May 2020



Mubarak Zeb Khan Updated May 27, 2020

ISLAMABAD: With eyes fixed on the upcoming budget, the Ministry of Commerce has evolved a comprehensive tariff policy including reducing customs and regulatory duties on raw materials and semi-finished products.

The plan is being developed for budget 2020-21 in a fashion to mitigate the impact of Covid-19 and encourage import substitution of major consumer items in the country, Commerce Adviser Abdul Razak Dawood told Dawn on Tuesday.

He said that as part of reforms his ministry has identified almost 1,600 tariff lines for duty reduction in the upcoming budget. These tariff lines are related to raw materials and semi-finished products, which are currently subject to a customs duty of more than 5pc and additional customs duty.

In the last budget, Dawood said his government had reduced customs duty to zero per cent on 1,638 tariff lines, which involved mostly raw materials. “For this year, we are considering to reduce duties on an almost similar number of tariff lines,” he said, adding nothing has been finalised as yet.

At the same time, he said the commerce ministry will also identify tariff anomalies for rectification in the upcoming budget. “We have already identified a number of anomalies in consultation with relevant stakeholders.”

Since November 2019, the adviser said his ministry has started consultations with the stakeholders to get their proposals. “We will try to consider all their recommendations in the upcoming budget,” the adviser said.

He said that in the next two budgets — 2020-21 and 2021-22 — the tariff rationalisation plan will be completed and the main focus of the reforms is to promote “Make in Pakistan”.

The adviser claimed that in the pre-coronavirus period, deindustrialisation trend was halted by the ruling government. “It was one of our major achievements”, he said. However, he said that there is now a great pressure on the domestic industries in the post-pandemic world.

According to Dawood, the focus of tariff reforms in the next budget is reducing the input cost of industries. “Now there is a pressure on Make in Pakistan,” he said, and his ministry will concentrate on domestic commerce to consider all-out support for industries.

He said the revival of industries will help to provide employment opportunities for those who lost their jobs due to the coronavirus outbreak in the country and subsequently lockdown.

Pakistan imports consumer items, most of which are from China. There is a big scope for import substitution as most of the products require simple technology.

The country spends millions of dollars every year on importing consumer items like value-added food products, personal care, home appliances and other household items.

Electronic appliances, rubber tyres, pharmaceutical items, plastic toys, tupperware, earphones, bulbs, handbags, stationery — are already being imported from China in bulk.

In the early 1980s, the import substitution policy was replaced by export-oriented industrialisation which instead created an import-oriented economy. The Covid-19 again set the stage for reversing the trend to import substitution in the country.

Published in Dawn, May 27th, 2020


By Shahid Javed Burki Published: May 27, 2020

Pakistan has a debt problem. It owes the world much more than the amount it can afford to pay without hurting its medium- and long-term economic and social prospects. Some of what is owed was not well used. The impressive advance the country has made in developing its political system could also be negatively affected. International action in the form of debt-forgiveness needs to be taken to make it possible for the country to move forward. As is the case with many other developing nations, Pakistan will be seriously hurt by the way the global economy is impacted by the coronavirus pandemic.

The world is clearly moving towards a deep recession — possibly a depression even severer than the one it faced in the 1930s — unless collective action is taken by the global community. This would require leadership of the type the United States provided during the 1930s Depression and again after the end of the Second World War. That is not expected from President Donald Trump’s America. Under Trump, the US is moving to pull down some of the important pillars of the international economic and social system that were built painstakingly over several decades after the end of the Second World War. The US does not feel it needs to or can work with a number of international organisations. Washington is ignoring the World Trade Organization (WTO) created in 1995 after several rounds of international trade negotiations. The WTO required its members to trade on the basis of the rules to which the member states had agreed. However, Trump’s “America First” approach violates the rule-based international commerce the WTO oversees. The World Health Organization (WHO) is another institution against which Trump is moving. Always looking for somebody to take the blame, he holds the Geneva-based organisation for his administration’s poor management of the coronavirus pandemic.

There was some international action on helping the developing world to deal with the economic consequences of the coronavirus pandemic. It was prompted by French President Emmanuel Macron who telephoned Trump to call both G7 and G20 groups of nations to meet to discuss what needed to be done. Trump agreed with some reluctance but asked Macron to organise such meetings. That was done. One of them was on April 15, 2020 when the G20 leaders met “virtually” at which they decided to provide debt relief to the world’s lowest income countries by suspending debt payments until the end of 2020.

This decision was well received by the leaders of the developing world, including Imran Khan and Abiy Ahmed, the Prime Ministers of Pakistan and Ethiopia respectively. The former was the recipient of the Nobel Peace Prize in 2019 and has a voice — as does Imran Khan — in world affairs.

