Rebuttals/Rejoinders
Official Spokesperson Dr. Khaqan Hassan Najeeb, Ph. 9223619. D.G. (Media) Mr. Saeed Javed Ph. 9211707, Cell: 0321-5288564. Public Relations Officer Miss Mehrin Liaqat Ph. 9211707, Cell: 0336-4186647.
29 April, 2019

Clarification - that the Federal Government has neither reduced nor delayed the transfer of funds to any of the provinces

Ministry of Finance, in response to various news reports to this effect, clarifies that the Federal Government has neither reduced nor delayed the transfer of funds to any of the provinces. All the provinces have been receiving their share in the Federal Transfers in accordance with the NFC Award. The Federal Government makes these transfers, fortnightly, on the same day of reporting of the collections by the collecting agencies (i.e. Federal Board of Revenue and Petroleum Division). Any shortfall in revenue collections results in a uniform change in the share of the Federation and the provinces in the Federal Transfers.

The Ministry further clarifies that the government of Sindh has received Rs. 441.8 billion, as federal transfers, during the first three quarters (July – March 2018–19) of the current fiscal year compared to Rs. 418.1 billion during the corresponding period of the last fiscal year entailing a 5.7% increase i.e. Rs. 23.7 billion higher than the last year.

Similarly, Punjab and Khyber Pakhtunkhwa have received Rs. 866.6 billion and Rs. 290.4 billion, respectively, compared to Rs. 801.7 billion and Rs. 269.3 billion received during the corresponding period last year that has resulted in 8.1% and 7.9% increase in their Federal transfers. Balochistan also saw a12.8% increase in its Federal Transfers by receiving Rs. 180.3 billion compared to Rs. 159.9 billion during the same corresponding period.
 
19 March, 2019

Clarification - Ministry of Finance strongly refuted the impression created by certain statements by representatives of Government of Sindh that there is delay in transfer of resources from the Federal Government to the Provinces

The Ministry of Finance strongly refutes the impression created by certain statements by representatives of Government of Sindh that there is delay in transfer of resources from the Federal Government to the Provinces. It needs to be noted that FBR reports revenue collection to Finance Division twice a month (on 17th and last working day of the month). The shares of the provinces are transferred on the same date as per the NFC formula. No amounts are withheld by Finance Division.

During the first 8 months of the current financial year an amount of Rs.312.2 billion has been provided to Sindh as part of its share in the collected revenue. In addition an amount of Rs.57.5 billion has been provided as arrears for the last year. Overall, the Government of Sindh has received Rs.27.1 billion more during the current financial year (July 2018 - February 2019) compared to the same period of last year.

It seems that the claim of shortfall is based on the assumption that revenue collection is evenly spread during the 12 months of the financial year, which is not the case. Historically during the initial months of the financial year, the collections remain on lower side compared to the later part of the year with the highest collection recorded in June of every financial year. The Federal and Provincial fiscal authorities are aware of this fact and plan their expenditures accordingly.
 
8 March, 2019

Clarification - A report in a section of media contends that Government has borrowed Rs 2.9 trln in just 7 months to finance budget deficit

A report in a section of media contends that Government has borrowed Rs 2.9 trln in just 7 months to finance budget deficit.

 For sake of clarity it is important to comprehend that the increase in debt stock cannot be termed as borrowing of the government. The increase in debt stock incorporates devaluation impact due to depreciation of Pak Rupee against US Dollar as well as impact of increase in credit balance of the government with the banking system. In this regard, following facts are worth noting:

  • In US Dollar terms, central government external debt increased from US$ 64.1billion at end June 2018 to US$ 65.8 billion at end January 2019. Therefore, an increase of around US$ 1.7 billion was recorded in central government external debt during first seven months of current fiscal year compared with the increase of US$ 5.9 billion during the same period last year. In rupee terms, central government external debt amounting US$ 65.8 billion becomes equivalent to Rs9,096 billion at an exchange rate of PKR138.2553/US Dollar. Therefore, the value of central government external debt has increased by Rs 1,300 billion during first seven months of current fiscal year (from Rs 7,796 billion at end June 2018to Rs 9,096 billion at end January 2019). Here, it needs to be understood that out of this increase of Rs 1,300 billion, around Rs 1,100 billion or 85 percent is attributable to depreciation of Pak Rupee against US Dollar.Hence actual borrowing was significantly lower than what is reported in the news report. It is also worth noting that depreciation of Pak Rupee increases the rupee value of external debt (reporting loss), but does not add much to foreign currency liability of the country during any particular fiscal year;
  • Similarly, apart from domestic financing of fiscal deficit, increase in credit balances of the government with the banking system has resulted in increase in domestic debt stock.

