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Pakistan shares draft mini budget with imf in bid to helP resume stalled loan Program
iSLAMABAD
P
Shahzad Paracha
AkISTAn has shared a draft of a mini-budget worth Rs200 billion with the International Monetary Fund (IMF) to convince for resuming the stalled loan program. Sources in the Finance Ministry told the scribe that the virtual meeting between the officials of the Finance Ministry and IMF was also held on Wednesday. Pakistani authorities have presented a comprehensive plan on proposed tax measures for the rest of
the current fiscal year, sources added. Sources further said that the Federal government led by Prime Minister Shehbaz Sharif has devised a plan to collect additional Rs200 through tax measures to convince the IMF to resume the stalled loan program. The authorities have shared the plan and informed that the government will likely introduce a mini budget through ordinance during the next few days adding that sources said that the government was considering implementing the mini budget from February 1, 2023. They further added that the government is all set to promul-
gate a Presidential Ordinance to impose taxes to the tune of Rs200 billion. The IMF team was also informed by the Pakistani authorities that the government has planned to collect Rs100 through introducing the Flood Levy during the remaining period of the current fiscal year. The government is likely to impose additional duties on several luxury goods. The government was also considering withdrawing the tax exemptions granted on goods worth Rs70 billion. It has been proposed to impose a ‘flood levy’ on banking transactions of non-filers. Meanwhile, it was also proposed to impose ‘withholding tax’ on bank transactions exceeding Rs.50,000 per day. However, sources added, the proposed tax will not be applicable to individuals included in the Active Taxpayers List. The government estimated Rs.50 billion from withholding tax on non-filers, they said. The sources said that the Pakistani authorities have also shared a plan to introduce sales tax and full petroleum levy on petroleum products under the agreed plan in June 2022. These tax measures will be taken after formal approval of Prime Minister Shehbaz Sharif, sources said. Sources said that the IMF will send its team in Pakistani to resume talks after the promulgation of the ordinance.
US offers support, cooperation to help resolve economic, financial issues of Pakistan iSLAMABAD Staff rePort
The united States of America on Wednesday offered Pakistan with its support and cooperation to help resolve economic and financial issues being faced by the country. The offer was made by Deputy Assistant Secretary of the uS Department of the Treasury for Asia Robert kaproth who called on Minister for Finance and Revenue Senator Mohammad Ishaq Dar here at the Finance Division. Senior Macroeconomist for the Deptt of Treasury for Pakistan Eva ghirmai, Financial attache’ Larita Bolden, Minister of State for Finance and Revenue Dr. Aisha ghous Pasha, SAPM on
Finance Tariq Bajwa, Secretary Finance and senior officers from Finance Division attended the meeting. Mr. Robert kaproth on his part underscored good relations between Pakistan and the united States. He further expressed confidence in the policies and programmes of the government for economic and financial stability. He further extended his support and cooperation on economic and financial issues. The Finance Minister extended gratitude to Mr. Robert kaproth for support and cooperation. Finance Minister Senator Mohammad Ishaq Dar welcomed Robert kaproth and briefed on the economic outlook of the country.
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Dollar rate defies expectations, but what’s the real story? g
SBP'S CRACkDOWn On HOARDIng LEADS TO TEnSIOn BETWEEn ExCHAngE COMPAnIES AnD REguLATOR profit report BaBar Nizami & ShahNawaz ali
Despite a tense start to the morning in Pakistan’s foreign currency market, the dollar rate in Pakistan defied expectations and managed not to jump particularly high after the country’s exchange companies announced they would be removing the artificial cap on the rupee-dollar parity. A day earlier, the Exchange Companies Association of Pakistan (ECAP) announced in a dramatic statement that money changers would remove the cap on the dollar. This had driven speculation that the greenback could go berzerk on the open market despite the desperate efforts of the federal government to the contrary. With all eyes on exchange companies, the dollar opened at Rs 251 at the start of the day but closed at Rs 242 by the close of market. The threat from ECAP lasted all of one hour before the exchange companies and the central bank sorted out their differences and reached a consensus. Tensions quickly dissolved into negotiations with the ECAP and the State Bank of Pakistan (SBP), and the rate of the dollar on the open market ended up being decided behind closed doors rather than by market forces. So what exactly went down yesterday, and how did we get here?
The build-up It all started on Monday, when the central bank suspended 11 outlets of 8 Exchange Companies for 7-15 days for hoarding dollars. The SBP used a technique called “mystery shopping” to catch these violators. Through this technique, a team from the SBP posed as regular customers and found that these outlets were refusing to sell dollars despite having them available at their counters. These outlets would buy dollars at the artificially low buying rate set by the SBP, but would then refuse to sell them at the low sell rate set by the SBP, despite the allowed spread between the two rates. This led to what ECAP calls ‘confusion’ between the SBP and the exchange companies, with the SBP feeling that the exchange companies were hoarding dollars and blackmailing the government. In response, the ECAP called a nationwide meeting on Tuesday and announced that they would remove the artificial cap on the dollar rate, claiming that this was in the larger interest of the country. But was this announcement really made out of the goodness of their hearts? Some analysts believe that the real reason for this announcement was the action taken by the SBP the day before and that it was a pressure tactic and retaliatory action by the ECAP. How day one played out Fast forward to the next day
(Wednesday), when the market opened, currency exchanges were initially unwilling to trade, saying that they had not received the opening rates for the day from ECAP. However, at around 10:30 AM, the currency exchange companies announced a little more than a ten rupee increase in the dollar rate. This was the highest increase in dollar rate in a single day, and as the news started coming in tensions continued to rise and along with them the anxieties of people buying and selling dollars. People were now free to buy and sell dollars at this market rate. Despite this official position, the reality on the ground was different. Individual ex-
change companies were still not selling dollars, citing unavailability. “First people need to sell at Rs250, for us to sell further at Rs 252.5”, said one currency dealer talking to Profit. This no-cap system lasted all of an hour. Even as your correspondents were closely monitoring the market’s reaction to this new reality of no artificial controls, the cap was put back in place by 11 30 AM. The Dollar rate ping-pong All this time, apparently the real decisions were not taking place in the open market, but behind closed doors. There was a meeting going on at the SBP between representatives of the
ECAP and the SBP. When that meeting ended, the ECAP instructed all their members to reduce the Rs 10 increase announced earlier and start transacting at an average rate of Rs 242. This meant that, as also witnessed in the past week or so, there would only be a minimal change of a little more than a single rupee and nothing more than that. And more importantly, as witnessed in the past few months, there would be no market forces at play. A Forex player on condition of anonymity told Profit, “It is likely that the ECAP would have agreed to follow SBP’s instructions once again in return for verbal assurances from the SBP, that it will in future take a more lenient view if a particular outlet of an exchange company was found to be hoarding some dollars, and treat it is a one of case being committed by a single employee and not to consider it the policy of the company.” Another currency dealer told Profit that “when we opened the market today at the increased rate of Rs 250, we noticed that not many people were willing to sell even at this increased rate. It seemed that the strategy of the ECAP had backfired, as the currency exchange companies will now have to purchase dollars at a higher price and sell them at the normal margin, instead of their previous practice of buying at a very low rate and selling in the black market.
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