The Ethiopian leader had an article published in The New York Times in which he applauded the decision by G-20 but urged the rich nations to go further. “But if the world is to survive the punishing fallout of the pandemic and ensure that economies of the countries like mine bounce back, this initiative needs to be even more ambitious,” he wrote in the newspaper article. “At the very least the suspension of debt payments should last not just until the end of 2020 but rather until well after the pandemic is truly over. It should involve not just debt suspension but debt cancellation. Global creditors need to waive both official bilateral and commercial debt for low-income countries. These steps need to be taken with a sense of urgency. The resources freed up will save lives and livelihoods in the short-term, bring back hope and dynamism to low income economies in the medium term and enable them to continue as the engines of sustainable global prosperity in the long term.”

The Prime Minister rightly focused on two aspects of the recent African experience. He recalled that in October 2019, the International Monetary Fund (IMF) reported that the five fastest growing countries in the world were in sub-Saharan Africa. But this performance would be short-lived if the international community did not act to save these countries from the ravages of the pandemic. “Most of our countries managed to borrow funds on the back of solid economic performance and evidence-based development programmes and trajectories. No body foresaw this promise being derailed by an event such as the coronavirus pandemic.” In his article, the Ethiopian Prime Minister promised that the returns from debt relief would be used in social sectors.

How poor countries are dealing with the steps they have had to take to deal with the pandemic crisis was well illustrated by the front-page story about Pakistan’s education sector in The Washington Post on May 20. Partial coronavirus lockdowns in Pakistan have put millions of people out of work and have pushed as many as 10 million Pakistanis into poverty. The Post story described what the government in Pakistan is doing to provide some education to the children as it closed schools to deal with the coronavirus pandemic. Pakistan spends little on social sectors with the result that its large and rapidly growing population is underdeveloped. More than 40% of the country’s school-going children don’t attend school, the second highest rate in the world. And even for those who do get to schools, literacy rates suggest that many are not learning. This is in part due to the poorly trained teachers and also because instruction is provided in Urdu, the national language, spoken in fewer than 10% of the households.

By closing schools as a part of the response of the lockdown, the educational system has come under even greater stress. The government is attempting to address the situation by investing in creating a TV channel that is attempting to provide some education to tens of millions students who have lost access to classrooms. Programmed with content for kindergartens through high school, it provides each grade one hour of curriculum per day, so students have to watch in shifts. But the access is limited since about 36% of Pakistani households have broadband internet access but only 15.5% of the population actually uses the Internet.

With President Trump totally contemptuous of any form of international action to deal with the problems that require global solutions, China is likely to step into the void. That will happen only after Beijing has been able to fully explain its initial response to the appearance of coronavirus in the industrial city of Wuhan in central China. In the meantime, some international institutions such as the IMF and the World Bank have announced the actions they plan to take. On May 19, David Malpass, the World Bank President, announced the launch of a $160 billion programme of assistance that would disburse the money over a period of 15 months. Quick disbursements will necessarily include tackling with the debt problem that so many developing countries including Pakistan have to deal with.

Published in The Express Tribune, May 27th, 2020.


By Shahbaz Rana Published: May 29, 2020

ISLAMABAD: Pakistan has planned to raise $1.5 billion by floating Eurobonds in the next fiscal year after the decision to give preference to hot foreign money over $3 billion worth of bonds in the outgoing fiscal year proved costly.

The $1.5-billion borrowing by floating sovereign bonds is part of fiscal year 2020-21 external inflows that the government will receive to meet external debt obligations and build foreign exchange reserves, highly placed sources in the Ministry of Finance told The Express Tribune.

The plan had also been shared with Prime Minister Imran Khan before Eidul Fitr, said the sources.

In budget estimates, the government had also planned to raise $3 billion by floating sovereign bonds in fiscal year 2019-20, ending June 30. But it dropped the plan to raise money from international capital markets after the process of hiring financial advisers to do the job.

The central bank and the Ministry of Finance were of the opinion that the issuance of Eurobonds in the current fiscal year may discourage hot foreign money inflows, the sources said. A top government functionary, who remained part of deliberations, said on condition of anonymity that both the government and the SBP management concluded that some of the funds and institutions that were investing in government securities would also invest in Eurobonds, therefore, it would be prudent to drop the bond float plan.

The money raised through sovereign bonds is payable either in five, seven or 10 years and the government’s decision to give preference to hot foreign money that hardly stayed for three months in most cases raises transparency questions.

“When relatively cheaper longer-term money in the shape of Eurobonds was available, which was neither volatile nor threatening foreign exchange stability, why the government did not avail it,” asked Dr Zubair Khan, former minister for commerce. “Apparently, it was financial wrongdoing and the government should order a forensic audit of the hot foreign money inflows,” he said.

The Express Tribune sent a set of questions to the Ministry of Finance last Saturday but it did not respond till the filing of the story.

The finance ministry had been requested to comment whether it was correct that the decision to postpone the Eurobonds, which was originally scheduled for November 2019, was taken due to the SBP’s preference for hot foreign money.

The Ministry of Finance also did not answer as to why it halted the process initiated in September last year for hiring financial advisers for the bond float. It failed to respond whether the bond issue was cancelled on the assumption that it would cannibalise the hot foreign money.

In October last year, top European, American and Chinese banks submitted bids for being hired as financial advisers to float the sovereign bonds. For raising $2 billion through Euro and Sukuk bonds for easing the balance of payments position, November 15, 2019 had been set as the date to close these transactions.