In the light of above mentioned facts, Ministry of Finance refutes the claim of news report that federal government has borrowed Rs 2.9 trillion in just seven months to finance the budget deficit of the country. In fact, actual borrowing for financing of budget deficit was much lower and rest of the increase in public debt can be explained through above mentioned factors. In fact, news report contains self-contradictory statements,as on one hand it states that Pakistan recorded a budget deficit of one trillion rupees during first six months of current fiscal year while on other hand it states that government borrowing for financing of fiscal deficit was almost three times during first seven month of current fiscal year.

There is also a need to understand that present government inherited many challenges on domestic and external front which forced it to borrow to meet its social and development goals. Particularly, Public Debt to GDP ratio was 72.5 percent at end June 2018 as against threshold of 60 percent as stipulated under FRDL Act while Federal Fiscal Deficit (excluding foreign grants) was 6.5 percent during 2017-18 against the threshold of 4 percent. Resultantly, existing debt obligations contracted by the previous governments consumed around 37 percent of government revenues during 2017-18. Since major chunk of revenue is consumed by debt servicing, additional borrowing is required to meet other current and development expenditure. Similarly, on external front, increase in imports pushed the current account deficit to a historic level of around USD 19 billion during 2017-18, which exerted pressure on foreign exchange reserves as well as on exchange rate which depreciated by around 32 percent during last one and half year. This has not only contributed towards fueling the inflation but has also increased the stock of external public debt significantly.

Given, this prevalent economic situation, a multipronged strategy is being pursued with focus to substantially increase tax revenues and country’s foreign exchange earnings. At the same time, reducing unnecessary expenditures with curtailment of losses of public sector enterprises is also being pursued to bring down the deficit. Government has also taken initiatives to expedite institutional reform and promote austerity to reduce non-development and non-productive spending. All these measures are expected to reduce the debt burden of the country in the medium term.
 
28 Januaey, 2019

Rejoinder - Federal government's borrowing from the State Bank of Pakistan (SBP) hit a high of Rs 6.6 trillion

An opinion piece in a section of print media on 27th January said the federal government’s borrowing from the State Bank of Pakistan (SBP) hit a high of Rs 6.6 trillion. It adds that the government has been borrowing at an average of Rs 15 billion a day for the past five months, that the budget deficit will hit a high mark and huge losses in PSEs. The opinion piece needs clarification on certain accounts to present the true point of view based on data and factual actions undertaken by the Government over the last several months.

Based on preliminary estimates, Government borrowing from SBP during July-December, 2018 was at Rs 1.2 trillion. Figures reported in the article at Rs 6.6 trillion is not correct and misleading. It is also important to note that due anticipation of increase in interest policy rate borrowing from scheduled banks was in negative at Rs (-) Rs 702 billion. A net bank  borrowing during July- December, 2018 was Rs 496 billion.  However, in the light of stability in the policy interest rate scheduled Banks have started a reasonable participation in government security auctions. It is projected that increased  borrowing from banks will substitute in lowering borrowing from SBP in the coming months.

There is a need to understand the difference between increase in debt stock and actual borrowing of the government. The writer has been quoting a highly misleading number of  Rs 15 billion a day for the past five months. He misquoted increase in debt stock as borrowing of the government i.e. devaluation impact due to depreciation of Pak Rupee against US Dollar has contributed significantly towards increase in debt stock of the government during first five months of current fiscal year. In fact, this devaluation impact was more than actual borrowing of the government.

The writer has appreciated the measures announced by the Government in the investment and promotion package of January 2019 in consultation with all the major stakeholders. This package has been announced to ease the cost of doing business in Pakistan, reverse the trends of de-industrialisation and support exports. All this is intended for job creation and enlarged social sector production for reducing poverty in the country.

The writer has correctly highlighted that the tax incentives announced in the Package would help to ‘direct additional credit towards three important sectors of the economy: small and medium-sized enterprises (SMEs), the agricultural sector, and the low-income housing sector’.

The writer is correct that the measures ‘will encourage savings, investments and, at the same time, compress the demand for imported luxury items’.   

The reforms package announced by the Government is a continuation of the measures already announced earlier, like reduction in electricity and gas prices. The package is also focussed on reducing external imbalance, a legacy of ineffective policies of the last decade.

