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Saudi financial package: Gold cheaper, rupee rebounds

Saudi Arabia announced depositing $3 billion in the State Bank of Pakistan (SBP) to help support foreign reserves.

By Mehtab Haideri & News Desk
October 28, 2021

ISLAMABAD: Gold lost its glow, as it declined by almost Rs7,800 per tola (11.66gm) to Rs124,200 in Pakistan on Wednesday in line with global markets while the Pakistani rupee also rebounded, sharply recovering to Rs172.78 against the US dollar in the inter-bank market after Saudi Arabia announced depositing $3 billion in the State Bank of Pakistan (SBP) to help support foreign reserves.

While announcing a financial package of $4.2 billion from the Kingdom of Saudi Arabia in the shape of $3 billion deposits and $1.2 billion as refined POL products, Adviser to PM on Finance Shaukat Tarin stated that the IMF deal would be done soon. He said that Pakistan would have to rationalise its taxes under the IMF deal for bridging the gap that occurred on the account of shortfall in the petroleum levy. However, he refused to share further details about the IMF program.

He said that Saudi Arabia was providing a total package of $4.2 billion for one year, including $3 billion deposits for the State Bank of Pakistan at the rate of 3.2 percent interest, and $1.2 billion for refined POL products on the basis of $100 million oil facility on monthly basis.

“Pakistan obtained an additional $500 million from the IMF and it had become a headache for us,” Adviser to Prime Minister on Finance Shaukat Tarin said while addressing a news conference at the Pak-China Friendship Center on Wednesday along with Federal Minister for Energy Hammad Azhar.

He said that when he left Washington, there was a broader consensus with the IMF. “I give you the assurance that the IMF agreement will be done in one or two days,” he said and added that it would end all kind of uncertainties. Except one issue, the deal with the IMF is almost clinched, but declined to share details if the outstanding issue was related to the fiscal front.

To another query about the price hike, the adviser said that the purchasing power parity (PPP) determined the basis and Pakistan was one of the cheapest countries in the world. Since the income was low, the prices were also low in Pakistan, he added. In Washington, he said that the petrol per gallon price stood at $3.5 to $3.75, and in comparison to them, our prices were low but then income in the US was also on the higher side.

On elimination of tax exemptions, the adviser replied that the IMF discussed principles and they always focused on primary balance as a major issue on the fiscal side. He said the government had envisaged Rs600 billion through Petroleum Levy but managed to collect Rs5.9 billion only. So the IMF was inquiring how this gap would be bridged. But fortunately, the FBR’s collection exceeded to Rs175 billion over and above the assigned target, therefore the non-tax revenue deficit would be bridged with tax revenues.

Hammad Azhar said on the occasion that the government had provided Rs450 billion relief by keeping the Petroleum Levy and GST on the lower side last year since August 2020, causing fiscal pressures to mount which would require steps to bridge this yawning gap. "There has been increasing pressure and the government had forgone major amount in taxes," he said without mentioning from where the pressure was mounting against the government. It is relevant to mention that the IMF was putting pressure on the government for taking additional taxation measures to bridge the shortfall that occurred due to relaxation on POL products in the shape of levy and reduced GST rates.

Shaukat Tarin said that the Saudi package of $4.2 billion was more beneficial for Pakistan on account of stabilization of the rupee than the initial indication from KSA of providing a $3.6 billion oil facility on deferred payment for two years.

While quoting the Saudi crown prince in his meeting with the Pakistani delegation, the Adviser to PM on Finance said that he gave much importance to Pakistan and Prime Minister Imran Khan, so he approved the package of $4.2 billion during the meeting. The Saudi finance minister called and told him about the details of the approved package, he added.

He said there was a substantial difference in POL prices in Pakistan in comparison with the prevailing prices in other countries. There has been a three- time increase in prices related to coal, POL products, wheat and others. It has impacted both rich and poor countries including USA, China, Bangladesh and Ethiopia.

Federal Minister for Energy Hammad Azhar said that the world was passing through a commodity cycle where the prices of food commodities and POL prices had gone up against increasing global demand, while the supply has become choked. Different developed countries provided stimulus packages to spur demands in the sluggish economies, leading to more demand.

"The POL prices are the lowest in Pakistan except in oil-producing countries,” he said and added that the gas prices did not increase in Pakistan since 2019 while in Europe the gas prices had gone up by five to 10 times. In Pakistan the Urea prices stand at Rs1,700 to Rs1,800 per bag, while its prices in the world market are hovering around Rs7,000 to Rs8,000 per bag.

The minister said the government had provided relief of Rs450 billion to customers last year by keeping the Petroleum Levy and GST on the lower side since August 2020. But fiscal pressures were increasing for bridging this yawning gap.

The minister hoped the rising trend of commodity cycle would break down in the next six months after which the prices would drop and the benefits would be shared with the masses. He said that Pakistan made good progress on FATF conditions as only one out of the 27 action plans was left to be accomplished and most of the countries at the FATF recognised Pakistan's progress on that as well. On the second action plan, he said that there were seven points of which Pakistan had achieved compliance on four action plans in one go. The remaining points would be implemented next February 2022, he maintained.