Then in February this year, the Ministry of Finance told The Express Tribune, “Due to availability of low-cost external inflows from multilateral and bilateral sources, the government decided to offer Eurobonds later in the financial year.”

However, due to the situation arising in the wake of the Covid-19 spread that rattled global markets and also hit Pakistan’s macroeconomic indicators, it was found unfeasible to float the bonds in such critical times.

Hot foreign money pattern

Sources said the Ministry of Finance and the SBP management had started holding meetings with foreign investors during their visits to the United States aimed at convincing them to invest in government securities.

Three key factors played the role in getting the hot foreign money – a very lucrative rate of return that the central bank set by keeping interest rate high at 13.25% till March 17, a stable exchange rate and very low tax obligations with no requirement to file annual income tax returns, said the sources who remained involved in the process. After Pakistan delivered on all these three parameters, the foreign investors started investing in the country. In November last year when Pakistan had a plan to issue up to $2 billion worth of Eurobonds, it received $713.2 million in hot foreign money, showed the central bank data.

The country received $819 million in the next three months but by this time the outflows had begun due to the overall panic caused by the Covid-19 outbreak that shook global markets and sparked a phased reduction in interest rate by the central bank to support Pakistan’s economy.

The SBP data showed that in February the foreign investors withdrew $263 million and they pulled out another $1.8 billion in March and $571 million in April.

As against cumulative inflow of $3.64 billion into government securities, the foreign investors withdrew $3.03 billion by May 20 this year, leaving Pakistan with only $610 million. Most of the hot foreign money flew back when the exchange rate was either stable at Rs154.5 to a dollar or started depreciating towards Rs159.1. A lower value of the rupee against the greenback causes more losses to the foreign investors.

In order to fill the gap due to the hot foreign money outflow, Pakistan had to secure a $1.4-billion emergency loan from the International Monetary Fund (IMF) in April that helped keep official foreign currency reserves at around $12 billion.

The SBP governor has a couple of times said that Pakistan is a free economy and it cannot stop anybody to invest in government securities.

The Express Tribune sent four questions to SBP Chief Spokesman Abid Qamar on April 23 and waited for his response for five weeks. He did not respond to the questions despite repeated requests. He was requested to comment whether the SBP governor met with people from BlackRock Investment, JP Morgan and Citibank during his overseas trips between August and December 2019.

The SBP spokesman also did not share details of investments made by BlackRock, JP Morgan and Citibank out of the total $3.6 billion investment in debt securities.

Published in The Express Tribune, May 29th, 2020.,outgoing%20fiscal%20year%20proved%20costly.


By Shahbaz Rana Published: May 31, 2020

ISLAMABAD: Pakistan plans to seek $15 billion gross foreign loans in the next fiscal year aimed at servicing its maturing external public debt and building official foreign exchange reserves in the absence of non-debt creating inflows.

Out of the $15 billion estimated external borrowings in fiscal year 2020-21, nearly $10 billion or – two-thirds, will be used to return the maturing loans, excluding interest payments, said sources in the Ministry of Finance. The remaining slightly over $5 billion will become part of the external public debt that has already increased to $86.4 billion as of end March this year.

The estimated $15 billion borrowings will be the highest loans to be taken by the country in a single year, highlighting challenges that every government faced due to the deepening debt trap. The Pakistan Tehreek-e-Insaf government, like its predecessor, has also remained unable to fully capitalise non-debt creating inflows like exports, remittances and foreign direct investment.

Because of inability to enhance non-debt creating inflows, Pakistan’s $12 billion gross official foreign currency reserves held by the State Bank of Pakistan (SBP) are largely the product of borrowings – a phenomenon that was also common in the Pakistan Muslim League-Nawaz (PML-N) era.

For fiscal year 2020-21, the International Monetary Fund (IMF) has projected SBP’s reserves at $15.6 billion in its April report, which will again be impossible without borrowings, as the Fund sees only a slight increase in exports and marginal decline in remittances in the next fiscal year.

The Ministry of Finance has estimated the gross receipts of $15 billion from bilateral and multilateral lenders, commercial banks, issuance of Eurobonds and the IMF for fiscal year 2020-21, according to the sources.

Pakistan’s heavy reliance on foreign creditors can be gauged from the simple fact that from July 2018 to June 2021, it will have taken $40 billion new loans. Out of this $27 billion would be consumed in paying old loans and rest $13 billion will be added in external public debt.

As per the official estimates, by end June this year, the PTI government would have taken nearly $25 billion loans in its tenure and $16.5 billion were to be consumed in paying principal loans.

The estimated fresh borrowing in next fiscal year will be 7% or $1 billion higher than the outgoing fiscal year’s revised estimate of $14 billion worth of external inflows, said the sources.

Pakistan is currently under the IMF programme but the programme technically remains suspended for the last few months. The PTI government is trying to revive it from July by fulfilling the IMF’s conditions in the upcoming budget.