The Government has initiated measures on austerity, reducing tax evasion and monetary and exchange rate measures. The shortfall of Rs 170bn in FBR tax collection in first six months of FY19 is primarily due to reduction in GST on petroleum products to shield domestic consumers from rising international oil prices. 

The measures to shield domestic consumers and especially the poorest and most vulnerable households have started to yield results and CPI inflation has declined for two consecutive months to 6.2% in December 2018, down from 6.8% in October 2018. More importantly, food price inflation has declined to just 0.9% in December 2018, compared to 3.3% in August, when the PTI government came to office. In the coming days further measures will be taken to provide relief to the poorest and most vulnerable households.

The most critical challenge facing the new government was to avert a balance of payment crisis. Due to tireless efforts of the Government, success has been achieved with significant investment and financial assistance from bilateral partners including Saudi Arabia, UAE and China. The Government has finalised a facility of trade finance for oil with the ITFC. Facility for oil on deferred payment has been finalised with Saudi Arabia and shall be operationalised soon. This will help improve Balance of Payments in the country.

These measures have started to restore confidence. Credit Default Swaps (CDS) has declined in January, making Pakistan US$ bonds the best performing bonds in the Emerging Asia markets. Similarly, the high participation in the PIB auction on 23rd January with a bid over Rs 344bn, shows improving sentiment locally, which will help reduce reliance on SBP borrowing This, will help government reduce reliance on SBP for deficit financing, a risk highlighted by the writer.

Prudent monetary policy stance by the State Bank of Pakistan is ensuring that inflation remains well anchored. The effect of such a policy is to protect the common man. At the same time, securing enough food supplies in the country has ensured that food inflation remains at the lowest. Expenditure management has been such where aggregate demand in the country has been managed to arrest the rising inflation and its effect on the current account.

It is a misplaced contention that the budget deficit, which is projected at 5.6%, will grow to 10%. The budgetary deficit is being very much managed by ensuring that the target of overall revenues including FBR and non-tax revenue for the year are met. The quasi-fiscal losses are being handled.  The Government has already taken key measure to reduce the build-up of circular debt and the focus has not only been towards rationalization of prices but the plan of reducing losses, past recovery and a host of efficiency measures which are already in place and are showing results.

Growth maybe subdued in the immediate but will be broad based and financed through raising domestic savings and investment. Evidence for the first 6 month shows that the private sector in Pakistan both for working capital and for fixed investment has domestically borrowed around Rs 500 billion compared to Rs 230 billion in the first 6 months last year and the agriculture sector credit has shown a growth of 22% in the first 6 months. Therefore, the allegation that economic growth is dropping does not appear to be based on evidence that is presented in the first 6 months. 

The statement that expenditure is out of control is also not correct. Expenditure growth is very much in control. Pakistanis are not being burdened by any amount that is being said by the author. Total provisional expenditure for first six months of  current FY were marginally higher on account of interest payment, security and other spending. Interest payments during the year 2018-19 would be higher owing to increase in interest rates and exchange rate. In the budget total interest payments (on domestic & foreign debt) was estimated at Rs 1.6 trillion which is expected to increase from this amount but not as much as contended by the writer. For other expenditures the present government has abolish all discretionary allocations of the President and the Prime Minister. Further a 10% cut has been imposed on current expenditure. However, no cut has been imposed on security related expenditure.

The numbers quoted by the writer of losses in PSEs, energy and commodity sectors are highly exaggerated and misleading. It is reiterated that the Government has already taken targeted steps to appoint Heads in all key organizations on merit. In PSEs such as, PIA, banks and SECP, this has already been done to strengthen the overall governance and cut these losses. The energy sector has seen a reduction in the bleeding and a target has been set to bring the circular debt flow to almost close to zero, in the next 12 months. The writer’s contentions are all based on conjectures rather than any solid evidence and to the contrary, the remedial steps are very much underway to protect the assets of the people of Pakistan.
 
21 Januaey, 2019

Comment - on news report appeared in Dawn on 20th January 2019

In response to a news report in Dawn on 20th January: "FBR fails to recover Rs 170 bn in fraud cases", it is stated that the Directorate General of Intelligence and Investigation of Inland Revenue is FBRs premier anti tax fraud agency. It undertakes surveillance activities and after getting verification from the record it prepares a contravention report which is sent to field formations ( LTUs & RTOs) for adjudication and recoveries. 

The field formations examine the record and issue notices to taxpayers for their response. In almost 90% of the cases adjudication is quite close to contravention report however in few cases the explanation of taxpayer is found correct and the issue is dropped after consulting the Intelligence Directorate. In most of the cases, the taxpayers opts to approach the high courts to delay the impending demands. Because of these issues average time of finalization of such cases varies between one to four years. 

