Rebuttals/Rejoinders
Contact Information: D.G. (Media) Ph: 9211707-9208281
14 August, 2017

Clarification - Reference news report published in "Express Tribune" titled “WB links loans to liberal foreign exchange policy” dated 11-08-2017

Express Tribune on August 11, 2017 carried a news report titled "WB links loans to liberal foreign exchange policy" stating that the World Bank has declined Government's request for a policy loan linking the lending support with the exchange rate adjustment. 

The Finance Division spokesman clarified that the report is totally incorrect and reflects sheer lack of understanding of the subject and the level of engagement between the Government and the World Bank. The Government of Pakistan and the World Bank remain engaged on an ongoing basis on various projects and programs including policy based lending support within the framework of Country Partnership Strategy 2015-19 of the Bank. 

The spokesman said during this fiscal year the Government of Pakistan has not so far officially communicated any specific request for a policy-based loan from the Bank. Therefore, the question of denial by the World Bank for the policy loan does not arise. Furthermore, it is important to note that exchange rate policy does not fall in the domain of the World Bank. Rather maintaining the exchange rate stability is a sovereign decision of the Government of Pakistan. 

Therefore, the claim made by the said report that the Bank has declined Government’s request for a policy loan is grossly incorrect. The Government would request the media to exercise caution while reporting on such matters as any misreporting based on lack of understanding can potentially damage perceptions with regard to positive outlook of the economy as well as investors' confidence. This is necessary to protect the hard earned economic gains achieved over the last four years and to carry the growth trajectory of the economy forward.

 
02 August, 2017

Clarification - Finance Division spokesman clarifies reports on external debt situation

A section of media has carried reports that the present Government in four years period has added a whopping US$35 billion to external debt of the country. The reports further state that Pakistan's total external debt has reached US$79.2 billion by June 2017 and  that loans amounting to US$10.1 billion were obtained in a single year during the last year.

The reports have highlighted sharp increase in debt servicing during 2016-17 which would increase to US$7 billion. According to these reports debt servicing was US$5.4 billion in 2014-15, US$5.31 billion in 2015-16, and would increase to US$7 billion during 2016-17. These reports also state increase in borrowing cost to the Government.

It is clarified that the debt numbers quoted in these reports are based on incorrect information. The figure of US$79.2 billion is a mere projection and includes private sector external debt and liabilities as well. The actual external public debt as of end-March 2017 is US$58.4 billion and not US$79.2 billion.

The said news reports have tried to sensationalize the debt situation by stating that US$35 billion has been added to Pakistan’s debt during the last four years. This is grossly wrong and misleading. Nominal increase in external public debt as of end-March 2017 is only US$10.3 billion averaging at US$2.57 billion per annum. The reports have also incorrectly stated that US$10 billion loans were taken during 2016-17. In fact, the net increase in external public debt in 2016-17 till end-March 2017 was only US$0.7 billion.

The media reports are also totally misleading with regard to external debt servicing obligations of the Government of Pakistan. The actual external public debt servicing stood at US$4.5 billion in 2014-15, US$4.3 billion in 2015-16, and is projected to be US$5.5 billion by end-June 2017 as against US$7 billion being claimed in the media reports.  

The average cost of external loan portfolio as of end-March 2017 is 2.15% p.a. which is significantly lower than the cost of domestic financing. Thus cost of external debt is not only economical but also dominated by long term funding.

It is highlighted that external debt sustainability has increased substantially during the last four years supported by a prudent debt management policy and macroeconomic stability. Debt sustainability analysis carried out recently by an international development partner shows that external debt would remain on a downward trend over the medium term staying well below the risk assessment benchmarks. The increased sustainability of external public debt is evident from the fact that the "Share of external loans maturing within one year" has been reduced from 68.5 percent of official reserves at the end of June 2013 to 31.9 percent at the end of December 2016 showing improvement in foreign exchange stability and repayment capacity. Furthermore, credit rating agencies in their recent reports acknowledged the fact that Pakistan external debt is on sustainable path.

Out of total public debt, external debt constitutes only 29 percent as of end-March 2017. Within total external debt, the largest component is multilateral and bilateral concessional debt, which constitutes 87 percent. Loans from multilateral and bilateral development partners are primarily aimed at removing structural bottlenecks in the economy. These loans, being concessional and long term, strengthen the debt repayment capacity of the country. Besides, these loans support implementation of  structural reforms in the area of energy, taxation, doing business, trade facilitation, education and public sector enterprises. These loans are dominated by long term maturities and, therefore, do not add to debt payment vulnerabilities. Furthermore, these concessional external loans have been used to retire relatively more expensive debt.

As of end-June 2013, the SBP foreign exchange reserves were around US$6 billion, out of which US$2.25 billion were through short term FX swap with a friendly country maturing in less than 60 days. Therefore, practically SBP’s true FX reserves were only US$3.75 billion as at end-June 2013. The total reserves of the country as of 30th June 2013 were US$11.02 billion. As of 21st July 2017, SBP foreign exchange reserves were US$15.002 billion while the total FX reserves of the country stood at US$20.436 billion. Thus Pakistan's FX reserves continue to remain at a healthy level and exchange rate remains stable.

It would therefore be prudent that due caution is exercised while reporting on key indicators of economy as any misreporting based on incorrect numbers can potentially damage perceptions with regard to positive outlook of the economy as well as investors' confidence. This is necessary to protect the hard earned economic gains achieved over the last four years and to carry the growth trajectory of the economy forward.

 
27 July, 2017

Clarification - Spokesman of Finance Minister categorically stated that Finance Minister does not hold Aqama/Residence Permit/Nationality of any country in the world except Pakistan

The spokesman of the Finance Minister, Senator Mohammad Ishaq Dar categorically stated here Thursday that Finance Minister does not hold Aqama/ Residence Permit/Nationality of any country in the world except Pakistan.

The spokesman clarified that Senator Dar was professionally engaged as Financial Adviser in UAE from year 2002 to year 2008 and same was properly disclosed in ECP/Tax Returns for the said period. Senator Dar did have official “Aqama” for performing his aforesaid professional advisory services. However, he resigned from this position before joining the Federal Cabinet on 31st March 2008 and subsequently the Aqama lapsed/expired.

 
25 July, 2017

Response - Reference news article published in "The News" titled "Sticky Opinions" dated 24-07-2017

The write up, “Sticky Opinions” carried by The News on 24th July has stated that all official projections and estimates set for 2017-18 are unattainable mainly due to rising political instability, rising current account and trade deficit,  falling exports, reserves and remittances. The writer has claimed that the IMF is now getting tough and reportedly putting new conditions to offer any bailout package. The writer further claimed that to understate the budget deficit, an adjustment of Rs 64 billion has been shown in the non-tax revenue in the last financial year and the government has reportedly shown Rs64 billion as sale proceeds of the government-owned LNG-based power plants. The writer has also raised the issue on manipulation of statistics, especially in the areas of economic growth, revenues, expenditures and budget deficit.

At the onset, it is important to mention that the author’s assertion that the IMF is now getting tough and reportedly putting new conditions to offer any bailout package is merely baseless. With regard to the bailout package, there seems to be no immediate need for any bailout considering the debt dynamics have shown sustainability. The writer is advised to carefully go through the report on recently concluded Article IV Consultations in which the Fund has endorsed the positive and favorable outlook for economic growth along with risk assessment.

The favorable outlook is backed by acceleration in investments under CPEC, improved availability of energy and growth supporting structural reforms will strengthen GDP growth to 6 percent in the coming years. Inflationary pressures have been contained. However, the Fund has also pointed certain risks, particularly, widening of budget deficit and current account deficit together with decline in foreign exchange reserves. The Government is aware of the challenges and is firmly committed to maintaining macroeconomic stability while achieving pro-poor inclusive higher economic growth of 7 percent in medium term.

With regard to data manipulation, a number of rebuttals have already been issued whenever the criticism raised on the data manipulation. However, the writer should be mindful that the present Government believes in complete transparency and has all along been sharing the data in the areas of economic growth, revenues, expenditures and budget deficit with its development partners and other financial institutions. The data of fiscal operations is regularly posted on the website of Finance Division.

On the claim of understating the budget deficit by including the amount of Rs64 billion as non-tax revenue, it is to mention that the amount received from Saudi Arabia was never taken as Government revenue receipt but was a foreign grant and placed under external financing. This was booked as expense of Federal Government as grant-in-aid to Pakistan Development Fund Limited (PDFL) during the same year i.e. FY 2013-14. This information was also placed on the website of Finance Division and still continues to be there.

The second misleading caption of the news is that the PML-N government has shown an amount of Rs 64 billion as sale proceeds of the government-owned LNG-based power plants being set up in Punjab in a bid to cover-up the issues.

It is intimated that PDFL has been incorporated as a Non-Banking Financial Institution with the objective of financing / investment in infrastructure projects. The PDFL identified two green-field power projects; Haveli Bahadur Shah and Balloki for investments out of the funds available with it. Therefore, to move forward and after conducting extensive negotiations with stakeholders, including Ministry of Water & Power, PDFL injected money in these two projects and acquired shares worth Rs.64.0 billion which was paid to the Federal Government as non tax receipts.

With regard to the external sector, it is to mention here that the widening of current account deficit is mainly due to increase in imports, decrease in exports and workers’ remittances. This is mainly owing to machinery imports both for CPEC and non-CPEC energy and infrastructure projects. The increase in import of machinery is generally considered a healthy sign as it will augment productive capacity of the economy, eliminate electricity shortage and address infrastructure bottlenecks for higher growth in future. Decrease in exports is due to contraction of global trade in recent years including our neighbors. However, in view of the last four months performance, the decline in exports appears to have bottomed out. The current account deficit has been managed by FX reserves and financial account surplus.

Workers’ remittances have also shown declining trend globally due to economic conditions in the Middle East and other regions of the world. Worker's remittances in India, Bangladesh, and other countries have also shown similar trends.

With regard to falling reserves, it is to mention that despite the decline in SBP foreign exchange reserves to US$ 16.1 billion at the end of FY2017 as compared to US$ 18.1 billion in FY2016, foreign exchange reserves are at a comfortable level sufficient to cover above 3 months of imports.

Going forward, Government of Pakistan is taking necessary measures to ensure sustainability of the external account. A historic package of PKR 180 billion for exporters is currently under implementation by the present Government. The results have started coming in as merchandize exports in June 2017 over June 2016 increased by 16.2 percent. The government is also taking necessary measures for attracting workers’ remittances as negative trend is fading out.

On positive note, increased economic activity, considerable increase in bank deposits, and low interest rates translated into private sector credit flows in FY17 reaching a decade high of Rs748 billion.  The current stance of credit to private sector is likely to maintain its pace in view of growing investment and improving business activities on low interest rate. These trends are set to continue in FY18.

It would be important to note that recently IMF maintained the global growth forecast. The growth in Euro zone is now expected to be slightly stronger in 2018 along with expected higher growth in Japan and China etc. The global forecasts project a positive outlook with both growth and international trade picking up in FY18. Based on this assessment coupled with positive domestic policy measures, Pakistan’s external sector is expected to post gains. The overall balance of payments is expected to stay at a manageable level in FY18- an assessment relying on steady anticipated financial account inflows and improvement in world growth.

 
24 July, 2017

Response - Reference news items published in Express Tribune titled "Pakistan pays $4.8b in external debt servicing" dated 20-07-2017

This is with reference to the news items published in the Express Tribune titled “Pakistan pays $4.8b in external debt servicing” dated 20.07.2017 and “Foreign Loans in 2016-17 recorded at historic high” dated 21.07.2017. Following points need to be considered before drawing any conclusions:

  • The daily Express Tribune article dated July 21, 2017, has carried a story blaming the government for record external borrowing in 2017, its failure to increase exports and remittances, and the consequential widening of current account deficit. The news item undermines the economic achievements of the present government by presenting incorrect numbers and distorted position of the external account.
  • Pakistan's key economic fundamentals continue to remain strong as witnessed by GDP growth of 5.3 percent last year - highest in last decade - almost elimination of energy shortages and increased inflows on account of CPEC and other investments for energy and infrastructure sectors. Pakistan’s economy is set to achieve a high and inclusive growth as also endorsed by our development partners and reputed global agencies.
  • External borrowing is a routine and normal function of developing countries and Pakistan is no exception. Developing economies resort to borrowing to meet investment requirements, accelerate growth and for job creation. External borrowing is also necessitated to retire past debt, finance essential imports, build external buffers, and shore up external reserves to maintain external account sustainability in a global context.
  • The article's contention of government's increased dependence on commercial loans is also not correct. Out of total national debt, external debt constitutes only 29 percent. Against the total external debt, the largest component is multilateral and bilateral concessional debt, which constitutes 87 percent.  The article has incorrectly stated total borrowing from non-conventional sources was 52.5 percent of total external loans; in fact, borrowing from non-conventional sources, which comprise commercial, euro bond and sukuk structures, constitutes only 13 percent of the total external public debt portfolio.
  • Widening of current account deficit recently is mainly due to increase in imports, decrease in exports and workers’ remittances. The increase in import of machinery is generally considered a healthy sign as it will augment productive capacity of the economy, eliminate electricity shortage and address infrastructure bottlenecks for higher growth in future. Decrease in exports is due to contraction of global trade in recent years including our neighbors. Workers’ remittances have also shown declining trend globally due to economic conditions in the middle east and other regions of the world. Worker's remittances in India, Bangladesh, and other countries have also shown similar trends.
  • To abridge the current account deficit the government is taking necessary measures to ensure sustainability of the external account. A historic package of PKR 180 billion for exporters is currently under implementation by the present Government. The results have started coming in as merchandize exports in June 2017 over June 2016 increased by 16.2 percent. The government is also taking necessary measures for attracting workers’ remittances.
  • The article dated July 20, 2017 also depict lack of understanding with regard to public debt and have used incorrect facts to draw conclusions. It has stated that the external debt servicing mounted to $4.8 billion in 11 months, which has almost doubled in the past four years i.e. in 2012-13 – which was the last year of PPP government – the cost of external debt servicing was only $2.6 billion. It may be clarified that external debt servicing was recorded at $5.6 billion in 2012-13 as compared with $4.8 billion during first eleven months of current fiscal year. It is also to be noted that not only the debt servicing numbers are lower than 2013, external debt sustainability has also increased manifold during the tenure of present government as per the following details: 
    • IMF recent debt sustainability analysis shows that external debt would remain on a downward trend over the medium term and staying well below the risk assessment benchmarks. Further, credit rating agencies in their recent reports acknowledged this fact that Pakistan external debt is on sustainable path and there is very little exposure to medium term vulnerabilities.
    • “Share of External Loans Maturing within One Year” was equal to around 31.9 percent of official liquid reserves at the end of December 2016 as compared with around 68.5 percent at the end of June 2013 indicating improvement in foreign exchange stability and repayment capacity;
    • The present government has repaid over US$ 15.5 billion of external debt till end May 2017, which was mainly related to the borrowings of the previous governments. Despite these heavy repayments, the FX reserves of the country have risen to more than US$ 21 billion as at end June 2017 as compared with US$ 11 billion as at end June 2013;
  • The writer mentioned that there is exponential growth in borrowings which resulted in higher debt servicing requirements which is contrary to the reality. In fact, net external indebtedness of the country has in fact decreased when compared with 2013. As at end June 2013, the SBP FX reserves were around US$ 6 billion, out of which US$ 2 billion were through short term FX swap with a friendly country maturing in less than 60 days. Therefore, practically SBP’s true FX reserves were US$ 4 billion as at end June 2013 against which external public debt stood at US$ 48.1 billion, thus net external indebtedness on June 30, 2013 was US$ 44.1 billion (US$ 48.1 billion - US$ 4.0 billion). As at end March 2017, the FX reserves of SBP were US$ 16.5 billion and external public debt stood at US$ 58.4 billion, thus net external indebtedness was US$ 41.9 billion (US$ 58.4 billion - US$ 16.5 billion). Therefore, net external indebtedness of the country improved by US$ 2.2 billion by end March 2017 compared with end June 2013.
  • The writer is disputing a legitimate definition of public debt which has been approved by the parliament. The debt number as presented in the senate committee was consistent with the numbers earlier published by Ministry of Finance and State Bank of Pakistan as well as they are consistent with international reporting standards i.e. “IMF Public Sector Debt Statistics Guide for Compilers and Users (2013).Such narration can only to mislead the public regarding public debt data integrity based on lack of understanding of the public debt management, disregarding the Fiscal Responsibility and Debt Limitation Act approved by the parliament.

 The present government has made remarkable gains in reducing debt burden of the country and improved the fiscal and debt sustainability indicators.

 
19 July, 2017

Rejoinder - Spokesman Finance Division has expressed indignation and concern over the misleading and factually incorrect news report carried by the Express Tribune on July 18, 2017

The spokesman of the Finance Division has expressed indignation and concern over the misleading and factually incorrect news report carried by the Express Tribune on July 18, 2017.

The spokesman said that reporter of the story has wrongfully stated that in order to understate the fiscal deficit of Financial Year 2016-17, an adjustment of Rs.64.0 billion has been shown in the non-tax receipt of the Federal Government whereas according to him this amount has already been shown in the FY 2014-15 as non tax receipt for understating the budget deficit.

Giving the actual position, the spokesman stated that this amount was never taken as Government revenue receipt but was a foreign grant and placed under external financing. This was booked as expense of Federal Government as grant-in-aid to Pakistan Development Fund Limited (PDFL) during the same year i.e. FY 2013-14 and not FY 2014-15 as stated by the Reporter. This information was also placed on the website of Finance Division and can be readily accessed.

The spokesman said that second misleading caption of the news is that Finance Division has again shown an amount of Rs.64.0 billion as receipt in the shape of equity of Re-gasified Liquefied Natural Gas (RLNG) power plants and increasing its non tax receipt for FY 2016-17 in order to reduce the fiscal deficit. It is intimated for the information of the public that PDFL has been incorporated as a Non-Banking Financial Institution with the objective of financing / investment in infrastructure projects. The PDFL identified two power projects Haveli Bahadur Shah and Balloki owned by the National Power Parks Management Company (Pvt) Limited (NPPMCL) where it could make investments out of the funds available with it. Therefore, to move forward and after conducting extensive negotiations with stakeholders, including Ministry of Water & Power, PDFL injected money in these two projects and acquired shares worth Rs.64.0 billion which was paid to the Federal Government as non tax receipts.

The spokesman added that as regards the sale of Pakistan Security Printing Corporation (PSPC) to State Bank of Pakistan, reference is invited to SBP Act 1956 under sub-section-17 of Section-17, which states that the Bank can engage in “making and issue of the bank notes under the provision of this Act”. Further, under Section-8 A(b) of SBP Act 1956, the Bank can establish and maintain a subsidiary for carrying out business. This function was earlier performed by the PSPC, a wholly owned Company of the Finance Division. The SBP requested the Government to acquire PSPC which was agreed to by the Federal Government, after completion of all codal formalities.

The SBP made payment from its “Reserve Fund“ to the Federal Government. This transaction was carried out in the most transparent manner with due diligence and after meeting all procedural requirements. State Bank of Pakistan had also issued a press release in this regard on July 5, 2017, which is available on their website.

The spokesman in conclusion stated that the reporter has made an unfortunate attempt through misstatements, innuendos and conjectures to malign completely legitimate transactions. Such narration can only be construed to harm the image of national institutions on skewed and misconceived understanding of the budgetary procedures.

 
09 July, 2017

Rebuttal of false, malicious, and mala fide allegations against Finance Minister

The spokesman of Senator Mohammad Ishaq Dar said, on Sunday, that a section of the media has been making and publicizing the following false, malicious, obnoxious and mala fide allegations against Senator Dar over the past few days:

  1. That during the appearance before the Joint Investigation Team (JIT) for the Panama Case, Senator Ishaq Dar told the JIT that not only is he willing to act as witness in the case against the Prime Minister’s family, he is even willing to give any required statement against the Prime Minister’s family
  2. That Senator Ishaq Dar is seeking citizenship of the United States of America for himself and his family
  3. That Senator Ishaq Dar has secretly married a Member of the National Assembly
  4. That motor vehicle tax (token tax) of Mercedes Benz car, registration no. MV-019, registered in the name of Senator Ishaq Dar, has never been paid since it was purchased in 2008

The spokesman said that Senator Ishaq Dar vehemently rejects and strongly rebuts all of the aforementioned allegations. The spokesman said that these claims are utter rubbish and malicious disinformation, intended to cause harm and damage to the Senator’s personal and professional reputation. He also questioned how any media-person can claim to be aware of the discussions held during the proceedings of the JIT, including the statements made by persons summoned by the JIT. The spokesman also confirmed that Senator Dar has made payments of the motor vehicle tax in each year since 2008 for his said vehicle till 30th June 2018. He said that appropriate actions are being taken against the responsible persons / parties, with respect to all of the aforementioned allegations.

The spokesman further highlighted that all these false and baseless allegations against Senator Dar have only been made and publicized by a section of the media over the past few days, following the press talk given by Senator Dar on Monday 3rd July 2017 outside the Federal Judicial Academy, in which he revealed certain facts regarding Imran Khan, who has been unable to clarify any of those till date.
 
05 July, 2017

Rebuttal - Clarification with respect to the false, mischievous and frivolous claims made by PTI's Fawad Chaudhry in a televised press conference on 5th July 2017 regarding the businesses of the sons of the Finance Minister

Spokesman of the Finance Minister has issued the following clarification with respect to the false, mischievous and frivolous claims made by PTI’s Fawad Chaudhry in a televised press conference on 5th July 2017 regarding the businesses of the sons of the Finance Minister.

Mr. Chaudhry has made false claims, which are far from reality, that a whole tower in the United Arab Emirates (UAE) is owned by the Finance Minister’s sons. The whole tower (G+39), named “HDS Tower”, was sold out, except for a few units that have been retained for office purpose. There are approximately 300 buyers / owners, including individuals, corporations, companies and institutions etc., whose ownership details and particulars are available with the Real Estate Regulatory Authority (“RERA”) of the Government of Dubai. Therefore, the allegation of the Tower being owned by the Finance Minister’s sons is concocted and a big lie. It may be noted that Mr. Ali Dar, the elder of the Finance Minister’s two sons, is independent and married. He has been doing the business of property development for the last 14 years in the UAE.

Similarly, the claim made by Mr. Chaudhry regarding the car rental business, owned by the Finance Minister’s sons, is also completely false. It is usual for car rental businesses in the UAE, that owners of luxury cars place their cars with car rental companies for renting out, due to considerable demand for such vehicles. Any person may rent out luxury cars through car rental companies, which charge part of the rental amount as their fee. In addition, the Roads and Transport Authority (“RTA”) of the Government of Dubai, allows for temporary transfer of vehicles between Rent-a-Car companies, which allows companies like “HDS Rent A Car”, owned by the Finance Minister’s sons, to offer to their clients cars owned not just by them, but also by hundreds of other car rental companies in Dubai. The car rental business of “HDS Rent A Car” is well-recorded, properly audited and is carried out in accordance with the laws of UAE. Given the abovementioned facts, it may be noted that although the “HDS Rent A Car” business is owned by the Finance Minister’s sons, the cars which are made available by “HDS Rent A Car” for renting by customers, are not owned by “HDS Rent A Car” or by the Finance Minister’s sons. Therefore, the assertions and inferences made by Mr. Chaudhry regarding the car rental business of the Finance Minister’s sons are completely untrue.

The Finance Minister’s sons have filed a damages suit for Rs. 5 billion against Mr. Imran Khan for making similar statements.

Mr. Fawad Chaudhry should refrain from making such falsified statements regarding the Finance Minister’s sons in the future. Otherwise, a similar damages suit will also be filed against him.

