under this scheme, said the SBP.
“The scheme will provide financing for wages and salaries expenses for three months from April to June for those businesses which do not layoff their employees for these three months,” it added.
The scheme will ease the liquidity constraints of the businesses and they can use their available financial resources to meet other working capital requirements.
Repayments will be made in two years with a grace period of six months
The loss of economic activity in the wake of coronavirus pandemic has caused thousands of job losses jobs across the country. “The core objective of this facility is to incentivise businesses which do not lay off their workers during Covid-19 pandemic,” said the SBP.
Under the scheme, businesses can avail loans at five per cent mark-up whereas borrowers on the active taxpayers list will be able to get loans at a further reduced mark-up rate of 4pc.
The SBP said the scheme has been designed to benefit small- and medium- sized enterprises. “Businesses with a three-month wage and salary expense of up to Rs200 million will be able to avail the full amount of their expense in financing while those with a three-month wage and salary expenses of greater than Rs500m will be able to avail up to 50pc of expense,” said the SBP.
Businesses in the middle category will be able to avail up to 75pc of their three-month salary and wage expenses. In addition, the banks will not charge any loan processing and credit limit fees or prepayment penalties for loans under this scheme.
Businesses can access details of the scheme at (http://www.sbp.org.pk/smefd/circulars/2020/C6.htm and http://www.sbp.org.pk/smefd/circulars/2020/C7.htm) or call at (021-111727273) during working hours.
The SBP expects that one of the main benefits of the scheme is that employers who have retained workers on their payroll will be able to restore or increase production quickly once the situation normalises.
Published in Dawn, April 11th, 2020
FBR STARTS BUDGET PREPARATION PROCESS
BR Web Desk April 11, 2020
Given no apparent end in sight in the growing number of coronavirus cases across Pakistan, in an unprecedented move the Federal Board of Revenue (FBR) has started budget preparation exercise by seeking tax proposals from the chief commissioners and collectors of Customs through video conferencing with the direction to timely finalise proposals keeping in view the current tax/economic practice in vogue.
The FBR has also decided that the budget consultative process for 2020-2021 with the business community would also be carried out through video conferencing. In this regard, the FBR has issued budget instructions to the field formations on the video link conference, here on Friday, specifying timely completion of the exercise like in the past years.
According to the FBR’s instructions to the field formations, the budget exercise 2020-2021 has been initiated and the process of formulation of budget proposals has to be completed in the context of current tax/economic practices in vogue.
In view of the critical importance of the task, it has been decided to hold a video link conference between the tax authorities and the chief commissioners Inland Revenue as per schedule issued by the FBR, the directive added.
It is learnt that the FBR chairperson and members have started internal budget meetings, but there are no visitors allowed in the FBR Headquarters due to precautionary measures taken to tackle the outbreak of the coronavirus.
The FBR has started receiving budget proposals from stakeholders. Keeping in view the current circumstances and lockdown in the country, the FBR has so far not held any meetings with the business and trader community.
Sources said that if the current situation persisted, the FBR was likely to have meetings with the business and trade community through video conferencing, and use of other electronic tools available for interactive sessions.
When contacted, Dr Ikramul Haq, an international tax lawyer/researcher explained legal and constitutional position for the passage of budget in an extraordinary situation.
Dr Haq stated that in case of any taxation measures or giving relief from any tax, in the absence of session of the National Assembly, the government can use Article 89 of the Constitution of Pakistan.
The president on the advice of the prime minister can issue an ordinance. The last issued was the Tax Laws (Second Amendment) Ordinance, 2019 on December 28, 2020. Besides, taxation, the president can issue any amendment in any law within the parameter of Article 89.
As regards federal budget for FY 2020-2021, Article 80 of the Constitution, requires that the federal government shall, in respect of every financial year, cause to be laid before the National Assembly a statement of the estimated receipt and expenditure of the federal government for that year, referred to as the Annual Budget Statement.
