(Media) Ph. 9211707
|02 September, 2021
Clarification - Response to media reports regarding increase in Public Debt during last three years
This is in response to some media reports regarding increase in public debt during last three years while these media reports ignored the underlying reasons behind such increase. Therefore, in order to fully understand the underlying economic realities, there is a need to analyze the sources of increase in total public debt during last three years:
a. Interest Expenses: Preference towards short-term domestic borrowing in absence of adequate cash buffers resulted in short-term profile of domestic debt at the end of FY2018. This short-term profile led to high interest cost on debt as interest rates had to be increased significantly to curb rising inflationary pressures.Government paid Rs 7.5 trillion against interest servicing which explained 50 percent of the increase in total public debt.
b. Currency Devaluation Impact: Exchange value of the Rupee was maintained at an artificially high level in the past which triggered the balance of payment crisis.Transition to market-based exchange rate regime, being an unavoidable policy choice, resulted in sharp exchange rate depreciation leading to high inflation, high interest rates, slower GDP growth and lower import-related tax revenues.This exchange rate depreciation added around Rs 2.9 trillion (20 percent of the increase) in public debt. It is important to highlight here that this increase was not due to borrowing but due to re-valuation of external debt in terms of rupees after currency devaluation.
c. Financing of Primary Deficit: The impact of economic slowdown due to the Covid-19 pandemic mainly resulted in higher than estimated primary deficits. Rs 3.5 trillion (23 percent of the increase) was borrowed for financing of primary deficit.
d. Cash Management & Others: Rs 1.0 trillion (7 percent of the increase) was on account of increased cash balances of the Government to meet emergency requirements as well as due to difference between the face value (which is used for recording of debt) and the realized value (which is recorded as budgetary receipt) of government bonds issued during this period. Government took the revolutionary and economically sound step of not borrowing from the SBP and maintaining a cash buffer, which led to a one-off increase in debt. However, this increase in debt was offset by corresponding increase in the Government’s liquid cash balances.
2. A better way to measure level of debt is through Debt-to-GDP ratio instead of looking at the absolute values of debt. In this light, it is important to highlight that Pakistan has witnessed one of the smallest increases in its Debt-to-GDP ratio during pandemic. Global Debt-to-GDP ratio increased by 13 percentage points, whereas, Pakistan’s Debt-to-GDP ratio witnessed minimal increase of 1.7 percentage points in 2019-20.Pakistan’s Debt-to-GDP ratio in fact reduced by 4 percentage points indicating lower debt burden at end June 2021 as compared with last fiscal year.
3. To conclude, the increase in debt during last three years occurred mainly during FY 2018-19 due to implementing difficult and unavoidable policy choices. Had the market-based exchange rate, a sustainable level of Current Account Deficit, adequate cash buffers and long-term domestic borrowing profile been maintained, the debt burden would have been reduced further on the back of fiscal consolidation efforts supported by aggressive control on expenses and growth in tax and non-tax revenues. As most of the major adjustments to fiscal and monetary policies have been made, debt burden is projected to decline firmly over the next few years.
|30 August, 2021
Clarification - In response to the articles criticizing the Government's economic growth strategy
This is in response to recent articles in the press criticizing the Government’s economic growth strategy for not being backed by rigorous enough planning. The objections are based on incomplete information and are therefore both inaccurate and misleading. It must be clarified that details shared with the press so far have been summarized versions of objectives and targets under the umbrella of Economic Advisory Council (EAC).
Each sectoral plan is backed by comprehensive working involving a market-based approach to identify key impediments and recommend structural changes to unlock value on a sustainable basis. There are detailed steps to be taken to achieve targets on a short, medium and long-term basis for each sector and include reforms that require political wherewithal since results will not be immediate. It is therefore premature to criticize these initiatives, many of which are long overdue.
|26 August, 2021
Clarification - regarding provision of funds to the Election Commission for holding By-Elections
In response to some media reports regarding provision of funds to the Election Commission for holding By-Elections, it is clarified that the Ministry of Finance is firmly committed to provide all funds to conduct Cantonment Elections, Local Government Elections and By-Elections.
The Ministry of Finance supports Election Commission of Pakistan (ECP) and during the CFY 2021-22, an amount of Rs.3,827 million has been allocated for ECP and the same is available with ECP for making necessary expenditures.
Furthermore, Ministry of Finance has also allocated Rs.5,000 million specifically for Local Government Elections which will be provided to ECP as per their requirement after following due approval process
|23 June, 2021
Clarification - Misleading and baseless stories about French position on Pakistan's engagement with FATF
It has been noticed that some media outlets have published misleading and baseless stories about French position on Pakistan’s engagement with FATF.
FATF will announce its future course of action on Pakistan’s Action Plan after conclusion of its Plenary meeting on 25 June 2021.
It is clarified that France, like many other jurisdictions, has been an active partner of Pakistan during the implementation of its ICRG Action Plan and it has also provided technical support and guidance to Pakistan.
Pakistan has given high-level political commitment to FATF for implementation of the Action Plan and is resolved to maintaining its momentum for improving its AML/CFT regime. Over the last two years, Pakistan has made concerted efforts in this direction, which have also been recognized by the international community.
The Ministry would urge all to avoid any speculative, sensational or unsubstantiated reporting which could undermine our international cooperation and good will.
|20 May, 2021
Clarification - Ministry of Finance has not delayed the printing of special audit report on COVID-19 related spending prepared by the AGP
The Ministry of Finance has not delayed the printing or publishing of the special audit report on COVID-19 related spending prepared by the Auditor General of Pakistan. Conduct of such audits is the sole prerogative of the Office of the Auditor General.
One of the structural benchmarks of the IMF’s Extended Fund Facility is an ex-post audit by the Auditor General of the ‘procurement of urgently needed medical supplies related to Covid’. To clarify the correct factual position, the Government considers this benchmark as essential to bringing about greater transparency to its pandemic response, which has been supported by our development partners, including the IMF.
Going by the contents of the news item, it appears that the scope of the Auditor General’s special audit report is far broader than the structural benchmark of the IMF’s Extended Fund Facility, and the Ministry of Finance’s understanding is that the special audit report is still to be scrutinized and finalized by the Auditor General.
The Ministry is engaged with the Office of the Auditor General for meeting the specific benchmark of the Extended Fund Facility. Though with a slight delay, the benchmark will be met successfully.
|23 February, 2021
Clarification - "Disparity Reduction Allowance" @ 25% of the basic pay of BPS-2017
an article appeared in a section of press, it
is clarified that the Federal Cabinet has approved
grant of “Disparity Reduction Allowance”
@ 25% of the basic pay of BPS-2017 w.e.f. 1st
March 2021, for those civil employees in BPS 1
to BPS 19 of the Federal Government who have never
been allowed additional salary equal to or more
than 100% of the basic pay or performance allowance.
There are a number of institutions
/ organizations of Federal Government that have
been previously granted additional allowances
as 100% or more of the basic pay or performance
allowance. The disparity reduction allowance aims
at reducing the gap in the salaries of those already
granted additional salary and those who have never
been granted additional salary. The number of
such employees who have never been granted additional
salary is approximately 296,470 out of a total
of 623,215 civilian employees.
This allowance has been granted
as an interim arrangement till finalization of
recommendations of Pay & Pension Commission.
The Pay & Pension Commission has been asked
to give its recommendations for revising the salaries
of all federal government employees (civilian
and Armed Forces), before the next budget so that
salaries could be revised across the board for
all Federal Government employees. The Commission
has also been tasked to review the existing pension
system of the Federal Government and give recommendations.
|17 February, 2021
Clarification - Reference an
article appeared in a section of press
an article appearing in a section of press, it
is stated that during the 1st half of current
financial year 2020-21, the Consolidated Primary
Balance reflected a Surplus of Rs. 337 billion
(0.7% of the GDP) whereas, the overall Fiscal
Balance was restricted to -2.5% of the GDP against
the annual target of 7.1%. Provincial surplus
of Rs. 255 billion reflects healthy fiscal position
of the provinces. The whole scenario transpires
better fiscal management.
During the same period, 45%
of FBR Revenue target fixed for the whole year
was realized, despite economic slowdown due to
resurgence of COVID-19.
Unavoidable expenditures were
incurred to mitigate the impact of COVID-19 and
to help the vulnerable segments of society. However,
debt servicing of huge domestic and external loans
accumulated over the past one decade is the major
fiscal challenge. Through better debt management
efforts are being made to reduce the debt servicing
With more revenue collection
and controlled expenditures, the targets set for
the whole financial year with regard to fiscal
and primary balances will be met.
Clarification regarding issuance
of Sukuk by Government of Pakistan
are Shariah compliant borrowing instruments backed
by physical assets, and are structured so as to
pay returns on investment as rent instead of interest
by utilizing an underlying asset.