 
12 June, 2017

Clarification - Reference article "WB concerned over debt sustainability" carried by daily "The Express Tribune" on 6th June 2017

A news report carried by The Express Tribune titled “WB concerned over debt sustainability” on 6th June took a myopic view of the debt management while ignoring the facts of the matter. The report needs to be clarified as follows:

The report portrayed only one side of the picture by stating that Pakistan’s external debt servicing – including interest payments – consumed $3.9 billion, according to the Economic Survey of Pakistan. It ignored the explanation mentioned in the subsequent paragraphs of Economic Survey of Pakistan (2016-17) wherein it was clarified that:

  • Going forward, there is limited pressure from external debt repayments in the medium term. Projected principal repayments to the IMF against Extended Fund Facility (EFF) are stretched over a longer timeframe, starting at US$ 0.2 billion in 2018 and rising to US$ 0.8 billion in 2020, with the final payment due in 2025. Repayments for Official Development Assistance from the Paris Club began in 2016 which are spread over a 23-year period;
  • External debt repayment obligations for Pakistan are not more than an average of US$ 4.3 billion per annum until 2022 based on outstanding external public debt as at end March, 2017. Keeping in view the track record of the country, this amount of repayments should not raise any concern. Pakistan has successfully met higher repayment obligations of US$ 4.8 billion and US$ 5.2 billion in 2013 and 2014 respectively, even with much smaller volume of foreign exchange reserves. Furthermore, it is anticipated that average yearly external inflows would be around US$ 6.7 billion until 2022 against expected annual average repayment obligations of US$ 4.3 billion (based on outstanding external public debt as at end March, 2017) i.e. inflows are expected to be sufficient to meet repayment obligations.

The myopic views of the news article is also evident from the fact that it refers only one ratio of debt servicing to exports and that too for the period of 9 months of current fiscal year to describe external debt sustainability. While it completely ignores many other indicators mentioned in the Economic Survey of Pakistan (2016-17) which depicted that external debt sustainability has increased during last few years as per the following details:

  • The improvement in foreign exchange stability and repayment capacity is evident from the fact that share of external loans maturing within one year was equal to around 31.9 percent of official liquid reserves at the end of December 2016 as compared with around 68.5 percent at the end of 2012-13;
  • A pragmatic and realistic approach is to measure the “net external indebtedness” of the country which is the difference between external public debt and official FX reserves. As at end June 2013, the SBP FX reserves were around US$ 6 billion, out of which US$ 2 billion were through short term FX swap with a friendly country maturing in less than 60 days. Therefore, practically SBP’s true FX reserves were US$ 4 billion as at end June 2013 against which external public debt stood at US$ 48.1 billion, thus net external indebtedness on June 30, 2013 was US$ 44.1 billion (US$ 48.1 billion - US$ 4.0 billion). As at end March 2017, the FX reserves of SBP were US$ 16.5 billion and external public debt stood at US$ 58.4 billion, thus net external indebtedness was US$ 41.9 billion (US$ 58.4 billion - US$ 16.5 billion). Therefore, net external indebtedness of the country improved by US$ 2.2 billion by end March 2017 compared with end June 2013.  

The limited understanding with regard to contingent liabilities is also evident from the fact that it used contrasting statements with reference to government guarantees. The news article quoted that the government issued fresh guarantees, including rollover, worth Rs.368 billion, equivalent to 1.2 percent of its GDP which fall under the limit of 2 percent as prescribed under Fiscal Responsibility and Debt Limitation Act of 2005. However, in the next statement it quoted that it was the highest number of guarantees issued in a six-month period in recent years and historically, this ratio remained below one percent of the GDP for a full year except in 2009 and 2010 when it increased to 2.2 and 1.5 percent of the GDP, respectively. In this regard, it is worth noting:

  • The government is presently within the limit of 2 percent of GDP as prescribed under Fiscal Responsibility and Debt Limitation Act of 2005 and expected to remain within this limit in this fiscal year;
  • The sovereign guarantee is normally extended to improve financial viability of projects or activities undertaken by the government entities with significant social and economic benefits. It allows public sector companies to borrow money at lower costs or on more favorable terms and in some cases allows to fulfill the requirement where sovereign guarantee is a precondition for concessional loans from bilateral/multilateral agencies to sub-sovereign borrowers.

Since the government is well within the limit set under Fiscal Responsibility and Debt Limitation Act of 2005 against government guarantee, the contention of the news article in this regard is incorrect.
The above facts clearly establish the fact that views mentioned in the news item regarding the state of public debt management in Pakistan are misleading. The present government has made remarkable gains in reducing debt burden of the country and improved the fiscal and debt sustainability indicators.


(DEBT POLICY COORDINATION OFFICE)
Finance Division

 
10 April, 2017

Clarification - Reference article "Three Alarm Bells" carried by daily "The News" needs some clarifications

The article ''Three Alarm Bells'' carried by The News needs some clarifications.

The article has raised three issues; trade deficit, budget deficit, and energy issues. To substantiate his argument, he has stated with regard to budget deficit that there is revenue shortfall which would lead to higher taxes, additional debt, higher debt repayments, higher rate of inflation, and higher rate of interest which may lead to budget deficit of 6 percent.

The writer’s logic is not sound and the claims are not based on up to date facts and figures. Starting from inflation 4.01 percent (Jul-March 2017) it is much lower than the targeted 6 percent for FY 2016-17. The prudent fiscal and effective monetary policies along with monitoring of prices and supply of commodities both at federal and provincial level are playing an important role in managing inflation.

The policy rate is at a decade low of 5.75 percent, which helped increase credit to private  sector (CPS). The flows of CPS has seen a growth of 36 percent during Jul-24 March 2017, while stock of CPS witnessed a growth of 12.8 percent.

With regards to the writer's concern of the shortfall in tax collection, it is pertinent to mention that the shortfall in collection of taxes and duties by FBR was due to the conscious decision of the government not to pass on the burden of the increasing oil prices to the consumers. This was achieved through reduction in the rates of Sales Tax on various petroleum products as compared with the applicable rates in the corresponding months of the last year. The collection of FBR accordingly could not register the desired growth. In addition to boost the agricultural sector that had negative growth in the last year, substantial relief has been provided on agricultural inputs namely Fertilizers and Pesticides through reduction in Sales Tax rates on these inputs that also had an adverse effect on FBR revenues. Similarly, in order to promote exports and reverse the declining trend all the imported as well as locally produced inputs and intermediate goods of the 5 major export oriented sectors including textiles, carpets, leather, sports and surgical goods have been zero-rated and the sales tax collection has been foregone.

Despite all the above steps that were taken to bolster key sectors of the economy and to protect the consumers at the cost of FBR revenues, the FBR through its administrative measures was able to register a growth of around 16 percent in its collection for the month of March 2017 and is expected to make further gains in the last quarter of the current year.

Pakistan has undertaken two important initiatives with regards to taxation, which includes signing of the Avoidance of Double Taxation Agreement with Switzerland and the signing of the OECD's Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Both of these initiatives will help in better regulating the cross border flow of wealth.

In 2013, a refund stock of more than Rs 200 billion was outstanding and despite the substantial increase in FBR collection of around 60 percent in three years, the refund stock still remains at about the same figure. This shows that the flow and stock of the refunds has been managed under a conscious policy of the present government. Moreover, to ease the cash flow problem of the exporters in the last budget, the inputs of the five major export oriented sectors have been zero-rated to preclude creation of refunds for the exporters.

The budget deficit, which stood at 8.2 percent of GDP in FY2013, has been brought down to 4.6 percent in FY 2016, and during current FY2017 it is projected to fall to 4.1 percent of GDP and not the 6 percent of GDP as claimed by the author.

With reference to the writer's concern on external sector, it needs to be pointed out that in a growing economy; a widening of CA deficit is a likely scenario. The widening of CA deficit took place due to a sizable increase in import payments and a fall in exports, besides delayed realization of Coalition Support Fund (USD 550 million in Q3-FY17). However, it should be noted that a large amount of the import bill is due to import of machinery and other capital goods, which will support the economy in its transition from a low-growth to higher growth phase by addressing the supply-side bottlenecks in energy and infrastructure.

The foreign exchange reserves remain at USD 21.436 billion on 07 April 2017 which are sufficient to finance the country’s import payments of 4 months.

Pakistan’s exports have been facing headwinds for the past 2 years; mostly due to weak global demand and lower commodity prices. The analysis of data on exports shows that for many product categories, Pakistan exported higher quantities, but lower international prices meant that the country was unable to realize adequate FX receipts.

Important Statistics

Inflation (July-March) FY 2017

4.01 % below the targeted 6%

Policy Rate

5.75 % lowest in 44 years

Flows of credit to private sector

36% over last year

Stock of CPS

12% over last year

FBR Revenue (March)

16% over last year

Budget Deficit

4.1 against 4.6 last year

Net Public Debt (end June 2016) (% of GDP)

60.2 same level of end June 2013 (% of GDP)

Net Higher Debt obligation

Average $ 5 billion until 2021 compared to $ 6 billion in FY 2013 and 2014

Collection improved

94.6 % in FY 2015-16 compared to 89.2 FY 2014-15

Load Shedding reduced

5 – 6 Hrs from 16 – 18 hrs FY 2013

For promotion and facilitation of exports, various important steps have been taken, which include: setting-up of EXIM Bank, reduction in mark-up rates on export Re-finance Facility and Long Term finance Facility. Also, the issuance of Strategic Trade Policy Framework (STPF 2015-18) which aims at promoting regional trade besides focusing on product sophistication and diversification, market access, institutional development and trade facilitation. The government is also working to release these refunds; this, together with record-low interest rates, should address exporters’ liquidity issues. It is believe that some gains in exports will be achieved due to these important measures. It may be noted that negative effect of exports are also bottoming out as the exports witnessed positive growth during four month during Jul-Feb 2017 on YoY.

Remittances are one of the main factors in the stability of external account. However, during Jul-Feb FY2017, remittances declined due to inflows dropping from all three major corridors –the Gulf Cooperation Council (GCC), US and UK. Decline in remittances from Saudi Arabia and GCC was on account of slow economic activities in GCC and Saudi Arabia along with fiscal consolidation due to decline in oil price. The decline was also partly due to a seasonal (Eid) factor during Q1 –which had inflated personal transfers in June 2016 and then led to a big drop the following months. This will be offset by growth in remittances during May and June.

However, the development activities under Saudi Arabia's vision 2030 which provide a roadmap for Kingdom's development and economy for next 15 years, the FIFA World Cup 2022 in Qatar and Expo 2020 in Dubai will create more labour demand. Pakistan Remittance Initiative (PRI) is encouraging banks to increase their outreach efforts to ensure that the cost of remitting funds to Pakistan stays affordable.  The recent visit of PM to Kuwait will be helpful in opening new avenues of employment. These developments are likely to keep remittance inflows close to last year’s level.

With regard to the writer's assertions about additional debt, it is pertinent to mention that Pakistan’s net public debt to GDP stood at 60.2 percent at the end of last fiscal year 2015-16. The net public debt has remained at the same level of 60.2 percent of GDP as at end June 2016 as compared with end June, 2013. Therefore, net indebtedness of the country has not increased during last three year and no pressure is foreseeable in the near term future.

External debt servicing obligations for Pakistan are an average of US$ 5 billion per annum until 2021. Keeping in view the track record of the country, this amount of repayments should not raise any concern. Pakistan has successfully met higher obligations in excess of US$ 6 billion per annum in FY 2013 and FY 2014, even with much smaller volume of FX reserves.

The writer's claims with regards to energy issues are also not based on facts. The government has undertaken broad based power sector reforms under the framework of the National Power Policy 2013. Implementation of these reforms has pushed forward the structural reforms agenda, with the power sector distribution companies showing improvement both in terms of reduction in line losses and collection from consumers. As a result of signing of performance contracts, setting of quarterly performance targets, improved monitoring and enforcement, strengthening of legislations to purse electricity thefts, up-gradation of electricity transmission and distribution network, and the provisions of incentives to collectors, introduction of mechanism of at-source deduction; the power sector line losses have reduced to 17.9 percent during FY 2015-16 from 18.7 percent during FY 2014-15 and collection from consumers have improved to 94.6 percent during FY 2015-16 as compared to 89.2 percent of corresponding period which the writer has acknowledged.

The government has also substantially brought down power subsidies and has significantly contained the accumulation of new payable arrears in the power sector by (i) improving DISCOs' performance, (ii) rationalizing tariffs, and (iii) reducing delays in tariff determination. The figure of circular debt quoted in the article is not correct; the circular debt has been brought down to a level of around Rs. 320 billion currently, Rs. 335 billion in PHPL is fully funded through the tariff and thus cannot be classified as circular debt. Load shedding has been generally controlled, from 16-18 hours, three years earlier to the current average of 6 hours. The government has rehabilitated the existing generating plants and has thus reduced the cost. New investment has come in the power sector as a result of all these reforms the government will overcome load shedding in 2018. In the medium term, the electricity generation capacity will be doubled, including through CPEC projects.

International agencies have recognized Pakistan’s success in a difficult environment and with a slowing global growth.

Finance Division
Islamabad: 10.4.17

 
09 April, 2017

Response - An article titled "Back in crisis" carried by daliy "The News" last month

An article titled “Back in crisis” carried by The News last month criticized the present government with regard to the current economic situation. It stated the challenges for the next budget due to the $20 billion trade gap, decreasing foreign exchange reserves, falling home remittances and declining revenues. The writer further states that the projected five percent plus gross domestic product (GDP) growth rate in 2016-17 compared to 4.7 percent of 2015-16 is fast becoming a delusion while marginal growth in agriculture which remained negative during the last few years and large scale manufacturing (LSM) are also two major factors causing problems.

At the outset, it is important to mention that the author’s assertions unsubstantiated by credible evidence and his outlook on the economy are overly pessimistic. The misunderstanding of economic data was also observed in the article.

The author has portrayed the performance of Pak economy based on the past trends in agriculture sector and LSM, which are against the ground realities. In fact, the recent trends indicate that agriculture is going to take a rebound on the back of relatively better performance in production of major crops over the last year (especially the cotton crop, sugarcane and maize). On the other hand, the minor crops are also performing better as compared to last year. Similarly, the completion of early harvest energy projects under CPEC is likely to provide some boost to industrial growth. More specifically, the textile industry, which accounts for the largest sub-component of the LSM, is expected to post some recovery in coming months, as exporters cash-flow constraints will ease following the recently announced export package. The rising economic activity in the country also reflects better performance of the services sector. These trends are also expected to get support from the robust trends in private sector credit, import of machinery and raw materials. Better performance of agriculture and industrial sector will also have positive impact on services sector of the economy. Based on these developments, we believe that the GDP growth is likely to remain close to the target set for FY17.

The article also highlights the widened current account deficit. It is important to note that this widening took place due to a sizable increase in import payments and a slight slowdown in exports, besides delayed realization of Coalition Support Fund (USD 550 million in Q3-FY17). However, it should be noted that a large amount of the import bill is being spent on import of machinery and other capital goods which will support the economy in its transition from a low-growth to higher growth phase by addressing the supply-side bottlenecks in energy and infrastructure.

It is also important to understand that most of the imports items of the country are inelastic and necessary to increase economic activities and exports from Pakistan. Further, there is a huge increase of 42.3 percent in import of Machinery Group, meaning thereby the investment in value added manufacturing sector is increasing in the country.

On positive note, improved law and order, upgraded energy infrastructure, the cash margin imposition, and the export promotion packages announced by the government are enabling factors that will ameliorate the current account gap, albeit with a possible lag, in the short to medium term.

In order to contain non-essential imports, the SBP has imposed the requirement of 100 percent cash margin on import of more than 400 non-essential items. Besides pulling the import bill down, this measure is likely to create financing space for the import of growth-inducing capital goods and raw materials. Also it should be noted that the huge trade deficit is not putting pressure on the interbank market, as the exchange rate has shown substantial stability; the rupee depreciated by a nominal 0.1 percent against the greenback during July-February FY17. Further, the foreign exchange reserves remained at a high of USD 21.8 billion on 24th February 2017. These are sufficient to finance around five months of the country’s import payments.

On the export front, there is no denying that Pakistan’s exports have been facing adverse headwinds for the past 2-3 years; mostly due to weak global demand and lower commodity prices. The breakdown of data on exports shows that for many product categories, Pakistan exported higher quantities, but lower international prices meant that the country was unable to realize adequate FX receipts. For promotion and facilitation of exports, various important steps have been taken, which include: setting-up of EXIM Bank, reduction in mark-up rates on export Re-finance Facility and Long Term finance Facility. Also, the issuance of Strategic Trade Policy Framework (STPF 2015-18) which aims at promoting regional trade besides focusing on product sophistication & diversification, market access, institutional development and trade facilitation. Government is also working to release refunds; this, together with record-low interest rates will address exporter’s liquidity issues.

Furthermore, the export package of PKR 180 billion has also been announced, which is applicable for nearly 18 months for the period from 11th January, 2017 to 30th June, 2018.  All these efforts will be helpful in improving exports in coming months.

It is also important to mention that due to Global Trade Recession, the World Trade Organization in its report published on 9th December, 2016 indicated that WTO projected a 1.7 percent increase in world merchandise trade volume in 2016 down from its earlier forecast of 2.8 percent. The report further envisages that this would mark the slowest pace of trade and output growth since the financial crisis of 2009. Further, As per data compiled by WTO, quarterly world merchandise exports decreased to US$ 3,676 billion in first quarter of the year 2016 (latest available data) as compared to the export of US$4,019 billion in same period in 2015, showing a decrease of 8.5 percent. Hence the data indicates a global declining trend in exports, however, in case of Pakistan, the exports in the current year has shown decline of 3.9 percent only. The export has decreased to US$ 13.318 billion in July-Feb. 2016-17 as compared to US$13.859 billion in same period last year 2015-16. It shows that Pakistani exports have performed better than the World exports.

With regard to the decline in remittances, it is important to mention that remittances are one of the main factors in the stability of external account. However, during Jul-Feb FY2017, remittances declined due to inflows dropping from all three major corridors –the Gulf Cooperation Council (GCC), US and UK. Decline in remittances from Saudi Arabia and GCC was on account of slow economic activities in GCC and Saudi Arabia along with fiscal consolidation due to decline in oil price. The decline was also partly due to a seasonal (Eid) factor during Q1 –which had inflated personal transfers in June 2016 and then led to a big drop the following months.

The pound’s sizable depreciation by 14.0 percent ($1.42/£ in June 2016 to $1.25/£   in February 2017) against US$ during first eight months of FY2017 is also one of the main reasons due to which remittances from UK in US dollar declined. The remittances from the US to Pakistan have been declined due to tightening financial sector regulations in the US which are making cross-border fund transfers cost-ineffective for global banks and money transfer operators.

However, the development activities under Saudi Arabia's vision 2030 which provide a roadmap for Kingdom's development and economy for next 15 years, the FIFA World Cup 2022 in Qatar and Expo 2020 in Dubai will create more labour demand, which will have positive impact on remittance inflows going forward. During the recent visit of Prime Minister to Kuwait the restrictions on issuing of visas to Pakistani national has been lifted by the Kuwaiti Government.  Also, the Pakistan Remittance Initiative (PRI) is encouraging banks to increase their outreach efforts and facilitating expat workers to send money Pakistan through official channels. These developments are likely to keep remittance inflows close to the target.

As regard the author’s comments on FX reserves, it is worth noting that SBP compiles its foreign exchange reserves as per IMF guidelines on “International Reserves and Foreign currency liquidity”. The assertion on government borrowing of $3.3 billion from the commercial banks and double counting in foreign exchange reserves is factually incorrect and shows lack of understanding of the writer.  Further, the government’s commercial borrowing for budget financing is based on fresh FCY funds from abroad and not funded via foreign currency deposits with domestic banks.

Regarding the issue of reduction in the collection of withholding tax on banking transaction, the FBR is cognizant of the issue and it has been discussed in the budget making exercise undertaken at FBR. The tax u/s 236P was imposed vide Finance Act 2015 and the purpose of this tax is to regulate the economy towards tax compliance. As a result the number of filers of returns or persons in the Active Taxpayers List is markedly increase reflecting that desired result to document economy and number of people filing tax returns has been largely achieved in the right direction. As a result, the number of non-filers using bailing instruments has decreased. This is not an alarming situation, rather a step in the right direction, as the levy under section 236P is not a revenue measure but a measure to encourage the taxpayer to file return thereby making the transaction costlier for non-filers.

The news article also incorrectly stated that present government added $12.2 billion external debt and liabilities during last three years as against $14.7 billion accrued by the previous government in their tenure. The stock of public external debt as at end June 2016 stood at $ 57.7 billion, up from $ 48.1 billion as at end June 2013, indicating increase of $9.59 billion during three years of present government tenure instead of $12.2 billion as mentioned in the news article. It may also be noted that a part of this increase has come from IMF debt, which has been taken only for balance of payment support, repayment of pending instalments due to IMF of loan taken by previous government in July 2011and not for budgetary financing. Finally, any unbiased financial expert would endorse that instead of reading out the nominal growth of external debt, it must be seen how its volume has grown relative to the country’s foreign exchange (FX) resources, FX earnings and GDP.  Similarly, the servicing burden must not be viewed in isolation but relative to FX earnings. 

A pragmatic approach is to measure the “net external indebtedness” of the country which is the difference between external public debt and official FX reserves. As at end June 2013, the SBP FX reserves were around $6 billion, out of which $2 billion were through short term FX swap with a friendly country maturing in less than 60 days. Therefore, practically SBP’s true FX reserves were $ 4 billion as at end June 2013 against which external public debt stood at $48.1 billion, thus net external indebtedness on June 30, 2013 was $ 44.1 billion ($ 48.1 billion -$ 4.0 billion). As at end June 2016, the FX reserves of SBP were $ 18.1 billion and external public debt stood at $57.7 billion, thus net external indebtedness was $ 39.6 billion ($ 57.7 billion-$ 18.1 billion). Therefore, net external indebtedness of the country improved by $4.5 billion by end June 2016 compared with end June 2013.

The news article also baselessly states that country’s external debt is projected to reach over $100 billion by end June 2020 based on estimation of self-proclaimed debt analysts/economists. The said economists had previously made many such false projections in the past such as “economy slipping into deflation” which did not materialize. In fact, the real economic growth has continuously gained momentum in last three years along with the contained inflation which is an ideal situation for developing countries like Pakistan. Encouragingly, GDP growth rate of Pakistan is higher during past few years as compared with the global GDP growth rate. Most importantly, thorough analyses on the economy of Pakistan conducted by the IMF in their twelfth and final review projected that the external public debt would be around $62 billion by 2019-20 from its present level of $ 57.7 billion indicating annual growth of below 2 percent. The debt sustainability analysis by IMF show that external debt would remain on a downward trend over the medium term, with the peak in external financing needs under the most stressed scenario staying well below the risk assessment benchmark. Further, credit rating agencies in their recent reports acknowledged this fact that Pakistan external debt is on sustainable path.

The news article has created sensation by wrongly stating that the government has to make $15 billion repayments in 2016-17 and subsequently contradict itself by stating that out of this $15 billion, $7 billion would be against financing the debt servicing requirement. Further, the news article incorrectly quoted Finance Minister that he stated that the government has to pay back $2 billion every year to its foreign creditors. In fact, Finance Minister in his recently published article titled “Pakistan's Debt: Putting the record straight” clarified that external debt servicing obligations for Pakistan are not more than an average of $ 5 billion per annum until 2021. The said article was also published in “The News”. Therefore, contention of the news article in this context is totally baseless and incorrect.

The clarity regarding the above matters have already been given in the Finance Minister article and at various forums, however, the news article made another deliberate attempt to mislead the public.

 
06 April, 2017

Clarification - Reference article titled "IMF Program Khatam, idaron ki nijkari sard khanay ki nazar" carried by daily Dunya on 3 April 2017

This is with reference to the article titled “IMF Program Khatam, idaron ki nijkari sard khanay ki nazar” carried by daily Dunya on 3rdApril 2017. Some of the writer’s assertions regarding the government’s program of privatization and reforms of public sector enterprise are not based on accurate or up to date information and require clarification.

Implementation of Government’s multi-faceted reforms for revival of Public Sector Enterprises (PSEs) is based on a number of pillars, which include divestment through strategic partnership and public offerings, strengthening enforcement of corporate governance rules, implementation of restructuring plans and regulatory reforms. Transactions to date include the sale of minority shareholding in United Bank Limited, Allied Bank Limited, Habib Bank Limited and Pakistan Petroleum Limited and the strategic sale of National Power Construction Company. Financial Advisors have been hired for structuring public offerings for the Distribution Companies (DISCOs) and Generation Companies (GENCOs). The governance of DISCOs, three GENCOs, and the NTDC has been transferred to new boards of directors and management. Expression of Interest has been invited for acquisition of upto 40.25% in the share capital of KAPCO and transaction is expected to be completed during FY 2016-17. The State Life Insurance Corporation has been corporatized and its public offering is in process along with Mari Petroleum Company Limited. Further, the restructuring process of House Building Finance Corporation (HBFC) has been completed and due diligence is being carried out for SME Bank by finalizing its transaction structure for approval. A road map for corporatization of Postal Life Insurance has also been developed for broader institutional and stakeholder approval.

