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February 15, 2018

Govt to withdraw summary from Cabinet for tax waivers on issuance of Eurobonds


February 15, 2018

Islamabad: The government has taken decision to withdraw summary from the federal Cabinet for tax waivers on issuance of Eurobond in the wake of expected hike in US treasury and surge in rates of Eurobond in international market, The News has learnt.

Top policy makers have now started conceding in their private conversations that the government had adopted flawed exchange rate policy in last few years that had resulted into widening of trade and current account deficit.

Now policy of gradual adjustments has been made part of prescription of economic ills, said the official and added that the government did not want for proving itself as ‘desperate borrower’ at the twilight of its five year tenure.

However, official sources in Finance Ministry disclosed to The News that the government has not yet dropped the idea in totality for issuance of Eurobond within the current fiscal year. “The possibility of launching another Eurobond still exists on our table but decision to this effect will be taken at appropriate time,” said the official.

When the official concerned was pressed hard for getting explanation on ‘appropriate time’ he said, “We are analysing movement of interest rates for international Eurobond after which the decision will be taken about the timing of exploring our options.

Last week, Adviser to PM on Finance Miftah Ismail told this scribe that the government withdrew the summary from the federal cabinet for issuance of Eurobond keeping in view expected surge in US treasury and its impact on our launching of Eurobond. “We cannot launch international bond by offering higher rates,” he added.

Pakistan’s current account deficit has widened to $7.4 billion during the first half of the fiscal year (July – December 2017) against full year target of $9.9 billion and $4.66 billion or 3.1 percent of GDP during the corresponding period of the last year, showing a deterioration of 59 percent. The country’s foreign exchange reserves had already depleted by over $3 billion despite issuance of two international bonds in order to fetch $2.5 billion.

Now Pakistan’s reliance on getting borrowings from international multilateral creditors in shape of Development Policy Credit (DPC) have increased manifold for which the upcoming IMF report on Post Programme Monitoring (PPM) and its portion of net foreign currency reserves would become more relevant. “Pakistan will have to demonstrate that its foreign currency reserves of the SBP could meet imports requirements of over 2 months for making the country eligible to get IDA credit line,” said the official.

Pakistan has been facing two major challenges on account of twin deficits including the budget deficit and current account deficit. The existing economic team is making last ditch efforts to sensitise the political leadership at provincial level to stick to the policy of fiscal discipline but they seemed failing on their part and second the current account deficit was becoming monster with every passing month putting increased pressures on foreign exchange reserves.

The government has been left with not much options and its major reliance has been increasing shifting dependence on short term borrowings and convincing Chinese banks to lend more money for bridging the yawning gap on external accounts in order to avoid depletion of reserves at higher pace. But the launch of Eurobond will be considered anytime during the ongoing fiscal year keeping in view rapidly shrinking options in front of policy makers, the official concluded.

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