The materialisation of the $15 billion external loans will also depend upon the revival of the IMF programme, as the government has included loans from the IMF and budgetary support from the World Bank and the Asian Development Bank (ADB).

Pakistan expects to receive $2.1 billion from the IMF in the next fiscal year, subject to successful completion of quarterly reviews. This year the IMF gave $2.8 billion, including $1.4 billion emergency Covid-19 assistance.

The government still has a plan to borrow $3.4 billion from foreign commercial banks, which will essentially be rollovers of the existing commercial loans. If Pakistan avails the G-20 debt relief, it may not be able to contract fresh commercial loans till December 2020.

The bilateral inflows are estimated at just $770 million due to completion of major ongoing projects of China Pakistan Economic Corridor.

Pakistan has estimated $6 billion loans from the multilateral creditors in next fiscal year. The ADB is expected to lend $1.4 billion as against $2.8 billion in this fiscal year. The World Bank may extend $2.9 billion in new loans after all its policy loans did not materialise in this fiscal year, said the sources.

The Islamic Development Bank is expected to extend $1 billion in fresh loans and $500 million receipts are estimated from Asian Infrastructure Investment Bank (AIIB), said the sources.

The government also has a plan to float $1.5 billion Eurobonds in the next fiscal year after it could not float $3 billion Eurobonds this fiscal year. It has to be seen whether the government can venture in international capital markets before December 2020 due to its decision to avail debt relief from G-20 nations.

Published in The Express Tribune, May 31st, 2020.



By Irshad Ansari Published: May 11, 2020

ISLAMABAD: The International Monetary Fund (IMF) has increased the tax collection targets for Pakistan for the current financial year 2019-20 by Rs109.45 billion to Rs4,017 billion. Due to coronavirus outbreak, the target was reduced to Rs3,908 billion but now it has been revised upward to Rs4017.46 billion.

The Federal Board of Revenue (FBR) has forwarded a summary for the increased tax collection targets, a copy of copy of the summary available with The Express Tribune, which directed its field formations to revise their respective tax collection targets.

Sources said that the target for income tax and federal excise duty (FED) had been reduced to Rs99.714 billion and Rs50.53 billion, respectively, while the targets of sales tax and customs duty was increased to Rs172.22 billion and Rs87.48 billion, respectively.

The tax collection targets for the current month (May) and next month (June) had also been increased by Rs25 billion and Rs42.46 billion, respectively. Similarly, the targets for income tax and the federal excise duty for May had also been increased.

According to the summary, the FBR had set a revenue target of Rs957 billion for the last quarter [April-June 2020] with an increase of Rs109.458 billion over the previous target of Rs847.54 billion. The new target boosts the entire financial year’s collection target to Rs4017.45 billion.

The share of direct tax [income tax] had been cut by Rs.99.714 billion to Rs1,523 billion from the previous target of Rs1,623 billion, while the target of sales tax collection is increased by Rs172 billion to Rs1,599.22 billion.

The target for receipts in terms of federal excise duty had also been cut from Rs312 billion to Rs261 billion, down by Rs50.52 billion. However, the target for customs duties had been increased from Rs546 billion to Rs633.48 billion with an increase of Rs87.47 billion.

The document further states that the FBR has also revised its tax collection target for this month (May) by Rs25 billion to Rs275 billion from the previous target of Rs250 billion. For the month of June, according to the document, the target had been raised from Rs397.542 billion to Rs440 billion.

The FBR has directed the field formations to ensure that the tax collection targets were achieved, the sources said, adding that the revisions in the targets were made in the light of the recent video link talks with the IMF.


Shahid Iqbal Updated May 12, 2020

KARACHI: Remittances during the first 10 months of the current fiscal year rose 5.5 per cent, data released by the State Bank of Pakistan (SBP) showed on Monday.

On a month-on-month basis, remittances in April fell to $1.79bn from $1.894bn in March mainly due to sharp global economic contraction due to the pandemic.

The country received $18.78bn during July-April against $17.8bn in the same period last fiscal year. The growth in remittances during the 10 months under review declined to 5.5pc from 8pc last year.

The Covid-19 related impacts have the potential to drag down remittances as millions of migrant workers have lost their jobs across the world particularly in the Middle East where more than 2m Pakistani workers are employed. The World Bank also warned that the remittances to South Asian nations including Pakistan could fall by 22pc during the current year due to Covid-19 related impacts.

April data, however, shows that remittances from almost all destinations remained high. Currency traders were anticipating a much larger impact in April but the seasonal increase due to arrival of Eid — which traditionally sees an increase in remittances — seems to have helped sustain the growth rate.

During the 10 months, highest remittances were received from Saudi Arabia at $4.377bn, showing a growth of 4.8pc compared to 2pc in the same period last fiscal year.

Hundreds of thousands of jobs in the Middle East are at stake particularly due to extremely low oil prices which slashed the leading source of revenues for oil-based economies like Saudi Arabia, Qatar and United Arab Emirates.

Remittances from the United States jumped 21pc to $3.82bn during the 10 months of this fiscal year. In addition, remittances from the United Kingdom — worst affected by the pandemic — increased slightly despite remaining lower than last year’s growth rate of 16.6pc.