The above analysis clearly indicates that important milestones have been achieved in the divestment program over the last 3 years and a number of important transactions are expected to be conducted over the next one year in this regard.

 
04 April, 2017

Clarification - Print Media report on repayment of debt

A section of the print media has reported that Pakistan has to pay USD 6.5 billion by 2018. There are certain clarifications to be made in this regard.

The report portrays only one side of the picture by stating that the government is under pressure due to the external debt repayment requirements of around US$6.5 billion from February 2017 to June 2018. In fact, external debt servicing obligations for Pakistan are not more than an average of US$ 5 billion per annum until 2021. Keeping in view the track record of the country, this amount of repayments should not raise any concern. Pakistan has successfully met higher obligations in excess of US$ 6 billion per annum in FY 2013 and FY 2014, even with much smaller volume of FX reserves. These higher servicing amounts pertained to loans taken by the previous governments. Presently, the country’s FX reserves stand at US$ 22 billion (as opposed to previous all-time high of US$ 18.2 billion in July 2011 which included US$ 7.5 billion front loaded disbursements from IMF to Pakistan under SBA facility) and, therefore, the scheduled repayments are well within manageable level i.e. expected external inflows are US$ 14.4 billion until June 2018 and US$ 35.3 billion until 2021. Furthermore, the debt sustainability analysis by IMF show that external debt would remain on a downward trend over the medium term, with the peak in external financing needs under the most stressed scenario staying well below the risk assessment benchmark.

The report  incorrectly states that in addition to repayments of US$ 6.5 billion against external debt, the government is further required to pay US$ 750 million against Eurobond. In fact, the amount of US$ 750 million is already included in total repayment of US$ 6.5 billion; 

The report also incorrectly claims that Pakistan’s total debt stood over Rs.22 trillion. The fact is that the net public debt stood at Rs.17.8 trillion as at end June, 2016.

The Net Debt to GDP ratio was 60.2 percent in June 2013 when the present government assumed office. During the period from July 2013 to June 2016, the Net Debt to GDP ratio has remained unchanged at 60.2 percent, thus showing no further deterioration as opposed to the  claim in the said report that annual increase in debt ratio is higher in the present government tenure. Further,it is incorrect to state that the government failed to meet its target with regards to 60 percent debt to GDP ratio. According to FRDLA, public debt will be reduced to 60 percent of estimated GDP by 2017-18, therefore, government is not in breach of any limit.

Debt Policy Coordination Office
Finance Division
4 April 2017

 
01 February, 2017

Rebuttal - Reference to news item published in "Express Tribune " dated 31-01-2017 titled "Pakistan's external debt rises faster than foreign currency earnings"

This is with reference to the news item published in the newspaper "Express Tribune" titled “Pakistan’s external debt rises faster than foreign currency earnings” dated 31.01.2017. The said article is a perfect example of selective reporting wherein writer mentions incorrect numbers and uses selective information to draw misleading conclusions with the intentions to make sensations without substance as per the following details:

  • The news article deliberately ignores the positive developments witnessed during 2015-16 as mentioned in the Debt Policy Statement (2016-17):

      • Government met the IMF ceiling on borrowing from SBP and zero quarterly limit under the amended SBP Act 1956 during all four quarters of 2015-16;
      • Government domestic interest expenditure reduced to 26 percent of total revenue during 2015-16 as compared with 31 percent during last year;     
      • Cost of domestic debt reduced to single digit while cost of the external debt contracted by present government is not only economical but is also dominated by long term funding;
      • Conducive economic environment coupled with supportive monetary policy provided opportunity for the government to reduce the interest rates on its wholesales debt instruments along with aligning the rates on retail debt instruments with the wholesale market yields;
      • Government updated its MTDS during 2015-16 to ensure that both the level and rate of growth in public debt is fundamentally sustainable and can be serviced under different circumstances while meeting cost and risks objectives;
      • Government introduced risk reports on debt management to ensure effective monitoring for implementation of its MTDS. Accordingly, main debt sustainability indicators have improved during last three fiscal years, a fact that is acknowledged by global stakeholders.

  • “Refinancing Risk of the Domestic Debt Portfolio” was reduced through lengthening of the maturity profile at the end of June 2016. Percentage of domestic debt maturing in one year was reduced to 51.9 percent compared with 64.2 percent at the end of June 2013;

  • “Exposure to Interest Rate Risk” was also reduced, as the percentage of debt re-fixing in one year decreased to 44.4 percent at the end of June 2016 compared to 52.4 percent at the end of June 2013;

  • “Share of External Loans Maturing within One Year” is equal to around 31.9 percent of official liquid reserves at the end of June 2016 as compared with around 68.5 percent at the end of June 2013 indicating improvement in foreign exchange stability and repayment capacity;
  • The news article deliberately ignores the fact that net public debt remained at the same level of 60.2 percent of GDP as at end June 2016 as compared with end June, 2013. Therefore, net indebtedness of the country has not increased during last three years. It is to be noted that there was around 6 percentage point reduction in net public debt to government revenues ratio which stood at 401 percent in 2015-16 as compared with 407 percent in 2014-15, indicating easing in government indebtedness. Therefore, presenting only gross debt numbers is like presenting the one side of the picture with an objective to mislead the general public;

  • Similarly, the news article selectively reports external debt sustainability indicators without understanding the meaning and context. The writer only selected external debt indicators which are slightly increased while deliberately ignoring the facts mentioned in the Debt Policy Statement i.e. net external indebtedness of the country improved by US$ 4.50 billion as at end June, 2016 as compared with end June 2013. Further, IMF also acknowledged that Pakistan’s gross external financing requirements is expected to stay well below the risk assessment benchmark;

  • The news article made a false claim that the goalposts have been changed as the government has made amendments in the Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005. In fact, most of the clauses of FRDL Act were outdated and the present government not only updated the clauses in accordance with the present economic realities but also defined path with an objective to improve the fiscal and debt situation of the country along with formalizing the definition of public debt. More importantly, there will be no impact in the public debt data as disseminated by the government in the past and going forward through change in definition.
  • The news article incorrectly states that external debt and liabilities of the country were $61.4 billion in June 2015, while in fact external debt and liabilities were recorded at $65.1 billion as at end June, 2015.   
The above facts clearly establish the fallacious views mentioned in the news item regarding the state of public debt management in Pakistan. The present government has made remarkable and sustained gains in improving the fiscal and debt risk indicators.
 
29 January, 2017

Rebuttal - Reference news article by Dr. Ashfaque H Khan published in "Business Recorder " dated 25-01-2017 titled "Misguiding the people"

Dr Ashfaque H Khan has written an article titled “Misguiding the people” published in The Business Recorder dated25-01-2017. In the article the author has raised the issue of large scale manufacturing (LSM) growth number. The author has further stated that the debt is on the rise with threatening pace and reforms which were “broadly on track” during the IMF programme appear to have evaporated. He further added that the process of rolling back of reforms has begun- classic examples include the winding up of regulatory bodies.

The author has raised the issue of LSM growth recorded in November on the basis of high sugar production. PBS follows an established UN methodology (available at PBS website) to estimate monthly LSM growth rates. One cannot pick low numbers or discard high numbers or vice versa at discretion and give growth rates including or excluding any sub-sector of LSM particularly production of sugar. The monthly figures for sugarcane production including for November 2016 were given by the Ministry of Industries and used by the PBS in the calculation of LSM monthly growth rate as per established estimation framework.

The historical growth trend of LSM sector suggests that whenever sugar crushing starts the LSM growth rises as sugar has 3.5445 weight in food group and food group has 12.3703 weight in overall LSM production. Whether the worthy writer ever raised his concern over high growth of LSM due to better sugar production and worked out LSM growth without sugar.

The writer only focused on sugar production in LSM growth during the month of November 2016. By analysing group wise performance of the LSM sector in November 2016 over previous month, many sectors performed well. Textile sector recorded a growth of 0.23 percent in November 2016 against 0.05 percent in October 2016, Food Beverages & Tobacco 25.46 percent against -1.44 percent, Pharmaceuticals 9.12 percent against 6.07 percent, Automobile 11.35 percent compared to 7.04 percent, Iron & Steel products 20.64 percent compared to 12.80 percent, Fertilisers 4.88 percent compared to -1.91 percent, Electronics 9.82 percent compared to 5.00 percent, Paper & Board 6.25 percent compared to -5.72 percent, Coke & Petroleum products 3.92 percent against -1.65 percent, Leather products -7.81 percent compared to -25.35 percent, engineering products 18.91 percent against 2.93 percent and wood products -95.43 percent compared to -97.54 percent..

The industrial sector is being benefitted from better availability of energy; continued low cost of borrowing; positive economic outlook of the country; and ongoing infrastructural projects. Moreover, the recent recovery in cotton prices would provide some relief to the textile sector – a major contributor both in overall LSM and exports of the country.

There is continuous credit expansion to private sector. The Credit to Private Sector (CPS) recorded an expansion of 12.1 percent during July to 13th January FY2017 against the growth of 8.6 percent in the same period of last year. In terms of flows, CPS has witnessed an expansion of 28.3 percent during the period under review. The expansion is helping manufacturing sector which in turn will further enhance productivity in industrial sector. A welcome development is the gradual rise in net credit disbursement for fixed investment. It implies that many firms are expanding their operations by availing fixed investment loan.

Encouragingly, a number of firms in cement and steel sectors are already making investment for capacity expansions; refineries are upgrading their plants; and a number of textile firms are undergoing Balancing, Modernization and Replacement (BMR) and installing coal fired or captive power plants, etc. All these developments bode well for growth in industrial sector.

With regard to the rolling back of earlier reforms implemented under the recently completed IMF EFF program, the author has mentioned “winding up of regulatory bodies”. In this regard, first of all it needs to be pointed out that there has been no “winding up” of regulatory bodies which continue to function within their respective areas in accordance with the parameters defined in their respective statues. The five regulators i.e. National Electric Power Regulatory Authority (NEPRA), Oil and Gas Regulatory Authority (OGRA), Public Procurement Regulatory Authority (PPRA), Frequency Allocation Board (FAB) and Pakistan Telecommunication Authority (PTA) have only been re-attached with their line ministries.

This re-attachment has been made in accordance with the relevant provisions of Rules of Business 1973 of the Government of Pakistan, which have been framed under the Constitution of 1973. It is pertinent to highlight that this change will have no effect on the functional, financial and administrative independence of the regulators, which has been granted to these entities under their respective statutory laws and the rules framed therein. This decision also does not alter their legal powers given to them through their governing legislations.

The re-attachment is expected to improve policy coordination between the government and the regulators. It is expected to result in improvement in the execution of sectoral functions. The regulatory bodies however, will continue to perform their duties independently of their line ministries to safeguard and protect the public/consumer interests, development and regulation of the sector. The statutory powers of these regulatory bodies for making appointments and transfers continue to remain unaffected.

The government’s decision in this regard is also in line with the practice being followed in some regional countries, such as India and Srilanka. In India, the Telecom Regulatory Authority of India, the Oil and Natural Gas Commission and Central Electrical Regulatory Commission are working under their respective line ministries. Similarly in Srilanka, the Ceylon Electricity Board and Srilanka Sustainable Energy Authority are working under the relevant line ministry.

With regard to the author’s assertion on debt, it is to mention that the news article has made a false and misleading claim that finance minister has his own definition of public debt which is different from one used historically in Pakistan or used by international financial institutions. The public debt definition has not been changed. In fact the government has only formalized the definition of public debt through the recent amendment in Fiscal Responsibility and Debt Limitation Act. It is worth mentioning that there is only one public debt definition which has been stated through various publications of the government including Debt Policy Statement, Medium Term Debt Management Strategy and Economic Survey of Pakistan. However, this news article is another attempt to deliberately mislead the readers with respect to definition of public debt.

Moreover, the rationale of using external public debt instead of external debt and liabilities has also been clarified at many forums. The debt of other sectors is not public debt since the government is not liable to pay these obligations of private sector debt and bank borrowing etc.

On account of foreign exchange reserves, it is for writer’s information that the foreign exchange reserves have grown to a comfortable level from an alarming level without corresponding increase in public debt. It is also worth mentioning here that while the external public debt has gone up from $48.1 to $57.7 ($9.59 billion) during the three years, the forex reserves of SBP have increased by $12.1 billion in the same period.

 
27 January, 2017

Rebuttal - Reference news article by Ms Anjum Ibrahim published in "Business Recorder " dated 16-01-2017 title "Highest PKR overvalucation ever "

Ms Anjum Ibrahim has written an article titled “Highest PKR overvaluation ever” published in the Business Recorder dated 16-01-2017. The article claims that Pakistan maintains a ‘dirty float’ due to frequent interventions in the FX market. Further, the frequency of such interventions is more pronounced in recent times. The author has also claimed that the rise in foreign exchange reserves from $13.6 billion in February 2013 to $20.6 billion in March 2016 are overstated as it includes private sector foreign exchange held in commercial banks.

In this regard, it would be worth noting that central banks usually intervene in the FX markets mainly to curb excessive volatility and ensure smooth functioning of the markets. This can help keep exchange rate stable, which is also considered one of the essential ingredients of sustainability of a country’s external sector.

The notion that strong currency hurts an economy is also debatable, as there are pros and cons of it. In case of Pakistan, the exchange rate stability not only helped improved external outlook of the country but also augmented the efforts aimed at maintaining price stability in the country. Pakistan’s rating has also been improved by Moody’s and S&P.
The article computes the differential between the REER index and average exchange rate which reveals that the differential has increased from 3.4565 in March 2013 to 21.29 in November 2016. The author also argues that this differential will further widen unless:

  • The government do not end its reliance on domestic and short term external expensive borrowings;
  • Reduces the magnitude of local borrowings;
  • Reverses the decline in exports (allowing PKR to reflect market conditions);
  • FDI is not increased; and
  • The revenue is raised thorough stock markets instead of relying on taxes.

This kind of analysis by the author is erroneous which lead to misleading interpretations of the CPI-based REER index. Particularly, making a comparison of REER index with the average nominal exchange (PKR vs. US dollar) is inappropriate, as REER index is a measure of trade-weighted average exchange rate of a currency against a basket of currencies after adjusting for inflation of the countries concerned and expressed as an index number relative to a base year. In this context, a percentage change of REER index at two point of time is computed to assess external value of a currency against the trading basket. Further, the REER index is a crude measure of external competitiveness of a country, as economic theory still lacks a foolproof method of establishing an over or undervaluation of a currency.

Also, the deviations in REER index don't necessarily indicate fundamental misalignment as some important factors also matter for competitiveness, such as consumption pattern, trade policies, tariffs and transportation costs, etc. This is the reason that some other improved methodologies based on macroeconomic balance approach/partial equilibrium/general equilibrium models are also employed by central banks (including Pakistan) while assessing external competitiveness of an economy.

Further, some other established measures are also used in assessing the competitiveness of an economy. For example, the Global Competitiveness Report 2015-16 has ranked Pakistan 122nd out of 138 countries, up from 126 last year. This improved ranking was achieved mainly on the back of the country’s higher scores for ‘getting credit’ and ‘registering property’ categories, as compared to the previous year.  Further, the World Bank’s Doing Business Report 2017, also improved Pakistan’s overall ranking to 144 (out of 190 countries), from 148 last year.

In the article, the author agrees with the recent build-up of Pakistan’s FX reserves. However, it raises a question regarding its composition, as she claims that this accumulation of reserves was entirely replenished through external debt generation.  This kind of perception regarding FX build-up is also wrong, as a variety of factors were responsible for the FX reserves accumulation. For example, the major source of build-up of SBP’s FX reserves include: (i) multilateral and bilateral loans and grants from development partners; (ii) issuance of bonds in the international capital market; (iii) inflows under the Coalition Support Fund; and (iv) SBP’s spot purchases from the interbank market.

Further, the FX reserves, which stood at US$ 6.0 billion by end-June 2013 were not sufficient to finance even two months of the country’s import bill: the PKR depreciated by 8.2 percent during July-November 2013. However, these reserves have recorded an average growth of 44.5 percent between FY2013 and FY2016 to reach US$ 18.1 billion by end-June 2016. These reserves are sufficient  to finance around five months of the country’s import bill.

As regards the issue of inflows of overseas workers’ remittances to Pakistan, these are still healthy if compared with other South Asian countries. During FY2016, the slowdown in workers’ remittances was owing to exogenous factors, such as the low global oil prices affecting revenues of the Gulf region (which contributes around 65 percent to Pakistan’s remittance inflows), stringent regulations faced by money transfer operators from USA, and subdued growth in the developed world, another source of remittance inflows for Pakistan. Despite these challenges, remittance inflows in Pakistan passed their target in FY2016 and reached almost US$ 20 billion. It is also pertinent to mention that development activities under Saudi Arabia’s vision 2030, FIFA World Cup 2022 in Qatar, and Expo 2020 in Dubai may create demand for Pakistani workers, which can help increase flow of remittances in the country.

On the investment front, FDI has been more than doubled from US$ 0.9 billion in FY2015 to US$ 1.9 billion in FY2016. During Jul-Dec, FY17 FDI posted a significant growth of 10.4 percent and YOY in December it registered a growth of 328 percent. While Foreign Portfolio investment (FPI) has posted a phenomenal growth of above 200 percent during the same period of current fiscal year.  In addition, with the establishment of special economic zones (SEZs) planned under the China-Pakistan Economic Corridor (CPEC), foreign investments are expected to improve further. Pakistan's private sector involvement is also likely to enhance in building the infrastructure of power plants and road network. This would also boost Pakistan’s productive capacity and expand the country’s export base. As a result, Pakistan may generate incremental foreign exchange to service debt and equity investment.

As regards decline in the country’s exports, it is primarily due to weak demand in major export markets. Not only Pakistan, but most emerging markets (EMs) have witnessed a drop in their exports. However, in a bid to save the external trade, the government has introduced a bailout package of Rs.180 billion for export sector to positively impact textile sector. The package includes enhanced Drawback of Local Taxes and Levies (DLTL) rates with inclusion of yarn/grey fabric to the DLTL list, removal of customs duty and sales tax on import of cotton. Similarly, the government has abolished customs duty on man-made fibre and sales tax on import of textile machinery. Particularly, the technological revival of the textile sector can help exports to compete with other regional competitors such as Bangladesh, Philippines and Vietnam.

The news article also incorrectly stated that domestic debt witnessed an increase of 66 percent during last three years. Further it used incorrect facts and figures to arrive at misleading conclusions with regards to external public debt. In this regards, it is to mention that the present government inherited net public debt of Rs.14,291 billion comprising of external public debt of $48.1 billion (Rs.4,797 billion) and net domestic public debt of Rs.9,494 billion. During the period from July 2013 to June 2016, the net public debt has grown to Rs.19,219 billion out of which the external public debt was $57.7 billion (Rs.6,051 billion) while net domestic public debt was Rs.13,168 billion. Thus, there is a net increase of Rs.4,928 billion in total public debt, inclusive of $9.6 billion of external debt. This constitutes an increase in net public debt at an annual compounded growth rate of 10.4 percent during first three years of the present government as compared with compounded annual growth of 19.9 percent recorded during the tenure of previous government;

A better approach is to measure the net external indebtedness of the country which is the difference between external public debt and official FX reserves. Net external indebtedness of the country improved by US$ 4.50 billion by end June 2016 as compared with end June 2013;

The debt burden is better understood in comparison to its relation with the GDP instead of absolute numbers. The analysis of public debt to GDP ratio during last 15 years reveals that in the period of high inflation, public debt to GDP ratio performed relatively better as the denominator becomes larger and this ratio mostly hovered close to 60 percent even when real GDP growth was merely half a percent. For instance during the tenure of previous government (2009-2013), the average inflation remained around 12 percent while real GDP was only 2.8 percent. Whereas, during the tenure of present government, the average inflation remained around 5 percent while real GDP was over 4 percent. The higher inflation could help reducing the public debt-to-GDP ratio yet it has other adverse repercussions for the economy. Therefore, economic managers would always prefer high real GDP growth coupled with low inflation rather than low real GDP growth coupled with high inflation. Another way to gauge the increase in public debt burden of the country is to compare with relevant global public debt statistics. Pakistan’s net public debt to GDP ratio increased marginally by 1.1 percent during last three years as compared with 6.8 percent increase witnessed in global debt to GDP ratio (IMF World Economic Outlook, October 2016).

The news article incorrectly stated that the government is accused of heavy unsustainable reliance on external and domestic borrowing. In fact, the government has been able to reduce the risks associated with its public debt portfolio through re-profiling of its domestic debt portfolio, broadening of investor base through commencement of trading of government debt securities at stock exchanges and mobilization of concessional external debt to retire its expensive domestic debt. Major debt sustainability indicators have in fact improved in the last three years, a fact that is acknowledged by global stakeholders.

  • “Refinancing Risk of the Domestic Debt Portfolio” was reduced through lengthening of the maturity profile at the end of June 2016. Percentage of domestic debt maturing in one year was reduced to 51.9 percent compared with 64.2 percent at the end of June 2013;
  • “Exposure to Interest Rate Risk” was also reduced, as the percentage of debt re-fixing in one year decreased to 44.4 percent at the end of June 2016 compared to 52.4 percent at the end of June 2013;
  • “Share of External Loans Maturing within One Year” is equal to around 31.9 percent of official liquid reserves at the end of June 2016 as compared with around 68.5 percent at the end of June 2013 indicating improvement in foreign exchange stability and repayment capacity;
  • The IMF debt sustainability analysis shows that external debt would remain on a downward trend over the medium term, with the peak in external financing needs under the most stressed scenario (3.7 percent of GDP) staying well below the risk assessment benchmark of 5 percent of GDP. Further, credit rating agencies in their recent reports acknowledged this fact that Pakistan external debt is on sustainable path and there is very little exposure to medium term vulnerabilities.

Lastly, the news article made a false assertion regarding component of external public debt especially with reference to rising external commercial borrowing and Eurobonds. In this regard, following may be noted:

  • The average cost of the external loans obtained by present government comes to around 3 percent which is significantly lower than the domestic financing cost even after one builds a margin of capital loss due to exchange rate depreciation;
Eurobonds and commercial loans outstanding amounts were only US$ 4.6 billion and US$ 1.5 billion respectively, having combined share of only 10 percent within external public debt as at end June 2016.Remaining 90 percent of external public debt are contributed by concessional multilateral and bilateral sources which are instrumental in enhancing Pakistan’s potential output by promoting efficiency and productivity. These loans are, thus, simultaneously adding to the debt repayment capacity of the country.
 
27 January, 2017

Rebuttal - Reference news article by Mr. Zaheer Abbasi published in "Business Recorder " dated 16-01-2017 with reference to Dr. Hafiz A Pasha speaking at AAJ TV Program "Paisa Bolta Hai"

Mr Zaheer Abbasi has written an article published in the Business Recorder dated 16-01-2017 with reference to Dr Hafiz A Pasha speaking at AAJ TV program “Paisa BoltaHai” in which he hasclaimed that according to data uploaded on the IMF website Pakistan will have to pay $11 billion during 2016-17 and 2017-18. He has further explained that since 2008 onward there has been a significant growth in the debt to GDP ratio, external debt is growing and ratio of external debt to exports in next two to three years would approach 400 percent. He is also of the view that the short-term borrowing is highly risky and at a high cost. 

The news article provided reference of data published on IMF website and deliberately presented only one side of the picture by stating that Pakistan would require US$ 15 billion in the current and next fiscal year on account of external debt servicing. The news article completely ignores that the disbursements during the said period is expected to be around US$17.7 billion and accordingly there is no risk of refinancing and reserves drawdown as gross official reserves of the country are expected to increase further during FY2017 and FY2018, a fact also acknowledged by the said IMF report/data. The sole purpose of providing such incomplete information is just to make sensation without substance and mislead the public.