Sukuk are not only issued to support the Government’s
budgetary position, but also to promote Islamic
banking finance in the country, which is a constitutional
obligation. Government of Pakistan has issued
Sukuk several times, which were backed by assets
such Motorways (M1, M2, M3) and Jinnah International
Airport. Other Federal Government assets such
as the Islamabad Expressway, Allama Iqbal International
Airport and F-9 Park have been identified, in
consultation with experts in Islamic finance,
as good potential candidates for Sukuk structures.
It must be emphasized that the benefits of Sukuk
- Lower financing cost for
- Provision of Shariah-compliant
- Fulfilment of the constitutional
requirement of eradication of Riba
- Promotion of the Islamic
The Sukuk market is growing rapidly around the
world. Till the close of 2019, Sukuk worth USD
1,247 billion have been issued globally. Malaysia
has been the global leader in Sukuk market. Other
important issuers are Saudi Arabia, UAE, Qatar,
Oman, Jordan, Turkey, Morocco and Indonesia.
Clarification - Change in Public
Debt from 1st July 2018 to 30th November 2020
change in the public debt under this government
is due to a correction of the flawed economic
policies of the previous regime, especially its
overvalued exchange rate and excessive borrowing.
- Interest Expenses: The
previous government resorted to short-term debt
instruments without maintaining adequate cash
buffers, and relied heavily on SBP borrowing.
This short-term debt profile has resulted in
high interest costs on past debt. The present
government has had to pay Rs 5.7 trillion (47%
of the increase) as interest on debts borrowed
by the previous regimes.
- Currency Devaluation Impact:
The previous government artificially maintained
the exchange rate of the Rupee much above its
market value. A large increase in public debt
has resulted from the abrupt exchange rate depreciation,
which was inevitable because the overvalued
exchange rate triggered a balance of payment
crisis. The only alternative was a default on
external liabilities, which was obviously not
an option. Public debt increased by Rs 3 trillion
(25% of the increase) due to this currency devaluation.
- Financing of Primary Deficit:
The unjustified tax cuts by the previous government
coupled with the impact of subsequent economic
slowdown due to the Covid-19 pandemic resulted
in higher than estimated primary deficits. Rs
2.5 trillion (21% of the increase) was borrowed
for financing of primary deficit during first
29 months of the present government.
- Cash Management: Rs
0.6 trillion (5% of the increase) was on account
of increased cash balances of the Government
to meet emergency requirements. The present
government took the economically sound policy
of not borrowing from the SBP and maintaining
a cash buffer, which led to a one-off increase
in debt. However, this increase in debt was
offset by corresponding increase in the government’s
liquid cash balances. Furthermore, Rs 0.3 trillion
(approx. 2% of the increase) was due to difference
between the face value (which is used for recording
of debt) and the realized value (which is recorded
as budgetary receipt) of government bonds issued
during this period.
To conclude, the increase
in debt during the tenure of present government
occurred mainly during FY19 as an unavoidable
consequence of erroneous policies of the previous
government. Had the previous government maintained
a market-based exchange rate, a sustainable level
of current account deficit, adequate cash buffers
and a long-term domestic borrowing profile, the
present government would not have had to make
all these difficult adjustments and public debt
burden would have been reduced on the back of
fiscal consolidation efforts of the present government
supported by aggressive control on expenses and
growth in tax and non-tax revenues. However, as
most of the major adjustments to fiscal and monetary
policies have been made, Debt-to-GDP ratio is
projected to decline over the next few years.
Clarification on Debt Position
Clarification - An article appeared
in a section of press with arbitrary and selective
financial comparison between the current government
and the previous regime.
article appeared in a section of press with arbitrary
and selective financial comparison between the
current government and the previous regime. The
article compares apples with oranges without taking
into account a holistic picture. The writer termed
the tenure of a previous regime as a period of
high growth, low inflation, increased per capita
GDP, low interest rates, increasing tax revenues
and higher investments.
The fact of the matter is that
in FY 2018 Pakistan faced multiple fiscal, external
and real sector challenges. For instance, the
trade deficit was 9.8% of GDP, an overvalued exchange
rate had consumed precious foreign exchange reserves,
and twin deficits had reached a record level.
Consumption led growth had created a balance of
payment crisis as well as fiscal imbalance. The
current rise in inflation could be traced back
to the delay in policy adjustments required in
As a result, the present government
had to impose a strict financial discipline, curtail
excessive government expenditure, increase revenue
collection, introduce market driven exchange rate,
remove large tax exemptions, discourage imports
and stop borrowing from the State Bank of Pakistan.
As a consequence of these prudent
policies, Pakistan witnessed remarkable improvement
in fiscal and current account deficits. Similarly,
Pakistan registered a primary surplus which is
unprecedented and a great achievement despite
the COVID-19 pandemic. Pakistan also had an upward
trend in foreign remittances and FDI during first
quarter of FY 2020-21.
The government was also able
to give the largest ever Fiscal Stimulus Package
of Rs.1240 billion to cover emergency response,
support businesses and provide relief to citizens
in the crisis created by the pandemic.
The government has also taken
several initiatives to accelerate economic recovery.
A relief package for Small Medium Enterprises
(SMEs) has shielded against insolvency and joblessness.
Similarly, a special package has been announced
to boost Construction sector, which includes amnesty
scheme, tax exemptions and subsidies to stimulate
economic growth. The COVID-19 pandemic has disrupted
supply chains which added to food inflation. However,
the Government has taken effective policy and
administrative measures to minimize inflation.
At present, there is a consistent decline in prices
of essential commodities.
The government is firmly committed to correct
the fundamentals of the economy through effective
policy making and targeted reforms. The objective
is to achieve sustainable and inclusive economic
growth in the long run.
Clarification regarding Nominees
in case of National Savings Schemes (NSS)
response to news item regarding “nominee”
in National Savings Schemes (NSS), the Ministry
of Finance would like to clarify that Honorable
Sindh High Court, in its judgment dated 23-08-2016
ordered to align NSS rules/procedures so that
payment of principal amount and profit thereon
(if any), in case of death of certificate purchaser/investor,
would be paid to legal heirs according to succession
certificate issued by a court of competent jurisdiction
in accordance with Muslim Law of Inheritance as
applicable in Pakistan instead of previous practice
whereby a person was nominated by certificate
purchaser/investor in the event of his/her death.
In light of the orders of the
Honorable Sindh High Court, the proposed changes
in the rules were twice widely publicized through
print and electronic media to solicit public opinion.
Central Directorate of National Savings (CDNS)
carried out further due diligence keeping in view
the suggestions received from the public and in
light of decision of Sindh High Court and decisions
of Supreme Court given on different petitions.
The rules were vetted by the Law and Justice Division,
which were subsequently approved by the CCLC and
It is also informed that
the response of the general public has been very
positive as many legal heirs were being deprived
of their due inheritance as the previous rules
were not in line with the law of the land.
Sources of increase in External
Debt and Liabilities during 24-month
of increase in External Debt and Liabilities during
24-month period from 30 June 2018 to 30 June 20
This is with reference to a
news item published in a section of press regarding
the increase in external debt and liabilities
of the country during the past two years. The
figure of increase in External Debt and Liabilities
by $ 17billion reported by SBP needs to be properly
interpreted for a better understanding.
The figure of External Debt
and Liabilities consists of the following four
1. External Public Debt
2. Public Sector Entities’
3. Foreign Exchange Liabilities
of State Bank of Pakistan (SBP)
4. Private Sector’s External
Out of the total increase of
$ 17.6 billion in External Debt and Liabilities
during Jun 2018 -Jun 2020:
· $7.8billion (44% of
the increase) has been borrowed by the Government
for financing of its Fiscal Deficit. This amount
of $ 7.8billion was the actual borrowing of the
present Government during its first two years.
It is important to highlight that these additional
borrowings were from multilateral and bilateral
development partners whereas portion of loans
from commercial sources were repaid. Borrowings
from multilateral and bilateral development partners
were contracted on low cost and longer tenor,
which contributed towards enhanced external public
debt sustainability during the tenure of present
· $4.8billion (27% of
the increase) is on account of SBP’s foreign
exchange liabilities. It should not be interpreted
as Government’s Debt because it is offset
by cash balances and liquid assets of SBP;
· $2.9billion (16% of
the increase) has been borrowed by private sector
from external sources which is a healthy sign
indicating private sector’s capacity to
borrow from abroad for domestic investments;
(13% of the increase) has been borrowed primarily
by PSEs for spending on their financing needs
mostly related to development expenditure.
Rebuttal - Finance Division
rebuts report on Depleting Foreign Exchange Reserves
and the Bond Programme
news report published in a section of press claiming
that Pakistan’s foreign exchange reserves
are depleting and that it would not be possible
to float bonds unless the stalled IMF programme
is revived, is completely fallacious and misleading
on all three counts.
