June 27, 2023 (MLN): A surrender which was the need of the hour; Pakistan’s economic team has finally laid down their economic weapons to inch towards securing a much-needed bailout from the fund.
The financial bill announced on June 09, 2023, did little-to-nothing to satisfy the IMF. On the contrary, it drew open criticism from the IMF’s representative as it failed to widen the tax net and provided subsidies to attract foreign inflows from the expats.
Despite the ministry’s resistance amid clarification on IMF’s objections and the government’s unveiling of plan B followed by the absence of Pakistan’s case in the meeting calendar of IMF for the month of June, the PMs visit to France and back-to-back meetings with IMFs Managing Director Kristalina Georgieva ultimately paved the way for a much-needed U-turn.
Over the last weekend, drastic changes have been introduced in the finance bill to allure the fund to release the funds. Some of the changes in the budget included (i) the enhancement in tax rates by 2.5% for people earning more than Rs200,000 per month, (ii) a surge in FED on fruit juices from 10% to 20%, (iii) rising of petroleum development levy (PDL) by Rs10 raising it to Rs60, (iv) abandonment of the amendment in Section 111(4) which enhanced the monetary limit of foreign remittance remitted from outside Pakistan Rs5,000,000 to rupee equivalent of $100,000 and (v) allocation for Benazir Income Support Program increased by Rs16 billion to Rs466bn.
The revised budget raised the total outlay to Rs14.48 trillion as the revenue target of FBR witnessed a surge from Rs9.2tr to Rs9.415tr and spending would be curtailed by Rs85bn.
This is the first budget that was passed without discussion in the parliament house as the major overhaul took place after the parliamentary debate on June 09 budget was completed.
The markets rejoiced the pivotal measures taken by the incumbent government which raised the hopes of securing an IMF nod, in the absence of which the default was just a matter of time.
The delight of investors was witnessed in the KSE-100 index which managed to surge by 3.42% (1,372 points). Excitement was felt across the board as investors welcomed this ‘over the weekend move’. The country’s 2024 and 2025 dollar bonds saw the biggest gains adding 1.7 cents, though they are still trading at depressed levels of 51 cents and 40 cents respectively.
The increase in PDL from Rs50 to Rs60 followed by the withdrawal of import prioritization by the government imposed in December 2022 lead to the upside risks to the inflation outlook.
With the close of markets came another surprise to appease the IMF. The central bank in a shocking haste raised the policy rate by 100 bps to take the benchmark policy rate to 22%.
This could be seen as yet another measure to secure the much-needed bailout program from the fund amid almost $20 billion worth of liabilities standing due in the upcoming fiscal year.
Though much has been done over the course of last weekend, the country stills await the nod of the IMF. One of the trio demands for the release of funds was to secure $6 billion in external funding commitments of which Pakistan fell short by $2 billion. Will the lender provide some relief amid the declining current account deficit and approve the tranche or is the celebration too early, time will tell!
However, ALL IS STILL NOT WELL! The government will have to enter another IMF program, ensure export diversification, explore other funding and investment avenues and most importantly, wait optimistically for the unlocking of funds after bringing drastic changes in the financial bill. IT IS NOT OVER TILL THE FAT LADY SINGS!!
Copyright Mettis Link News
Posted on: 2023-06-27T00:42:52+05:00
