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Profit PKR SURGES BY RS15 AGAINST US DOLLAR FOLLOWING IMF DEAL
Rs 15.00 | Vol XIV No 5 I 8 Pages I Islamabad Edition
Wednesday, 5 July, 2023 I 16 Zil Hajj, 1444
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LIMITED AVAILABILITY OF CASH RUPEES HINDERS DOLLAR PURCHASE IN EXCHANGE COMPANIES PROFIT
STAFF REPORT
N Tuesday, the Pakistani rupee experienced a significant gain of Rs15 against the US dollar in the interbank market. This boost followed the country’s successful acquisition of last-minute funding from the International Monetary Fund (IMF). As reported by the Forex Association of Pakistan, the local currency had appreciated by Rs15 and was trading at Rs271 around 10 am. Komal Mansoor, the Head of Strategy at Tresmark, predicted that the market might stabilize within the range of 272-276 for the day. However, she also emphasized that the central bank’s actions would play a crucial role in guiding the currency’s levels going forward.
Saad bin Naseer, the Director of Mettis Global, pointed out that individuals hoarding dollars would likely panic once foreign exchange reserves begin to in-
PAC orders probe into irregularities in ‘distribution of $3b aid’ during PTI regime ISLAMABAD
STAFF REPORT
The Public Accounts Committee (PAC) on Tuesday the Federal Investigation Agency (FIA) and the National Accountability Bureau (NAB) to investigate the alleged irregularities in aid of $3 billion received from international financial institutions during Covid-19 pandemic and allegedly distributed to 620 businessmen as interest-free loans during the PTI regime. The Public Accounts Committee (PAC) meeting held with Chairman Noor Alam Khan in chaired ordered the Federal Investigation Agency (FIA) and the National Accountability Bureau (NAB) to investigate the matter. On the occasion, the PAC chairman revealed that under the Temporary Economic Refinance Facility (TERF) scheme, the previous government provided interest-free loans for 10 years to 620 industrialists. This revelation sparked concerns among PAC members, with Barjees Tahir emphasizing the need for determine where the money was invested. In response, Mohsin Aziz, another PAC member, highlighted the positive outcomes of the scheme, stating that 3.2 million people gained employment, and exports increased by $4 billion. He also mentioned that similar facilities were provided in the past. During the meeting, the PAC took decisive action by ordering the Auditor General to conduct a performance audit of the $3 billion aid. Additionally, the FIA and NAB were instructed to initiate investigations into the matter. Chairman Noor Alam Khan went a step further and directed the writing of letters to the Army Chief and Defense Secretary, requesting that the Inter-Services Intelligence (ISI) participate in the investigation. The PAC chairman expressed dissatisfaction with the Ministry of Finance for failing to provide the names of the loan recipients, despite being instructed to do so on April 19. He demanded that the Governor State Bank, and Secretary Finance present the list within 24 hours. The Finance Secretary has also been summoned to attend the next meeting of the PAC, scheduled for Wednesday (tomorrow). Tensions ran high during the meeting, resulting in a heated exchange between Senator Mohsin Aziz and Member of the National Assembly Birjis Tahir. The clash of opinions highlighted the gravity of the situation and the need for a thorough investigation. In addition to the aid distribution issue, the Secretary of the Power Division revealed during the meeting that the circular debt of the power sector had reached Rs2,370 billion by June. The PAC chairman expressed concern over the prevalence of unannounced power load-shedding, even during the Eidul Azha holidays. He also criticised the Power Division for ongoing inquiries into electricity theft that had failed to produce any concrete results or hold anyone accountable.
crease. Consequently, there may be a surge in remittances through official banking channels, as the risky hundi-hawala system may become less attractive.
Due to bank holidays, there was a shortage of cash rupees, which provided an opportunity for some money changers to buy the dollar at rates ranging from Rs275 to Rs285 on Monday. The first day of open market trading following Pakistan’s Standby Agreement (SBA) with the IMF for $3 billion brought a sense of economic stability and resulted in a better value for the rupee. However, due to the bank holidays, only a few exchange companies had cash rupees available, and even those were limited. Most companies were unable to purchase dollars despite the high demand for selling. Exchange companies reported a lack of buyers for dollars in the open market, as many banks began purchasing dollars from the banking market instead of using exchange companies, following the State Bank of Pakistan’s decision.