First, Pakistan’s foreign
exchange reserves are stable and certainly not
depleting. The marginal fall in reserves referred
to in the news item is because of the outflows
of loans taken from commercial banks. The Ministry
of Finance has already completed the process for
refinancing of these loans and the funds are expected
to flow back in during the next two to three weeks.
More so, the stability in our foreign exchange
reserves is reflected in the improving exchange
value of the rupee.
Second, the IMF programme has
not stalled. The Government of Pakistan, including
the Ministry of Finance and the State Bank of
Pakistan as well as all ministries concerned,
are in constant consultation with the IMF regarding
the different policy initiatives and interventions
currently being undertaken. As a trusted development
partner and economic advisor, the IMF is consistently
guiding and steadfastly supporting the Government
during these unprecedentedly difficult times created
by the Covid-19 pandemic. As the Ministry of Finance
has clarified earlier also, we can no longer view
the IMF programme in the conventional sense. Programme
benchmarks, of course, remain critical, but their
timing has to be adjusted according to grave socioeconomic
challenges posed by the pandemic.
Third, Pakistan’s ongoing
Medium-Term Note (MTN) Programme for the issuance
of Eurobonds/international Sukuk is on track.
The Ministry of Finance has already initiated
the process for engagement of Financial Advisors,
which is expected to be completed by mid-November
2020. After completion of all required formalities,
the international capital markets will be tapped
during January/February 2021. It must be noted
that yields on Pakistan’s international
bonds have returned to pre-Covid levels and these
bonds are trading at a premium, indicating the
confidence of global investors in Pakistan’s
economy. Therefore, the Government does not feel
any cause of concern with respect to new issuances
and the execution of the MTN programme.
The Ministry of Finance
would like to make it very clear that Pakistan’s
bond programme or its external sector stability
is not under any kind of threat, as has been falsely
claimed in the news report in question.
Ministry of Finance
Clarification - Misleading tweets
regarding conduct of government securities auctions
and re-profiling of debt obtained from SBP
response to certain misleading tweets regarding
conduct of government securities auctions and
re-profiling of debt obtained from SBP, the official
Spokesperson of the Ministry of Finance would
like to clarify that every month, Ministry of
Finance announces auction calendar for next 3
months (on rolling monthly basis) for raising
of debt through issuance of government securities
including T-bills, PIBs and Sukuks. On April 10,
2020 MOF announced schedule of auction of Government
Securities which was also confirmed on June 16,
2020 according to which the instant auction was
scheduled on 24th June 2020. The fact can be reconfirmed
Pictures still available on Bloomberg terminal
On 24thJune 2020, as per the
preannounced schedule monthly auction of Pakistan
Investment Bonds (PIBs) was held. On 25th June
2020, SBP held an “unscheduled emergency
meeting of Monetary Policy Committee” and
reduced the Policy Rate by 1%.
By suggesting that SBP should have either held
the MPC meeting earlier or informed MOF to delay
the auction to take advantage of the reduction
in Policy Rate, an incorrect impression is being
created that, by not influencing each other’s
decision, MOF and SBP have caused a loss to the
Government Exchequer which is grossly incorrect
as both the agencies are working in a professional
manner and in their own domain. The said auction
of PIBs is being linked with re-profiling of debt
obtained from SBP, which is also not correct.
It is reiterated that borrowing is a function
of Ministry of Finance (MOF) whereas setting the
Policy Rate is the function of SBP. International
best practices require the two agencies to act
independently and professionally. If these agencies
start influencing each other’s decisions,
then monetary policy can become hostage to the
budgetary/borrowing considerations and vice versa.
The independent exercise of these functions is
important for economic and financial stability
of the country.
Re-profiling and retirement of debt obtained from
the State Bank of Pakistan (SBP)
At the end of FY19, GOP decided that short-term
debt of Rs 7.7 trillion obtained from SBP over
the years shall be converted into long-term debt
and retired over next 10 years. Accordingly, a
policy decision was taken to terminate borrowing
from SBP. This decision has been appreciated by
the international credit rating agencies and multilateral
institutions such as IMF as it reflects government’s
commitment to greater fiscal discipline, macroeconomic
stability and financial market development.
It is, therefore, regrettable that this paradigm
shift in right direction is being negatively portrayed
to mislead the public.
Rebuttal - Finance Division
rebuts news reports on Audit Report 2019-20
Ministry of Finance has refuted news reports appearing
in a section of the press claiming that the first
audit report of the present government reveals
irregularities and corruption amounting to Rs.
270 billion by 40 government departments and ministries
during FY 2018-19.
Describing these reports categorically
as baseless, misinformed and erroneous, the Ministry
of Finance in an official statement has said that
the Audit Report for FY 2019-20, like all audit
reports, consists of preliminary observations:
it identifies some gaps in completing formalities
while processing different cases by government
entities and indicates various shortcomings in
the provision of documents to the audit teams
in certain other instances. But to conclude that
each procedural deficiency is tantamount to corruption
is incorrect and misleading.
The Ministry of Finance would
like to make it clear that by their very nature
audit reports identify procedural deficiencies,
and are not evidence of corruption – let
alone ‘conclusive proof’ of corruption
as certain sections of the media have attempted
to portray. Furthermore, these audit reports are
subsequently considered exhaustively at several
forums, including by the departmental audit committees
and the Public Accounts Committees, where ministries
and other government institutions are given an
opportunity to defend their cases and rectify
the procedural shortcomings. Even these forums
are not competent to establish whether or not
corruption has been committed.
It must also be understood
that on provision of the requisite documents –
and occasionally completion of the requisite approval
processes – the vast majority of audit paras
are settled at these forums. Only in a few instances,
where the deficiencies cannot be met, has punitive
action been necessary.
Moreover, within the above-clarified
context of the nature of audit reports, it is
very important to note that the audit report of
the incumbent government actually reflects vast
improvement in governance. For instance, comparing
earlier audit reports, as covered by the press
in previous years, with the one in question reveals
that while audit paras related to expenditures
of only Rs. 270 billion in FY 2018-19, the Audit
Reports of FY 2015-16, FY 2016-17 and FY 2017-18
presented audit paras on expenditures as huge
as Rs. 3.2 trillion, Rs. 5.8 trillion and Rs 15.7
The Ministry of Finance,
therefore, strongly rejects the misleading conclusions
presented by certain sections of the press on
the basis of the Audit Report for FY 2018-19.
This is with reference to the
statement by Mr. Murtaza Wahab, Adviser to CM
Sindh on 15th June 2020 that "SINDH GETS RS.234
BILLION LESS IN NFC AWARD: published in a section
is with reference to the statement by Mr. Murtaza
Wahab on 15th June 2020 that “SINDH
GETS RS.234 BILLION LESS IN NFC AWARD: published
in a section of press.
The official spokesperson of the Finance
Ministry likes to clarify that at the start
of each financial year, FBR gives estimates of
tax collection during the financial year. Based
on those estimates, the share of each province
under the 7th NFC Award is conveyed for budget
preparation. However the release of share of each
province depends on actual collection of taxes
reported by FBR and not on estimates as provided
under the 7th NFC Award.
The share of Sindh in the divisible pool
taxes and grant-in-aid was estimated to be Rs.781
billion for the current financial year 2019-2020
based on estimated FBR Receipts of Rs.5,555 billion.
However, FBR collected Rs.3,670 billion up to
May, 2020 due to various factors. Based on this
actual collection, the share of Sindh Province
together with grant-in-aid stood out to
be Rs.484 billion (up to May 2020) in accordance
with the 7th NFC Award (24.55% share of Sindh
Province) and the same stands released. The Federal
Government has not withheld any amount from due
share of the province of Sindh.
It is further pointed
out that the estimates of FBR receipts have been
revised at Rs.3,908 billion till June, 2020. Based
on this revised figure, the share of Sindh works
out to be Rs.549 billion and the same has already
been conveyed to the provincial government. The
release will, however, depend on the actual collection
No downgrading of Pakistan's
B3 rating by Moody's: Finance Division
Ministry of Finance has said that the rating review
conducted by Moody’s Investor Service on
14th May 2020 does not downgrade Pakistan’s
In a statement on Friday, the Ministry has said
that the Moody’s Investor Service has only
placed the current rating under review for downgrade
in case the G-20 Covid-19 Debt Service Suspension
Initiative (G-20 DSSI) extends to private sector
creditors. The action is, therefore, not Pakistan
specific and is in line with Moody’s global
approach to place under review for downgrade all
sovereigns availing the G-20 DSSI.
The Ministry of Finance has further said that
the review by the Moody’s Investor Service
acknowledges that Pakistan has not indicated any
interest in extending its debt service relief
request to the private sector creditors and that
the country’s fundamentals remain strong
and on track. The review also appreciates that
amid the pandemic, Pakistan’s economic,
financial and institutional strength remains materially
Finance Division denied any
cut in PSDP
Ministry of Finance has denied a news report published
in a section of the press suggesting and insinuating
a Rs 100 billion cut in the Public Sector Development
Programme (PSDP) for the current fiscal year as
per briefing by the Finance Secretary to the National
Assembly’s Standing Committee on Finance
and Revenue the other day.
