Bilateral debt restructuring not being considered: SBP chief

KARACHI/ISLAMABAD: State Bank of Pakistan (SBP) Governor Jameel Ahmad made it clear on Monday that Pakistan was not considering the bilateral debt restructuring that the finance minister had mentioned earlier.

Briefing analysts here, he said: “As of now there is no plan to enter into any debt restructuring. Absolutely no doubt about it. We are not considering any such plan; so there is no question of what will be the haircut.”

After presenting the federal budget for FY 2024, Finance Minister Ishaq Dar had said that the government was working on the possibility of restructuring its bilateral debt regardless of whether it successfully completes its IMF review.

The SBP governor said most of the debt is bilateral and multilateral as they have paid large amounts of commercial debt and will pay Eurobonds when due, said Topline Securities, citing the governor.

The governor said that out of the total external repayment amount of $3.6 billion due this month, $0.4 billion has already been paid. The remaining balance of $2.3 billion will be rolled over, while $0.9 billion needs to be financed.

The total debt requirements for FY2024 will amount to approximately $23 billion, according to the SBP, which will be evenly distributed across four quarters. In the next monetary policy statement, the SBP will come up with how to fund this depending upon IMF and other factors.

The governor highlighted that discussions are ongoing with IMF and hopeful that the review will conclude soon. He expected that an amount of Rs1 trillion will be transferred to government as a result of the profit earned by the SBP after retaining a certain portion during FY2024.

The SBP expects the current account deficit (CAD) for FY2023 will close to $3.5 billion (worst case $$4 billion) due to policy induce import restrictions and available liquidity (exports and remittances). The CAD for FY2024 will also be below $4 billion.

The government will decide the appropriate time to issue Eurobond keeping market fundamentals and credit rating in mind, according to Ahmad.

Earlier, the SBP left its benchmark interest rate unchanged on Monday in an effort to prevent growth from slowing further and control record inflation, signalling that the current cycle of rate hikes might be coming to an end.

When the central bank’s latest monetary policy decision was announced, the International Monetary Fund (IMF) and Pakistan’s cash-strapped government were still at odds over bailout funds.

The SBP Monetary Policy Committee (MPC) maintained the policy rate at a record 21 per cent, a decision that the markets widely expected. The SBP had raised the policy rate by 725 basis points this fiscal year to combat soaring inflation.

The probability of declining inflation, moderation in economic activity, easing current account pressures, and a slightly contractionary fiscal stance envisaged in the budget for the next fiscal year beginning on July 1 led the MPC to make this decision.

Real GDP grew by 0.3pc in FY2023, down from a revised 6.1pc growth in FY2022, according to the provisional National Accounts figures. For FY2024, the government set a growth target of 3.5pc.

“The Committee expects domestic demand to remain subdued amid tight monetary stance, domestic uncertainty, and continuing stress on the external account,” the SBP said in its monetary policy statement.

“In this backdrop, and given the declining m/m trend, the MPC views inflation to have peaked at 38 per cent in May 2023, and barring any unforeseen developments, expects it to start falling from June onwards,” it added.

“The MPC views that maintaining the current policy stance is necessary to bring inflation down to the medium-term target range of 5-7 percent by the end of FY25,” it said.

The committee observed that pressures on the foreign exchange reserves and the interbank exchange rate, which have mostly remained stable since the last policy meeting, have been modestly restrained by the lowering of the current account deficit. The foreign reserves are nevertheless under pressure from debt repayments amid less fresh disbursements and sluggish investment inflows. The MPC believes that the current account deficit will largely remain in check going forward given the fundamental assumptions of a moderate domestic economic rebound next year and a generally favourable outlook for commodity prices.

The question of whether the SBP would pause at this point had gained increasing attention on the markets, especially in light of ongoing worries about economic growth and potential for lowering inflationary pressures. The SBP expects positive real rates on a forward-looking basis, which leads analysts to believe that the monetary tightening cycle has largely ended.

“The MPC also took stock of the cumulative impact of the substantial monetary tightening undertaken so far, which is still unfolding,” it said.