The news article also incorrectly stated that the public debt to GDP ratio is close to 70 percent. The present government inherited net public debt to GDP ratio at 63.8 percent in 2013. Pakistan’s net public debt to GDP ratio increased marginally by 1.1 percent during last three years as compared with 6.8 percent increase witnessed in the global debt to GDP ratio (IMF World Economic Outlook, October 2016). It may also be noted that the net public debt to GDP ratio witnessed an increase of 6.7 percent of GDP during the tenure of previous government. More importantly, it should also be kept in view that the inflation has been exceptionally low that has resulted in lower growth in nominal GDP, compared to the period 2008-2013, exerting an unfavourable impact on debt to GDP ratio.

The news article incorrectly mentioned that external debt to exports ratio is expected to approach 400 percent in next two to three years without providing any basis. In fact, the external public debt to export ratio is expected to be around 175 percent while gross external debt (public & private) to exports ratio is expected to be around 243 percent in FY2020 as per the IMF report, which the news article has itself referred. Again, selective reporting is evident as the news article took liberty to present random numbers without substance.

The news article made a false assertion regarding component of external public debt especially with reference to external commercial borrowings and Eurobonds. In this regard, following may be noted:

  • The average cost of the external loans obtained by present government comes to around 3 percent which is significantly lower than the domestic financing cost even after one builds a margin of capital loss due to exchange rate depreciation;
  • Eurobonds and commercial loans outstanding amounts were only US$ 4.6 billion and US$ 1.5 billion respectively, having combined share of only 10 percent within external public debt as at end June 2016. Remaining 90 percent of external public debt is contributed by concessional multilateral and bilateral sources which are instrumental in enhancing Pakistan’s potential output by promoting efficiency and productivity. These loans are, thus, simultaneously adding to the debt repayment capacity of the country. 

Lastly, the news article painted a bleak picture with regards to sustainability of debt.  In fact, the government has been able to reduce the risks associated with its public debt portfolio through re-profiling of its domestic debt portfolio, broadening of investor base through commencement of trading of government debt securities at stock exchanges and mobilization of concessional external debt to retire its expensive domestic debt. Major debt sustainability indicators have in fact improved in the last three years, a fact that is acknowledged by global stakeholders.

  • “Refinancing Risk of the Domestic Debt Portfolio” was reduced through lengthening of the maturity profile at the end of June 2016. Percentage of domestic debt maturing in one year was reduced to 51.9 percent compared with 64.2 percent at the end of June 2013;
  • “Exposure to Interest Rate Risk” was also reduced, as the percentage of debt re-fixing in one year decreased to 44.4 percent at the end of June 2016 compared to 52.4 percent at the end of June 2013;
  • “Share of External Loans Maturing within One Year” is equal to around 31.9 percent of official liquid reserves at the end of June 2016 as compared with around 68.5 percent at the end of June 2013 indicating improvement in foreign exchange stability and repayment capacity;
The IMF debt sustainability analysis shows that external debt would remain on a downward trend over the medium term, with the peak in external financing needs under the most stressed scenario (3.7 percent of GDP) staying well below the risk assessment benchmark of 5 percent of GDP. Further, credit rating agencies in their recent reports acknowledged this fact that Pakistan external debt is on sustainable path and there is very little exposure to medium term vulnerabilities.
 
13 December, 2016

Rejoinder - Responding to News Item "ADB stalls $300 million loan tranche over delayed reforms" by Shahbaz Rana appreared in Express Tribune on 11th December, 2016

This is with reference to the news item titled “ADB stalls $300 million loan tranche over delayed reforms”, by Shahbaz Rana, published in the daily The Express Tribune on 11th December 2016. The news item reports on issues regarding timely completion of the prior actions for release of the third tranche of US$300 Million, under the ADB sponsored Sustainable Energy Sector Reforms – Sub Program III. Most of the authors’ contentions in this regard are factually incorrect and baseless.

It is important to note that prior to the on-going third phase of energy sector reforms program, the Government has carried out major economic reforms that have led to successful completion of 3-Year IMF External Fund Facility (EFF) of US$6.2 billion that entailed 12 quarterly reviews, two reforms programs of $1 billion under the growth and competitive support facility of World Bank and two energy sector development policy credit programs of US$2.0 billion supported by World Bank, Asian Development Bank and Japan International Cooperation Agency. The current ADB Program is the continuation of previous two development policy credit programs and most of its policy actions are the extension of already implemented reforms.

In the Sub Program III, the Government is effectively pursuing a multi-pronged and well-coordinated implementation strategy to make the reforms process long lasting and sustainable. It is important to point out that all policy actions are earmarked for completion during FY 2016-17 and the author’s assertion that ADB’s Board was supposed to approve the loan by 31st December, 2016 is totally incorrect and contrary to the existing facts. The policy actions proposed under the program involve new legislation, circular debt management plan, approval of new transmission guidelines, setting up of market operations units, approval of restructuring plans for gas sector and continued monitoring of reforms implemented in Sub program I & II. Most of the actions have already been completed, while a few are under process and are expected to reach completion in the near future. During the recently concluded visit of ADB Review Mission, progress on all the policy actions have been shared with Development Partners and time lines for each action in process were agreed upon between ADB and the Government of Pakistan.

In line with the National Power Policy 2013, the present government is fully focused on reforms not only in the Power Sector but in the entire energy sector which would continue till 2018. As a result of major reforms implemented in the power sector include, among others, focus on alternative energy generation, operationalization of Central Power Purchase Agency (Guarantee) Limited (CPPA-G) as a power market operator, autonomy to NEPRA in its decision making, monitoring, reporting, issuance of rules, guidelines and standards and reduction in load shedding across the country (which has been brought down to 4-6 six hours a day (or in the range of 2,500-2,700 MW) from an alarming level of 12-14 hours a day (or in the range of 5,000-5,500 MW) in 2013. Power sector lines losses have fallen to a record low level of less than 18% during FY 2016 with bills collections having reached 94.6%.

As an evidence of the continued reform program, the subsidies in the power sector have come down to 0.4% of GDP and have now been limited to the vulnerable segments only, agriculture tube-wells and industrial production. Also, the author’s contention that Rs.136.5 billion has been rolled over on account of circular debt does not imply that power sector’s financials are in strain. Rather, the markup on these loans is paid on time through the tariff without incurring incremental debt. Further, the circular debt capping plan is already in place and the government is well within the determined limit of power sector flows of Rs.92 billion per annum and therefore the author’s stance that this action could not be completed is totally inaccurate. Under the current capping plan, government is following a phased stock reduction through specific measures to recover past arrears, reduce losses and removal of price distortions.

The Government has also finalized a restructuring plan for the mid and downstream gas sector contrary to the author’s assertion. The author also seems unaware about some specific policy action items. There is no policy action required under the program that mandates PPIB to update procedures for 2002 IPP policy to ensure its consistency with least cost generation plan.

Therefore, the sweeping statement by the writer that government’s focus has shifted away from reforms and it has started taking populist decision, which carry huge power sector woes, is contrary to the facts outlined above. The present government continues to remain focused on deepening the ongoing reforms, add 10,000 MW to eliminate load-shedding in 2018 and change the generation mix to ensure a lower tariff for the consumers.

Official Spokes person
Ministry of Finance
Islamabad.

 
06 December, 2016

Rebuttal - Reference to news item published in "Ausaf" dated 28-11-2016 titled "US$ 3 billion additional debt in 4 months, inflation rising"

This is with reference to the news item published in the Urdu newspaper "Ausaf" on 28.11.2016 titled “US$ 3 billion additional debt in 4 months, inflation rising”. The debt portion of the news item has been reviewed and it has been noted that the news item is a piece of selective reporting where 4 months external disbursements are used to conclude that debt has increased by US$ 3 billion. In this regard, following clarifications are offered:

  • The amount offoreign loans obtained during past four months is quoted as US$3 billion using the disbursement numbers only while ignoring the fact that this number also includes grants and it does not reflect any repayments made during the same period.MoF compiles complete data on quarterly basis and accordingly during the first quarter FY17, the net increase in public external debt was only US$ 959 million and not US $ 3 billion. 
  • Pakistan successfully issued US$ 1 billion Sukuk at a historic low rate of 5.5% which is better than recent sovereign issuance of bonds by both Bahrain and Sri Lanka, the credit ratings of which are higher than Pakistan. It may be noted that the issuance of Sukuk is not an additional borrowing, it is part of the planned borrowing for the year 2016-17 approved by the parliament through Budget 2016-17. Hence, it is incorrect to consider it as an additional or unplanned borrowing.
  • The critical consideration in debt management is the sustainability analyses for which various indicators have been designed. Major debt sustainability indicators have improved in the last three years, a fact that is acknowledged by global stakeholders.
    • “Refinancing Risk of the Domestic Debt Portfolio” was reduced through lengthening of the maturity profile at the end of June 2016. Percentage of domestic debt maturing in one year was reduced to 52 percent compared with 64 percent at the end of June 2013.
    • “Exposure to Interest Rate Risk” was also reduced, as the percentage of debt re-fixing in one year decreased to 44 percent at the end of June 2016 compared to 52 percent at the end of June 2013.
    • “Share of External Loans Maturing within One Year” is equal to around 29 percent of official liquid reserves at the end of June 2016 as compared with around 69 percent at the end of June 2013 indicating improvement in foreign exchange stability and repayment capacity.
    • The debt sustainability analysis shows that external debt would remain on a downward trend over the medium term, with the peak in external financing needs under the most stressed scenario (3.7 percent of GDP) staying well below the risk assessment benchmark of 5 percent of GDP. Further, credit rating agencies in their recent reports acknowledged this fact that Pakistan external debt is on sustainable path and there is very little exposure to medium term vulnerabilities;
The above facts clearly establish that the present government has made remarkable gains in reducing debt burden of the country and improved the fiscal and debt sustainability indicators.
 
05 December, 2016

Rebuttal - Reference to news item published in "Daily Duniya" dated 21-11-2016 titled "Government borrowed Rs. 8,000 billion, total debt crossed Rs. 22,000 billion in 3 years"

This is with reference to the news item published in Urdu newspaper "Daily Duniya" titled “Government borrowed Rs. 8,000 billion, total debt crossed Rs. 22,000 billion in 3 years” dated 21.11.2016. The news article not only depicts lack of understanding with regard to public debt but used deceiving headline to mislead the readers. This is clarified as per the following details:

  • The news article mentions that the total debt crossed Rs.22, 000 billion while deliberately ignoring the components making up this number. Out of this total, net public debt was Rs.19,219 billion bifurcated into Rs.13,168 billion domestic debt and Rs. 6,051 billion external debt. The news article is referring to total debt and liabilities of the country which includes debt of other sectors such as private sector debt and bank borrowings etc.which are not part of public debt and the government is not liable to pay these obligations;
  • The article states that the present government increased total debt by Rs. 8,000 billion to reach Rs 22,000 billion which is being calculated by making a wrong comparison i.e. for end June 2013, only public debt numbers are used and compared with total public debt as well as liabilities number for end June 2016 to arrive at a misleading increase. If a correct comparison is made between net public debt number at end June 2013 as Rs. 14,290 billion and a corresponding number at end June 2016 as Rs. 19,219 billion, the actual increase was Rs. 4,928 billion. Even if total debt and liabilities are to be compared, the increase was around Rs. 6,100 billion, inclusive of liabilities that are not obligation of the government. Likewise, domestic debt as at end September 2016 is reported as inclusive of liabilities, which is not correct. It is a misleading assertion. This is summarized in the following table:

 

June 2013

June 2016

Increase

Total Debt & Liabilities

16,338

22,462

6,124

Net Public Debt

 14,291

      19,219

           4,928

Net Debt/GDP

63.8%

64.9%

1.1%

  • The article incorrectly states that debt to GDP stands at 68 percent, whereas actual net debt to GDP stood at 64.9 percent as at end June 2016. Moreover, the article mentions that the government is in violation of FRDLA by exceeding debt to GDP ratio of 60 percent which is also incorrect. In accordance with the present FRDLA, the total public debt shall be reduced to 60 percent of estimated GDP until 2017-18, and there after a 15-year transition has been set towards a debt-to-GDP ratio of 50 percent. Hence, the government is not in violation.

The above facts clearly establish the fallacious views mentioned in the news item regarding the state of public debt management in Pakistan. The present government has made remarkable gains in improving the fiscal and debt risk indicators.

 
05 December, 2016

Rebuttal - Reference to news item published in "Daily Jinnah" dated 22-11-2016 titled "Total Debt crossed Rs. 22,000 billion"

This is with reference to the news item published in Urdu newspaper "Daily Jinnah" titled “Total Debt crossed Rs. 22,000 billion” dated 22.11.2016. The news article does not only depict lack of understanding with regard to public debt but used deceiving headline to mislead the readers. This is clarified as per the following details:

  • The news article mentions that the total debt crossed Rs.22, 000 billion while deliberately ignoring the components making up this number. Out of this total, net public debt was Rs.19,219billion bifurcated into Rs.13, 168 billion domestic debt and Rs. 6,051 billion external debt. The news article is referring to total debt and liabilities of the country which includes debt of other sectors such as private sector debt and bank borrowings etc.which are not part of public debt and the government is not liable to pay these obligations;
  • The article states that the present government increased total debt by Rs. 8,000 billion to reach Rs 22,000 billion which is being calculated by making a wrong comparison i.e. for end June 2013, only public debt numbers are used and compared with total public debt as well as liabilities number for end June 2016 to arrive at a misleading increase. If a correct comparison is made between net public debt number at end June 2013 as Rs. 14,290 billion and a corresponding number at end June 2016 as Rs. 19,219 billion, the actual increase was Rs. 4,928 billion. Even if total debt and liabilities are to be compared, the increase was around Rs. 6,100 billion, inclusive of liabilities that are not obligation of the government. Likewise, domestic debt as at end September 2016 is reported as inclusive of liabilities, which is not correct. It is a misleading assertion. This is summarized in the following table:

 

June 2013

June 2016

Increase

Total Debt & Liabilities

16,338

22,462

6,124

Net Public Debt

14,291

19,219

4,928

Net Debt/GDP

63.8%

64.9%

1.1%

  • The article incorrectly states that debt to GDP ratio stands at 68 percent, whereas actual net debt to GDP stood at 64.9 percent as at end June 2016. Moreover, the article mentions that the government is in violation of FRDLA by exceeding debt to GDP ratio of 60 percent which is also incorrect. In accordance with the present FRDLA, the total public debt shall be reduced to 60 percent of estimated GDP until 2017-18, and thereafter a 15-year transition has been set towards a debt-to-GDP ratio of 50 percent. Hence, the government is not in violation.

The above facts clearly establish the fallacious views mentioned in the news item regarding the state of public debt management in Pakistan. The present government has made remarkable gains in improving the fiscal and debt risk indicators.

 
26 November, 2016

Rebuttal - Response to an article published in "Business Recorder" dated 11-11-2016 titled "An open Letter to IMF"

Dr Ashfaque H.Khan, Dr Hafiz A Pasha and Dr Salman Shah in a reply to MoF’s response to their article have mentioned that they were expecting a response from IMF but instead MoF responded to their article. In their reply they have repeated the same issues such as PBS compilation of unemployment rate, building of reserves through debt, declining exports, performance of power sector, FBR’s tax collections and payment of refunds etc.

It is a matter of delight that at least they have admitted that the PBS computes the National Accounts according to well stated and publically shared parameters and now their criticism is confined to the use of raw data/inputs into the methodology. In this regard, a number of clarifications were made. However, it is again submitted for their information that the data used to compute the GDP numbers is provided by a host of agencies, public and private as well as federal, provincial and local authorities. These data sources are fixed as approved by the National Accounts Committee. The data providers are the members of the National Accounts Committee meeting and verify the data provided by them. The data available for nine months, and in some cases for six months, is annualized and used. 

As far as the compilation of unemployment rate is concerned, it is worth mentioning that PBS has been following the internationally approved methodology over the years and no change in compilation procedures was carried out during the referred years. The writers have presented new unemployment rates for 2014-15 by including the discouraged workers which is not the internationally accepted methodology. The fact is that the writers, by including the discouraged workers only in 2014-15 and ignoring these workers in 2013-14, have committed intellectual dishonesty. Had they done such an exercise, the unemployment rate for 2014-15 would have been on the same level as reported by PBS.  

The writers’ assertion regarding building up of foreign exchange reserves through debt is incorrect despite giving clarifications earlier. It is to be noted that the external public debt has gone up by US$ 9.59 billion during the last three years (2013-14 to 2015-16)while FX reserves of SBP have increased by US$ 12.1 billion in the same period or by US$ 15.3 billion when compared from February 2014 to June 2016. Further, the present government has repaid around US$ 12 billion of external debt till end June 2016, which was mainly related to the borrowings of the previous governments. Despite these heavy repayments, the FX reserves of the country have risen to more than US$ 23 billion, of which SBP reserves were US$ 18.1 billion at end June 2016, which is equal to over five months of import-cover as compared to less than around 3 weeks of import-cover in February 2014 when the SBP reserves stood at US$ 2.8 billion. Moreover, apart from repayments, current account deficits were also met persistently for the past 3 years while maintaining growth in foreign exchange reserves. The healthy foreign exchange reserves act as cash buffers while helping to boost investor confidence for economy.

The issuance of Sovereign Sukuk Bond is a part of financing plan (Budget: 2016-17) and has no relevance with the end of IMF program and unsustainability of foreign exchange reserves

as claimed in the news article. In fact, investor confidence is evident from the fact that Pakistan successfully issued US$ 1 billion Sukuk at a historic low rate of 5.5 percent which is better than recent sovereign issuance of bonds by both Bahrain and Sri Lanka, the credit ratings of which are higher than Pakistan. The issuance of Sukuk will equally reduce the domestic public debt by around Rs.104.5 billion and will, therefore, not result in any increase in the country’s overall public debt.

The news article mentioned some gross external financing numbers by challenging IMF projections which are entirely based on writer’s own assumptions which are not supported by the factual data rather on self- developed models that are prone to data mining among other shortcomings. The writers have made many such false projections in the past such as economy slipping into deflation which does not materialized. Further, IMF being an independent institute and credit rating agencies in their recent reports acknowledged this fact that Pakistan external debt is on sustainable path and there is very little exposure to medium term vulnerabilities. Therefore, such baseless assumptions/projections further erode their creditability since these are only meant to make sensations while completely ignoring the true picture.

In their reply they have claimed that the MoF only argued that the government is making serious efforts to address the issue on declining exports without providing any details of the measures that are currently being taken by the government. In this respect, it is important to clarify that measures to increase exports have not only been mentioned in response to various articles published earlier, but it has also been discussed and explained on number of forums. Above all at the time of budget announcement, Finance Minister in his budget speech has categorically described the measures for export promotion and is available on MoF web site. 

The government is taking serious efforts to address the issue of declining exports. It may be noted that there is muted economic growth across the globe. Pakistan’s major trading partners; USA, China, EU witnessed a sluggish economic growth. Our major share of exports goes to US, China and EU. The slow growth in China and EU and weak demand has also impacted Pakistan’s exports growth. However, the government is fully cognizant of this issue and taking a number of measures to increase exports. Strategic Trade Policy Framework (STPF) 2015-18 for export promotion is a welcome development which will enhance exports in future. The STPF 2015-18 includes plans to enhance Pakistan’s export competitiveness by way of initiatives relating to product diversification, value addition, trade facilitation and enhanced market access. The new trade policy set the target of   US$ 35 billion of exports. 

With regard to the decline in non tax revenues, authors believe that the target for non-tax revenue is not going to be achieved this year. They are also of the view that the current expenditure is also understated in the current year’s budget. In this regard it is to explain that the receipts on account of CSF are budgeted as intimated by the concerned agencies. Such receipts are in fact reimbursements of actual expenditure relating to western borders operations. These are due payments and are projected to be received during current financial year.

On the other hand growth in current expenditure has been considerably reduced which has become possible due to decrease in fiscal deficit and resultantly less domestic interest payments. During 2015-16, growth in current expenditure was 6 percent while in budget 2016-17 growth in current expenditure is projected at 7.4 percent of GDP. According to the recent data, growth in total expenditure is contained at 2.8 percent during the first quarter of FY2017 against the growth of 7.5 percent recorded in the same period of FY2016. In terms of GDP, total expenditures stood at 3.9 percent during first quarter of FY2017 against 4.1 percent in the same

period of FY2016, while current expenditure recorded at 3.2 percent as percent of GDP during Q1 of FY2017 against 3.5 percent of GDP in the same period of last year. The current expenditures have posted a negative growth of 1.3 percent during Q1 of FY2017 against the growth of 3.3 percent registered in the same period of FY2016 augur well that expenditures will be contained as per projections. 

With reference to the authors’ assertions regarding recent performance of the power sector, the following points need further clarification.  

The authors’ contention that the distribution companies (DISCOs) did not show any noticeable improvement is not correct as their analysis is based on data for FY2015. During FY2016, power sector distribution companies have shown remarkable improvement both in terms of reduction in line losses and collection from consumers. Line losses have reduced to 17.9 percent during FY2016 from 18.7 percent during FY2015 and collection from consumers improved to 94.6 percent during FY2016 as compared to 89.2 percent a year earlier. As a result of this improvement in operational performance, the power sector subsidies have rationalized to Rs.118 billion during FY2016 as indicated in Federal Budget for 2017. Subsidies are now targeted to the vulnerable segments of the society. 

As a result of better operational and financial management by the current government, the average shortfall has reduced to 2,600  from 2,900 MW that resulted in reduction of load shedding to 6-8 hours a day. 

Similarly, the authors’ viewpoint that four power sector distribution companies are utilizing 85 percent of power generation is not supported by facts and figures as  during FY2015, power supply to four Discos, i.e. LESCO, GEPCO, MEPCO & FESCO is 58 percent..

Current government inherited a huge stock of power holding loans of Rs. 239.5 billion, therefore, the contention that the circular debt must include the Power Holdings Private Limited (PHPL) loans is not correct as the payment of debt servicing of these loans is being made directly by the power sector distribution companies. In fact, current government is discharging the pending liabilities of previous governments.

Power sector operates in a regulated environment and energy prices are also determined by power regulator (NEPRA) by keeping in view the revenue requirement of distribution companies (Discos). Targets for line losses and collection are determined by NEPRA. Currently, all the Discos are in the process of filing the Multiyear Tariff Petitions. Multiyear Tariff Determination for three power sector Discos, IESCO, LESCO & FESCO has been issued by NEPRA that contains a detailed tariff methodology in line with NEPRA Act and Rules.

With regard to the FBR, authors have stated that there is a shortfall in FBR tax revenue during July-October 2016, decline in Income tax revenue through demand creation, share of Direct taxes in federal taxes is 35 percent and not 39 percent, effective rate of customs duty on imports has gone up from 6 percent to 9 percent and issue of Payment of Refunds.

In this context, it is important to understand that FBR has collected Rs. 860 billion provisional collection during July-October FY2017 as compared to Rs. 814 billion collected in the corresponding period last year. In absolute terms Rs.46 billion higher amount has been collected. Comparing with the revenue target it is clarified that the collection trends during first few months remain low as compared to the second half of the year. It is expected that the

collection will pick up in coming quarters more rapidly and the loss occurred in first few months would be compensated. 

However, there are various reasons for this decline. Major decline has been noticed in oil and gas sector with Rs.20 billion lower collection as compared to corresponding period last year. The sales tax rate on motor spirit in July, August and September 2015 were 17 percent, 20 percent and 25.5 percent, respectively and were reduced to 17 percent in the first quarter of CFY. The price per litre of motor spirit was around Rs. 60 per litre in first quarter of 2015-16 as against price of Rs.50 per litre in first quarter of CFY. Both these factors i.e. reduced rate of sales tax and price per litre has resulted in lower collection. Rate of sales tax on high speed diesel was 29 percent, 35.5 percent and 45 percent in July, August and September 2015, respectively as against rate of 28 percent, in CFY. Similarly, the price per litre was also higher in first quarter of 2015 as compared to 2016 resulting in reduced collection of sales tax. 