The Finance Division strongly
denies and rebuts this news report as the Secretary
Finance never stated at any point during his presentation
to the National Assembly’s Standing Committee
on Finance and Revenue that there could be cut
in the federal development programme this year,
said an official statement issued by the Finance
The statement asserted that
the Finance Division has actually facilitated
maximum and speedy disbursements for the year
and there is no cut planned or suggested in the
development spending for the current fiscal year.
The Finance Division has always provided full
support to Planning Division to ensure timely
expenditure, said the statement.
Finance Division dismisses speculations
on IMF Review
Ministry of Finance has described as misleading
and factually incorrect a news item published
in a section of the press suggesting that tough
prior actions [are] needed for IMF’s $452
million third tranche.
In an official statement issued here, the Ministry
of Finance has stated that it is completely normal
for quarterly reviews to sometimes take a few
days more than planned, which must never be viewed
as something extraordinary; the second and third
quarterly reviews will be presented before the
IMF board separately as planned; no decision has
been taken as to any prior actions; China is Pakistan’s
iron brother and there is no apprehension whatsoever
on the roll-over/refinancing of Chinese loans.
The article in question is equally ill-conceived
in trying to portray that only a miracle can save
the IMF program. The press statement issued by
the IMF on Friday explains that:
“The IMF staff team had constructive and
productive discussions with the Pakistani authorities
and commended them on the considerable progress
made during the last few months in advancing reforms
and continuing with sound economic policies,”
and that “[a]ll end-December performance
criteria were met, and structural benchmarks have
The Finance Division would like to make it very
clear that the Government’s reform program
supported by the IMF’s Extended Fund Facility
is on track.
Finance Division urges careful
reporting of ebb and flow in stock market
Ministry of Finance has described certain reports
appearing in a section of the press over the ebb
and flow of the Pakistan Stock Exchange yesterday
as being unfortunate as such reports highlighting
sharp volatility in the market damage the interest
of the small investors and create uncertainty
in the market.
“The role of the
media in reporting the ebb and flow in the market
needs to be carefully analysed particularly in
the wake of rumours spread by a section of the
media regarding alleged changes in the government’s
economic team which sent wrong signal to the market
and damaged the interest of small investors and
hurt overall sentiment in the market,” says
an official statement released by the Finance
The Ministry of Finance has
noted that it is natural for the market to see
a correction after rising sharply by over 50%.
“Yesterday, the market fell 846 points.
Today the market gained 417 points. These ebbs
and flows of the market are driven by sentiments,
whereas the fundamentals remain strong and continue
The Ministry of Finance also
pointed out that after rising by 50% from August
2019 to January 2020, the KSE 100 index had already
been named as the top performing market in the
world by Bloomberg in December 2019. The improved
investor confidence was based on corrective measures
taken by the government to reduce the twin deficits.
These measures were also strongly endorsed by
Moody’s Investor Services in December 2019
with an upgrade in outlook to ‘stable’
from ‘negative’. Foreign portfolio
investment in the stock market during the first
6 months of the current fiscal year has also stood
at US$ 18.8 million after 4 years of heavy selling
by foreign investors.
Govt policies based on good
economic management -- Finance Division
Ministry of Finance has said that the economic
policies and economic reforms programme of the
government being implemented with the support
of IMF are based on sound and well-established
principles of good economic management.
“The objective of these
policies is stabilization in the first phase,
followed by rapid, sustainable and inclusive growth,”
says the Finance Division in response to certain
news reports insinuating that the “IMF policies
[are] leading to destruction of economy”.
The Finance Division has maintained
that the government’s policies have already
started showing positive results. There is significant
improvement in economic indicators. The external
sector has stabilized and the fiscal deficit has
declined significantly in the first six months
of the financial year.
Low tax-to-GDP ratio is amongst
the fundamental problems of Pakistan’s economy.
Unless this is corrected, the country cannot achieve
prosperity. Therefore, a multi-pronged revenue
mobilization strategy is being pursued to broaden
the tax base and raise tax revenues in a balanced
and equitable manner.
To cushion the low-income groups
from any adverse effects of stabilization measures,
the Government has allocated sufficient resources
for income support and social protection programs
and has increased spending on health and education.
Furthermore, targeted energy subsidies have been
given to the vulnerable group.
Govt borrowed Rs 4.11 trillion
to finance budget deficit in 15 months -- Finance
Division lays before the National Assembly the
Debt Policy Statement and Fiscal Policy Statement
every year to fulfil the requirements laid out
under Section 6 and 7 of the Fiscal Responsibility
and Debt Limitation Act 2005. The recent statements
cover the 15-month period including FY 2018-19
and first quarter of FY 2019-20 and contain all
factual information with respect to debt and fiscal
performance over the stated period.
The figure of increase in Total Debt and Liabilities
by Rs 11.61 trillion being reported in the media
needs to be properly interpreted, says a press
release issued by the Ministry of Finance, as
the Government borrowed only Rs 4.11 trillion
to finance its budget deficit.
The figure of Total Debt and
Liabilities consists of the following five components:
1. Total Public Debt
2. Public Sector Entities’ (PSE) Debt
3. Debt for Commodity Operations
4. Foreign Exchange Liabilities of State Bank
of Pakistan (SBP)
5. Private Sector’s External Debt
Out of the total increase of
Rs 11.61 trillion in Total Debt and Liabilities
during Jul 2018 - Sep 2019,
- Rs 3.54 trillion (31% of
the increase) is due to currency depreciation
which is a consequence of the misplaced exchange-rate,
industrial, and trade policies of the previous
government that led to large and unsustainable
current account deficits and ultimately to sharp
exchange rate adjustment;
- Rs 3.13 trillion (27% of
the increase) is on account of cash balances
and SBP’s foreign exchange liabilities.
It should not be interpreted as Debt because
it is offset by cash balances of government
and liquid assets of SBP.
- Rs 4.11 trillion (35% of
the increase) has been borrowed for financing
of fiscal deficit;
- Rs 0.47 trillion (4% of
the increase) has been borrowed by PSEs for
spending on their financing needs;
- Rs 0.08 trillion (-1% of
the increase) has been retired on account of
commodity operations which is a welcome development;
- Rs 0.25 trillion (2% of
the increase) is due to accounting adjustment
due to difference in realized value and face
value of long-term bonds issued during this
- Rs 0.18 trillion (2% of
the increase) has been borrowed by private sector
from external sources which is a healthy sign
indicating private sector’s capacity to
borrow from abroad for domestic investments.
Finance Division has taken a
strong exception to a news report published in
Daily Express Tribune and Daily Express
of Finance has taken a strong exception to a news
report published in Daily Express Tribune and
Daily Express insinuating and portraying a situation
of clash between two government departments over
the government’s foreign borrowing during
July-Dec 2019 period.
In an official statement, Finance Division spokesperson
has described the reporting by both newspapers
as being unethical and against the canons of professional
journalism as their reports twist and paint a
straightforward clarification issued by Finance
Division on 25th January 2020 over government’s
net foreign borrowing of US$ 1.7 billion in the
July-Dec 2019 period, as rejection of data of
another government department which was not even
mentioned in the Ministry’s clarification.
The Spokesperson has maintained that the clarification
issued by the Finance Division was only related
to misreporting in a section of the media of gross
external debt inflows which did not take into
account outflows on account of repayments, and
thereby presented only one side of the picture.
The Ministry had clarified that “whereas
the reported gross disbursement is US$ 5.5 billion
during Jul - Dec 2019, deducting the US$ 3.8 billion
which the government paid back during the said
period leaves a net figure of US$ 1.7 billion
... therefore, the real addition was US$ 1.7 billion,
not US$ 5.5 billion as claimed by a section of
Hence, the reporter has attempted to create a
situation of so-called rift between two government
departments and rejection of data by Finance Division
of another government division whose input was
duly taken in the Finance Division’s clarification,
which is unethical and against the canons of professional
journalism, said the statement.
Rebuttal - Finance Division
rebuts news regarding 20 % drop in FDI
Division has described as factually incorrect
and misleading a news item published in a section
of the press claiming that the foreign direct
investment flows into Pakistan had dropped by
20 per cent in 2019.
In an official statement, the Finance Division
has clarified that a news report published in
a segment of the press has highlighted that Foreign
Direct Investment (FDI) inflows into Pakistan
declined by 20 percent to $1.9 billion in 2019
(calendar year) against $2.4 billion in 2018.
In this context, it is clarified that FDI data
is collected on the basis of fiscal years, whereas
the quoted figure is taken on calendar year basis.