The I&I reports are a continuous feature of working of FBR and the number of cases and the associated revenues keep on changing on month to month basis.

The progress in all such cases is closely monitored by FBR at the very highest level and it's very difficult for any lower functionary to misuse this information. 

Moreover any complaint regarding any compromise on I&I cases are very seriously viewed by the Chairman and FBR has zero tolerance for any such compromise.

 
17 Januaey, 2019

Rebuttal - Position on transfers made to Sindh

Ministry of Finance strongly refutes news reports/statement which claim that the Federal Government has made less transfers to Sindh during the current financial year. 
It is clarified that during the first half of FY 2017-18, FBR reported a collection of Rs.1845.3 billion (inclusive of arrears of previous year). During the same period of current financial year, FBR reported collection of Taxes as Rs.2,011.4 billion (inclusive of arrears of previous year). 

The share transferred to Sindh province during the same period of last financial year was Rs.251.5 billion and during the current financial year it is Rs.275.2 billion showing a growth of 9.4%. 

It is evident that the transfers in both absolute and percentage terms have increased. It is further clarified that the Federal Government immediately transfers the share of all the Provinces as per the NFC formula, based on the revenue collection reported by the FBR.
 
07 Januaey, 2019

Response - Claim on Pakistan's international reserves dismissed as misleading

The Ministry of Finance dismisses as misleading, the claim appearing in a section of the press on 6th January 2019 that Pakistan’s international reserves are at the lowest point ever in recent history.

Any argument regarding international reserves position cannot be grounded merely on ‘net international reserves’ position. Instruments such as forward swaps and balance of payment support are used by central banks and governments all over the world to strengthen their international reserves position.

The truth is that at present SBP reserves are standing at USD 7.1 billion (as on 3rd January 2019), whereas SBP reserves were as low as USD 2.8 billion on 7th February 2014. The Government of Pakistan has arranged enhanced flows for balance of payments support on bilateral and multilateral basis, which will further strengthen the country’s international reserves position.
 
20 October, 2018

Response - to News Report about APG's visit to Pakistan

The news report published today in a section of press on Pakistan’s FATF and APG issues is not based on facts. 

It may be noted that Pakistan is passing through two separate processes, one is FATF Action Plan and another is regular assessment of AML/CFT regime.

The FATF Action Plan has been agreed with FATF and is being implemented with timelines from Jan-2019 till September 2019. Its progress is being monitored by FATF on quarterly basis. The focus of this action plan is on the implementation of TF regime in Pakistan.

The regular APG assessment is part of Pakistan’s APG membership requirements and every country in the globe is required to undergo assessment of anti-money laundering and combating the financing of terrorism (AML/CFT) framework. 

Pakistan’s assessment is being conducted by APG and assessment team from China, Turkey, UK, USA, Indonesia and Maldives. The purpose of the assessment is to gauge the level of compliance on key AML/CFT areas including adequacy and effectiveness of laws, policies and coordination, implementation of preventive measures, powers and capacity of FMU, supervisory and law enforcement agencies, use of financial intelligence and international cooperation. During the onsite visit (8-19 October 2018) to Pakistan, the APG assessment team held meetings with all Pakistan’s AML/CFT stakeholders. This process will culminate in July 2019 in APG’s annual meeting and in between draft reports would be exchanged with APG including one face to face meeting in April 2019. Both processes i.e. FATF Action Plan and APG’s mutual evaluation are distinct and may not be mixed while reporting in press.

It is pertinent to mention that all countries undergo regular mutual evaluation process using a global assessment methodology and procedures. As of date the AML/CFT assessments of 60 countries have been completed across the globe out of which 16 countries are the members of APG. It is the third mutual evaluation of Pakistan the first two were held in 2004 and 2009 respectively.

It is also clarified that APG assessment team headed by APG’s Executive Secretary Mr. Gordon Hook held a courtesy meeting with Finance Minister and discussed Pakistan’s overall AML/CFT regime. The Finance Minister during the meeting with APG team assured Pakistan’s strong commitment for a robust AML/CFT regime as per international standards and highlighted Pakistan’s measures on this front. The APG team also did not share any assessment in written or verbal forms whether Pakistan will continue to remain on FATF Gray list or not. 

No other issues were discussed with the Finance Minister by APG delegation except the above for which a press release was also issued by the Ministry of Finance on 17th October 2018.
 
 
 
 

 

 

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