Pakistan seeks US help to convince IMF, Miftah hopeful for loan soon

ISLAMABAD: Finance Minister Miftah Ismail on Monday expressed hope that an agreement with the International Monetary Fund (IMF) for the revival of the Extended Fund Facility (EFF) would be reached “within one or two days”.

The minister made the remarks while speaking to reporters after a meeting of the Senate Standing Committee on Finance. When asked whether the prime minister was working on imposing taxes or giving relief to the masses, the minister said: “It depends on the kind of people they are. If they are well-to-do, then taxes will be applicable but the poor will be provided relief.”

Reporters also asked Miftah whether the Fund was opposed to the government’s decision to increase the salaries of employees by 15 per cent and tax exemption for those earning less than Rs1.2m annually.

“The IMF has nothing to do with salaries as long as we have the money,” he said, adding that the government will “protect” those earning less than Rs1.2m annually.

Pakistan signed a 39-month, $6 billion EFF in July 2019, but the Fund stopped the disbursement of about $3bn when the previous government reneged on its commitments. Currently, Islamabad wants the IMF to not only resume disbursements, but to also expand the size and duration of the programme.

So far, Pakistan and the IMF have not yet been able to reach close to a staff-level agreement for revival of the loan programme, leaving authorities in a tight spot to bridge the gap and get the updated federal budget for the fiscal year 2022-23 passed by the National Assembly.

Finance Minister Miftah Ismail

The Fund still has reservations over Rs9.5 trillion expenditures projected by the authorities for the next fiscal year. The revenue measures in the budget, according to IMF estimates, are also insufficient to deliver slightly over Rs7 trillion target.

The government took the toughest measures to end fuel subsidies and hiked the POL (petrol, oil, lubricants) prices up to unprecedented levels in order to convince the Fund to revive the programme.

However, the IMF is still insisting on doing more knowingly that Islamabad has turned into a “desperate borrower” mainly owing to the depletion of foreign currency reserves.

The finance minister told journalists that the government aims at taxing the wealthy and providing relief to the poor through the budget for the fiscal year 2022-23.

“IMF has no relation with the increase in salaries. Also, the tax exemption to the people earning below 1.2 million [annually] will remain in place,” the finance minister said.

Property taxes

Miftah, talking about the proposed taxes on property, said that once construction begins on an empty plot, it will be exempted from taxes.

“Lay one brick on the empty land and the taxes will be lifted. But we will not impose a tax on anyone who has not acquired the possession of a plot or has not received the permission to start construction on it,” he said.

The finance minister said if a person has been granted permission to start construction on a piece of land and they still do not begin building something on it, then they will have to pay the tax.

In the coalition government’s first budget, the finance minister proposed a 15% capital gains tax on immovable property for a one-year holding period, which will be reduced by 2.5% for every additional year.

Moreover, he has also proposed advance tax on filers to be increased to 2% from the previous 1% on the purchase of property and non-filers 5%.

Pakistan seeks US help with IMF talks

The United States has agreed to help Pakistan negotiate a deal with the International Monetary Fund (IMF), diplomatic sources told Dawn on Sunday.

Earlier, media reports had claimed that Islamabad was “seeking Washington’s support” for renewing its Extended Fund Facility (EFF) with the IMF.

As the largest shareholder, the US has considerable influence over the IMF’s decision-making.

Pakistan signed a 39-month, $6bn EFF in July 2019, but the Fund stopped the disbursement of about $3bn when the previous government reneged on its commitments.

Currently, Islamabad wants the IMF to not only resume disbursements, but to also expand the size and duration of the programme.

On Saturday, Pakistan’s Ambassador to the United States Masood Khan met Assistant US Trade Representative (USTR) for South and Central Asia Christopher Wilson to discuss expanding trade relations between the two countries and encouraging US investments in Pakistan, a statement said.

The office of the USTR is responsible for developing and coordinating US international trade, commodity, and for directing investment policy. It also oversees trade negotiations with other countries.

On Saturday, Ambassador Khan also met a delegation of the Wabtec company, which is the world’s leading rail company.

A statement issued after the meeting said that the Wabtec showed “keen interest in furthering its existing partnership with Pakistan and in assisting the Pakistan Railways in meeting its locomotive requirements.”

Wabtec is a global provider of equipment, systems, digital solutions, and value-added services for the freight and transit rail sectors.

“While we greatly appreciate the existing level of cooperation between Wabtec and Pakistan Railways, particularly in engineering and rail services, we look forward to benefiting from the company’s expertise in the modernisation of railway networks and indigenisation of locomotive manufacturing in Pakistan,” Ambassador Khan said.

US dollar compare to Pak rupees

The US dollar continued its upward march on Monday as it rose above Rs210 against the local currency during early morning trade in the interbank market.

According to the Forex Association of Pakistan (FAP), the rupee depreciated sharply by Rs2.55 to hit an all-time low of Rs210.3 against the dollar from Friday’s close of Rs207.75. In the open market the greenback was trading at Rs214 as of 2:07pm.

Saeed Bin Naseer, director of Mettis Global, told Dawn.com that the rupee remained under pressure on the first day of the week due to the news of banks running out of dollars over the weekend.

“The dearth of dollar at banks resulted in low or negative swap premiums as the country’s foreign exchange reserves continue to run dry,” he pointed out.

An announcement from the IMF regarding the revival of the loan programme or updates on inflows from China could help stablise the exchange rate, Naseer added.

According to Mettis Global — a web-based financial data and analytics portal — the rupee incurred a colossal loss of Rs6.4 during five consecutive sessions last week.

Market experts, it said, have called for the government’s immediate attention over the depreciating rupee with respect to curtailing import bills through cutting unnecessary expenditures, warning that otherwise, in the absence of the deal with the International Monetary Fund (IMF), Pakistan’s foreign exchange reserves would keep depleting.

Meanwhile, Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan, said that the market was under severe distress but the authorities seemed to be oblivious to it. “It seems as if another condition put forward by the IMF is the devaluation of rupee because no one seems to care about it and there’s silence everywhere.”

He cautioned that if this trend persists, Pakistan could head towards a default like Sri Lanka. “It is extremely crucial for the government to take steps or else the country will default.”

Earlier today, in a weekly overview, local financial portal Tresmark said that the rupee’s misery was compounded by the ultra low levels of forex reserves.

According to SBP, Pakistan’s reserves have fallen by another $234 million to close just below $15 billion. The central bank’s share in these reserves is just under $9 billion.

“With almost no free liquidity, it is expected that the central bank does not have the resources to control the market,” it pointed out. “With low levels of inflows and substantial outflows, especially end of June, SBP is dipping in to commercial bank’s share of reserves to square payments, resulting in low or negative swap premiums.”

Keeping this in mind, it went on, there was no stopping the rupee from further losses.

“On average, it (the market) is losing Re1 every day and will only stop when Pakistan receives fresh inflows. If we were to assume that that inflow will be from IMF, then the government should focus all its resources on having IMF on board and jump the queue as we can not afford even another week [like this],” the overview added.