Furthermore, on fiscal year basis, FDI has increased
by 68.3 percent during July-December 2019 as compared
to same period of last year (from $0.797 billion
to $1.341 billion)
Economy moving progressively
on adjustment, stabilisation path
Ministry of Finance has said that the government’s
extensive measures have helped the economy move
progressively along the adjustment path and stabilization
process and economic recovery is expected towards
the end of FY2020.
“The government is focused on bringing improvement
in the real sector growth through inclusive growth
in agriculture, industrial and services sectors,”
said a statement by the Finance Division in response
to certain news reports carried in a section of
the regarding downward revision of growth by the
The government is cognizant of challenges and
stringently focused on resolving them particularly,
reducing inflation, creating job opportunities
and achieving high growth rate. Keeping in view
the positive developments on major economic indicators,
we expect that the economy will likely to achieve
better growth prospects as against the projections
of the World Bank.
The World Bank in its report ‘2020 Global
Economic Prospects’ had forecasted Pakistan`s
current year growth rate at 2.4% before touching
3 % next fiscal year and 3.9 % in FY2022. The
bank’s report had also mentioned that the
growth had decelerated an estimated 3.3 % in FY2018-19,
reflecting a broad-based weakening in domestic
demand. In addition, the report had described
that significant depreciation of the Pakistani
rupee resulted in inflationary pressures, monetary
policy tightening restricted access to credit,
curtailing public investment to deal with large
twin deficits and budget deficit rose more sharply
It may be pointed out that during FY2019, the
slowdown in economy was largely attributed to
various policy measures to manage the twin deficit
crisis. Consequently, these measures helped to
contain demand pressures and contributed to import
compression. However, the outcomes of these measures
were realized on the industrial sector. Particularly
LSM sector witnessed a negative growth. At the
same time, high input costs along with water shortages
weakened agriculture sector’s output and
hence, the drag in the commodity-producing segments
spilled over to the services sector as well. Resultantly,
the real GDP growth recorded at 3.3 percent.
At the start of current fiscal year, with government’s
extensive measures, Pakistan’s economy is
now moving progressively along the adjustment
path and stabilization process; however towards
the end of FY2020, economic recovery is expected.
In this regard, Government is focused on bringing
improvement in the real sector growth through
inclusive growth in agriculture, industrial and
For growth in agriculture sector, the target production
of wheat is 27 million tons given by FCA in last
meeting held in October. In addition to uplift
agriculture sector “National Agriculture
Emergency Programme” in coordination with
all provinces has been introduced and approved
13 mega projects at the cost of Rs 287 billion.
Agriculture credit disbursement target for CFY20
has been set at Rs.1,350 billion. Agriculture
credit disbursement increased by 20% to Rs 482
bn during Jul-Nov, FY2020 against Rs.402 bn last
To boost industrial sector, the government is
providing a series of subsidies and incentives
to industrial sector. These include subsidies
to industry for electricity and gas, export development
package and continue to provide Long-Term Trade
Financing (LTFF) and Export-Refinancing Scheme
(ERS) at subsidized rate.
Similarly, PSDP release process is simplified
and up to 3rd January, 2020 Rs.301.4bn (Rs.225.4
bn) released to encourage construction related
industries especially cement & steel. In addition,
Cement dispatches growth of 6.55% (24.8 mn) during
July-Dec, FY2020 against 23.2 mn in the last year.
This development would likely stimulate the growth
in LSM in coming months.
On fiscal side, to control expenditures, government
is following austerity measures with complete
restriction on supplementary grants. For export
promotion several initiatives have been announced
such as support duty structure on raw materials
and intermediate goods, improve mechanism for
tax refunds, provide electricity and gas at competitive
cost, and make Pakistan part of the global value
Government’s various measures to stabilize
the economy has already started to reap benefits
in the form of sustained adjustment in current
account deficit (CAD) and continued fiscal prudence.
A brief review indicates that CAD reduced by 72.9%
during July-November FY2020, Fiscal deficit contained
at 1.6% of GDP (Rs 686 bn) during Jul-Nov FY2020
,Primary balance posted surplus of Rs 117 bn during
Jul-Nov, FY2020 (0.3 percent of GDP), significant
rise in FBR tax revenues to Rs.2085.2 bn (16.4
%) during July-December, FY2020, improved ranking
in ease of doing business, ranked among the world’s
top 10 best business climate improver and ‘Stable’’
credit outlook to B3 from ‘Negative’
by Moody’s is an affirmation of Government’s
success in stabilizing the economy and laying
a foundation for robust growth.
Development Spending Grows by
27% in Four Months -- Ministry of Finance
Ministry of Finance has said that the development
spending during the first four months witnessed
a growth of 27% compared to the same period of
last financial year while the development spending
of the four provinces (combined) during the first
four months also stood at Rs.112 billion as compared
to Rs.88 billion spent during the same period
of last financial year.
“It is incorrect to say
that the provincial government has provided the
surpluses at the cost of development activities,”
said the Finance Division in an official statement
in response to certain media reports appearing
in a section of the press claiming that the "provinces
forego uplift plans and return Rs.202 billion
In its statement, the Ministry
of Finance described the media reports as "misleading"
and "incorrect" and maintained that
as per the factual position, neither the provincial
surplus is Rs.202 billion nor the surplus amount
had been transferred/ returned to the federal
government. The actual provincial surplus for
the period July-September, 2019 is Rs.190 billion,
The Finance Division further
stated that according to standard procedure federal
transfers are made to the provincial governments
as per NFC formula and are transferred from Federal
Government Account to the respective Provincial
Government Account maintained with State Bank
of Pakistan. The amount so transferred remains
available to the respective Provincial Government
all the time in their separate accounts with State
Bank of Pakistan.
The statement further clarified that the Ministry
of Finance compiles and consolidates fiscal operations
of State of Pakistan (Federal Government and all
the four provincial governments) on quarterly
basis. The cash balance position of Federal Government
and provinces is shown in a consolidated manner.
The consolidated cash surplus position helps in
driving the fiscal policy of the Government. Federal
Government has neither a role in provincial expenditure
planning nor its spending. Provincial surplus
for the same period of last financial year was
Rebuttal - Ministry of Finance
rebuts newspaper editorial on 'flawed narrative'
Ministry of Finance has rebutted an editorial
published in a Karachi-based business newspaper
accusing the Minister for Economic Affairs Division
Mr. Muhammad Hammad Azhar of a “flawed narrative”
even as the Minister has discharged his responsibilities
as an official spokesperson of the Federal government
representing the collective view of all economic
In an official statement, Spokesperson Ministry
of Finance has said that the views expressed by
the newspaper in its editorial captioned ‘Azhar’s
flawed narrative continues’ dated 07 November
2019 are a fanciful articulation of personalised
nature rather than being an objective assessment
of the spokesperson’s narrative. The editorial
makes some sweeping claims that are not based
on data but either inaccurate information or simply
The newspaper claims that the Minister’s
comparison of the first-year inflation figures
of PTI with PMLN & PPP is not appropriate.
The Minister has simply reminded the protesting
opposition parties that the inflation rates during
their own tenures rose to higher rates as compared
to the first 13 months of PTI government.
The newspaper dismisses the achievement of Foreign
Portfolio Investment flows becoming positive in
Pakistan after three years and links this inflow
to the of loss of employment in SME sector. This
is stated to be not based on any data but an ‘anecdotal
survey of Islamabad’. The above merits no
The stock market’s surge of 6500 point since
August that the Minister mentioned in his presser
is reported as 500 points in the editorial and
then dismissed as not warranting importance because
the market has players that according to the editor
‘manipulate’ the stock market and
does not cover 99% of country’s population.
This view is quite opposite to the importance
that Business Recorder itself gives to the stock
market on a regular basis, printing analysis,
reports and headlines carrying its movement and
The improvement in fiscal deficit In Q1 FY20 is
then criticized in the piece for being compared
to the last year, which in fact is a standard
practice. The PTI government achieved success
in curtailing the external deficit in its first
year of government by 32% (and further by 64%
in first quarter of FY20). Now the government
has focused on fiscal consolidation in this year
(first quarter fiscal deficit is 0.7% vs 1.4%
last year). This is rational sequencing and is
now acknowledged by informed analysts. The editorial
itself mentions ‘appropriate phasing’
as the correct strategy to ease the stabilisation
The claim of rising export volumes is disputed
in the editorial and is attributed largely to
increase in rice import by China. Data on volume
of exports published for last year and this year
shows the above assertion to be incorrect. During
last fiscal year, as per the SBP, the total volumes
of export grew by 12%. The breakdown of exports
provided by PBS shows that exports of Cotton Cloth
increased by 16.61%, Bedwear by 8.18%, Readymade
Garments by 32.77% and Knitwear by 15.52%. The
above make up for 40% of Pakistan’s exports.