Remittances from the UAE also increased by 3.2pc to $3.9bn compared to 4pc growth noted in the previous year.

Pakistan received $1.779bn from Gulf Cooperation Council countries, $515m from the European Union and $1.242bn from Malaysia.

So far, Pakistan has succeeded in narrowing its current account deficit, reducing its imports and increasing foreign exchange reserves.

But analysts believe that remittances could fall this year due to massive fall in the oil prices and huge joblessness of over 30.4m in the United States.

Published in Dawn, May 12th, 2020


By Shahbaz Rana Published: May 12, 2020

ISLAMABAD: Pakistan does not have a plan to seek the rescheduling of commercial loans and its future borrowing will largely be limited to repaying the maturing debt, Finance Adviser Dr Abdul Hafeez Shaikh said while talking to two ambassadors of G20 nations.

German Ambassador Bernhard Stephan Schlagheck and French Ambassador Dr Marc Barety met on Monday with Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh to know about Islamabad’s debt management strategy in the wake of the coronavirus pandemic.

“Pakistan is not going for any commercial loan rescheduling until now,” a finance ministry statement quoted the adviser as saying.

Out of the $74-billion external public debt as of December 2019, 23% or $17 billion is commercial debt obtained from foreign commercial banks and by floating sovereign bonds, according to the Economic Affairs Ministry. This includes nearly $10 billion in commercial loans and $7 billion worth of Eurobonds.

Pakistan’s total debt-to-gross domestic product (GDP) ratio is projected to jump to 90% by the end of next month due to a steep reduction in tax revenues and a growing debt servicing cost because of ill-advised monetary policies.

The Finance Division would adhere to requirements of the Debt Limitation Act before planning to take additional burden as most of the loans would be for the purpose of clearing the old debt stock, said the finance adviser.

However, successive governments have been violating the Fiscal Responsibility and Debt Limitation Act 2005. Under the law, Pakistan’s debt-to-GDP ratio should not be more than 60% – the threshold that the Pakistan Peoples Party (PPP), Pakistan Muslim League-Nawaz (PML-N) and Pakistan Tehreek-e-Insaf (PTI) governments have not been able to achieve.

The ambassadors of G20 member countries met with Shaikh 10 days after Pakistan formally requested the G20 to reschedule its debt maturing between May and December 2020. The ambassadors discussed details of the debt rescheduling offered by G20 countries and the need for any further loans, said the finance ministry.

The adviser said Pakistan’s firm stance in favour of debt rescheduling at the G20 forum was based on the belief that poorer countries genuinely required the assistance, though Pakistan had specifically benefitted lesser from the said relief.

“The $1.8 billion due in debt servicing to G20 countries till December 2020 is in the process of rescheduling,” said the finance ministry.

Pakistan sent formal requests to individual countries on May 1 under the G20 Covid-19 Debt Service Suspension Initiative. G20 countries have responded to the requests and modalities will now be finalised.

Pakistan will have to repay $1.8 billion to 11 members of G20. This includes $1.47 billion in principal loan repayment and $323 million in interest on loans. Also, $613 million worth of Saudi Arabian debt and $309 million in Chinese debt will mature.

In this period, Pakistan is required to return $23 million to Canada, $183 million to France, $99 million to Germany, $6 million to Italy, $373 million to Japan, $47 million to South Korea, $14 million to Russia, $1 million to the UK and $128 million to the US.

Shaikh appreciated the support offered by the friendly countries, saying he hoped that the cooperation would continue in future as well for the benefit of people of the three countries. Under an IMF condition, $7.5 billion worth of loans that the PTI government secured from China, Saudi Arabia, the United Arab Emirates and Qatar cannot be returned during the period of the IMF programme.

These loans had been acquired for only one year to avoid default on international debt obligations but the IMF put a condition that the money would be rolled over every year until the programme ends in 2022.

Shaikh shared with the ambassadors the overall picture of Pakistan’s economy amid the coronavirus pandemic and its impact on the overall progress of the economy.

He pointed out that before the pandemic Pakistan was successfully able to control its current account deficit and expected economic growth of 3% in the ongoing financial year after observing strict financial discipline.

After the outbreak, the growth projections have become difficult to meet. Shaikh said “due to the ongoing circumstances, it is expected that growth might be between negative 1% and negative 1.5%”, said the finance ministry.

Published in The Express Tribune, May 12th, 2020.


By Salman Siddiqui Published: May 15, 2020

KARACHI: Moody’s Investors Service – one of top three global credit rating agencies – has put Pakistan under watch for possible downgrade of its long-term local and foreign credit ratings, suspecting that Islamabad may default on debt repayments to “private sector creditors” due to economic mess under the coronavirus pandemic.

“Moody’s has placed the government of Pakistan’s local and foreign currency long-term issuer and senior unsecured B3 rating under review for downgrade,” the US-based rating agency announced on Thursday.