Govt ‘quiety’ levies advance tax on registration of electric vehicles
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3% ADVANCE TAX TO BE LEVIED ON REGISTRATION OF VEHICLES WORTH RS5M AND ABOVE PROFIT
DANIYAL AHMAD
According to the Finance Act 2023, electric vehicles (EVs) with a value of Rs 50 lakhs or more will be subject to an advance tax of 3% at the time of registration. This is because though the Act does not explicitly delineate tax rates for EVs, it does stipulate that vehicles devoid of engine capacity and possessing a value of Rs 50 lakhs or more will be taxed at a rate of 3%. This is a detail that might be overlooked by many when perusing the Finance Act if they are unfamiliar with the world of Pakistani automotives. Mian Shoaib, Chairman of the All Pakistan Car Dealers and Importers Association, has expressed consternation about this new tax. He articulates, with palpable frustration, that “Excise departments throughout Pakistan determine registration fees for EVs based on the power of the battery in KWH. There is no justification for imposing a 3% advance tax on them.” He further adds, “On one hand, the government is incentivising EVs by imposing less customs duty, but on the other hand, levying this tax will escalate the cost for consumers. Ultimately, this will dissuade the usage of EVs.” The intricacies of vehicle value determination The value of a vehicle is ascertained by its import value, invoice value, or auction value, contingent upon whether it was imported, locally manufactured or assembled, or auctioned. In cases where the engine capacity is inapplicable and the value of the vehicle is Rs 50 lakhs or more, the tax rate will be 3% of the import value as augmented by customs duty,
sales tax, and federal excise duty in case of imported vehicles or invoice value in case of locally manufactured or assembled vehicles How much more expensive will our favourite electric cars get? Needless to say, with the new 3% advance tax on EVs with a value of Rs 50 lakhs or more, some of the most coveted cars currently in Pakistan will be subject to the registration tax. Profit went ahead, and calculated it for some of the more widely available ones in Pakistan.
Why is the Government doubling down on vehicle registration taxes? The government has introduced new rates for advance tax on vehicle registration as part of the revised budget ratified on June 26th. These are part of the staggering Rs 94.15 arab that the government plans to accrue through the Federal Board of Revenue this fiscal year. The revised rates for advance tax on vehicle registration for vehicles with combustible engines are as follows:
Desecration in Sweden: Nation to observe Holy Quran Day on Friday ISLAMABAD
STAFF REPORT
The government has announced to observe Yaum-eTaqaddus-e-Quran on July 7 (Friday) to hold countrywide protests demonstrations against the desecration of Holy Quran in Sweden and convene a joint parliamentary session a day earlier. The decision was made on in a meeting chaired by Prime Minister Shehbaz Sharif here to discuss the issue of the desecration of Holy Quran in Sweden. It merits mention that Pakistan Tehreek-i-Insaf (PTI), Jamat-i-Islami (JI) and other religious and political parrties have already announced to hold protest demonstrations across country on Friday. It was decided that protest rallies would be held on Friday across the country to condemn the act. The prime minister appealed to the nation, including all the political parties, to participate in the protest to convey a united message to the mischievous minds. Besides, the government would also convene a joint session of the parliament on July 6 to formulate a national strategy on the issue and represent the nation’s sentiments and feelings through the parliamentary forum. The joint session would also adopt a resolution to condemn the desecration of the Holy Quran. The prime minister, also the president of the Pakistan Muslim League-Nawaz, instructed the party to participate in the Yaum-e-Taqaddus-e-Quran and hold countrywide rallies. He told the meeting that the sanctity of the Holy Quran was a part of the Muslims’ belief for which all of them were united. He said that the astray minds were toeing a nefarious agenda of fanning the negative trend of Islamophobia. Prime Minister Shehbaz said that nations and leadership believing in peace and co-existence should contain the violent forces infested by the Islamophobia and religious biases. He believed that the violent mindset targeting the religion, sacred personalities, beliefs and ideologies were in fact the enemies of the world peace. He said that the forces believing in peace and interfaith harmony should play their role at the international level to get rid of such negative trends. ‘Urgent UN meeting’ Meanwhile, the UN Human Rights Council has called an urgent meeting on Quran desecration incident on Pakistan’s request. The Geneva-based UN Human Rights Council, which is meeting in session until July 14, will change its agenda to stage an urgent debate, following a request from Pakistan. “The UN Human Rights Council will hold an urgent debate to ‘discuss the alarming rise in premeditated and public acts of religious hatred, as manifested by the current desecration of the holy Quran in some European and other countries’,” council spokesman Pascal Sim told reporters, citing the wording of the request. “This urgent debate will be convened following a request of Pakistan, sent on behalf of several members of the Organisation for Islamic Cooperation, including those that are members of the Human Rights Council. “The urgent debate will most likely be convened this week at a date and time to be determined by the bureau of the Human Rights Council that is meeting today.”