The first quarter data of this FY20 also shows
a healthy increase in volumes. Therefore, to attribute
the entire exports volume growth to just rice
imported by China is not supported by data and
shows bias in the newspaper’s analysis.
The decrease in circular debt flow is contested
in the editorial. During the last year of PMLN
government, circular debt flow was Rs 38 Billion/month
on average, whereas during the first year of PTI
government it reduced to Rs 27.8 Billion/month.
This year it will be less than Rs 12 billion/month
on an annual average. The Power Ministry has confirmed
Lastly, whilst making personal attacks, the newspaper
has also portrayed Minister Hammad Azhar as purely
a lawyer and ignored the fact that he graduated
in Development Economics from the School of Oriental
and African Studies, University of London. He
also has experience in managing industry for the
last 13 years.
It is hoped that the newspaper
in future will desist from such subjective analysis
based on personal and biased views which is not
the hallmark of a standard bearer newspaper such
as ‘The Business Recorder’.
Rebuttal - 3.3% growth in FY19
and host of economic measures set to benefit common
of Finance has said that the government’s
macroeconomic adjustment and demand management
policies for stabilization have started making
an impact as visible in the moderate growth of
3.3 % in the FY2019 as well as introduction of
a host of measures to bring down inflation, jack
up economic activities, strengthening of social
security net, increase in employment opportunities
and containment of fiscal and trade deficits.
The result of what has been achieved so far needs
to be seen and contextualised in the backdrop
of a very difficult situation of the economy inherited
by the government and how the measures taken by
the government during the last one year have not
only effectively checked the economic slide but
turn the wheel in various sectors of the economy
to ensure their long-term fruits for businesses
and the common man.
In a detailed statement, the Finance Division
has rejected the news reports published on the
basis of a news article in an online international
newspaper and claiming that the “Voters,
traders feeling pain of the government’s
economic plan” due to what the report suggests
as rising inflation and other reasons.
The Finance Division has maintained that at the
very outset, it is important to mention that when
the present government assumed the office, the
economy was facing multiple challenges relating
to fiscal, external and real sector of the economy.
The unaddressed macroeconomic imbalances and long
awaited structural reforms needed urgent policy
actions. To address these issues, the present
government thus introduced a comprehensive set
of economic and structural reforms and the impact
of macroeconomic adjustment and demand management
policies for stabilization were now visible as
FY2019 witnessed moderate growth of 3.3 percent.
The Finance Division pointed out that the media
reports while referring to increase in prices
did not take into consideration the major causes
behind this rise and instead stated the figures
whereas major reasons for the rise in inflation
are (i) sustained pressures on twin deficits which
induced the government to adjust administered
prices upwards and also impose regulatory duties
on imported items; (ii) supply constraints of
certain food items and imposition of FED on cigarettes;
(iii) and the impact of rise in fuel prices and
exchange rate depreciations.
The Finance Division has further stated that the
rise in inflation was mainly due to delay in policy
adjustments required during FY2018 as the present
government had to make difficult decisions of
upward adjustment in overdue gas and electricity
prices, market-based exchange rate adjustments,
increase in interest rates etc to correct the
macroeconomic imbalances. The government also
adopted prudent expenditure management and contractionary
monetary policy to compress the aggregate demand.
To this effect, the State Bank of Pakistan raised
the policy rate to 13.25% to arrest inflationary
The Finance Division further
clarified that the government was making all efforts
to control inflation by ensuring smooth supply
of commodities, checking undue profiteering &
hoarding and vigilant monitoring of prices both
at federal and provincial level. To address the
issue of severe macroeconomic instability and
to put the economy on the path of sustained growth
and stability, some tough immediate steps were
required. The present government thus introduced
a comprehensive set of economic and structural
reforms. In this regard, Finance Division has
worked out a strategy to control inflationary
pressures in the economy.
The Finance Division also
reminded that the ease of doing business was also
improving at the fast pace, as in 06 indicators
out of 10, there was significant improvement in
Pakistan and the World Bank had placed Pakistan
in top 20 best performers in ease of doing business.
Pakistan follows liberal investment regime for investors’
confidence and conducive environment to attract
local and foreign investment. During September FY
2020, the FDI recorded at US $ 385.3 million showing
an increase of 75.6 percent as against US $ 182.1
million during the same month last year.
Explaining the measures to control inflationary
pressures on the economy, the Finance Division
said the government had discontinued borrowing
from the State Bank of Pakistan which had an inflationary
impact, and switched to commercial banks for borrowing
which was less inflationary in nature. Similarly,
National Price Monitoring Committee (NPMC) in
consultation with the provinces was regularly
monitoring the prices and supply of essential
food and non-food items.
The Finance Division further noted that on the
expenditures side, the government was following
austerity measures with complete restriction on
supplementary grants. This is helping to control
the aggregate demand to ease out the inflationary
pressure in the country. The government is also
committed to imposing the burden of adjustments
in energy prices on those who can afford rather
than the poor segments of the society. A subsidy
of Rs. 226.5 billion had been allocated in the
budget for customers who use less than 300 units
of electricity in a month (comprises 75% of total
The Finance Division also referred to the ECC
of the Cabinet’s decision to provide relief
to the ‘Roti Tandoors’ for provision
of cheap roti to the common man by giving the
subsidy of Rs.1.5 billion. Similarly, the federal
and provincial governments are ensuring smooth
supply of essential items at affordable prices
by organising the more sasta bazaars as well as
in the open markets.
The Finance Division also mentioned that social
protection through poverty alleviation programs
had been introduced to protect the poor as the
cost of structural reforms would fall disproportionately
on the vulnerable segments of the society. Under
Poverty Alleviation Division, the government has
allocated an additional amount of Rs.80 billion
in the country’s social protection spending
for 2019-20 with a total allocation of Rs 1 protect
90 billion for the Social Safety Net Programme.
To improve socio-economic condition of the common
man and to boost agriculture sector, the Federal
government is implementing “National Agriculture
Emergency Programme” and has approved 13
mega projects at the cost of Rs 287 billion. The
programme is being executed with the coordination
of all provinces aimed at boosting crops yield,
fisheries and livestock development as well as
To facilitate Industrial Sector, the government
was providing a series of targeted subsidies and
incentives to industrial sector. These include
subsidies to industry for electricity and gas,
export development package and continue to provide
Long-Term Trade Financing (LTFF) and Export Refinancing
Scheme (ERS) at subsidized rate.
During July-September FY2020, exports increased
by 2.4 percent to US $ 6.033 billion against $
5.893 billion in last year. Imports decreased
by 22.7 percent during July-September FY2020,
to US $ 11.032 billion against US $ 14.275 billion
in last year. As a result, the trade deficit had
shrunk to 34.85 percent to US $ 5.727 billion.
With regard to the reports on employment creation,
the Finance Division said that it was important
to highlight that Job creation was one of the
key objective of government economic reform program
and the government was evaluating specific proposals
for job creation with strong participation by
the private sector. The important initiatives
include ‘Naya Pakistan Housing Program’
which is envisaged to construct 5 million homes
over the next five years. With its strong backward
linkages, development of housing sector will also
lead to significant increase in growth of at least
40 different industries.
Similarly, ‘Kamyab Jawan Program’
launched recently had two tiers program whereby
tier 1 ranged from 0.1 million to 0.5 million
while tier 2 ranged from 0.5 million to 5.0 million.
Loans for tier 1 made available at a subsidized
rate of 6% while for tier 2 rate is 8%. 110,000
loans will be disbursed under tier 1 and 29,000
loans will be disbursed under tier 2 over a 5-year
period with subsidy of Rs 15 billion.
The Finance Division also reminded that the government
had allocated Rs 5 billion for Prime Minister's
Youth skill Development in the budget 2019-20
while the government had set a target to create
100,000 jobs in IT in 2019 with the PSDP earmarked
for ICT sector for 2019-20 at Rs.11,140 million,
showing an increase of 52.6 percent
over the corresponding period of last year.
The Finance Division further noted that investments
in tourism had the potential to generate over
half a million new direct and induced jobs over
the next five years. To increase the number of
tourist, the government had introduced an open
Online Visa System for the citizens from 50 Countries.
The government had allocated Rs 2 billion for
Clean Green Pakistan Movement/ Tourism in budget
The Finance Division also said that the 10 Billion
Tree Tsunami would create a total of 2 million
jobs over the life of the project. Similarly,
during calendar year 2018, 3, 82439 people
were registered for overseas employment while
from Jan-August 2019, 373,225 Pakistanis were
registered by Bureau of Emigration and Overseas
Employment for employment as compared to 244,504
emigrants during the corresponding period last
The Finance Division also noted that in the current
budget, government had protected the vulnerable
segments from utility price increases. The government
had also protected the low-gas consumers from
high gas price. Similarly, to keep the Roti prices
at the lower level, the government had been providing
subsidy of Rs 1.5 billion to the Roti Tandoors.