“Consistent with Moody’s approach globally, the review period will allow the rating agency to assess whether Pakistan … would likely entail default on private sector debt,” it said. The rating agency, however, did not mention the duration of the review period, as to how long it would monitor Islamabad’s debt repayment activities and when it would announce its final decision regarding downgrade.

Moody’s said Pakistan had improved its economic indicators well before the outbreak of Covid-19 late in March and was still capable of continuing to pay off the debt on time.

However, the possible deterioration in the country’s current account deficit, likely depletion in its foreign currency reserves and low tax and non-tax revenue collections due to limited economic activities and anticipated contraction in the domestic economy may weaken the government’s ability to continue paying off the debt on time, going forward, the agency said.

Moody’s alert may turn the rupee-dollar exchange rate volatile and may increase cost of new foreign borrowing for the country in international markets, an analyst said.

Moody’s said the decision to place the ratings under review for downgrade reflected its expectation that the government would request for bilateral official sector debt service relief under the recently announced G20 initiative.

“Suspension of debt service obligations to official creditors would be unlikely to have rating implications; indeed such relief would increase the fiscal resources available to the government for essential health and social spending due to the coronavirus outbreak,” it said.

“However, G20 has called on private sector creditors to participate in the initiative on comparable terms. Consistent with Moody’s approach globally, the review period will allow the rating agency to assess whether Pakistan’s participation in the initiative would likely entail default on private sector debt, notwithstanding the intended voluntary nature of private sector participation and the fact that the country has not, to Moody’s knowledge, indicated interest in extending the debt service relief request to the private sector; and, if so, whether any losses expected to arise from that participation would be consistent with a lower rating,” it said.

The G20 call for the private sector creditors to participate in the initiative on comparable terms “suggests that, for the countries that elect to seek official sector debt service relief, the initiative may also lead to the suspension of payments or renegotiation of private sector debt service obligations. It is in this context that Moody’s has placed Pakistan’s ratings under review,” the agency said.

“Pakistan has not indicated any interest in extending the debt service relief to include private sector creditors,” it said.

“The rating would likely be downgraded should Moody’s conclude that participation in the G20 debt service relief initiative would probably entail default on private sector debt and that losses experienced would likely exceed the threshold consistent with a B3 rating,” it said.

“The rating would likely be confirmed at its current level (stable at B3) should Moody’s conclude that participation in bilateral official sector debt service relief would unlikely entail default on private sector debt or, if it would, that any losses experienced would likely be minimal.”

The rapid spread of the coronavirus, sharp deterioration in the global economic outlook and a significant reduction in risk appetite are creating a severe economic and financial shock. “For Pakistan, the current shock transmits mainly through a sharp slowdown in economic activity, lower tax revenue as economic activity slows, and higher government financing needs relative to pre-coronavirus levels,” it said.

“However, ongoing reforms that pointed to nascent improvement in credit fundamentals before the outbreak and financing from development partners contain the pressure on the sovereign’s liquidity and external positions.”

Moody’s expects Pakistan’s economy to contract by around 1% in fiscal year 2020 (ending June 2020) and to grow by 2-3% in fiscal 2021 – below potential.

The economic slowdown will weigh on government revenue and modestly raise spending, in turn pushing the fiscal deficit wider to close to 10% of GDP in fiscal year 2020.

As a result, Moody’s projects the government’s debt burden will reach around 85-90% of GDP in fiscal year 2020. However, the government’s commitment to fiscal reforms, including under its 2019-22 International Monetary Fund (IMF) programme, provides a crucial anchor for the continued expansion of its revenue base when economic activity gradually normalises.

“Overall, Moody’s expects that the debt burden will return to a downward trend after the initial shock.”

Published in The Express Tribune, May 15th, 2020.


By Salman Siddiqui Published: May 16, 2020

KARACHI: The government has planned to raise over Rs3 trillion from Shariah-compliant and commercial banks by the end of July in a bid to bridge the shortfall in estimated expenditures to fight the coronavirus and fuel economic activities.

The government will borrow a total of Rs3.025 trillion through multiple auctions of three-month to 20-year treasury bills and sovereign bonds. Around 66% (Rs1.985 trillion) of the debt will be utilised to retire the maturing debt taken from banks, the State Bank of Pakistan (SBP) reported.

The remaining Rs1.040 trillion will be spent to overcome the shortfall in government expenditures.

“The additional debt will apparently be utilised to fight the Covid-19,” Next Capital Managing Director Muzammil Aslam said while talking to The Express Tribune.

The cash-strapped government has recently announced a relief package of Rs1.2 trillion for industries and daily-wage earners to support them under the lockdown imposed in late March to contain the spread of coronavirus in the country.

Separately, the Economic Coordination Committee (ECC) of the cabinet approved a Rs50-billion agricultural package on May 13 to provide subsidy on fertilisers, pesticides, cottonseeds and withdrew general sales tax (GST) on tractors.

The government has also announced that it will pay electricity bills of small and medium-sized enterprises (SMEs) worth Rs50 billion. It needs funds to stimulate the economy and borrowing from banks is one of the options amid low tax and non-tax revenues.

The circular debt in the power sector is another challenge which also forces the government to borrow funds to ease the liquidity crunch faced by energy firms like oil marketing companies and power producers.