The sales tax collection on imports grew only by 0.2 percent and less than expected growth of sales tax on imports is due to the zero-rating of the inputs of five export sectors and the substantial reduction in sales tax rate on Urea fertilizers. These steps were taken in the recent budget to boost exports and to support the agriculture sector but were bound to have adverse impact on FBR revenues. Moreover, revenue measures taken in the last budget will take some time to yield the desired yield and after the usual lag will offset the impact of the relief measures taken by the government for overall economic growth. 

The reason for the decline in income tax revenue through demand creation is that the field formations have been facing various problems. One major problem being the cases stuck at different levels of appellate fora. Once these issues are settled, the collection through demand creation would increase.   

Authors claim that the share of direct taxes in federal taxes is 35 percent and not 39 percent is baseless as the data confirms that the share of direct taxes has increased from just 18 percent in 1990-91 to more than 39 percent in 2015-16. The present government has taken serious measures to increase the share of revenue from direct taxes to bring equity and fairness in the system and to encourage progressive taxation instead of regressive taxation. The concept of filers and non-filers was introduced in order to increase the number of filers in the country. The cost of business for non-filers has been increased in the recent years. Resultantly, the number of filers has also increased due to levy of higher withholding tax rates for non-filers. This differential treatment has not only been introduced in banking sector but also other sectors like purchase of movable and immovable properties.

With regard to the effective rate of customs duty on imports ,it has gone up from 6 percent to 9 percent, it is clarified that in the reforms process during the last three years, not only the maximum rate of Customs Duty has been brought down from 30 percent to 20 percent, the Customs Duty slabs have also been reduced from 7 to 4 i.e. 3 percent, 11 percent, 16 percent and 20 percent. The effective rate, which was 5.43 percent in 2013-14, has increased to 8.86 percent in 2015-16 because of elimination of exemptions. During the last three years, besides drastic reduction in the exemption regime of other taxes, Customs Duty related exemptions; to the tune of Rs. 64.1 billion have been withdrawn. This has brought the share of duty free import in total import value from 62 percent in 2013-14 to merely 27 percent in 2015-16. These reforms measures have altered the rent seeking nature of selected sectors of the economy making them more competitive.

Currently 94 percent of country’s import, in terms of value, falls in the Customs Duty rates of 3 percent to 20 percent. In the budget 2016-17, the duty rate of more than two thousand items, mostly machinery and primary raw material, was reduced from 5 percent to 3 percent, extending benefit of more than Rs. 18 billion to the industry. 

Regulatory Duty has been imposed mainly on two types of goods, firstly some selected items of non-essential nature to reduce the trade deficit and protect precious foreign exchange and secondly to protect local industry in the wake of unusual fall in prices of certain goods in the international market.

On the issue of payment of refunds it is important to mention that the FBR is trying to promote tax culture and taxpayer friendly environment in the country. It facilitates the taxpayers/refund claimants through speedy clearance of refunds. Overall tax refund claims have declined. The net revenue collection during 2012-13 was Rs. 1946 billion and the pending refund claims were 9.5 percent of net collection. This percentage has declined during the last three years and the net collection as on 30th June 2016 was Rs. 3112 billion whereas, the pending refund claims were 6.7 percent of the net collection. 

FBR has cleared sales tax refund claims of Rs. 21.5 billion which have been electronically transferred to accounts of refund claimants. Earlier in August the refund claims of Rs.22 billion had been cleared. It is further clarified that current government inherited pending refund claims of Rs. 211 billion in 2013, but is committed to clear all refund claims in minimum time.

 
26 November, 2016

Rebuttal - Reference news item published in "Express Tribune" dated 18-11-2016 titled "Debt Indicators Paint Bleak Picture"

DEBT INDICATORS PAINT BLEAK PICTURE

This is with reference to the news item published in "Express Tribune" titled “Debt Indicators Paint Bleak Picture” dated 18.11.2016. The article depicts lack of understanding with regard to public debt and its sustainability indicators.It uses selective information to draw misleading conclusions with the intention to create sensation without substance. we would like to elaborate upon certain points.

-        The Medium Term Debt Management Strategy (MTDS) is a strategy for the medium term i.e. three to five years. The second MTDS published in February 2016 is a continuation of the previous MTDS published in April 2014. While it incorporates the new economic realities such as new market conditions and the overall economic cycle yet it focuses on the same principles as laid out in the first MTDS. To reiterate, the guiding principle was lengthening of the maturity profile of domestic debt while making appropriate trade offs between the cost and risks. The indicators have improved during all four quarters of 2015-16 and are on track to achieve the targets set under MTDS. Thus, evaluating the debt risk indicators in isolation over the short term i.e. one year is a meaningless exercise as it totally ignores the medium term perspective embedded in the strategy as well as the element of cost savings which the writer himself highlighted in one of his previous articles.

-        The news article has used abstract phrases that Pakistan’s debt sustainability indicators have significantly worsened as a result of reckless borrowing; it is by misquoting an official debt risk report. In fact, the said report shows that all risk indicators are within the defined ranges as envisaged in MTDS (2015/16 - 2018/19). This statement like other such phrases used in the article, shows writer’s utter lack of comprehension of the context of the strategy and its parameters and not supported by the successive risk reports when evaluated in a three year time series available on MoF website.

-        The writer compares debt risk indicators as at end June, 2016 with the previous year while deliberately ignoring the debt situation as at end June, 2013 when present government took charge and published its first MTDS (2013/14 - 2017/18). Major debt sustainability indicators have improved in the last three years (June 2013 to June 2016), a fact that is acknowledged by global stakeholders:

  • “Refinancing Risk of the Domestic Debt Portfolio” was reduced from 64.2 percent to 51.9 percent;
  • “Exposure to Interest Rate Risk” was also reduced, as the percentage of debt re-fixing in one year decreased to 44.4 percent compared to 52.4 percent;
  • “Share of External Loans Maturing within One Year” is equal to around 31.9 percent of official liquid reserves as compared with around 68.5 percent indicating improvement in foreign exchange stability and repayment capacity.

-        Most importantly, debt sustainability ranges as specified in MTDS (2015/16 - 2018/19) were defined in consultation with various multilateral stakeholders like IMF and World Bank as well as domestic stakeholders after taking into consideration various pertinent factors. If all indicators are within defined sustainability ranges as also acknowledged by the news article, it is surprising to note that same news article is presenting conflicting statements that debt sustainability has worsened. Interestingly, the writer negates himself as in one of his recent publication titled “Govt’s savings offset by unchecked borrowings” dated October 09, 2016, the writer appreciated government efforts towards reducing the debt servicing cost by 500 bps and reducing the rollover/refinancing risk of its long bond portfolio by enhancing its average time to maturity from 2 to 3.5 years.It is clearly evident that the sole objective behind this news article is possibly creating sensation by giving false impression to the public about public debt dynamics and the time series of its sustainability indicators;

-        The writer claims average time to maturity of external debt decreased as a result of government’s decision to resort to short-term foreign commercial borrowings. In this regard, following is worth noting:

  • Short term commercial borrowings only constituted around 3 percent of total external public debt, hence, it cannot influence the average time of maturity of external public debt significantly;
  • The running-off of existing public external debt portfolio is the main reason for reduction in average time to maturity of external public debt which the writer completely ignored;

-        The news article claims that Pakistan’ external debt is projected to grow to a whopping $110 billion within four years and that annual debt servicing would be $ 22 billion based on estimation,it is totally baseless and not supported by any factual data. The said economists, who made the earlier projection, had previously made many such false projections in the past such as “economy slipping into deflation” which did not materialized. In fact, the real economic growth has continuously gained momentum in last three years along with the contained inflation which is an ideal situation for developing countries like Pakistan. Encouragingly, GDP growth rate of Pakistan is higher during past few years as compared with the global GDP growth rate. Further, actual external public debt stood at $57.7 billion as at end June, 2016 and the external public debt repayments are expected to remain around $4 to $5 billion per annum in next 4 to 5 years. Most importantly, the twelfth and final review of IMF, which conducted a thorough analyses on the economy of Pakistan, projected that the external public debt would be around $62 billion by 2019-20. It may further be noted that Pakistan’s net public debt to GDP ratio increased marginally by 1.1 percent during last three years as compared with 6.8 percent increase witnessed in global debt to GDP ratio(IMF World Economic Outlook, October 2016).

-        The writer made another false claim that the government’s contingent liabilities have significantly increased, which showed deterioration in the performance of public sector enterprises. The increase in contingent liabilities is related to improve the financial viability of projects or activities undertaken by the government entities with significant social and economic benefits. It allows public sector companies to borrow money at lower costs or on more favorable terms

-        Finally, one must bear in mind that it is the present government and the team which took the bold step of formulating the MTDS and start publishing risk reports with the objective of enhancing transparency in these matters. This fact needs to be recognized and appreciated by all quarters rather than hurling undue criticism based on selective data set and questionable intent.

 
31 October, 2016

Rebuttal - Reference news item published in "The News" titled "Pakistan's external debt to go up by $13.8 in four years" dated 18-10-2016

Government of Pakistan
Finance Division
(Debt Policy Coordination Office)
*****

Subject: PAK EXTERNAL DEBT TO GO UP BY $13.8 IN FOUR YEARS: IMF

This is with reference to the news item published in the newspaper "The News" titled “Pakistan’s external debt to go up by $13.8 in four years” dated 18.10.2016. The news item is perfect example of selectiverecognition of facts wherein writer deliberatelychose wrong debt indicators to arrive at misleading conclusions as per the following details:

  • At the very outset, news article incorrectly stated that external debt would go up by $13.8 billion in next four years, ballooning from existing level of $72 billion at the end of 2015-16 to touch heights of $85.8 billion at the end of 2019-20. The writer may be referring to total external debt and liabilities of the country which includes debt of other sectors which by definition are not public external debt since the government is not liable to pay these obligations. It includes debt of private sector and banks etc.In fact, if the writer would have referred IMF Latest Staff Report on Pakistan carefully, he would have a better idea that IMF has projectedexternal public debt at $62 billion by 2020 from its present level of $ 57.7 billion in four years’ time indicating annual growth of below 2 percent. In fact, IMF recent debt sustainability analysis shows that external debt would remain on a downward trend over the medium term, with the peak in external financing needs under the most stressed scenario (3.7 percent of GDP) staying well below the risk assessment benchmark of 5 percent of GDP. Further, credit rating agencies in their recent reports acknowledged this fact that Pakistan external debt is on sustainable path and there is very little exposure to medium term vulnerabilities;

  • Similarly, the news items quoted total external debt and liabilities servicing amounts which are not entirely the responsibility of the government. The external public debt servicing is expected to be around $5 billion in 2020 (based on outstanding debt as on June 30, 2016)as opposed to the news article’s claim of $13.681 billion;

  • The news items also incorrectly stated that external debt went up by $14 billion during the tenure of present government in last three years. It is to be noted that external public debt increased by $9.6 billion during last threeyears;

  • The above facts clearly establish the fallacious views mentioned in the news item regarding the state of public debt management in Pakistan. The present government has made remarkable gains in reducing debt burden of the country and improved the fiscal and debt sustainability indicators.
 
29 October, 2016

Clarification - Article titled "The IMF Review: It's all in Footnotes" has been published in the Business Recorder dated 17-10-2016

An article titled “The IMF Review: It’s all in Footnotes” has been published in the Business Recorder dated 17-10-2016 by Ms. Anjum Ibrahim in which the writer, under footnotes, has raised issues such as in Footnote 2, which refers to IMF's 2016 Guidance on the Assessment of Reserve Adequacy (ARA) and Related Considerations, IMF has mentioned the risk about the reserve adequacy by stating that "international reserves, while having tripled over the program period to cover 4.2 months of imports, have not yet reached comfortable levels (76 percent of ARA metric).

It is for writer’s information that Pakistan is not very much below this standard and the outlook is favorable. The guidelines relate to ARA published by the IMF in Jun 2016, show that Pakistan’s reserves are over 72 percent of ARA metric in 2016 and likely to increase to 78.1 percent in 2017. These guidelines can be accessed at: http://www.imf.org/external/np/spr/ara/. Being at these levels does not necessarily mean that Pakistan’s external sector is vulnerable. For example, many other countries are at much lower rank than Pakistan in reserves adequacy (data can be accessed from the above link).

It should also be noted that Pakistan’s foreign exchange reserves have reached historic high level of above $23.0 billion in 2016. With this level of reserves, the country has the capacity to comfortably meet its short to medium term external obligations without any serious risk to the external sustainability.
In Footnote 3, writer stated that “energy circular debt actually rose by 1.1 percentage points. Additionally, the fund pointed out that base tariff was increased by 32.5 percent-from 8.8 rupees in 2012-13 to 11.9 rupees by 2015-16”.

With reference to the issue of circular debt (CD), it is pertinent to point out that the build-up of circular debt has also slowed down due to measures taken under power policy. The outstanding stock of circular debt stands at around Rs.321 billion (around 1 percent of GDP) as of end June 2016, excluding the liabilities of Power Holdings Private Limited (PHPL).

Implementation of National Power Policy 2013 has pushed forward the structural reforms agenda in the power sector. The current government has rationalized the tariffs. The timely payment of tariff differential subsidy (TDS) is being ensured on a monthly basis. The gap between GoP notified tariff and NEPRA determined tariff has narrowed to Rs.0.88 per unit in FY 2014-15 in comparison to Rs.2.29 per unit in FY 2013-14, which has resulted in rationalization of untargeted subsidies. The vulnerable consumers in the residential and agriculture categories have been protected.

Footnote 4 refers to the “public debt remains high (430 percent of the total government revenue, 65 percent of Gross Domestic Product (in violation of our Fiscal Responsibility and Debt Limitation Act) and, more disturbingly, that over the three year program period (2013-2016) debt rose by 2.5 percent of GDP”.

The writer needs to note that with the recent amendments in Fiscal Responsibility and Debt Limitation Act, the government is required to reduce the debt to GDP ratio to 60 percent till 2017-18. Hence, the government is not presently in violation of 60 percent debt to GDP threshold with respect to Fiscal Responsibility and Debt Limitation Act.

Moreover, the analysis of public debt to GDP ratio during the last 15 years reveals that in the period of high inflation, public debt to GDP ratio performed relatively better as the denominator becomes larger and this ratio mostly hovered close to 60 percent even when real GDP growth was merely half of what it is at present e.g. 2008-09. While higher inflation could help reducing the public debt-to-GDP ratio yet repercussions for the economy. Therefore, economic managers would always prefer high real GDP growth coupled with low inflation rather than low real GDP growth coupled with high inflation.

In Footnote 7, writer criticizes the tax refunds claims as “the total stock of tax refund claims increased to Rs.205 billion in June 2016, from Rs.200 billion in June 2015. As part of this total stock outstanding GST refund claims increased to Rs.133 billion  at end June 2016 from Rs.89 billion at the end of 2014-15”.

The writer’s contention is not based on the facts. FBR’s tax collection has recorded a massive growth of 21% in 2015-16 and more than 60% in last three years which speaks volumes for dedication of FBR. The FBR is trying to promote tax culture and taxpayer friendly environment in the country. It facilitates the taxpayers/refund claimants through speedy clearance of refunds. Overall tax refund claims have declined.

The net revenue collection during 2012-13 was Rs.1946 billion and the pending refund claims were 9.5% of net collection. This percentage has declined during the last three years and the net collection as on 30th June 2016 was Rs.3112 billion whereas, the pending refund claims were 6.7% of the net collection.

In Footnote 8, writer criticize the NFC negotiations and states that “this is unlikely to be successful for two reasons – provinces are up in arms, including Punjab, lamenting the Center’s dictation on the amount of annual provincial surplus to balance the federal budget and have indicated that such dictation would not be acceptable in future”.

The writer’s view seems incorrect as in pursuance of Article 160(1) of the Constitution of Pakistan 1973, a National Finance Commission has to be set up at intervals not exceeding five years. On expiry of every five years term old NFC expires and a new NFC is constituted. However, the NFC award does not expires after 5 years, rather it remains in operation till announcement of new award.

Fiscal consolidation is a joint responsibility of the federation and provinces. To contain the fiscal deficit within the prescribed limits, the federal and provincial governments have to work in harmony.

To maintain cash surpluses was a mutual and agreed decision making between federation and provinces. The cash surplus maintained by the provinces with the State Bank of Pakistan belongs to them and they are free to utilize these funds. In addition, provinces are also entitled to get incentives grant on maintaining cash surpluses on quarterly basis.

Under the 18th Amendments the subjects of Education, Health and Housing stand fully devolved to Provinces. It is, therefore, responsibility of the provincial governments to make sufficient allocations for these sectors. Federal government has taken some special initiatives related to development projects, for which allocation and disbursement is made on the recommendations/demands of the provincial government.

In footnote 10, writer states that “the extreme test scenario which would severely compromise Pakistan's capacity to repay the Fund, defined as a situation where downside risks materialise that include external financing peaking at 8 percent of GDP, may apply if the following is assumed lower remittances, higher profit repatriation, a sharp decline in Foreign Direct Investment, equity portfolio inflows, higher external financing costs and lower medium term growth”.

The risk which writer has mentioned is not appropriate to conclude on the basis of just three months data. FDI is expected to increase going forward as the progress on projects under CPEC gain further traction. Recent joining MSCI emerging market index reflects the signs of strength and stability of capital market. The portfolio investment is witnessing phenomenal increase.

To enhance exports the government has announced a number of initiatives in the Budget 2016-17 which included operationalization of trade policy, a technology upgradation Fund (TUF is  being established to invest in non traditional exports and  Zero-rating of Export Oriented Sectors for the encouragement of five main sectors. The government, through the State Bank of Pakistan has reduced its mark-up rate on Export Refinancing Facility (EFR) to 3.0 percent from July 2016 till date. Similarly, Long Term Financing Facility (LTFF) for 3-10 years duration  to 6.0 percent in July 2015 till date, to allow export sector industries to make investments on competitive basis.

Going forward that Prime Minister of Pakistan has approved strategic trade policy framework (STPF) 2015-18 keeping in view the current trends in global trading environment and the declining trend witnessed in Pakistan’s exports during 2016. The STPF is amid at achieving $35 billion improvement in export.

In Footnote 11, writer also stated that “Pakistan is projected to fall below the Post Project Monitoring (PPM) thresholds by 2023. And what exactly is this threshold? And disturbingly adds that the Share of the Fund’s credit exposure covered by PPM would be largely unchanged by the new thresholds compared with the 2010-15 period. The choice of the year 2023 is because in the event that Pakistan does not go on yet another Fund programme the EFF repayments would begin in 2018 (150 million SDRs in the first year), and end in 2023 with 732.2 million SDRs”.

It is for the information of writer that PPM stands for Post Program Monitoring as opposed to Post Project Monitoring. EFF repayments will begin in March 2018 and are scheduled to end in November 2026, as opposed to the author’s claim of their culmination in 2023. The author’s premise that the year 2023 has been chosen by design as a benchmark year with regard to the claim that “Pakistan is projected to fall below the Post Project Monitoring (PPM) thresholds by 2023” stands falsified on the basis of the incorrect conjecture that the EFF loan Repayment horizon ends in 2023.

 
26 October, 2016

Rebuttal - Reference to the news item published in the "The Express Tribune" on 20-10-2016 titled "In three years, Pakistan has taken on $25b in fresh loans"

This is with reference to the news item published in the newspaper "The Express Tribune" on 20.10.2016titled “In three years, Pakistan has taken on $25b in fresh loans”. The article made misleading assertions about public debt and amendments in Fiscal Responsibility and Debt Limitation Act as per the following details:

  • The news items used sensational heading to mislead the readers that the government has taken $25 billion in fresh loans during last three years while deliberately ignoring the fact that $11.95 billion has been repaid during the same period. Hence, net addition in external debt stood at $12.99 billion;
  • The news item also misled the readers by stating that the government borrowing from domestic and external sources amounted to $55 billion during last three years. The news item simply clubbed Rs.3.1 trillion of local currency borrowing (approximately $30 billion)and added with gross external borrowing to arrive at sensational and misleading amount $55 billion. It is to be noted that the risk profile of domestic debt is entirely different from external debt and that domestic debt is perpetual in nature and is constantly refinanced through new issues. It would be inappropriate to consider domestic debts maturing in the near future as posing any risk of default as a sovereign owes these debts in the local currency. Government conducts three auctions in the domestic market per month, one for investment bonds of various maturities (3 years or more) and two auctions for treasury bills (of maturities of 3, 6, and 12 months). Participation in each auction ranges from Rs.100 billion to Rs.500 billion and accordingly government refinances its domestic debt from domestic market as a standard practice prevailing in all jurisdictions having competitive debt markets. Domestic market (both primary and secondary) are very well developed and established in Pakistan and as such the government does not feel any cause for concern with regard to refinancing its domestic debt which is also evident from the fact that the yield curve of short term and long term debt have both been declining steadily for past one year and the yield curve is flattening across the maturity profile which again is a sign of stability. Thus clubbing the two types of debt and presenting it in USD equivalent was an attempt to create an unwarranted hype.
  • The writer used superfluous words and adjectives in the news item such as “both domestic and external debt are growing alarmingly at double digit pace” which is his own opinion and were not used by any honorable member of Senate Standing Committee on Finance, Revenue, Economic Affairs, Statistics and Privatization;
  • Gross public debt to GDP ratio was 66.5 percent as at end June 2016 while net public debt to GDP ratio was 64.9 percent;
  • The news article made false claim that the Fiscal Responsibility and Debt Limitation Act has been diluted and goalposts have been changed. There is a need to understand that the amendments in the Fiscal Responsibility and Debt Limitation Act are made due to the following reasons:
    • Most of the clauses of Fiscal Responsibility and Debt Limitation Act, 2005 were obsolete and were not representing present economic realities;
    • The recent amendments were made to provide better operational guidance for fiscal policymaking and to safeguard debt sustainability over the medium term by imposing a limit on the federal government budget deficit of 4 percent of GDP excluding foreign grants for 2017/18-2019/20, and 3½ percent of GDP thereafter; and bringing down the public debt to GDP to a limit of 60 percent until 2017/18, and thereafter adopting a 15-year transition path toward bringing public debt to GDP to 50 percent. With these targets, fiscal policy will be anchored at a prudent stance, leading to additional gradual consolidation and strengthening long-term debt sustainability;
    • It is important to note that these amendments were made regardless the tenure of any political government and purely aims at reducing the debt burden of the country;
    • Every amended clause was discussed at various forums such as Senate Committee and also in National Assembly through Finance Bill.

The above facts clearly establish the fallacious views and opinion mentioned in the news item regarding the state of public debt management in Pakistan. 

 
29 September, 2016

Rebuttal - Reference news item appeared in Daily Times on 29-09-2016 title "Government considers freezing foreign currency accounts"

The news item titled "Government considers freezing foreign currency accounts" which appeared in the Daily Times on 29th September, 2016 comprises false statements and concoctions which have no ground. No such suggestions to ban foreign currency accounts in the country have been made to the Prime Minister by the Finance Minister. This news story is an attempt to malign the increasingly robust investment climate in the country. There is no proposal from any quarters to freeze foreign currency accounts in the country.

There is no question of debt sustainability in the country and the newspaper has carried baseless and unverified reports without quoting any source which again shows irresponsible reporting.

 
26 September, 2016

Rebuttal - Reference news article by Dr. Hafiz A Pasha published in Business Recorder on 19-09-2016 title "Budgetary Outcome in 2015-16"

An article by Dr. Hafiz A Pasha on the subject has been published in the daily “Business Recorder” Islamabad dated 19.09.2016. Although the author has acknowledged the positive developments i.e. high growth in tax revenue receipts both by FBR and provincial governments, well-controlled current expenditure by federal and provincial governments. However, as per the author there are some negative developments i.e. big fall in federal non-tax revenue, massive cutback in development spending and significantly understated overall fiscal deficit.

2.         The response on the above points is given as under:-

Federal non-tax revenue: During year 2015-16, an amount of Rs.703 billion was collected as federal non-tax revenue receipts as against Rs.850 billion for the year 2014-15. The main reasons are:  shortfall in receipts from Coalition Support Fund (CSF) and SBP profits. During the last financial year it was expected that a tranche of around US$ 400 million would be received at the end of financial year but the expectation did not materialize. SBP profits were also low due to low policy rate regime and lack of privatization receipts from banking sector during the year. Further, receipts from oil sector were also low due to lower oil prices in the international market. However, decrease in federal non-tax revenue was compensated through rationalization in current expenditure, which is only 4% higher than last year.

