Akhtar says she had informed IMF about tariff revisions in energy sector, intention to impose extra taxes on various sectors
ISLAMABAD: Expressing the commitment to further hike electricity and gas tariffs, caretaker Minister for Finance Dr Shamshad Akhtar has said that the caretaker government plans to increase gas prices in January next year to address the circular debt issue.
Addressing a press conference here at the Q Block on Thursday, she said that under the International Monetary Fund (IMF)’s Stand-By Agreement Programme (SBA), it has been agreed to reduce costs in the energy sector and restore efficiency in the sector. “The circular debt of the power and gas sectors has crossed 4 percent of Gross Domestic Product. Urgent action is needed to bring it down. We have started work in this regard and electricity and gas rates have been adjusted accordingly,” she added.
Akhtar said that she had informed the IMF about tariff revisions in the energy sector and the intention to impose extra taxes on various sectors, including real estate and retailers, but no decision has yet been made. The interim minister said that Pakistan would have to go into a medium-term fresh bailout package from the IMF in the wake of fragile macroeconomic stability. “Pakistan requires a fresh short-term IMF programme as the country cannot run without it keeping in view of the fragile macroeconomic stability,” Akhtar said. She hastened to add in the same breath that Islamabad would have to go for another medium-term programme probably under Extended Fund Facility (EFF) programme.
She said the caretaker government postponed its plan to launch an international bond of $1.5 billion keeping in view higher interest rates at global levels, adding that the government would repay the outstanding $1 billion bond on its maturity in April 2024 within the stipulated timeframe. The minister said the FBR’s envisaged tax target of Rs9.4 trillion would be achieved but it was not yet decided which areas would be further brought into the tax net in case of requirement of additional taxation measures. She clarified no new prior action was needed to get approval of the next tranche from the IMF’s Board.
On the question of the external financing gap, Finance Secretary Imdad Bosal said the successful review of the IMF would unlock programme and project loans from multilateral lenders, including the World Bank (WB), Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), and Islamic Development Bank (IsDB). He hoped that reduction in the current account deficit would scale down the external financing requirement. “There is no gap on the external financing front as processing of the programme loans from WB and ADB as well as co-financing from AIIB were at advanced stages and would now be approved in December this year,” he added.
The WB is expected to approve a $350 million loan under RISE-II with co-financing of $250 million from the AIIB, and $350 million from the ADB under Domestic Resource Mobilisation (DRM). He said with reduction in the current account deficit, the overall external financing requirement would also shrink. The commercial financing, he said, was brought down from $4.5 billion to $3.5 billion and mentioned without naming the two institutions moving at an advanced stage.
After the IMF review, he said it was expected that Pakistan’s ratings would improve helping Islamabad to generate the desired dollar inflows in the shape of securing foreign loans.
The caretaker finance minister said the WB was expected to disburse $2 billion in loans during the current fiscal year. The foreign exchange reserves, she said, would build up next month after approval for $700 million tranche from the IMF, so the total disbursement would go up to $1.9 billion out of $3 billion under the SBA programme.
The additional secretary of external finance said it was hoped that the interest rate would ease down in the second half of the current fiscal year after which the government might explore options to launch ESG bonds in the international market.
Shamshad Akhtar hoped that inflation was expected to come down owing to compressed demands and removing supply-side constraints. When her attention was drawn towards raising the administrative prices of electricity and gas, she said that the overall trajectory of inflation would come down on average. She said imposition of a 40 percent windfall tax on banks was expected to fetch tax revenues of Rs30 to Rs35 billion for the current fiscal year. The exchange rate would be determined on the basis of demand and supply and day-to-day rates could not be managed under the IMF programme. If the dollar inflows are improved, then the market would remain stable, she added.
Shamshad Akhtar said the IMF’s Executive Board was expected to grant its approval within a month but so far the board’s calendar was not confirmed. She was of the view the gas utilities demonstrated a lot of improvements but conceded that these SOEs deteriorated mainly because of inefficiency and hiring of staff on political grounds.
Meanwhile, speaking at The Future Summit in Karachi, Dr Shamshad Akhtar hoped to unlock the multilateral quick financial assistance following the release of $700 million from the IMF. She said the caretaker government has taken a lot of proactive measures to stabilise the economy and build market confidence. At the core of the government stabilisation efforts is the $3 billion SBA programme approved in July 2023. This led to an initial disbursement of $1.2 billion by the IMF, she added.
Akhtar said it also gave confidence to the friendly countries when Pakistan received about $3 billion in bilateral assistance at the same time.
She also said that under the Special Investment Facilitation Council (SIFC), a transaction pipeline has been established to accelerate investments in critical infrastructure, encompassing projects such as the $10 billion Saudi Aramco Refinery. “The transaction pipeline also incorporates leasing of 85,000 acres of agricultural corporate farms to potential foreign investors,” she added.
Akhtar said the financial inclusion strategy focuses on using digital platforms and non-banking channels to bring financial services to the masses. To tackle this challenge, the authorities launched an ambitious National Financial Inclusion Strategy in 2018.
The minister expressed concerns that the investment-saving gap has become more acute in the last three decades, significantly limiting the growth potential of the economy. About structural weaknesses of SOEs and reducing the drain on the budget, she said the caretaker government is focused on operationalising the Centralised Monitoring Unit (CMU), which will monitor the SOEs and publish regular reports on financial performance and contingent liabilities. “We are in the process of finalising a SOE policy under the SOE law as agreed with the IMF. The focus of policy is on improving governance and financial efficiency of loss-making SOEs,” she said.
Meanwhile, Chief of Army Staff (COAS) General Asim Munir reiterated the Army’s undaunted resolve to back the government initiatives in various domains for sustainable recovery of the economy.
The army chief reassured the Army’s resolve during the 7th meeting of the SIFC’s Apex Committee meeting, chaired by Caretaker Prime Minister Anwaar-ul-Haq Kakar, to review various initiatives being led through the forum. The meeting, according to a statement released by the Prime Minister’s Office (PMO), was attended by members of the federal cabinet, provincial chief ministers and various high-level government officials.
During the meeting, the ministries presented progress on projects identified in key sectors and gave plans to further improve the ecosystem for realising the envisaged investments in a timely manner. “The committee showed extreme satisfaction on overall progress under the umbrella of SIFC, appreciated the enhancing level of engagements with friendly countries, both public and private entities, and outreach strategy to proactively engage investor’s community, which is translating in enhanced traction and approvals at domestic and global stage,” the PMO said.
Moreover, it reviewed the progress on various measures undertaken to improve the investment climate and approved policy-level interventions to further improve investors’ confidence including repatriation of profits, strengthening domestic dispute resolution mechanisms, infrastructural and human resource development, and speedy operationalisation of EXIM Bank.
The committee also directed the authorities to make a comprehensive strategy to address oil and gas issues in a sustainable manner by investing in relevant industries. Furthermore, it reviewed and appreciated the progress on the privatisation of state-owned enterprises and directed to keep the process at a fast pace.
Interim PM Kakar directed all the stakeholders to “vigorously pursue SIFC’s initiatives through a collaborative approach to reap the dividend” in short- to medium-terms besides, initiating processes for long-term endeavours in greater interest of the country.