With IMF bailout secured, what will happen to Pakistan’s foreign reserves? g
WHERE DO WE NOW STAND IN TERM OF DEFAULT SITUATION? ANALYSIS PROFIT SHAHNAWAZ ALI
In a bid to bolster its foreign exchange reserves and safeguard the national economy from external shocks, Pakistan has pledged to increase its reserves by $7.65 billion, reaching $11.7 billion by the end of the financial year 2024. Finance Minister Ishaq Dar and State Bank of Pakistan Governor Jameel Ahmed signed a Letter of Intent with the International Monetary Fund (IMF), assuring them of their commitment. The Desired Financing: To meet this target, Pakistan plans to secure loans from multilateral and bilateral creditors, with projected disburse-
ments of $15.01 billion during the current financial year. Talking to a private news channel, Finance Minister Ishaq Dar stated that Pakistan is expected to raise $5.6 billion in the month of July alone. This, according to him entails $3 billion payments from Saudi Arabia ($2 billion) and UAE($1 billion) which were committed to the fund. Apart from this, these include the payments from Islamic Development Bank ($1 billion) World Bank ($450 million), Asian Infrastructure and Investment Bank ($250 million), and various Geneva pledges that amount to more than $350 million. He said that adding this to the current pool of payments that are in the central bank’s reserve, Pakistan expects to shore up its total reserves to around $15 billion.
“We are comfortable till December”, says Ishaq Dar responding to a question about the economic situation for the coming government. Furthermore, as per the letter of intent, Pakistan intends to negotiate with bilateral partners, including China, Saudi Arabia, and the UAE, to roll over existing deposits. The IMF executive board is scheduled to meet on July 12, 2023, to consider Pakistan’s request for a $3 billion bailout package and a $1 billion tranche release. The finance minister is also hopeful to maintain the surplus or breakeven position in the current account, which the government has been managing to pull off in the last 3 months owing to bans on imports. The Payments: Before the Standby arrangement with the IMF was signed Pakistan was largely
expected to not meet its debt obligations. However, with the $3 billion in the next 9 months coupled with the additional financing expected with that, Pakistan now sits in a fairly better position to at least pay back its debts. In this respect, according to the latest report by Moody’s Pakistan is expected to pay back at least $25 billion in the coming year. Of these $25 billion, short term debt constitutes around $15 billion. These short-term debt repayments include $4 billion Chinese SAFE deposits, $3 billion Saudi deposits and $2 billion UAE deposits. Talking to Profit before the IMF SBA, senior economic journalist Khurram Hussain, stated that Pakistan’s total debt servicing needs up until December amount to around $4.7 billion, provided the country
secures its due rollovers. He mentioned that in such circumstances, Pakistan needed $4-5 billion in a bailout. If the finance ministry’s calculations are to be believed, Pakistan has completely averted the danger of default in the short-run, or in the current government’s stint in office. However, the same Moody’s reports suggest that the total due payments, barring any new loans that the government takes, up until June 2026, amount up to at least $75 billion dollars. The figure is both alarming and worrisome, not only for the political stakeholders but the people of the country as well. Putting that in perspective, the breather that Pakistan got from the IMF is to be rather short lived and decisive for the upcoming years, if any structural reforms are to be made.