Public Sector Development Program (PSDP): It is clarified that no cut was imposed on PSDP both by the federal and provincial governments. As per trend, actual expenditures are always low as compared to budgeted estimates. The main reasons are limited spending capacity of the executing agencies, delay in take off of projects and procurement issues. The total PSDP spending during the year 2012-13 was Rs.695 billion while spending for 2015-16 is at Rs.1185 billion i.e. an increase of 71%. In terms of GDP, during the last three years, the development spending has risen from 3% to 4% of GDP, a remarkable increase in real terms. In fact the present government has assigned top priority to development spending especially in view of execution of China Pakistan Economic Corridor (CPEC) project.

Overall Fiscal Deficit (OFD): The fiscal deficit for the year 2015-16 has been missed by around Rs.60 billion. This is only 20 bps of GDP. The revised OFD target in terms of GDP was 4.4% and thus an over-run of only 20 bps, rather than the author’s claim of Rs.90 billion or 30 bps. The higher OFD was entirely contributed by higher than expected expenditure at provincial level while federal government partly compensated it through savings in federal deficit, despite shortfall in non-tax revenue, by cutting current expenditures. It is amusing that the author who managed Pakistan’s economy during the period 1996-97, 1997-98 had incurred fiscal deficits at 6.4% and 7.7% of GDP is expressing dismay on the performance of a Government that has brought down the deficit from 8.2% to 4.6%. It is even more amusing that on a number of previous occasions the author has been lamenting that fiscal adjustment has gone too far and that the Fund should be told to stop it. Yet here the very extent of the adjustment is being questioned.

Statistical Discrepancy: There is a fundamental lack of understanding regarding the statistical discrepancy. The internationally accepted definition of fiscal deficit calls for measuring the deficit through the financing rout. Figures relating to financing of budget deficit are real time and cash based. The difference between budget balances calculated from the book balance and the bank balance is recorded as statistical discrepancy. When the cash has not been expended, no effective deficit has been incurred. This Government has not invented this method. Besides, there is a cyclical pattern this statistical discrepancy follows. From its peak build up at the close of the fiscal year, it vanishes mostly in the first quarter. It is meaningless to add these numbers over the tenure of the Government and claim that the Government has taken advantage of such a cumulative discrepancy. This number is self-correcting as explained above. The author’s claim that such discrepancies are unprecedented and reflects a breakdown in budgetary process is baseless. In 2005-06 and 2006-07, the statistical discrepancy was a large as 1.0% and 1.34% of GDP and there was no breakdown of the fiscal system.

          Public Debt to GDP Ratio:

  • The public debt to GDP ratio was 65.5 percent as at end June, 2016 as opposed to writer’s claim of almost 68 percent;
  • The analysis of public debt to GDP ratio during the last 15 years reveals that in the period of high inflation, public debt to GDP ratio performed relatively better as the denominator becomes larger and this ratio mostly hovered close to 60 percent even when real GDP growth was merely half of what it is at present e.g. 2008-09. While higher inflation could help reducing the public debt-to-GDP ratio yet it has other repercussions for the economy. Therefore, economic managers would always prefer high real GDP growth coupled with low inflation rather than low real GDP growth coupled with high inflation.

Public Debt Statistics:

    • Public debt stood at Rs.19, 678 billion as opposed to writer’s claim of Rs.20, 051 billion. The public debt number of Rs.19, 678 billion is consistent with the definition of public debt as stipulated in Fiscal Responsibility and Debt Limitation Act.  The clarity regarding public debt definition has been communicated several times at various forums to the writer, however, this news item is another attempt to deliberately mislead the readers by reporting the number which is inconsistent with the public debt definition;
    • The cumulative increase in public debt during last 3 years was Rs.5,360 billion as opposed to Rs.5,476 billion as mentioned in the news article;
    • Public debt increased by Rs.2, 297 billion during 2015-16 as compared with Rs.2, 676 billion as mentioned in the news article. Apart from fiscal deficit, the increase in Government credit balances with State Bank of Pakistan/commercial banks, debt from the IMF and dual revaluation loss on account of depreciation of US Dollar against other international currencies as well as depreciation of Pak Rupee against US Dollar contributed to this increase. The IMF loans are only applied towards Pakistan’s balance of payments and are reflected in its foreign currency reserves;

3.         The author has also indicated some risks to budgetary operations 2016-17. It is clarified that in the budget 2016-17 best estimates relating to revenue receipts and expenditure has been adopted. It would be too early to assess the actual position for current financial year. The key achievements of the present government on fiscal side are as under:-

  • Fiscal deficit has been reduced from 8.2% in 2012-13 to 4.6% in   2015-16.
  • Tax to GDP ratio has been improved from 10% in 2012-13 to 12.4% of GDP in 2015-16.
  • Un-targeted subsidies have been reduced from 2% of GDP in 2012-13 to 0.6% of GDP in 2015-16.
  • Social spending in BISP has been increased from Rs.3000 per quarter in 2012-13 to Rs.4700 per quarter during 2015-16. The coverage of BISP beneficiary families increased from 3.70 million in 2012-13 to 5.36 million in 2015-16.
  • Overall PSDP spending has increased from 3.1% in 2012-13 to 4.0% of GDP in 2015-16.
  • The government is confident to further improve the fiscal achievements during the current financial year.
 
26 September, 2016

Rebuttal - Reference news editorial published in Business Recorder on 19-09-2016 on " proceedings of Fiscal & Monetary Policies Coordination Board meeting"

“Business Recorder” dated 19th September, 2016 in its editorial on the proceedings of Fiscal & Monetary Policies Coordination Board meeting held on 9th September, 2016 under the chairmanship of Finance Minister has made  observations that private sector members on the Board has not been made part of the press release issued by the Ministry of Finance.

It is clarified that two private sector members, Dr. Ishrat Hussain and Dr. Asad Zaman as members of the Board attended the subject meeting held on 9th September, 2016 as already mentioned in the press release which was published in leading newspapers. They fully participated in the discussion on each of the issue and where necessary, shared views for further improving the fiscal and monetary policies of the government. Broadly they appreciated the efforts of the government in stabilizing the economy.

However, the board members showed concern over falling exports. The meeting observed that competitiveness was one of the reasons in the decline. The chairman stressed to look into the competitiveness aspect and suggested that meeting of the cabinet sub-committee on Production and Exports be held regularly and multipronged approach at the federal, provincial and local level be taken up, to which all members agreed.

The apprehension of the author regarding any hidden discussions or remarks of the private sector members during the proceedings of the meeting is baseless as the minutes of the Board’s meeting are circulated to all the members of the meeting including the private sectors members, and they never challenged the record of discussions. However, one of the private members proposed that government should come forward and mitigate the negative perception on economic stabilization program being created in media.

It is also for the information that the meeting discussed the same economic data (Fiscal, Monetary and External account) which is compiled either by the State Bank, PBS or FBR and is available on the websites of these organizations, therefore, there is no secret data considered in the meeting.

 
22 September, 2016

Rebuttal - Reference news article published in Daily Dawn on 19-09-2016 title "A Balance Shift"

This is with reference to an article titled “A Balance Shift” appearing in the Daily Dawn (Business and Finance page) dated 19.09.2016 written by Afshan Subohi. Ministry of Finance strongly refutes the contents of the article which do not depict the correct picture of the conduct of business in the Federal Government or the facts relating to the decision of the Supreme Court. The factual position is as under:

  1. The Supreme Court of Pakistan has decided a case relating to the meaning and definition of the Federal Government in a case dating back to April 2013 that challenges the authority of the Federal Board of Revenue in respect of revision in taxes.
  2. The case is not related to the tenure of the present Government, which assumed office in June 2013.
  3. The author has misconstrued the entire ruling of the Court as if it has been aimed at curbing the power of the Economic Coordination Committee (ECC) of the Cabinet.
  4. Economic Coordination Committee of the Cabinet is one of the oldest and most important Committees of the Cabinet and has been set up under Rule 17 (2) of the Rules of Business 1973. Rule 17 (1) of the Rules of Business says that the cases referred to the Committee would be disposed off by discussion and the decisions of the Committee shall be ratified by the Cabinet unless the Cabinet has authorized otherwise.This rule has remained intact after the Court ruling.
  5. The Government has implemented the ruling of the Court. All matters requiring ratification of the Cabinet are submitted regularly to the Cabinet.
  6. The Government has filed a Review Petition in the Supreme Court as per the rules governing the review process.
  7. It is important to note that the ECC has always been headed by the Finance Minister with the exception of some periods when the Prime Minister has presided its meetings.
  8. There is no truth in author’s claim that within months of assuming power in 2013 Prime Minister Nawaz Sharif granted special authority to the Finance Minister making him, to envy of his colleagues, the next most powerful member of the ruling party’. The Prime Minister did not pass any such orders. The Finance Minister presides the ECC just as previous Finance Ministers have presided and wields no additional powers than what have been prescribed under the Rules of Business for the ministries and divisions assigned to him.
  9. The Finance Minister holds the meetings of the ECC with regularity and does not allow agenda to accumulate unlike the past when huge agenda was allowed to accumulate and meetings were not held regularly. Consequently a number of meetings have been held during the present tenure which has set a new record and resultantly summaries and business gets disposed off on fast track basis.
  10. All ECC decisions are taken after allowing sufficient time to members through prior circulation of Summaries, except some items that are placed on the agenda during the meeting on the request of the Division concerned and after ensuring that ECC’s immediate consideration of the matter was in the public interest. The discussions in the ECC, on a Summary, are frank, candid and meaningful. Decisions are thus made by ECC after considering all aspects of the case and in the best interests of the public.

The news article has attributed things to Finance Minister which are completely unfounded and by misconstruing the ruling of the honorable Court.

 
20 September, 2016

Rebuttal - News item published on 19 Sep, 2016 in Business Recorder title " MoF manipulated debt sustainability data in Survey"

This is with reference to the news article published in the newspaper "Business Recorder" titled “MoF manipulated debt sustainability data in Survey” dated 19.09.2016. The article used incorrect facts with regards to debt sustainability analysis and made false claims to draw meaningless conclusions as per the following detail:

  • At the very outset, the news article made an irresponsible and incorrect statement that subsequent to Senator, Mohammad Ishaq Dar took over charge of the finance portfolio, Economic Surveys have limited the External Debt and Liabilities (EDL) to External Debt (ED). The news article contradicts itself in the subsequent paragraph by stating various indicators related to EDL which were published in Economic Survey of Pakistan for the year 2013-14. In fact, the government published EDL related indicator till 2014-15 in Economic Surveys of Pakistan and later External Public Debt was used as an indicator in 2015-16 due to the following reasons:
      • Government has formalized the definition of public debt through the amendment in Fiscal Responsibility and Debt Limitation Act which has been approved by the National Assembly. It is worth mentioning that there will be no impact in the public debt data as disseminated by the government either in the past data or going forward. Furthermore, external liabilities and debt of other sectors were never considered as external public debt rather these are obligations payable by other entities like commercial banks, private sector entities etc.;
      • The intention was to highlight the ratios related to public external debt and EDL to FEE ratio were already well below the international benchmark of 2 times.Hence, the government has no reason to replace EDL with ED to improve this indicator further;
      • The ED/FEE ratio was restated for previous years as well in order to make a meaningful comparison across the given time horizon which is also acknowledged by the news article. Hence the policy decision was applicable on new and past data regardless of the tenure of any government;
      • The news article blatantly ignored that in the same economic survey (2015-16), a detailed debt risk indicators analysis was included which calculated external debt risk indicators by using official foreign exchange reserves held with SBP and Net International Reserves which are even lower as compared with gross foreign exchange reserves.          
  • The news article made a false claim that the present government has expanded foreign exchange reserves to include foreign exchange held by private citizens in commercial banks. The basis of this number has been consistent for the last five years or so as published in Economic Surveys of Pakistan. Further, capital account in Pakistan is not convertible, hence all the foreign exchange inflows eventually becomes part of country reserves and can be used to finance the payment obligations;
  • The news article made a false claim that the bulk of the Pakistan’s foreign exchange reserves are debt enhancing. During the last three years, the external public debt has gone up by $9.59 billion, the forex reserves of SBP have increased by $12.1 billion in the same period or by $15.3 billion when compared to from February 2014 to June 2016. Further, present government has repaid around $12 billion of external debt till end June 2016, which was mainly related to the borrowings of the previous governments. Despite these heavy repayments, the foreign exchange reserves of the country have risen to more than $23 billion, of which SBP reserves were $18.1 billion at end June 2016, which is equal to over five months of import-cover as compared to less than around 3 weeks of import-cover in February 2014 when the SBP reserves stood at $2.8 billion.
The above facts clearly establish the fallacious views mentioned in the news item regarding the state of public debt management in Pakistan. The present government has made remarkable gains in reducing debt burden of the country and improve the debt sustainability indicators.
 
19 September, 2016

Rebuttal - News item published on 15 Sep, 2016 in The Nation title " Why Breaking IMF’s Shackles is the only choice for Pakistan"

This is with reference to the news article published in the newspaper "The Nation" titled “Why Breaking IMF’s Shackles is the only choice for Pakistan” dated 15.09.2016. The article used baseless facts with regards to economic performance and public debt to draw meaningless conclusions as per the following detail:

  • When the present government started its term in June 2013, it inherited challenges like large fiscal deficit, rising debt burden, unfavorable balance of payments, low foreign exchange reserves, poor growth in tax revenues with shrinking tax-base, swelling current expenditures, a gigantic circular debt that was unraveling the energy sector, flight of capital, weakening exchange rate and perilously declining investors’ confidence. On the external front, the major development partners had considerably scaled down their support due to waning economic fundamentals and apparent inability of the country to service its external obligations in the near future. One of the main challenges was absence of external financing which was causing turbulence in the domestic exchange markets and tilting the composition of public debt towards domestic debt and that too into shorter maturities creating vulnerabilities and entailing high rollover and refinancing risks. State Bank of Pakistan (SBP) forex reserves, which stood at $6 billion in June 2013 fell to $2.8 in February 2014. It was a highly precarious situation for the external account. 
  • In early 2013, it was predicted that the country might default on its sovereign obligations, if necessary steps to avert the situation were not taken. These predictions were made by the financial experts, who had analyzed the macroeconomic situation prevalent at that time and reached to the conclusion that the country would not have sufficient external resources to meet its obligations of external debt falling due beyond February/June 2014. There was a dire need for stemming the depleting reserves and stabilizing a fast depreciating currency, which touched Rs.110.25 against US Dollar on 29 November, 2013.This was fuelling inflation and raising the cost of debt servicing. The importance of lengthening the maturity profile of domestic debt became inevitable while maintaining interest rate stability and regaining growth momentum was also required to counter the impact of indebtedness.
  • On assuming office, the present government took necessary steps for avoiding default, ensuring fiscal discipline and consolidation, stabilizing a collapsing economy and accelerating growth. The government started revamping the economy through structural reforms and stabilization measures such as reduction in un-targeted subsidies, broadening the tax base, restructuring the Public Sector Enterprises (PSEs), building foreign exchange reserves and reducing the fiscal deficit, while ensuring that social safety net and development spending are not only protected but enhanced considerably. A brief account of the improvement in major economic indicators over the period from June 2013 to June 2016 is given below
  • Pakistan’s economy continued to maintain its growth momentum for the 3rdyear in a row with real GDP growing at 4.71 percent in 2015-16 which is the highest in eight years. The present government has been able to gain economic fundamentals due to a much focused approach towards resolving structural issues such as energy and gas shortages;
  • When the present Government took charge, Pakistan’s Sovereign rating by Moody’s was Caa2 with a negative outlook. With the improved economic fundamentals in the country, this rating now stands higher at B3 with a stable outlook. Likewise, the ratings from other credit ratings agencies such as S&P and Fitch stand at B- with a positive outlook and B with a stable outlook, respectively.   
  • Consolidation efforts are on track since government has successfully curtailed the fiscal deficit at 4.55 percent of GDP in 2015-16, 5.3 percent of GDP during 2014-15 and 5.5 percent in 2013-14on account of prudent expenditure management. It is worth mentioning that the fiscal deficit was successfully brought down from 8.2 percent of GDP in 2012-13;
  • The development budget has been gradually and adequately raised in order to meet the investment requirements of a growing economy. Federal PSDP gradually increased from Rs.348.27 billion during 2012-13 to Rs.800 billion for 2016-17, showing a cumulative increase of over 129 percent;
  • FBR collection during 2015-16 increased to Rs.3,112.0 billion as compared to Rs.2,589.9 billion during 2014-15, posting a growth of 20.2 percent. On positive note, FBR tax collection exceeded the target of Rs.3,103.7 billion. During July 2016-17, FBR tax collection posted a growth of 6.6 percent and amounted to Rs.158.398 billion compared to Rs.148.643 billion in the same period of last year;
  • Pakistan has witnessed the resumption of policy lending from the World Bank and Asian Development Bank, which was suspended for lack of a stable macroeconomic framework before June 2013. After achieving macroeconomic stability and the requisite increase in foreign reserves, in February 2015, Pakistan is declared eligible again for IBRD facilities;
  • Consequently, revival of investor’s confidence has been captured in better returns on investment in the Pakistan stock market. The market continued its upward trend and presently it is trading above 39,278. In terms of market capitalization, it improved from $51.3 billion in May 2013 to $75.87 billion by 05th September, 2016;
  • Most of the leading stock markets of the world demonstrated downward and sluggish trend during 2015-16. It is believed that bullish trend in PSX is result of Pakistan’s possible reclassification from a frontier market to an emerging market by MSCI;
  • The importance of FX reserves of a country can hardly be over emphasized. FX reserves not only enable the central bank to ward off speculative attacks on its currency  but by dampening volatility in the domestic foreign exchange market they actually contribute in keeping the inflation down which leads to rationalization of domestic interest rates. During the last three years the external public debt has gone up by $9.59 billion, the forex reserves of SBP have increased by $12.1 billion in the same period or by $15.3 billion when compared to from February 2014 to June 2016. Further, present government has repaid around $12 billion of external debt till end June 2016, which was mainly related to the borrowings of the previous governments. Despite these heavy repayments, the foreign exchange reserves of the country have risen to more than $23 billion, of which SBP reserves were $18.1 billion at end June 2016, which is equal to over five months of import-cover as compared to less than around 3 weeks of import-cover in February 2014 when the SBP reserves stood at $2.8 billion;
  • It is also important to mention that, Pakistan and IMF successfully completed the negotiations on the 12th Review under the 3-year Extended Fund Facility (EFF) program. The completion of the 12th Review is indicative of government’s commitment in implementing structural reforms in the areas of taxation, energy, monetary and financial sectors as well as public sector enterprises. It is for the first time in history of Pakistan that the country has completed the “Extended Fund/Credit Facility Program” with the IMF.
  • The news article contentions regarding unprecedented hike in public debt and higher debt to GDP ratio are incorrect as per the following details:
  • The debt burden of the country is only understood in comparison to its relation with the GDP. It In fact, public debt to GDP has reduced when compared with over 100 percent in 1998-99 to around 66.5 percent in 2015-16 indicating reduction in public debt burden of the country;
  • The analysis of public debt to GDP ratio during last 15 years reveals that in the period of high inflation, public debt to GDP ratio performed relatively better as the denominator becomes larger and this ratio mostly hovered close to 60 percent even when real GDP growth was merely half a percent e.g. 2008-09. While higher inflation could help reducing the public debt-to-GDP ratio yet it has other repercussions for the economy. Therefore, economic managers would always prefer high real GDP growth coupled with low inflation rather than low real GDP growth coupled with high inflation;
  • IMF’s recent debt sustainability analysis shows that external debt would remain on a downward trend over the medium term, with the peak in external financing needs under the most stressed scenario (3.7 percent of GDP) staying well below the risk assessment benchmark of 5 percent of GDP. Further, credit rating agencies in their recent reports acknowledged this fact that Pakistan external debt is on sustainable path and there is very little exposure to medium term vulnerabilities;
  • The domestic debt is perpetual in nature and is constantly refinanced through new issues. Government conducts three auctions in the domestic market per month, one for investment bondsof various maturities (3 years or more) and two auctions for treasury bills (of maturities of 3, 6, and 12 months. Participation in each auction ranges from Rs.100 billion to Rs.500 billion and accordingly government refinances its domestic debt from domestic market as a standard practice prevailing in all jurisdictions having competitive debt markets. Domestic market (both primary and secondary) are very well developed and established in Pakistan and as such the government does not feel any cause for concern with regard to refinancing its domestic debt which is also evident from the fact that the yield curve of short term and long term debt have both been declining steadily for over past one year and the yield curve is flattening across the maturity profile which again is a sign of stability. Further, interest payments on domestic debt as percentage of GDP are moderate at around 4 percent.
  • The critical consideration in debt management is the sustainability analyses for which various indicators have been designed. Major debt sustainability indicators have improved in the first two fiscal years, a fact that is acknowledged by global stakeholders.
  • “Refinancing Risk of the Domestic Debt Portfolio” was reduced through lengthening of the maturity profile at the end of June 2015. Percentage of domestic debt maturing in one year was reduced to 47 percent compared with 64 percent at the end of June 2013.
  • “Exposure to Interest Rate Risk” was also reduced, as the percentage of debt re-fixing in one year decreased to 40 percent at the end of June 2015 compared to 52 percent at the end of June 2013.
  • “Share of External Loans Maturing within One Year” is equal to around 28 percent of official liquid reserves at the end of June 2015 as compared with around 69 percent at the end of June 2013 indicating improvement in foreign exchange stability and repayment capacity.

Finally, the article itself negates the doomsday scenario that it is forecasting by giving the examples of Greece, Portugal and other eastern European countries whose relative debt burden is manifolds higher than Pakistan. It must take into account that the real economic growth in Pakistan is gaining momentum and that too in a low inflationary environment, a combination which can hardly be questioned by economists. Furthermore, public spending in low interest rate environment is always beneficial as long as it is not crowding-out private sector credit which definitely is not happening in Pakistan.

The above facts clearly establish the fallacious views mentioned in the news item regarding the state of economic performance and public debt management in Pakistan. The present government has made remarkable gains in reducing debt burden of the country and improved the fiscal and debt sustainability indicators.
 