Aslam, however, warned that subsidies and relief packages for industries and agriculture may trigger a new wave of inflation in the absence of enhanced industrial and agricultural production.

“Too much money chasing too few goods may increase inflation if the production remains suspended,” he said.

The SBP said the Ministry of Finance had planned to raise Rs2.275 trillion through multiple auctions of three to 12-month treasury bills between May and July. Around Rs1.813 trillion will be utilised to retire the maturing debt by July.

It has planned to raise Rs225 billion through auctions of five-year government of Pakistan Ijara Sukuk (Islamic bond). Meanwhile, Rs71 billion will be utilised to pay off previous debt.

It will borrow Rs375 billion through auctions of three to 20-year Pakistan Investment Bonds (PIBs) at a fixed rate or return ranging from 9-11% against the maturing debt worth Rs101.4 billion from May to July.

Besides, the government has planned to raise Rs150 billion through auctions of 10-year PIBs at a floating rate of return. The SBP notification announces a coupon rate of 14.0499%.

Under the tenure of Pakistan Tehreek-e-Insaf (PTI) government, the domestic debt has increased by a staggering Rs5.933 trillion, or 35%, in two years to Rs22.937 trillion by the end of March 2020 compared to Rs17.005 trillion in June 2018, according to the central bank.

The growth in debt came in the wake of low collection of revenues. A large number of people, feudal lords in the agriculture sector and industrialists in the informal sector do not pay due taxes. The government largely earns revenue through indirect taxes.

The overall revenue collection surged around 40% in the first half (Jul-Dec) of current fiscal year ending June 30, 2020. The economy was ready to take off as many economic indicators had returned to the growth path.

However, the coronavirus badly hit economic activities in the country. The economic growth is estimated to be in the range of negative 0.5-1.5% in the current fiscal year after a gap of 68 years.

Published in The Express Tribune, May 16th, 2020.



By MUHAMMAD SALEEM on May 4, 2020

Foreign Minister Shah Mehmood Qureshi said on Sunday that there is forecast of three-percent contraction in the world economy involving trillions and this economic slide would leave impact on Pakistan’s and other economies due to COVID-19.

“Economic slow-down would deplete our foreign reserves as Pakistani labour in the Middle East was laid off as a result of the coronavirus outbreak,” he said while talking to media during his visit to the Services Institute of Medical Sciences (SIMS) here today.

Answering a question, Qureshi said the government has to fight both against coronavirus and hunger. He said the traders are wary of the economic impact of the COVID-19 pandemic and want the lockdown to be relaxed to keep the wheel of economy moving. However, he said the government would evolve a national strategy based on the holistic picture taking into consideration all pros and cons. He maintained that COVID-19 pandemic is a long battle and it may take six months or more to defeat the deadly virus.

He said that Prime Minister Imran Khan raised voice for the Pakistan and 75 other countries when he asked the G-20 to give debt relief in the wake of coronavirus pandemic so that the money could be used to strengthen healthcare facilities for the masses.

The minister said the world is resorting to smart lockdown which practices variations in lockdown and eases lockdown in the areas with less number of coronavirus cases. Prime Minister Imran Khan believes that a government cannot be inconsiderate to the economic impacts on the people in its decision to impose lockdown, he said.

When asked about accountability of sugar mafia, the minister said that Pakistan Tehreek-e-Insaf (PTI) believed in across the board accountability and the forensic audit report on sugar would be made public in three weeks’ time.

Talking about India, the minister said: “India had not mend its ways despite the global pandemic and unleashed a new wave of brutalities against the hapless Kashmiris in the Indian Occupied Kashmir. I have written letter to the President of the Security Council while I am in close contact with the Secretary General of the United Nations (UN) on the Kashmir issue.”

Qureshi thanked Chinese government and the people for their support in the fight against Corona. He however, said we are ready to learn from the best practices from all the countries to defeat the virus.

He also appreciated the services and sacrifices of the medical professionals in their fight against COVID-19 at home and abroad. He said the two British-Pakistani doctors laid down their lives in their fight against coronavirus as part of the National Health Services (NHS) in the United Kingdom. He said the Pakistani medical professionals across the globe had made the nation proud and they served as the ambassadors of the country at the foreign lands.

Earlier, Shah Mehmood Qureshi visited the SIMS and handed over Personal Protective Equipment (PPEs) to the medical professionals on behalf of the Ministry of Foreign Affairs.

On the other hand, Punjab Governor Chaudhry Mohammad Sarwar while talking to the Punjab Forest Minister Sibtain Khan and others at Governor’s House said that smart lockdown’s success depends on implementation of SOPs, otherwise, it will cause more harm than good.

The Governor said that the people were facing severe economic crisis alongside serious health issues. “The industries being allowed to open up their businesses must implement the SOPs and save precious lives,” he asserted. He said that under the leadership of Prime Minister Imran Khan the government was taking steps to help all those, who lost their jobs during the ongoing pandemic crisis. The daily wagers, workers at shops and industries could get themselves registered at a separate portal in the ‘Ehsaas Kafalat Programme’ and receive Rs 12,000 financial assistance, he said.

