90% of Geneva pledges are loans, not aid.
The Minister of Finance has spilled the beans, and there is no sign of a restart of loan talks with the IMF.
ISLAMABAD: The government still does not have a set date for the International Monetary Fund’s (IMF) visit due to disagreements over the mini-budget and increase in energy tariff, despite the fact that the international community has donated over $8 billion, or 92% of the total pledges, in project loans for the flood-hit areas at a donors conference in Geneva.
The events of Prime Minister Shehbaz Sharif’s news conference on Wednesday at the PM’s House confirmed that if the government wants to renew the IMF plan, it will have to bite the bullet and impose additional levies and raise energy and gas prices.
Whereas the “unprecedented promises” of $9.7 billion have clarified the $16.3 billion restoration plan for the flood-affected districts, the administration still appears to be having difficulty dealing with other important concerns at hand — how to prevent default.
Both Prime Minister Shehbaz Sharif and Finance Minister Ishaq Dar were unable to provide a time for the IMF staff visit to start talks for the 9th review of the $6.5 billion bailout package during their press conferences.
The international lender handed over a long list of demands to Pakistan this week, including the imposition of a 17% sales tax on petroleum products, the removal of sales tax exemptions for exporters, and the imposition of a federal excise duty on cigarettes and alcoholic beverages. This is why no date was provided.
The finance minister stated in response to a query that he had a thorough meeting with the IMF team outside of the Geneva moot and was able to “narrow down” several of their requests, including reforms to the power sector, increases in gas and energy pricing, and filling in the gaps in tax collection.
The IMF believes that the FBR’s tax collection gap of Rs225 billion in December cannot be made up in the remaining months of the current fiscal year.
The high court’s decision to invalidate the government’s 10% super tax, which was enacted in June of last year, according to the finance minister, caused the shortfall in revenue collection. He claimed that when the Supreme Court decided on the super tax, his team told the IMF that Pakistan could make up the revenue gap gradually. The fiscal budget objective (of Rs7.470 trillion) won’t change, and we’ll hit it, he insisted.
According to the sources, the IMF expected a shortfall of Rs420 billion in comparison to the goal tax collection revenue of Rs7.470 trillion. Dar explained, “On the safe side, the IMF wants the government to adopt economic measures and reduce some subsidies.
The finance minister announced, “We have identified some fiscal measures,” hastily adding, “There will be no hardship on the common man.”
He promised that the economic measures “would be highly targeted and categorical.”
Dar affirmed that the IMF had problems with unauthorised payments made to farmers, exporters, and other recipients of subsidies, and that it now wanted these payments to be supported by budgetary measures.
According to the sources, the annual cost of the electricity subsidy for exporters who own aircraft is Rs118 billion, and the cost of the subsidy for farmers is another Rs28 billion. The impact of the fuel price adjustment, estimated at Rs65 billion, has also not been budgeted.
According to the sources, the IMF had instructed Pakistan to begin the emergency measures it had pledged to take in the event of a revenue deficit.
The administration has promised to raise the sales tax on all petroleum goods, eliminate the GST exemptions on alcoholic beverages as well as other arbitrary exclusions that help exporters. Additionally, there is a need for the federal excise tax on cigarettes to be raised.
A flood tax on imports and an income tax on the foreign currency profits of commercial banks are also currently being implemented by the government. The finance minister stated, “We will take two to three measures, including a flood levy.
The gross official foreign exchange reserves of Pakistan have fallen to just $4.5 billion, which is insufficient to cover even a month’s worth of foreign financing demands.
Dar also disclosed that project loans that will be paid back over the course of the following three years made up about 90% of the pledges made by the international community at the Geneva conference for flood-devastated Pakistan. “Of the overall $9.7 billion, project loans account for over $8 billion.”
According to him, the Islamic Development Bank has committed $4.2 billion toward the project loans, followed by commitments of $500 million from the Asian Development Bank, $1 billion from the Asian Infrastructure Investment Bank, and $2 billion from the World Bank.
Dar explained: “I purposefully did not include the Saudi Development Fund’s pledge because it is unclear whether their offer of $1 billion was a loan or a grant.
The prime minister stated that the funds should be used for the rehabilitation of the flood-affected areas and discouraged us from debating whether the commitments were loans or grants.
The prime minister answered that depends on “us” when asked how soon he anticipated the pledges to become actual inflows. “These commitments will materialise faster the faster we can develop and establish feasibilities and impress them.”
Dar stated that the government will use the federal and provincial development budgets to cover the remaining $8 billion in financial needs. “After $9.7 billion in promises, we can comfortably satisfy the average annual demands from domestic sources, which come to roughly Rs650 billion,” added Dar.
The prime minister promised at the opening of the briefing that the government would use “every penny” of the donations given by the international community for the prosperity and rehabilitation of flood victims, which, in his estimation, would take place over the course of the following three years.
The Finance Minister declared, “Be it bilateral or multinational gift, a figure of $9.7 billion is the total amount that has been pledged by the bilateral donors and multilateral.”
According to the prime minister, Saudi Arabia pledged $1 billion at the conference, followed by commitments from China ($100 million), Qatar ($25 million), Canada ($18.6 million), Denmark ($3.8 million), the European Union ($87 million), France ($380 million), Germany ($84 million), Italy ($23 million), and Azerbaijan ($2 million).
The premier stated that the hitherto unheard-of commitments were a sign of respect for Pakistan, adding that if there had been concerns about financial issues, the countries would not have committed the amount.
He implied that the coalition administration’s detractors had received the “response” by saying, “Those who created propaganda against the government.”
He insisted that the current coalition administration enjoyed the confidence of world leaders and said, “Now it is up to us to use the money on infrastructural development and for the growth of other key sectors.”
The Saudi Crown Prince Mohammed Bin Salman’s announcement of plans to deposit an extra $2 billion in the State Bank of Pakistan was also acknowledged by the prime minister (SBP).
When discussing addressing climate challenges, the prime minister noted that the government was conscious of the fact that conditions were changing internationally and that the reconstruction process would need to be strong and resilient using contemporary technologies.
According to him, every dollar would be spent in an incredibly open and transparent manner, and to verify that the entire process is public, “a third-party audit will be undertaken.”
Foreign Minister Bilawal Bhutto Zardari called the prime minister’s foreign policy “successful” in his speech and claimed that the government had “hit two targets with one shot.” “When I say we achieved two aims concurrently, it implies we also eliminated a fallacy that Pakistan is alone,” the speaker says.