19 September, 2016

Rebuttal - Reference to the news item published in the Daily Duniya dated on 13 Sep, 2016 Title

This is with reference to the news reportpublished in the newspaper "Daily Duniya" title   dated 13.09.2016. The news report made false claims with regards to debt as explained below:

  • At the very outset, the writer claims that the external debt presently recorded at $73 billion which is incorrect. The writer is referring to total external debt and liabilities of the country, which includes debt of private entities that by definition are not public external debt since the government is not liable to pay these obligations. It includes debt of private businesses and banks etc. The external public debt stood at $57.7 billion as at end June, 2016. The clarity regarding public debt definition has been communicated several times at various forums, however, this news item is another attempt to deliberately mislead the readers by reporting the number which is inconsistent with the public debt definition as approved through Fiscal Responsibility and Debt Limitation Act;   
  • The news reports mentioned absolute number of total external debt and liabilities in 2004 and compared that with 2016. It is to clarify that the debt burden of the country is only understood in comparison to its relation with the GDP. It In fact, external public debt to GDP has declined from around 34 percent in 2003-04 to around 20 percent in 2015-16 indicating reduction in external public debt burden;
  • The news report made a false claim that the government is paying over 8 percent to banks on treasury bills. The actual cost on treasury bills currently stood at around 5.9 percent;
  • The news report does not show correct understanding of the mechanism of setting return on national savings schemes. Further, news report made another false claim that return on treasury bills remained the same whereas the return on National Savings Schemes declined.In this regard, following may be noted:
      • The average return of treasury bills was around 12 percent when present government took charge in June 2013. The average returnon treasury bill has now reduced to half (around 5.9 percent) owing to smooth execution of debt management strategy coupled with favorable macroeconomic environment; 
      • Rates setting on national savings schemes aresynchronized with the wholesales domestic debt instruments yields (treasury bills, Pakistan investment bonds). Since the yields on treasury bills and Pakistan investment bonds havedeclined, accordingly rates on national savings schemes have also been revised downward;
      • The general public has been given an option to invest in the treasury bills/Pakistan investment bonds through Investors’ Personal Accounts (IPS). Therefore, they can choose between national saving schemes and treasury bills/Pakistan investment bonds depending upon preference of instruments;
      • Few national savings schemes like Bahbood and Pensioners benefit accounts are offering higher rate (up to 2 percent) as compared with comparable wholesale domestic debt instruments (Pakistan investment bonds).
  • The news report incorrectly stated that Pakistan issued expensive Eurobonds at over 8 percent which will be matured in 2017. Further, it also stated the risks with respect to upcoming payments related to Paris Club and IMF. In this regard, following may be noted:
      • The issuance of Eurobonds has great significance for Pakistan as it not only introduced Pakistan back in the international capital market but also allowed access to foreign resources for building country’s reserves, which have paved the way for exchange rate stability i.e. there is general tendency of speculative attacks on currencies at the time of expected fall in reserves, the issuance of Eurobonds provided much needed support to foreign exchange reserves of the country and prevented exchange rate instability;
      • The bonds were also a substitution of domestic borrowing with lower cost of around 212 to 108 bps compared with the yield of respective Pakistan Investments bonds at that time;
      • The last bond would mature in 2025 instead of 2017 as mentioned in the news report;
      • There is limited pressure from external debt repayments in the near-term. Projected principal repayments to the IMF for the EFF are stretched over a longer timeframewith the final payment due in 2025. Repayments for Official Development Assistance from the Paris Club begin in 2016, but stretches over a 23-year period. None of these payments are posing any abnormal pressure on external account.
  • The writer made a naïve statement that Debt Policy Coordination Office which was setup under Fiscal Responsibility and Debt Limitation Act, 2005 has a limited role. In fact, the Debt Policy Coordination Office is actively involved in debt management of Pakistan by publishing periodic reports such as debt policy statements, fiscal policy statements, execution and implementation medium term debt management strategy, risk management reports and plays advisory role in debt management operations including both domestic and external loans. The Debt Policy Coordination Office has successfully done second re-profiling of domestic bond portfolio which not only resulted in higher average life to maturity but also at around half the cost. The professional staff has already been inducted with an approach to continuously strengthen the functions of the office. Since this office deals with primary and secondary debt markets, hence the staff need financial and treasury market background more than economics. Any desired economic policy input is obtained from Economic Advisory Wing with which the office works very closely combined with in-house economists. This shows writer’s lack of understanding regarding the debt management function which should be predominantly managed by treasury market professionals rather than economists.
The above facts clearly establish the fallacious views mentioned in the news item regarding the state of public debt management in Pakistan. The present government has made remarkable gains in reducing debt burden of the country and improved the fiscal and debt sustainability indicators.
 
31 August, 2016

Rejoinder - Responding to News Item "Burgeoning External Debt" written by Dr.Hafiz Pasha appreared in Business Recorder on 29th August, 2016

This is with reference to the news item published in the newspaper "Business Recorder" titled “Burgeoning External Debt” written by Dr.Hafiz Pasha dated 29.08.2016. The article used incorrect basis to arrive at misleading indicators and conclusions with regards to public external debt as per the following details:

  • At the very outset, the writer claims that the external debt ballooned to $73 billion which is incorrect. The writer is referring to total external debt and liabilities of the country which includes debt of other sectors which by definition are not considered as public external debt since the government is not liable to pay these obligations. It includes debt of private sector and banks etc. The external public debt stood at $57.7 billion as at end June, 2016;
  • Regardless of the debt numbers, the debt burden is only understood in comparison to its relation with the GDP. In this regard, the news article acknowledges this fact that the external debt to GDP ratio remained more or less constant since 2012-13. In fact, external public debt to GDP has reduced from 21 percent in 2012-13 to 20 percent in 2015-16 indicating reduction in external public debt burden;
  • The news article claims that component of public debt has increased to 85 percent of total external debt and liabilities which is incorrect. In fact, external public debt remained at the level of 79 percent of total external debt and liabilities at end June 2016 as compared with end June 2013;
  • Cumulative increase in external public debt stock was $9.59 billion as opposed to $12 billion stated in the article. It is worth mentioning here that this increase may include effects of other factors such translational gain/losses, thereby simply taking difference of two stocks may not represent true picture;
  • The news article made a false claim that foreign exchange reserves were built entirely through borrowing. It is worth mentioning here that while the external public debt has gone up by $9.59 billion during the three years, the forex reserves of SBP have increased by $12.1 billion in the same period or by $15.3 billion when compared to from February 2014 to June 2016. Further, present government has repaid around $12 billion of external debt till end June 2016, which was mainly related to the borrowings of the previous governments. Despite these heavy repayments, the foreign exchange reserves of the country have risen to more than $23 billion, of which SBP reserves were $18.1 billion at end June2016, which is equal to over five months of import-cover as compared to less than around 3 weeks of import-cover in February 2014 when the SBP reserves stood at $2.8 billion; 
  • Further, news article claims that cost of external public debt is high and posesthreat to external debt sustainability are baseless and incorrect as indicated below:
    • The average cost of the external loans obtained by present government comes to around 3 percent which is significantly lower than the domestic financing cost even after one builds a margin of capital loss due to exchange rate depreciation. Thus cost of the external debt contracted by current government is not only economical but is also dominated by long term funding;
    • External debt sustainability has improved as “Share of External Loans Maturing within One Year” was equal to around 25 percent of official liquid reserves at the end of March 2016 as compared with around 69 percent at the end of June 2013 indicating improvement in foreign exchange stability and repayment capacity;
    • IMF recent debt sustainability analysis shows that external debt would remain on a downward trend over the medium term, with the peak in external financing needs under the most stressed scenario (3.7 percent of GDP) staying well below the risk assessment benchmark of 5 percent of GDP. Further, credit rating agencies in their recent reports acknowledged this fact that Pakistan external debt is on sustainable path and there is very little exposure to medium term vulnerabilities.
  • The news article claims that reliance on external borrowing for the purpose of financing the fiscal deficit has reached at a peak of almost 40 percent in 2015-16 which is incorrect as the correct number stood below 30 percent. Further, news article claim regarding virtually no external borrowing to finance fiscal deficit in 2012-13 indicates lack of sufficient external inflows which also put extra pressure on domestic resources. Therefore, news article apprehension in this regard is incorrect.

The above facts clearly establish the fallacious views mentioned in the news item regarding the state of public debt management in Pakistan. The present government has made remarkable gains in reducing debt burden of the country and improved the fiscal and debt sustainability indicators.

 
30 August, 2016

Clarification - Reference to the news item published in Daily Dunya on August 30, 2016 titled "Kisi ke guarantee nahi ke wo kb tak hukumat kare"

This is with reference to the news item published in Daily Dunya on August 30, 2016 titled “Kisi ke guarantee nahi ke wo kb tak hukumat kare” filed by Mr. Sajid Chaudhry, referring to the statement given by the Finance Minister at the CPEC Expo on 29th August 2016.

The official spokesperson of the Finance Division would like to clarify that the statement has been quoted out of context. The Finance Minister was referring to the Will of the Almighty Allah that only He knows how long a person will live and what will be destined for him. The statement was not at all meant for any other thing. The writer’s understanding to take the statement in any other context is baseless.

We hope that this clarification will also find space in your newsprint as your report did.

Regards
Official Spokesperson
Finance Division

 
17 August, 2016

Clarification - Reference to the news report establishing Finance Diviion making a telephone call to his Indian counterpart to attend the SAARC Finance Minister's Conference

This is with reference to the news reported by a certain section of the media establishing Ishaq Dar making a telephone call to his Indian counterpart to attend the SAARC Finance Minister’s Conference to be held on 25th and 26th of August 2016 in Islamabad.

Official Spokesperson of the Finance Division categorically clarifies that no such phone call was made by the Finance Minister to the Indian Finance Minister. The invitations were given by the SAARC secretariat. All guests who participate the event will receive a warm welcome from Pakistan as it is the host country.

 
12 August, 2016

Rebuttal - News report titled "Govt.'s Borrowing Record Tumbles" published in the Express Tribune dated on 3rd August 2016

This is with reference to the news item published in "Express Tribune" titled “Govt.’s Borrowing Record Tumbles” Published on 3rd of August 2016. The article depicts lack of understanding with regard to public debt and has used incorrect facts to draw meaningless conclusions as per the following detail:

At the very outset, the writer claims that the federal government borrowed an unprecedented Rs.2.1 trillion in the last fiscal year which is incorrect. The writer is probably referring to increase in central government’s debt which does not signify that the government has borrowed all this amount in the last fiscal year. This increase in central government debt includes:

  • Currency revaluation / translational losses of around 6 percent which resulted in increase in central government external debt without any borrowing by the government.;
  • Increase in credit balances of the government with State Bank of Pakistan and commercial banks.

The article made a false claim that the finance ministry has “tinkered” with the definition of public debt through amendments in Fiscal Responsibility and Debt Limitation Act. In fact, the government has formalized the definition of public debt through the said amendments since Fiscal Responsibility and Debt Limitation Act previously had not defined public debt explicitly. It is worth mentioning that the public debt definition which the article is referring to has already been stated through various publications of the government including Debt Policy Statement, Medium Term Debt Management Strategy and Economic Survey of Pakistan. More importantly, there will be no impact in the public debt data as disseminated by the government in the past and going forward.

The article also mentions contracting of expensive foreign debt by the present government. It is to clarify that the average cost of the external loans obtained by present government comes to less than 3 percent which is significantly lower than the domestic financing cost even after one builds a margin of capital loss due to exchange rate depreciation. Thus cost of the external debt contracted by current government is not only economical but is also dominated by long term funding to free up cash flows in the near term.

The above facts clearly establish the fallacy of the views mentioned in the news item regarding the state of public debt management in Pakistan. The present government has made remarkable gains in improving the fiscal and debt risk indicators.

 
04 August, 2016

Clarification - The editorial published in the Business Recorder, Islamabad dated 20-07-2016 "Government Claims and Counter Claims"

An editorial on the subject has been published in the Business Recorder, Islamabad dated 20-07-2016. The Editor of the article has quoted Dr. Hafiz Pasha’s interview with AAJ News. The Editor mostly touched two issues (i) claim of Dr. Pasha regarding difference in figures of PSDP shared with IMF and presented the Parliament and; (ii) figures relating to Coalition Support Fund (CSF). The comments of Ministry of Finance are given as under:

PSDP: It is clarified that the figures quoted by the IMF in the External Fund Facility documents are best estimates/projections keeping in view the past trends. The Fund is fully aware of these budgetary estimates. Moreover, while negotiating the Fund program, government generally takes conservative estimates so that the commitments made by it are fully achieved.

PSDP includes development allocations for both the federal and the provincial governments. The size of PSDP in mainly based on the estimates total revenue collections. However, due to the limitations on the spending capacity of the executing agencies, delay in takeoff of projects and procurement issues, etc. Development funding is not fully utilized in the currency of the financial year. It is for this reason that actual figures of PSDP spending shared with the IMF are lower than the budgetary allocations.

It is further added that the PSDP figures quoted by IMF also differ from those of the government’s because of difference in reflection of figures for TDPs and Security Enhancement (Rs 100 billion). IMF shows these figures under Grants while the government includes it are the PSDP.

Coalition Support Fund (CSF): As earlier intimated that estimates on account of revenue receipts are provided by the concerned agencies which are worked out keeping in view the previous trend of collection as well as expected/committed receipts. The budget estimates shown under defense receipts also include receipts. The sale proceeds on account of auction of obsolete/spare stores and service charges received by defence forces.

 
04 August, 2016

Rebuttal - Mr. Ihtasham ul Haque article "Has IMF ruined Pak economy and its statistics?" published in Daily Pakistan Observer on July 29, 2016

Mr. Ihtasham ul Haque in his article “Has IMF ruined Pak economy and its statistics?“ published in Daily Pakistan Observer on July 29, 2016 has raised some undue criticism that IMF has turned more political and often disregards the hard economic realities of member states. He further stated that independent economists are invariably seen criticizing the role of IMF officials by describing their policies as “ill-conceived” for Pakistan.

The writer should be mindful that IMF is an independent institution makes assessment of every member country separately based on thorough research and does not blindly follow the facts and figures provided to them. The principles and rules framed by IMF are applicable worldwide. No specific rules/regulations are being adopted by IMF for Pakistan. The facts remains that ground realities are not changed though assumptions.

It is also important to mention here that IMF does not force any country to take loan from it. Instead countries facing crisis approach the IMF. However, IMF extends loan on its own conditions which a member country is required to follow. It ensures that the member country will manage its external payments issue and thus be in a position to repay the Fund on time. Of these conditions some are performance criteria, which are particularly focused on reducing deficits. In addition, conditions may also include other important economic policy actions critical for stable macroeconomic conditions. Although IMF programs often regarded as controversial. Even then countries enter into IMF program because it may enable the government to adopt such policies that otherwise would have been difficult to pursue. It is important to specify here that as the IMF deals with economic crisis, whatever approach they offer; it is liable to challenges. It is unrealistic to manage a crisis without some terrible corrections. And in doing so, countries could lose their growth momentum in the short run.

Similarly, other international financial institutes and foreign investors show their confidence into that economy which is in agreement with the IMF. Like in case of Pakistan, after entering into IMF program, different international economic institutes have reposed their confidence in the economy and showed their interest in financing various large projects in Pakistan.

If the writer looks in the background, he can realize that Pakistan economy has faced myriad challenges when global economic meltdown shocked the international financial institutions and markets and also dampened the investor’s confidence. Sharp rise in international oil and food prices affected the macroeconomic situation in Pakistan. Inflation reached at the highest level of 25 percent in October 2008. Fiscal deficit increased to 7.3 percent while current account balance also deteriorated. Foreign reserves sharply depleted. In the above scenario, Pakistan signed a 23 month SBA program with the IMF amounting to US$7.61 billion in November 2008. Soon after the implementation of SBA program, the economy started to revive. Pakistan’s economy witnessed a moderate but fragile recovery in 2009-10, but the programe was suspended due to non implementing of some of the very significant conditions attached with the programme. The suspension of the programme posed negative impact on the economy.

Inflation had averaged around 12 percent. Circular debt of Rs.503 billion was crippling the power sector and the economy. Investment to GDP ratio was declining continuously and had reached 12.6 percent, tax to GDP ratio had declined to 8.5 percent while projected fiscal deficit for 2012-13 was 8.8 percent. The IBRD funding was stopped; World Bank and other international financial institutions closed the doors. International rating agencies downgraded its rating for Pakistan. Foreign exchange reserve dropped significantly.

Soon after assuming the charge, the present government laid out comprehensive agenda of reforms to reinvigorate the economy, spur growth, maintain price stability and rebuild the key infrastructure of the economy through removal of bottlenecks like, energy shortages, bleedings PSEs and circular debt along with creating conducive investment climate to boost exports and tax revenues, and bridge fiscal and current account deficits. Pakistan entered into EFF program which is now being successfully completed.

The present government initiated reforms on multiple dimensions with comprehensive execution plan for all sectors of the economy. All macroeconomic policies including monetary, fiscal and external sectors has been designed and co-ordinated to reinforce all sectors of the economy and created incentives for domestic and external resource mobilization on sustainable basis. As a result the economy has achieved macroeconomic stability, economy also succeeded in achieving higher economic growth with price stability along with declining unemployment in the country.

Pakistan’s economy during last three years witnessed higher and inclusive economic growth above 4.0 percent. During FY 2016 GDP growth reached to 4.71 percent which is accompanied by significant recovery in commodity producing and services sectors and is the highest growth achieved since 2008-09. The inflation has been contained to 46 year low level in FY 2016; the policy rate is 44 year low to allow more credit to private sector. The monetary expansion witnessed more than 100 percent. The industrial sector growth is eight year high level. The tax to GDP ratio has increased from 8.5 to 10.5 percent. The fiscal deficit has been contained from 8.2 percent expected to 4.3 percent in FY 2016. The capital market is touching historical heights. The rating agencies have upgraded their rating for Pakistan. The development partners opened their windows. New investments are coming in. The reserves have reached to historical level. The CAD has been contained below the target.

Economic growth is projected to continue its upward acceleration in coming years. The midterm budgetary framework has set timelines for achieving high growth rates gradually steering it over 7.0 percent through various infrastructure projects including building of roads, rail networks, telecommunications, special economic zones, development of Gawadar Port and major projects for additional power and improvement in power transmission sub-sector.

Government has pursued actively to resolve the energy crisis and succeeded in improving the situation for all consumers in the country. Economic policies of the government also remained successful in maintaining price stability and smooth supply of the commodities. The benefits of decline in international oil prices were also passed on to general public which is widely recognized as a relief to the common man. Due to investment and growth friendly policies of the government the economic situation continued improving and reflected in better movement in key economic indicators.

Overseas Pakistanis continued their confidence on government policies as the remarkable improvement in workers’ remittances is also recorded which has played a significant role in building foreign exchange reserves of the country. Government also remained focused and committed to implement China-Pakistan Economic Corridor (CPEC) which is a mega project of US $ 46 billion with Chinese Government.

The development budget has been gradually and adequately raised to meet the investment requirements. Against a revised estimates of Rs.348.27 billion for federal PSDP during FY 2013, raised to Rs.700 billion in FY2016, showing a cumulative increase of more than 100 percent. Moreover, the Prime Minister youth scheme which is an umbrella program for the youth to involve them actively in economic activities along with skill development in youth as per requirements of labour markets. All these initiatives reflect that the government policy is the growth friendly with focus on job creation as well as welfare of common man.

It is important to mention that present government has repaid around $11.5 billion of external debt till end March 2016, which mainly related to the borrowing of the previous governments. Despite this heavy repayment, the foreign exchange reserves of the country have risen to more than $23 billion, of which SBP reserves were $18.0 billion at end July 2016, which is equal to nearly five months of import-cover as compared to less than around 3 weeks of import-cover in February 2014 when the SBP reserves stood at $2.8 billion.

Government of Pakistan is also very much committed to involve professionals, private sector and credible economists for working out short, medium & long run Policies/ Strategies to benefit the common man.

The author has cited the irrational and unrealistic arguments of Dr. Ashfaque Hassan Khan on Federal Board of Revenue, Pakistan Bureau of Statistics and Ministry of Finance regarding fudging of the statistics which does not carry any weight to repeat the same unrealistic arguments which have been refuted several time.

 
04 August, 2016

Response - Dr. Hafeez A. Pasha has given a rejoinder published in daily "Business Recorder" dated 21st July, 2016 "IMF Eleventh Review"

Dr. Hafeez A. Pasha has given a rejoinder published in daily “Business Recorder” dated 21st July, 2016 on the response of Ministry of Finance to his earlier subject article dated 11-07-2016. He is of the view that he was expecting response from IMF side instead of MoF.  He has appreciated the valiant efforts of Economic Adviser which according to him he is not the part of government team which holds discussion with the IMF during reviews and he may have not full knowledge of views of IMF.

At the very outset it is for his information that Economic Adviser is a part of the government team which holds discussions with the IMF.

With regard to his observation on upward revision by the IMF of the GDP growth rate from 4.5 percent to 4.7 percent in 2015-16, the writer has mentioned that economy has been unable to meet the major macroeconomic demand targets related to total investment and export respectively, and the IMF has failed to quantitatively indicate other factors which have may have compensated for the lack of realization of the two key targets and thereby led to a higher growth rate. 

In absolute term the total investment increased by 5.78 percent. Although export remained slow as per target. The exports not only declined in Pakistan but major economies also faced decline in exports on account of slower global economy. The government is taking all measures to enhance exports. It is important to note that despite fall in exports, the current account deficit has been contained at -0.9 percent of GDP compared to -1.0 percent last year and -1.0 percent target for FY2016, and if to compare with South Asian countries our positions is better as India CAB as percent of GDP is -1.5, Bangladesh -1.3 and among advance economies USA -2.9, UK -4.3 percents.

The other sectors industry and services performed remarkably well above the target which compensated the losses in Agriculture sector and helped in supplementing GDP growth.

With regard to the writer’s observations that higher growth rate of LSM sector has been used for estimating the GDP growth rate in 2015-16.

It is for his information that the National Accounts meeting considered the available March 2016 LSM data in estimating the GDP growth. This is a provisional number; it will be revised next year and will use full year LSM data. According to Atlantic Media Company (AMC) report Pakistan is rated among top emerging economies. Given the government’s investment in infrastructure and other development projects the gross domestic product to grow.

With regard to his claim that the last minute cutback in the Federal PSDP, it is clarified that the figures quoted by the IMF in the External Fund Facility documents are best estimates/projections keeping in view the past trends. The Fund is fully aware of these budgetary estimates. Moreover, while negotiating the Fund program, the government generally takes conservative estimates so that the commitments made by it are fully achieved.

PSDP includes development allocations for both the federal and the provincial governments. The size of the PSDP is mainly based on the estimated total revenue collections. However, due to the limitations on the spending capacity of the executing agencies, delay in takeoff of projects and procurement issues, etc. development funding is not fully utilized in the currency of the financial year. It is for this reason that actual figures of PSDP spending shared with the IMF are lower than the budgetary allocations.

It is further added that the PSDP figures quoted by IMF also differ from those of the government’s because of difference in reflection of figures for TDPs and Security Enhancement (Rs100 billion). IMF shows these figures under Grants while the government includes it in the PSDP.

Coalition Support Fund (CSF): As earlier intimated that estimates on account of revenue receipts are provided by the concerned agencies which are worked out keeping in view the previous trend of collection as well as expected/committed receipts. The budget estimates shown under defence receipts also include receipts from CSF and sale proceeds on account of auction of obsolete/spare stores and services charges received by defence forces.

Agriculture Package: The author in his article has admitted that there is an allocation in the budget 2016-17 for agriculture package which would be under provisioning. It is clarified that the amount of subsidies is paid after finalization of the claims which may require some time. Therefore, claims for the current financial year may be finalized at the end of year and could be paid during next financial year. However, government is committed to pay all the claims relating to agriculture package.

Pay and Pension: The author has raised the question relating to funds for increase in pay and pension. It is once again reiterated that the allocation for pay and pension is made on gross basis and any increase is being absorbed within that allocation. Shortfall, if any, on these accounts would be adjusted through re-appropriation while remaining within the total budgetary outlay.

Public Debt: The article “Rejoinder to MoF” is a classic example of selective reporting with regards to public debt wherein statements are presented arbitrarily and out of context.

  • The article completely ignores the analysis mentioned in IMF Report (Page 16, i.e. Pakistan’s financing needs are fully covered for the remainder of the program and the country’s capacity to repay the Fund remains strong owing to supportive macroeconomic policies, resilient remittances inflows, and increasing foreign exchange reserves. Pakistan benefits from disbursements from multilateral and bilateral partners, which are expected to continue beyond the ongoing program, and has access to international markets, which limits short and medium-term financing risks. The debt sustainability analysis shows that external debt would remain on a downward trend over the medium term under most stress scenarios:
  • The article mentioned that external debt of the country will rise to $88 billion in 2018-19 and it could even exceed $93 billion. It completely ignores the fact that these projections are done by the IMF against “Total External Debt and Liabilities” of the country which includes debt of other sectors which by definition are not public external debt since the government is not liable to pay these obligations. It includes debt of private sector and banks etc. The selective reporting is clearly evident since the article deliberately ignores the external public debt number mentioned  i.e. external public debt is expected to reach $65.518 billion. Further, debt burden of country is only understood in comparison to its relation with the GDP instead of absolute debt numbers. The external debt as a percentage of GDP stood at 19.2 percent as at end June 2015 and expected to be 17.7 percent at the end of 2019-20 as per IMF Projections. Even if total debt and liabilities number are considered, the same was 24.1 percent of GDP at the end of 2014-15 and is expected to remain at the same level in 2019-20 indicating no increase in external debt burden;
  • In Table 10 of IMF Report (as mentioned in article), the writer selectively picked up the lowest number of total gross external debt in percent of exports as 193.2 percent in 2012-13 and highest number of 269.5 in 2018-19 deliberately ignoring the fact that this ratio was 220.2 percent in 2011-12 and is expected to be 246.9 percent in 2019-20. Similarly, highest gross financing number of $15.1 billion in 2018-19 has been reported while ignoring the number of $13.6 billion expected in 2019-20.