“On balance, the MPC views the current monetary policy stance, with positive real interest rates on a forward-looking basis, as appropriate to anchor inflation expectations and to bring down inflation towards the medium-term target - barring any unexpected domestic and external shocks,” it noted.

Separately, Minister of State for Finance Dr Aisha Ghaus Pasha Monday ruled out the possibility of freezing foreign currency accounts, saying that no such proposals had even come under discussions at any forum.

“There is no intention to freeze foreign currency accounts as no such proposal has come under discussions at any forum. Our first priority is making efforts to accomplish 9th review of the IMF programme before expiry of existing programme under Extended Fund Facility (EFF) on June 30,” she said while talking to reporters at the Parliament House after attending Senate Standing Committee on Finance and Revenues on Monday.

The minister said that the IMF would not have any objections over the taxation relief measures taken by the government in the budget for 2023-24. FBR Chairman Asim Ahmed made all-out efforts to convince that the remittances from abroad up to $100,00 without question asked could not be termed an amnesty scheme.

The Senate body kick-started its deliberations to finalise recommendations on the budget for 2023-24 here on Monday under Chairmanship of Senator Saleem Mandviwalla which would be forwarded to the National Assembly after getting approval of Senate within the stipulated timeframe of two weeks.

To another query, the state minister said they did not receive any call from IMF Mission chief after presenting the budget. Now the government was making request to accomplish the outstanding 9th review before June 30, 2023, she added.

It was matter of worrisome for them that the time was running out for completion of the IMF programme, she said. The minister made it clear that in order to erase the monster of circular debt, the government would have to hike the tariff of both gas and power.

The Senate panel deferred its decision on 10 per cent tax on bonus shares and provision of getting powers through Finance Bill 2023-24 for imposition of windfall gains tax up to 50pc.

All businesses tycoons including the Federation of Chambers of Commerce and Industries as well as chambers at Karachi, Faisalabad and Islamabad had unanimously demanded the government save them from total disasters, arguing that the businesses could not run under the existing circumstances.

The Senate panel unanimously rejected the exemption of sales tax on supplies and import of raw materials, plant and machinery and supply of electricity to the industrial units and consumers. “Give this money to FATA but do not put exemptions” the chairman committee remarked, the Minister of State and Finance assured the committee to withdraw the amendment.

Similarly, taxes on the Eighth Schedule on POS retailer which are proposed to be enhanced from 12pc to 15pc has also been rejected unanimously by the committee members, stating that such enhancement is only encouraging the non-registered sector. The committee also deferred the proposal of tax on the Sixth Schedule which says that any package which is under a brand name is chargeable. The committee failed to understand the reason behind this and recommended to review the proposal.

Also, the committee recommended to review the proposal of bill supply of consumer goods sold under the brand names or trademarks to be proposed to be taxed at 18pc.

The committee also concluded deliberations on the Federal Excise Provisions of Finance Bill, 2023. The matter of chargeability of FED on goods and services specified was deferred for review; however, the FED proposed on royalty and fee for technical services in Table-II of the first schedule was accepted. It was apprised that the extension in exemption of sales tax to NMDs (FATA/PATA) for another one year ending June 30, 23 is given through the new budget.

The committee also concluded discussion on the Islamabad Capital Territory (Tax on Services) provisions of Finance Bills, 2023 through which digitalised mode of services are facilitated. It is proposed to harmonise tax regime on restaurants with Punjab Revenue Authority at reduced rate of 5pc in case payment is received through credit debit mobile wallets and QR scanning. It was briefed that the electric power transmission services are proposed to be taxed at 15pc as revenue measures.

The committee chairman was of the view that the proposal of ‘Bonus Share’ is principally wrong, the amendment was deferred for review. The FBR chairman said the rationalisation of Super Tax under Section 4C to apply on all persons across the board in income above Rs150m insertion of additional three new income slabs of Rs350m to Rs400m, Rs400 to Rs500m and Rs500m above to be taxed at 6pc, 8pc and 10pc, respectively.