The same can be prepared and presented prior to July 1, 2020. The speakers can amend rules to hold session using information technology, Dr Haq maintained. The international tax expert said that for supplementary and excess grants, Article 84 of the Constitution can be used.
Only Article 86 deals with authorisation of expenditure when assembly is dissolved, which is not the case under the present circumstances. The presenting of budget is necessary for authorisation of expenses for which the speaker with the consultation of a standing committee should amend rules for holding office through internet using various platforms available or Pakistan Revenue Automation Limited (PRAL) can be asked to prepare one specifically for the National Assembly, Senate and provincial assemblies.
For proclamation of financial emergency, Article 235 is available but it requires to be laid down before a joint sitting and shall cease to be in force at the expiration of two months, unless before the expiration of that period it has been approved by resolution of the joint sitting and may through a resolution be extended for a further period not exceeding two months at a time; but no such proclamation shall in any case remain in force for more than six months.
“There is no need for invoking Article 235 as budget for the next fiscal year can be prepared and presented and there is no bar in the Constitution that session cannot be held by using IT facilities. By this time, the speaker must have worked on it as well as Cabinet must ponder over it in case the COVID-19 outbreak continues, for which nobody can predict when it will end,” Dr Haq explained. When asked about consultative process for finalisation of budget, Dr Haq stated, “budget markers can seek budget proposals through internet, many programmes are available like ZOOM, Google Meet etc.”
“The government can also interview the speaker for his intake to amend rules for holding sessions through internet using the above or any other platform,” the global tax expert added.
Another tax expert said that the Constitution had a specific article to deal with the situation in case of emergency in Pakistan.
For instance, the government can reduce the period of debate and the passage of finance bill by the Parliament from six weeks to three weeks in case of emergency.
However, it is yet to be seen whether there is a need to invoke the article of the Constitution to deal with the current emergency-like situation. Last month, the FBR had asked the business community and the tax officials to submit budget proposals for 2020-2021 with the specific focus of eliminating tax fraud, plugging in loopholes, and facilitating genuine taxpayers.
According to the FBR, the board invites the proposals for the coming budget for FY 2020-2021 relating to sales tax and federal excise, on six broad parameters. First, the proposals should focus on broadening the tax base and increase in revenue collection.
Second, amendments may be suggested in any of following laws/rules etc including the Sales Tax Act, 1990, the Federal Excise Act, 2005, the Sales Tax Rules, 2006, the Federal Excise Rules, 2005, and the ICT (Sales Tax on Services) Ordinance, 2001.
Third, amendments may be suggested with a view to achieve simplification, remove difficulties and anomalies, and to abolish any outdated/obsolete provisions. Fourth, wherever possible a draft proposed amendment/procedure may be enclosed along with revenue impact both in soft and hard form.
Fifth, the FBR would especially welcome proposals for eliminating tax fraud, fake and flying invoices, plugging loopholes if any, facilitating genuine taxpayers, and making the procedures transparent.
Sixth, the proposals should be made keeping in view the consequences for the other related trade groups, which might be adversely affected by the proposed measure, the FBR added.
Copyright Business Recorder, 2020
SBP PROPOSES CHANGES IN LAW TO RELINQUISH GROWTH RESPONSIBILITY
By Shahbaz Rana Published: April 11, 2020
ISLAMABAD: The State Bank of Pakistan (SBP) has proposed that it will be responsible for only price stability and has sought to abolish the dual objective of controlling inflation and supporting economic growth – a policy shift that former central bankers argue does not suit Pakistan.
The central bank has moved the proposal as part of amendments to the SBP Act of 1956 but the term “price stability” has been kept vague to avoid full responsibility, said sources in the Ministry of Finance.
They said the draft forwarded by the central bank had diluted the spirit of the accountability mechanism, if the SBP failed to achieve its single objective of price stability.
They were of the view that the focus of the amendments appeared to be on gaining more powers without achieving the inte