GST on LPG had been reduced from 17% to 10% while
low electricity consumers were also being protected
from full impact of price increase.
Rebuttal - Finance Division
rebuts news report on state of economy
Division has described as “incorrect”
the impression created in a section of the media
that the Pakistan economy is shrinking.
In a statement, the Finance Division has asserted
that the macroeconomic adjustment policies introduced
by the government to support balance of payment
and strengthen the market confidence, which will
also move toward higher and inclusive growth.
The contention of a section of the media talking
about “shrinking economy” seems incorrect
as the early signs of recovery of economic activities
in fiscal year 2020 are very much encouraging.
On agriculture front, Federal government is implementing
“National Agriculture Emergency Programme”
and has approved 08 mega projects at the cost
of Rs. 235 billion. This will encourage economic
activities in rural areas and create employment
opportunities in the country. Credit to agriculture
sector has increased by 20.7 percent; the sowing
of cotton crop has also increased by 14.4 percent
as compared to last year which will increase cotton
crop in double digit. The import of agriculture
machinery has recorded a growth of 8.7 during
FY2019 which is a good indicator. The base effect
will also support growth in agriculture.
Earlier estimates of cotton crop suggest that
cotton production will increase at least by 3
million bales in FY2020 from last year. All these
developments forecast agriculture is likely to
rebound and grow more than 3.0 percent in CFY. This
is likely boost growth in LSM and the exports
of the country, as well. Similarly, the LSM is
likely to recover in current fiscal year on the
back of better expected growth in agriculture
sector along with government initiatives in the
construction, SMEs, tourism and automobile sectors.
Better growth in agriculture and LSM sector are
likely to have a good impact on services sector.
To boost jobs in the industrial sector, the government
is providing a series of focused subsidies and
incentives to industrial sector. These include
subsidies to industry for electricity and gas,
export development package and continue to provide
Long-Term Trade Financing (LTFF) and Export Refinancing
Scheme (ERS) at subsidized rate.
Impact of better cotton production and subsidy
schemes have spillover effect on export growth
and textile sector which will supports further
current account and balance of payments position.
For inclusive growth and to protect the vulnerable
segments of the society, various social protection
programs (through a newly created poverty alleviation
division) have been introduced. Under Poverty
Alleviation, the government has allocated an additional
amount of Rs.80 billion in the country’s
social protection spending for 2019-20 which cumulatively
reached at Rs 190 billion which will also have
spillover effect on private sector activities.
The editor further stated that “the Government
will have to request the Fund for waivers due
to its failure in achieving two performance targets
i.e. tax collection and circular debt. This
is, according to the Editorial, due to failure
of both the Government and the Fund to do their
homework before setting targets for the IMF program
signed by the government in June this year”.
It is clarified that the government has pursued
the performance targets of the EFF program vigorously
during the first quarter of CFY. Resultantly,
tax collection during the period has so far been
16 percent higher than the tax collection of the
same period last year. It is also clarified that
the numbers regarding circular debt have not been
finalized as yet and it is premature to say that
the target has not been achieved and that the
price hike has not worked.
As far as the investment in domestic securities
by non-residents is concerned, it may be noted
that this is a positive development. This will
expand and diversify the investor base and enhance
competition, leading to liquidity in primary as
well as secondary markets.
Over the long-run, greater competition among investors
and greater liquidity in the markets will result
in lowering borrowing costs for the Government
and also increasing the depth of domestic capital
market. This is an aspect not previously covered
or thought-out by the previous governments.
The IMF agreement is based on broader policy reforms
to address the issue of macroeconomic instability
stemming from budgetary and current account deficit.
Most of the targets are related to initiation
and continuation of structural reforms which include
various policy, administration and enforcement
The benchmarks in this program have been set in
terms of qualitative initiatives and not exactly
in terms of numbers. The indicative targets in
numbers are based on certain assumptions related
to growth, imports, exports, inflation, independently
determined policy rate and a market based exchange
rate. Any change in assumed rates in the initial
model results in varying targets such as tax and
non-tax revenues. The tax target is not something
given by IMF but is a number assigned by Government
of Pakistan to FBR as revenue target and so far
FBR has achieved more than 90 percent of its target
despite huge import compression.
The indicative targets
of refunds are related to retirement of refunds,
stocks and so far FBR has issued all determined
refunds of sales tax till September 2019. It is
a common practice that businesses claim huge refunds
but the authentication of these refunds usually
remains below 30 percent of claimed amounts due
to non-matching of invoice data. The IMF team
is in touch with Pakistan authorities on all issues
of program and is also providing technical assistance
to the Government on various aspects of the programs.
Last week a team of experts provided technical
assistance on expenditure side, next week a team
of experts on tax policy is visiting Islamabad.
The opinion expressed in editorial is probably
based on cursory reading of the staff level agreement
without going into the detailed qualitative benchmarks
agreed by the government and the IMF.
Rebuttal - Finance Division
rebuts news report regarding rate hikes, rupee
fall having serious social impact
response to an article, titled “Rate hikes,
rupee fall to have serious social impact”
published in Express Tribune dated September 16,
2019, it is to be noted that the writer has exaggerated
the cost of stabilization under the IMF program
while ignoring the anticipated positive impact
of the same.
Similarly, total subsidies
for fiscal year 2019-20 have been estimated at Rs
271billion which increased by 55.4% and 6.5% over
budget estimates and revised estimates respectively
of 2018-19. Out of which Rs 250 billion has been
allocated to WAPDA, PEPCO and KESC. Government has
withdrawn hike in gas prices for tandoors. In this
regard, government will give Rs 1.5 billion subsidy
to Sui Southern Gas Company Limited and Sui Northern
Gas Pipeline Limited. Going forward, IMF and government
has agreed to reassess the need for any additional
social spending to further reduce any impact on
marginal segments of the society.
The article suggests that increase in key policy
rate is aimed at attracting yield seekers and
to attract the so called “hot money”.
However the writer ignored to mention the key
reasons for increase in policy rate, which includes
build-up in excessive demand pressures in recent
years and associated increase in inflationary
expectations in the economy. This, together with
other administrative measures helped to discourage
the imports of non-essential items in order to
keep a check on otherwise widening trade deficit.
Although the rate hike may induce some “hot
money” to get into Pakistan as mentioned,
it is not to be used by any means as a strategy
for accumulating foreign reserves. This is evident
from recent increase in foreign exchange reserves,
which has been achieved primarily by reduction
in trade deficit.
Furthermore, the article also suggests that both
increase in policy rate and PKR depreciation impacted
the cost structure of the listed companies through
increasing their cost of raw materials. However,
the author didn’t consider the fact that
the government has provided a number of incentives
to industries. Indeed, in budget FY19-20, the
government has provided relief to export-oriented
sectors which can now import more than 1600 raw
material items at reduced/zero tariff rates. Additionally,
the SBP has kept the lending rates unchanged for
export oriented sectors under its Long-term finance
facility (LTFF) and Export Finance Scheme (EFS).
Over the short-to-medium-term, this would help
to reduce chronic woes of the external sector
through improving trade balance.
Furthermore, the author claims that the agreement
with the IMF may give rise to social crisis and
gave the example of Egypt in this regard. On the
contrary, IMF, in its recent country report, emphasized
the need to increase social safety net spending.
For example, a new Division of Poverty Alleviation
and Social Safety has been established to design
and implement social safety programmes in the
country. Under the head of Social Protection,
an amount of Rs 190.6 billion has been allocated
in the budget 2019-20 for welfare of the poor
segment of the society.The beneficiaries of Ehsaas
programme are extreme poor, orphans, widows, the
homeless, the differently abled, medically challenged,
and the jobless, who will be paid as per establish
terms of a National Socio-Economic Registry or
data bank based on poverty score card.
Rebuttal - Finance Division
rebuts news regarding IMF bar on sovereign guarantees
Ministry of Finance has contradicted a news report
published in a section of the press claiming that
IMF has barred Pakistan from extending sovereign
guarantees till December Review.
In a statement, Finance Division has termed the
report and its headline as false and contradictory
to an official response provided to the newspaper
in advance of the published report.
The Ministry has maintained that the concerned
reporter who has filed the story had approached
the Finance Division Spokesperson Mr. Omar Hamid
Khan with a question whatsapped to the latter
on why in the reporter's words the “Finance
Ministry is not extending the sovereign guarantees
against Rs 200bn loan to be borrowed from Islamic
banks to reduce the circular debt”.
In response, Finance Division Spokesperson Mr.
Omar Hamid Khan clearly told the reporter in a
written reply that “In order to ensure fiscal
discipline and debt sustainability, GOP has developed
a policy framework which has also been agreed
as part of the Extended Fund Facility provided
by IMF. Under this framework, GOP has decided
to set a ceiling (equal to 3.6% of GDP) on government
guaranteed debt. The framework is reviewed on
a quarterly basis in the light of progress already
made, prevailing economic circumstances, and the
overall objectives of achieving higher economic
growth and debt sustainability."
