ISLAMABAD/KARACHI: Finance Minister Ishaq Dar said on Friday that China has recently refinanced a $1 billion commercial loan.
State Bank of Pakistan spokesperson also confirmed that they received the Chinese loan on Friday night.
Earlier, while briefing the National Assembly’s Standing Committee on Finance at Parliament House here on Friday, Ishaq Dar said: “Within a day or two, Pakistan should get refinancing of $1 billion trade loan from China. Gay, which was returned. A few days ago.”
Pakistan on Friday received $1 billion in proceeds from China as a refinancing of a loan that was repaid earlier this week, a reprieve for the country that is headed for a debt default because of the impasse. The stricken International Monetary Fund bailout program is nearing expiration. The State Bank of Pakistan confirmed via a text message that “$1 billion has been received from China.” As the government on Tuesday held its first high-level virtual conference with the International Monetary Fund (IMF) in a last-ditch effort to secure a $1.2 billion tranche, Pakistan on Monday paid off a $1 billion trade loan from China. .
As a result of the debt repayments, total government currency reserves fell below $3 billion. The loan deadline was June 29. Islamabad opted for prepayment to get the money back before the June 30 deadline of the financial year. Along with efforts by the government to secure foreign exchange through all possible means, payment has also been made.
Fahad Rauf, head of research at Ismail Iqbal Securities, said this is a positive sign as Pakistan’s reserves have fallen below $3 billion after paying off commercial debt to China. “It is a sigh of relief that China has promptly refinanced the debt,” Rauf added.
The foreign exchange reserves of the Central Bank of Pakistan increased by $107 million to $4.0 billion in the week ended June 9. However, with the infusion of fresh funds, the reserves held by the State Bank have increased to $5 billion.
According to international rating agencies and economists, Pakistan could default without the IMF program due to its extremely low reserves.
For the fiscal year that begins in July, the South Asian country will have to pay off nearly $23 billion in external debt.
Pakistan’s government liquidity and external positions remain fragile. Moody’s Investors Service said in a statement that the budget plans to borrow 6.35 trillion ($21 billion) from external sources, including $1.5 billion from Eurobond issuance, $4.6 billion from commercial banks, and $2.4 billion from the IMF. and includes another $2.7 billion from other multilateral partners.
The government expects most of the remaining funds to come from other bilateral partners, including China, Saudi Arabia and the United Arab Emirates.
“Pakistan is unlikely to have access to cheap market financing, either from Eurobonds or commercial banks, in the near future. The country’s external debt repayments will remain high for the next few years, reaching around $25 billion in FY2024. (Principal and interest) due.
It is relevant to mention that Pakistan required refinancing of $1 billion in safe deposits and $1.3 billion in trade loans within the current month. Pakistan had sent its official request to China for refinancing of $1 billion in deposits and $1 billion in trade loans. So far, Islamabad had not returned the remaining $300 million, and it was agreed that it would also be refinanced when the remaining amount was paid in the coming days.
Sources said the refinancing of commercial banks would also help the government get a rupee component equivalent to $1.3 billion, which was significant enough to keep the cash balance in surplus. Although the finance ministry raised huge sums through the auction of T-bills and PIBs, the lack of dollar inflows made it difficult for the government to maintain its domestic rupee balance in surplus at a time when total revenues and The gap between total incomes was widening. Expenditures for the outgoing fiscal year.
Briefing parliamentarians belonging to the National Assembly’s Standing Committee on Finance, Dar said that politics was affecting Pakistan and noted that efforts were being made to meet the ninth review of the IMF programme. Is.
“We cannot clap with one hand,” he commented, referring to the incomplete status of the fund’s ninth program review.
He expressed firm belief that Allah has created this country and will protect it. He said that Pakistan has trillions of dollars of assets, so there is no need to worry. However, he acknowledged that the country is currently facing a dollar liquidity crisis.
He said that due to the IMF, the budget strategy paper was delayed, it was finalized a few days before the budget was announced. He said that the government has not made the budget keeping in mind the upcoming elections, but it has been made to meet the needs of the country. He said that the government has set the FBR tax collection target at Rs 9200 billion for the next fiscal year 2023-24, while this year there is a revised estimate of Rs 7200 billion. FBR’s target of Rs 9200 billion was set on scientific basis.
Earlier, the National Assembly’s Standing Committee on Finance expressed its reservations regarding the sustainability of the proposed budget. Amidst the current economic situation in Pakistan, the committee questioned the feasibility of Finance Minister Ishaq Dar’s budget proposals.
The minister provided statistical evidence to support the revenue targets for the next financial year by forecasting a growth rate of 3.5 per cent with the help of the proposed budget. He emphasized Pakistan’s commitment to meet all its sovereign obligations in a timely manner to avoid any risk of default.
He urged them to avoid creating panic within the business community which could adversely affect the market and destabilize the dollar exchange rate. He assured the committee of future growth in Pakistan’s foreign exchange reserves, supported by policies designed to increase remittances and boost exports. The minister’s assurances underline the government’s focus on maintaining economic stability while moving towards a prosperous future.
In response to concerns over the implementation of the 0.6 percent tax, both the FBR chairman and the finance minister confirmed the tax as a step towards documenting and digitizing the economy. This two-pronged approach aims to maximize revenue, accurately track transactions and impose penalties as needed. However, there are concerns that the current tax rate may discourage the use of banking channels, favoring cash transactions and potentially encouraging smuggling.
In response, the Chairman of the Standing Committee has proposed to reduce the tax rate from 0.6% to 0.2%. The Lahore Chamber of Commerce further suggested that the definition of ‘smugglers’ be revised. The FBR has been criticized for the 1% increase in withholding tax and the delay in issuing refunds.
The committee has recommended an equitable tax regime for traders of raw materials, irrespective of the financial status of their company.
Acknowledging the benefits of government subsidies to the fertilizer industry, the Committee highlighted that they have led to the production of internationally competitive fertilizers.
To ease the burden on existing taxpayers, the committee urged the government to increase the tax net by incentivizing new filers, a move which the FBR reported resulted in an increase from 900,000 in the previous financial year. More new filers have come up.
The committee expressed serious reservations about the $3 billion released by the previous government at minimum interest rates, which was not fully utilised.