Copyright Business Recorder, 2020


Khaleeq Kiani Updated May 05, 2020

ISLAMABAD: With more than half of the country’s total capacity charges payable to state-owned power projects, the initial resp­onse from their managements has not been very encouraging.

This was reported to the Cabi­net Committee on Energy (CCoE) meeting on Monday as it deliberated change in terms of contracts for Water and Power Development Authority (Wapda), Pakistan Ato­mic Energy Commission (PAEC) and government independent po­­wer producers (IPPs) including tho­­se being run on liquified natural gas (LNG) to cut electricity costs.

The meeting, presided over by Minister for Planning, Develop­ment and Special Initiatives Asad Umar, also discussed the idea of importing maximum oil and its products to benefit from prevailing low prices and creating additional storage capacity or bring into use unutilised storage of furnace oil, bunkers and shipping. Fi­­­nancial constraints will be the critical challenge more than the storage capacity, an official told Dawn.

The Ministry of Maritime Affa­irs submitted its report regarding the enhancement of off-shore storage capacity of imported petrol­eum products. The CCoE direc­ted the Petroleum Division to examine financial feasibility of the proposals, an official statement said.

Wapda, PAEC say no room for reductions; CPPs to rise to Rs1.7tr by 2025

Informed sources said the Power Division told the CCoE that inline with its directive last mon­th, meetings were held with Wap­da, PAEC and generation companies (Gencos) by the secretaries of Power and Finance Division, chief executive officer Central Power Pur­­chasing Agency and managing director of Private Power and Infrastructure Board (PPIB) for working out schemes for reducti­ons in their return on equity. Any cut in return on equity (ROE) will proportionately reduce non tax revenues of the government.

On the other hand, the top management of the PAEC has expressed inability to commit any cuts in returns, whether in the shape of ROE or Capacity charges, saying such a decision has to be taken at the “higher level”. PAEC is overseen directly by the Special Plans Division of the army and is looking after all matters relating to the existing and under construction nuclear power plants (NPPs). The per unit capacity cha­­­rge of existing NPPs is more than 3.40 US cents and would almost be double at 6.6 cents for upcoming mega NPPs of 1100mw each.

Wapda has also highlighted key problem areas including debt servicing and upcoming mega projects and how the net hydropower profit affected the overall tariff cost. The authority has sought time to come up with its detailed cash flow and profitability matrix.

Officials said that almost half (Rs550bn) of the more than Rs1 trillion capacity payments due in 2021 belonged to the public sector. This included projects under CPEC (Rs180bn), Wapda’s old plants Rs110bn, new Wapda projects Rs170bn and LNG projects Rs100bn.

The total public sector CPP is estimated to go beyond Rs700bn in 2023 and almost Rs850bn in 2025 against overall CPP of Rs1.5 trillion in 2023 and Rs1.7tr in 2025 because of materialization of CPEC and NPPs. It is estimated that capacity payments of all NPPs would increase from Rs90bn in FY2021 to about Rs280bn in FY2023 and beyond for few years because initial debt cost payable.

The CPP of CPEC projects is es­­t­­imated to increase from less than Rs200bn in 2021 to Rs350bn in 2023 and later under existing circumstances. The Wapda plants CPP would increase from about Rs280bn in 2021 to Rs390bn in 2023.

The Power Division had been instructed by the CCoE to consider reduction in ROE on government IPPs up to 10 per cent and fix that in the rupee terms rather than in dollars in consultation with the Ministry of Finance.

An official statement said the CCoE was apprised about the future trajectory of demand of energy in the country and the steps being taken to ensure the availability of power to various sectors and the progress being made on rationalising the energy prices in the country.

The CCoE was apprised about the progress on formulation and approval of the Renewable Energy (RE) Policy and introduction of a competitive bidding process for the entry of new producers in the renewable energy sector of Pakistan. The CCoE direc­ted the Power Division to expedite the process and report back.

The CCoE also approved the proposals of the Ministry of Power regarding the placement of various project companies in their respective categories on the basis of already specified criteria. The National Electric Power Regula­tory Authority (Nepra) apprised the meeting on the progress made on the introduction of the advance design of the Competitive Trading Bilateral Market in Pakistan.

The CCoE was briefed about steps being taken regarding the governance improvement of the power sector. It was informed that CEOs of Alternative Energy Dev­e­­­­­­lopment Board, PPIB, and Gencos have been appointed following a competitive process. The meeting was informed that progress is bei­ng made regarding the establishment of a Technical Directorate at the Ministry of Energy.

Members of the CCoE including Minister for Railways Sheikh Rasheed, Minister for Energy Omar Ayub, Minister for Mari­time Affairs Ali Zaidi, Adviser to the Prime Minister on Finance Hafeez Sheikh and Special Assistant to the PM on Petroleum Nadeem Babar attended the meeting. Officials from the power, petroleum, finance, maritime divisions and Nepra were also present.

Published in Dawn, May 5th, 2020