However, despite a clear response in no way indicating
that the IMF had in any way barred Pakistan from
extending sovereign gurrantees, the reporter went
ahead and falsely attributed the Finance Division
Spokesperson as having confirmed to him that the
IMF has barred Pakistan from extending sovereign
guarantees till December Review” which is
contrary to the facts as shared with him in a
written response by the Finance Division. “Such
an irresponsible reporting of even written words
and flashing them as headline is unethical and
against the spirit of healthy journalism and such
a tendency must be avoided to retain the trust
and credibility of readers and state institutions,”
said the statement.
Response - to some tickers run
on certain channels regarding arrangement of Rs
200 billion to bring down the circular debt
response to some tickers run on certain channels
regarding arrangement of Rs 200 billion to bring
down the circular debt, the Ministry of Finance
would like to clarify that it is considering various
options to complete the transaction as soon as
possible. Negotiations with banks are going on.
The matter has also been discussed with IMF team
during its recent visit. Hopefully the matter
will be resolved soon.
Rejoinder - to the News Item
published on 6th September 2019 regarding the
IMF Programme and Upcoming Staff Visit
certain news item published on 6th September 2019
has reported that the IMF is sending an SOS mission
to Pakistan owing to the fiscal outcomes of FY
2018-19. The news item has also claimed that programme
may be renegotiated.
It is clarified that both these assertions are
completely incorrect are not based on actual ground
The upcoming IMF Mission is
a staff level visit that had been planned much
earlier and it is absolutely erroneous to construe
that the IMF staff level mission is any kind of
The claim that the IMF programme
is being renegotiated is equally misconceived.
The Government of Pakistan remains firmly committed
to implement the policies and reforms spelled
out in the IMF-supported program. As indicated
in the program documents, the IMF-supported program
will be monitored and reviewed according to a
calendar of quarterly reviews. The first one is
scheduled to take place at some point in December. Our
understanding is that as part of our technical
work program, an IMF team will come on a routine
Staff Visit in mid September 16-20.
It must also be emphasised
that after the initial adjustments, the economy
is rapidly stabilising, in particular the external
sector, and that the current fiscal year will yield
some very positive economic outcomes.
Rebuttal - Pakistan rebuts Indian
Media reports on FATF
is with reference to the news published in Indian
media about Pakistan being black listed by APG.
It is clarified that APG in its 22nd Annual Meeting
held in Canberra, Australia from 18-23 August
2019 has adopted Pakistan’s 3rd Mutual Evaluation
Report and has put Pakistan in its enhanced follow-up
as per APG’s Third Round Mutual Evaluation
Procedures. In line with APG’s Third Round
Mutual Evaluation Procedures, Pakistan would be
required to submit follow-up progress reports
to APG on quarterly basis. It is further clarified
that the media reports being circulated about
Pakistan being blacklisted by APG are incorrect
Clarification - Reference News
item published in the newspaper titled "Pakistan's
external debt estimated at $130b by FY23"
is with reference to the news item published in
the newspaper “Express Tribune" titled
“Pakistan’s external debt estimated
at $130b by FY23” dated 10.07.2017. The
article’s commentary is based upon external
debt and liabilities and comments regarding external
public debt are as under:
The said report clearly
states that out of total External Debt and Liabilities
(EDL) the government borrowing will amount to USD
90 billion in FY 2022/23 from US$ 71.4 billion in
The news report used exaggerated statements and
drew baseless conclusions with the intention to
create sensation and mislead the general public.
The news item has quoted that as per International
Monetary Fund (IMF) External Debt is estimated
to reach US$ 130 billion by fiscal year 2022/23
with a net addition of $34.6 billion during the
tenure of the present Government from US$ 95.4
billion in FY2017/18.
The news is referring to External Debt and Liabilities
(EDL) of the country which includes private sector
debt, debt of banks etc. in addition to the external
public debt. Time and again it has been clarified
that EDL does not constitute borrowing of the
Government since it includes borrowing of PSEs,
liabilities of the central bank, borrowing of
banks and of the private sector.
Clarification - Ministry of
Finance issued a clarification
order to bring clarity about the budget and expenditure
figures for Prime Minister Office, Finance Division
presents following facts, with a view to address
certain misconceptions in Media
- During the Current Financial
Year 2018-19, PM Office had a budgetary allocation
of Rs. 986 million. However, owing to ongoing
austerity drive and with a view to set the example
from the top, PM Office has successfully managed
to squeeze its expenditures up to Rs. 675 million,
which is 32% reduction that is unprecedented.
- Further analysis reflects
that the expenditure of PM Office (Public) has
been curtailed from Rs. 514 million (budgeted)
to Rs. 305 million (actual till end June), thereby
reflecting the saving of 41%.
- Similarly, PM Office (Internal)
brought down its expenditures up to Rs. 370
million, against the budgetary allocation of
Rs. 472 million, which reflects the expenditure
squeeze of 22%.
- To achieve this goal of
expenditure rationalization and austerity, PM
Office slashed 35% HR and massively reduced
expenditure on refreshments, fuels, Procurement
of Equipments and Machinery and adoption of
a basic economical non lavish style of official
- The budgetary allocation
for PM Office (Public + Internal) for next financial
year 2019-20 is Rs. 862.9 million which is again
12% less than budgetary allocation for FY 2018-19.
In spite of rising inflation, increase in salaries
and demand for replacements of physical assets
and refurbishment etc, budgetary allocations
for PM Office have been kept to bare minimum
levels, to set an example for other Federal
Ministries / Divisions & Departments.
- For further clarity, it
is informed that the Printed Budget for PM Office
has been reflected in the Volume-I of Federal
Budget 2019-20 (Current Expenditure). The relevant
pages are 302-310.
- Electronic Media has
been flashing page 302 of this book which reflects
the PM Office Budget worth Rs. 1172 million
for financial year 2019-20 against the existing
budgetary allocation of Rs. 986 million for
FY. 2018-19. As elaborated in the table, the
PM Office budget of Rs. 1172 million also includes
the budgetary allocation (Rs. 309 million) for
National Disaster Management Authority (NDMA).
NDMA, although autonomous with its own budget
line has been parked under the PM Office. Previously
it was under the Ministry of Climate Change.
Hence, the budget of NDMA must not be and should
not be confused with the distinct budget items
of PM Office. Data table may be referred for
more clarity on this.
- For purpose of budget preparation,
revised budget estimates comprise of 8 months
actual expenditure plus 4 months anticipated
expenditures. The budget book page No. 302 reflects
revised estimate of Rs. 820 million against
the budget of Rs. 986 million for the PM Office.
However, PM office went through further belt
tightening and has successfully been able to
close the financial year at an actual expenditure
of approximately Rs. 675 million which is even
18% lesser than the revised expenditure estimates.
- The budgetary allocation
for PM Office for next financial year 2019-20
is approximately Rs. 863 million which is 12%
lesser than budget allocation for FY 2018-19.
This existing spending level of PM Office (Rs
675 million) is actually touching the expenditure
levels in FY 2014-15, which speaks volumes about
the austerity drive in the PM office.
In nutshell, Finance Division
clarifies that PM office has actually reduced
its expenditure by 32% during the CFY 2018-19.
Its next year budgetary allocation is 12% less
than the budget for 2018-19. The coordinated effort
to bring austerity through rationalization of
current federal expenditures would continue in
future under the high standards set by the PM
Office, based on the PM’s vision of cutting
the complete budget analysis of the Prime Minister
Prime Minister’s Office
Budget & Expenditure Analysis
Disaster Management Authority
Revised budget is estimated on eight months
actual expenditure+ 4 month anticipated
Estimated Actual is actual expenditure
during the year. It carries actual data
for eleven months
(up to 31-05-2019) + 1 month anticipated
Clarification - that the Federal
Government has neither reduced nor delayed the
transfer of funds to any of the provinces
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.
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
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.
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
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.
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.
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.
Clarification - A report in
a section of media contends that Government has
borrowed Rs 2.9 trln in just 7 months to finance
report in a section of media contends that Government
has borrowed Rs 2.9 trln in just 7 months to finance
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
- 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
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.
Rejoinder - Federal government's
borrowing from the State Bank of Pakistan (SBP)
hit a high of Rs 6.6 trillion
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
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.
Comment - on news report appeared
in Dawn on 20th January 2019
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.
Rebuttal - Position on transfers
made to Sindh
of Finance strongly refutes news reports/statement
which claim that the Federal Government has made
less transfers to Sindh during the current financial
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.
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%.
Response - Claim on Pakistan's
international reserves dismissed as misleading
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
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.
Response - to News Report about
APG's visit to Pakistan
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.
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