The writer has given counter argument on taxes are also not based on facts. The response on this is as follow:-

1.    Advances for direct Taxes in 4th Quarter
2.    Higher collection of customs duties realized due to essential items
3.    Adoption of Expenditures submitted in the Indian Budget
4.    Input tax adjustments are used as justification for withdrawal by FBR of provincial tax on services input tax invoicing in federal GST on goods.
5.    The unusual methodology adopted for zero rating sales tax in five export oriented sectors by removing GST on inputs is subject to leakages.

Advances for direct Taxes in 4th Quarter to meet the target FY 2015-16

The author has claimed that growth in income tax was only 13 percent in first nine months and this rose sharply to 29 percent in the 4th quarter, thereby creating the suspicion that taxes have been collected in advance from some entities. The claim of the author is not based on facts as the direct taxes also recorded a healthy growth in first three quarters. In fact, the average growth in first three quarters was more than 16 percent whereas it was around 15 percent in 4th quarter and overall growth in FY 2015-16 was more than 15 percent. Similarly, the healthy collection of sales tax is not due to POL products only but other sectors have also contributed to it, resulting in substantial collection growth during 2015-16. As per net collection of GST (domestic) from major revenue spinners of FY 2015-16 POL products contributed 269.7 billion which is 11 percent more than the collection of previous year. Whereas other sectors like electrical energy grew by 52.9%, cement (21.6%), beverages (48.9%), natural gas (26.4%), food products (22.6%), sugar (42.4%) and services (95.6%). Furthermore, the share of POL products decreased by 3.2% from the PFY. So it cannot be concluded that share of POL products only contributed substantially in the net sales tax collection.

Hence FBR reasserts and is confident to achieve the next year target comfortably.    

Higher collection of custom duties realized due to essential items

The claim of the author is that the higher revenues in custom duties have been achieved through taxing the essential items. In fact, vegetables, fertilizers, pulses and Holy Quran whether in digital form or printed form were all exempted under the Fifth Schedule of the Customs Act, 1969 and no customs duty was collected on these items. Besides these goods, import of pesticide was also subject to zero percent customs duty during the financial year 2015-16.

The collection of customs duty increased mainly due to phasing out of non-essential exemptions, improving administrative mechanism and coupled crackdown on smuggled goods in the country.

Adoption of Expenditures submitted in the Indian Budget

It is clarified that every year tax expenditures are published in Pakistan Economic Survey before the Budget and is made available both in printed form and on the website of Finance Division. Every country makes its own policies independently as per its own requirements and conditions. Therefore, there is no need to adopt or copy the Indian practice in our country. The practice prevalent in Pakistan also ensures full transparency. 

Input tax adjustments are used as justification for withdrawal by FBR of provincial tax on services input tax invoicing in federal GST on goods.

The FBR is aware that VAT works best when input tax adjustments are allowed. However, there is a general practice followed internationally that in specific cases adjustments are barred. Therefore, bar on input tax adjustment of provincial sales tax against federal sales tax should not affect overall VAT nature of GST. It is further clarified that sales tax on goods and provincial sales tax on services are two separate taxes levied under different laws; therefore, such bar should not be treated as something very unusual. Further, this measure has been adopted under compulsion and not as a choice as the settlement mechanism with the provinces was not working.

The unusual methodology adopted for zero rating sales tax in five export oriented sectors by removing GST on inputs is subject to leakages

As far as zero rating of imported goods and their misuse is concerned, it is clarified that a mechanism in FBR is available to control the misuse of zero rating facility. From the current fiscal year 2016-17 a new system with the name of “STRIVe System” (Sales Tax Real Time Invoice Verification System) has been introduced to control the claims of inadmissible input tax adjustments. Hence, misuse of the facility of zero rating will be managed more effectively in future. 
 
Power sector reforms

The important reforms carried out by the present government in the power sector along with their impact are highlighted in the ensuing paragraphs, to correct misperceptions of the author.  

Implementation of National Power Policy 2013 has pushed forward the structural reforms agenda in the power sector. In an effort to move to full cost recovery, the current government has rationalized tariffs. The new tariff as determined by NEPRA for FY 2014-15 has been notified by the government. The timely payment of tariff differential subsidy (TDS) is being ensured on a monthly basis. The gap between GoP notified tariff and NEPRA determined tariff has narrowed to Rs. 0.88 per unit in FY 2014-15 in comparison to Rs. 2.29 per unit in FY 2013-14, which has resulted in reduction in TDS, with subsidies being targeted to vulnerable consumers in the residential and agriculture categories.  

Significant efforts are being made to ensure financial sustainability of the system. A Circular Debt Capping Plan has been finalized to effectively manage the power sector financial flows, stocks and subsidy budget. Mechanism of at source deduction is being implemented for clearance of outstanding receivables from Government Departments and a feeder to feeder monitoring to curtail losses is being pursued. New Electricity Act will help improve litigation mechanism for power sector receivables. Revenue based load management is being carried out in order to ensure smooth recovery of payables. In addition, three distribution companies (IESCO, LESCO and FESCO) have been issued multi-year tariff determinations by NEPRA.

The implementation of above mentioned reform measures in the power sector have resulted in improvement in the transmission losses and recoveries. The latest available data for the first nine months of FY 2015-16 shows that transmission and distribution losses during this period stood at 16.3 percent, down from 17.6 percent in the same period of FY 2014-15. Similarly, bill collections during the first nine months of FY 2015-16 stood at 94.3 percent, up from 88.5 percent during the same period of FY 2014-15. These improvements in the sector have directly resulted in reduction in the tariff differential subsidy, which has been on a persistently declining trend over the last three years. An amount of Rs. 228 billion was paid out as TDS in FY 2013-14, which fell to Rs. 185 billion in FY 2014-15, while the TDS payment in the first nine months of FY 2015-16 stood at Rs. 60.6 billion, which clearly shows that the improved performance of the power sector has resulted in lower fiscal burden on the government.  

With reference to the issue of circular debt (CD), it is pertinent to point out that the buildup of circular debt has also slowed down due to above outlined measures. It is expected that with implementation of laid down actions in the CD Capping Plan, the buildup of CD will be further arrested and will be reduced to negligible amounts over the next few years. The amount parked in PHCL is being fully serviced as part of the tariff and the government will ensure that principal amount is reduced through privatization proceeds. Thus, the Rs. 335 billion is not part of CD as alleged by the author.

The Government is fully cognizant of the need to improve the transmission system to ensure that the new generation capacity being added is fully utilized. In this regard, the concerned government agencies are making all out efforts for linking the new generation projects to the national grid.

With regards to comments about development spending cuts leading to delay in implementation of CPEC, it is important to clarify that the majority of projects to be implemented under CPEC are to be financed by the private sector and are not dependent on government investment.
 
23 July, 2016

Clarification - News report titled "alleged loan write off by government in last three years " published in the Daily Express dated on 23rd July 2016

 
15 June, 2016

Rubuttal - The editorial titled "Public Debt a Source of Concern" published in the Business Recorder dated on 10th June 2016

This is with reference to the editorial published in the newspaper Business Recorder titled “Public Debt a Source of Concern” dated 10.06.2016.  The following points are offered in response:

-        At the very outset, the editorial claims that the Finance Minister did not mention about public debt and its sustainability during the budget speech on June 03, 2016, which is incorrect. In fact, Finance Minister in his speech, shared the government vision towards reducing the public debt to GDP ratio to 60 percent in the next two years and bringing it further down to 50 percent over a 15 years period to make the public debt more sustainable;

-        The editorial mentions that medium to long term Pakistan Investment Bonds (PIBs) were increased by 261 percent from June 2013 till March 2016. This increase is consistent with one of the objective of Medium Term Debt Management Strategy of Pakistan (2013) wherein the government stated that it intends to reduce the refinancing risk of its domestic debt portfolio i.e. Refinancing risk was of prime concern in Pakistan’s public debt portfolio, driven by the concentration of domestic debt in short term maturities at the end of 2012-13 i.e. 64 percent of total domestic was maturing within one year as at end June, 2013. Accordingly, the government lengthen the maturity profile of domestic debt by mobilizing more inflows through medium to longer term domestic debt instruments. Resultantly, the refinancing risk of the domestic debt reduced at the end of 2014-15 as indicated by percentage of domestic debt maturing in one year reduced to 47 percent compared with 64 percent at the end of 2012-13.

-        The editorial incorrectly mentions the public debt to GDP ratio as 63.3 percent during the tenure of last government. In fact, the correct number inherited by the present government was 64 percent and the present government brought it down to 63.5 percent in 2014 and 63.2 percent in 2015. The ratio increased to 64.8 percent at the end of March 2016 mainly due to (i) dual translational loss on account of depreciation of US Dollar against other currencies and depreciation of Pak Rupee against US Dollar; (ii) increase in government credit balances with SBP/commercial banks; and (iii) lower inflation resulting in to lower nominal GDP despite highest real GDP growth achieved in 2015-16 over last 8 years. The lower nominal GDP number is contrary to the claim of the editorial that the GDP numbers are being overstated by the government.

-       PBS computes the National Accounts according to well stated and publically shared parameters. The methodology is based on the System of National Accounts (SNA) 2008 which provides the internationally accepted and adopted methodology. This was followed during the rebasing of National Accounts 2005-06. This rebasing document was published as PBS document and is available on PBS website. This methodology has not been changed since its approval in April 2013.

-       The data used to compute the GDP numbers is provided by a host of agencies, public and private as well as federal, provincial and local authorities. These data sources are fixed as approved by the National Accounts Committee. The data providers are members of the National Accounts Committee meeting and verify the data provided by them. The data available for nine months, and in some cases for six months, is annualized and used. The numbers for government sector are taken from federal, provincial and local government budgets, as approved. Once parliament approves the revised budget, the revised numbers are adopted.

-       These GDP growth estimates are provisional estimates. As per international practice, this data are revised after one year and is finalized the year after. The data presented is provisional for 2015-16, which will be revised in 2016-17 and finalized in 2017-18.

-        In light of the fact that the methodology is fixed and the data is provided by a large number of specified organizations, PBS has no space to compute numbers according to the desires of others.

-        Successful operation Zarb-e-Azb and adoption of National Action Plan by the All Parties Conference and its subsequent implementation over seen by the Apex Committee of the provinces there has been improvement in overall security situation which helped in increase in total investment from Rs.4256 billion in FY 2015 to Rs.4502 billion in FY 2016 showing a growth of 5.8 percent.

-        Similarly, fixed investment increased from Rs.3816 billion FY 2015 to Rs.4028 billion in FY 2016 showing an increase of 5.6 percent over last year and 35 percent over FY 2013. The public investment also increased from Rs.1023 billion in FY 2015 to Rs.1132 billion in FY 2016 showing an increase of 10.6 percent and around 44 percent over FY 2013. The private investment also increased from Rs.2793 billion in FY 2015 to Rs. 2896 billion in FY 2016 showing a growth of 3.7 percent over last year and 32 percent over FY 2013. However, if to be looked into as percentage of GDP it is reported at 15.2 percent during FY 2016 compared to 15.5 percent (Revised) last year. This is a provisional number which normally changes at the end of financial year.

-        The editorial drew baseless conclusion that the danger of default will loom by 2017-18 like in 2008 and 2013. Keeping in view the level of foreign exchange reserves at over US$ 20.8 billion (end April, 2016) and lesser pressure on account of external debt servicing, country’s external liquidity position is in a comfortable position and there is no danger of default in the medium term;

-        Lastly, the editorial claims that the divergence from the budget in the past will be repeated in future is not a meaningful conclusion without any substance;

-       The above facts clearly establish the fallacious views mentioned in the news item regarding the state of public debt management in Pakistan. The present government has made remarkable gains in reducing debt burden of the country and improved the fiscal and debt sustainability indicators.

Syed Ejaz Wasti
Economic Advisor

 

 
15 June, 2016

Response - News Report published in Daily Times "Government misses all financial targets in current fiscal year"

This is with reference to the news report, “Government misses all financial targets in current fiscal year”.

First and foremost it is stated that agriculture recorded a negative growth of 0.19 percent during FY 2016 which is the lowest growth in 15 years and not 25 years as the report contends. The claim by contributor of the report that government missed all financial targets is incorrect.

The Industrial Sector recorded growth of 6.8 percent against the target of 6.4 percent. Similarly, the services sector met its growth target which was 5.7 percent. The remittances recorded 5.58 percent growth during (July-May) FY 2016. The government was successful in containing inflation rate at 4.53% in FY 2015 against the target of 6.0 percent.

The government has been successful in curtailing the fiscal deficit at 5.3 percent of GDP during FY 2015. During (Jul-Mar) FY 2016, budget deficit stood at 3.4 percent of GDP as compared to 3.8 percent of GDP in the same period last year, which suggests that the fiscal deficit will meet its target 4.3 percent.

The current account deficit as percent of GDP during (Jul-April) FY 2016 remains at 0.6 percent compared to 0.8 percent last year. The external sector is balanced on account of stable exchange rate, high foreign reserves, and robust remittances bode well that the current account balance will meet its target -1.1 percent of GDP.

As far as the reporter’s assessment of exports target is concerned, it may be noted that there is muted economic growth across the globe. Pakistan’s major trading partners; USA, China, EU witnessed a sluggish economic growth . Our major share of exports go to US, China and EU. The slow growth in China and EU and weak demand has also impacted Pakistan’s exports growth. Our neighboring country, India has also witnessed 17.2 percent decline in exports.  However, the government is fully cognizant  of  this issue  and taking a number of measures to increase exports. STPF 2015-18 for export promotion is a welcome development.

The writer has stated that government revenue collection of Rs.3,104 billion in FY 2016 is an ambitious target. FBR revenue collection remains impressive. It recorded a growth of 18.9 percent during (July – April) FY 2016, over last year bode well that it will achieve its target.

The government has been able to achieve 4.71 growth in three years time which is the highest growth in last 8 years and now moving to higher and inclusive growth.

These few lines may please be accommodated in your esteemed daily.

Spokesperson
Ministry of Finance

 

 
24 May, 2016

Rejoinder - Finance Minister clarifies reports on Ramadan Package

The spokesman of the Ministry of Finance has strongly rebuffed  some media reports that Ramadan Package has been scaled down.

The spokesman said that the Package is announced every year before holy month of Ramadan in order to provide relief to the consumers.

The spokesman added that traditionally, a summary on the proposed Ramadan Package is prepared by Ministry of Industries& Production and placed before the ECC for approval. This year Ministry of Industries & Production placed the Summary before the ECC proposing a Ramadan Package of Rs. 1.4 billion. The ECC during discussions in meeting held on 23-05-2016 enhanced value of package to Rs. 1.75 billion in order to provide greater relief to consumers.

The spokesman further said it is correct that an allocation of Rs. 3.0 billion has been made in the budget for the current financial year. The allocation is meant to cater for the current year’s package approved by ECC, as well as arrears of the previous years. An amount of Rs. 770 million has already been released to USC for clearance of arrears of the years 2011, 2012 and 2013. The balance allocation will be used for Ramadan Package 2016 and clearance of remaining arrears.

Therefore, there is no question of scaling down the Ramadan Package. It has actually been scaled up from the previous year’s level, the spokesman concluded.

 
22 May, 2016

Rejoinder - Finance Ministry Spokesman responds to smear campaign

 The spokesman of the Ministry of Finance said here Sunday that that some irresponsible and ill-motivated elements have started a smear campaign on social media against the Ministry, falsely alleging that it has outsourced budget making to foreigners. 

The spokesman said this is a patently false report spread with ulterior motives. The budget making is a sensitive national activity undertaken under the close and direct supervision of the senior hierarchy of the Finance Division. No foreigner has any role in the making of budget, the spokesman clarified. He went on to say that the individuals mentioned in the smear campaign are consultants hired by European Union under a grant given to Pakistan to help in improving the pubic financial management in Pakistan. None of the consultants play any role or is privy to any information regarding the budget making. In fact, they have no role in the core functions of the Ministry of Finance.

The spokesman added that story being spread is anonymous and lacks any credibility whatsoever.

 
03 May, 2016

Clarification on Express Tribune Report: Govt Borrows $ 408 M from Swiss Financial Group

This is with reference to the news in Express Tribune, “Govt. Borrows $408m From Swiss Financial Group Amid Transparency Concerns”.

First and foremost the present government assumed responsibilities in June 2013 with inherited challenges especially on external front. All major development partners had parted ways due to waning economic fundamentals and apparent inability of the country to service its external obligations. One of the main challenges was absence of external financing which was causing turbulence in the domestic exchange markets and tilting the composition of public debt towards domestic debt and that too into shorter maturities creating vulnerabilities and entailing high rollover and refinancing risks. Stemming the depleting foreign Exchange reserves and stabilizing a fast depreciating currency that was fuelling inflation became the paramount concerns. Pundits had even predicted a probable default by June 2014. In this scenario, the macroeconomic stability achieved by the present government is being acknowledged globally by renowned multilateral institutions. 

Secondly, the government has repaid over $10 billion of external debt till end December 2015, which mainly related to the borrowings of the previous governments. Despite this heavy repayment, presently the foreign exchange reserves of the country have risen to nearly $21 billion, of which SBP reserves are about $16 billion, which is equal to nearly five months of import-cover as compared to less than around 3 weeks of import-cover in February 2014 when the SBP reserves stood at $2.8 billion. Thus it is important to maintain adequate reserves for upcoming external debt repayments. 

Thirdly, as far as the said borrowing of $408 million is concerned it was finalized after all prospective providers were asked to participate and the most economical offer was accepted. The Credit Suisse has formed a syndicate in which a number of bankers have provided resources, including Chinese Banks. These borrowings, meant for balance of payment support, have been undertaken in accordance with the provisions of law. 

The writer must also bear in mind the following facts.

(i)    The proportion of external debt in the total debt portfolio has been declining continuously during the past two and a half years and from approximately 33.5% in June 2013 it has come down to below 30% recently and is expected to be 28% at this fiscal year end. Similarly, the External Debt to GDP ratio has also declined from 21.4% in June 2013 to around 18.9% in June 2015.  

(ii)   All inclusive cost of the total external debt obtained by present government comes to around 3.30 percent, which is significantly lower than the domestic financing cost of about 10.0 percent, even if one builds a margin of capital loss due to exchange rate depreciation. Thus the cost of external debt contracted by the current government is highly economical.

(iii)   The share of external loans maturing within one year is equal to around 28 percent of official liquid reserves at the end of 2014-15 as compared with around 69 percent at the end of 2012-13 indicating marked improvement in foreign exchange stability and repayment capacity.

(iv)    The ability of the Government to access external resources from a variety of lenders reflects the confidence investors have in providing resources to Pakistan.

 
23 April, 2016

Clarification - Spokesperson for Finance Minister

A spokesperson for Finance Minister, Senator Mohammad Ishaq Dar said here Saturday that most of the electronic and print media misread and wrongly reported that annual returns of assets and liabilities filed with the Election Commission of Pakistan (ECP) show that Finance Minister, Senator Ishaq Dar has taken loan from his sons.

The spokesman said that Mr. Ishaq Dar has not taken any loan/Qarz e Hasna rather he had given Qarz e Hasna to his sons and the same was duly declared in the annual returns filed for the year 2014 with the ECP.

The sons of Senator Ishaq Dar have paid back the entire Qarz e Hasna given to them by their father which is duly declared in the latest return filed with the ECP, the spokesman concluded.

 
16 April, 2016

Clarification - The Spokesman of the Ministry of Finance said that the claim by Deputy Minister of Economy, of Panama, Mr. Ivan Zarak during a CNN interview that "he met Pakistan's Finance Minister in Washington", is baseless, unfounded and extremely surprising

The spokesman of the Ministry of Finance while referring to electronic media reports on Saturday said that the claim by Deputy Minister of Economy, of Panama, Mr. Ivan Zarak during a CNN interview that he met Pakistan's Finance Minister in Washington, is baseless, unfounded and extremely surprising. 

The spokesman added that Finance Minister had cancelled his visit to Washington D.C. where he was scheduled to participate in the WB/IMF Spring Meetings from 14-17 April, 2016. How could Ivan Zarak meet Finance Minister when the latter has not even left Pakistan in the last many weeks. Finance Minister is very much in Pakistan and performing his day to day duties, which are being covered by the media as well.

Pakistan's Finance Ministry is represented in World Bank/ IMF Spring Meetings, currently in progress, by Federal Finance Secretary, Dr. Waqar Masood Khan due to cancellation of visit by Finance Minister Mohammad Ishaq Dar. The matter is being taken up with the CNN for wrong reporting, the spokesman added.

 
27 March, 2016

Clarification - No decision, instructions for payment of Rs. 300 billion to MNAs - Spokesman Ministry of Finance

The spokesman of Finance Ministry has stated that there is no truth in the reports that the Prime Minister has directed the Ministry of Finance to arrange payment of Rs.300 billion to MNAs for development schemes in their constituencies.

He said that the contents of the news, reported in a section of the press are unfounded and not based on facts. He said that neither has the Prime Minister taken any such decision nor has he given any direction to the Ministry of Finance in this regard.

 
20 February, 2016

Clarification - The spokesman of the Ministry of Finance here Saturday refuted part of the report, "Accountability and Sharifs.......a laughing matter" carried by The News, on 12th February 2016

The spokesman of the Ministry of Finance here Saturday refuted part of the report, “Accountability and Sharifs.......a laughing matter” carried by The News, on 12th February which said that when in NAB custody in Musharraf's time, Finance Minister, Ishaq Dar had  confessed to money laundering charges, and "that confessional statement might still be there".

The spokesman forthwith clarified that the money laundering case was thrown out by the Lahore High Court as far back as 1996, yet some elements keep referring to it for ulterior motives.

The spokesman added though the said politically motivated case had died its natural death in 1996. The Musharraf regime sought to resurrect it and a frivolous case for accumulation of assets and wealth was initiated in 2001 against the minister. The said case has been quashed by the Honorable Lahore High Court vide its judgment dated 11 March 2014. This verdict has become final and should suffice to put an end to the propaganda on the subject, the spokesman said.

The spokesman added that complete information about the income and assets of the Finance Minister has regularly been given in his annual tax returns filed with the tax authorities and also shared with the Election Commission of Pakistan. The details can be accessed on the relevant websites, the spokesman concluded.

 
20 February, 2016

Clarification - The spokesman of the Ministry of Finance here today clarified part of a report,"Nab Chief throws Chaudhry Like Challenge" in The Nation, dated 12th February 2016

The spokesman of the Ministry of Finance here today clarified part of a report, “Nab Chief throws Chaudhry Like Challenge” in The Nation, dated 12th February. The report said NAB was to conclude a case against Finance Minister, Ishaq Dar regarding misuse of authority and having assets beyond means. 

The spokesman said that a frivolous case for accumulation of assets and wealth was initiated in 2001 against the Finance Minister. The said case has been quashed by the Honorable Lahore High Court vide its judgment dated 11 March 2014. This verdict has become final and should suffice to put an end to the propaganda on the subject, the spokesman said. 

The spokesman added that complete information about the income and assets of the Finance Minister has regularly been given in his annual tax returns filed with the tax authorities and also shared with the Election Commission of Pakistan. The details can be accessed on the relevant websites, the spokesman concluded.

 
19 February, 2016

Response - The editorial titled "Growth Rate Uncertainty" published in the Business Recorder dated on 12th February 2016

The editorial titled “Growth Rate Uncertainty” published in the Business Recorder dated on 12th February contends: “given that Pakistan is on IMF program, the government has committed to a budget deficit target which in the event of a lower expected growth rate, necessitates realization of the budgeted revenue through the imposition of higher than budgeted taxes and/or a reduction in expenditure”.

The contention is incorrect in so far FBR tax collection target (Rs. 3103.7 billion) has not been revised upward or downward. Government is committed to meet this target, as evident from the remarkable performance in the second quarter that was not only on target but nearly recouped the shortfall in the first quarter (Rs.35 billion against the shortfall of Rs.40 billion). Similarly on expenditure side, no cut on expenditures has been made. Moreover, for the current fiscal year 2015-16, an allocation of Rs. 700 billion has been made for federal PSDP against Rs. 502 billion for fiscal year 2014-15. In the first half, Rs.158 billion have been released, which is nearly 25% increase compared to Rs.127 billion in the same period of last year. It is worth mentioning that traditionally major part of the total PSDP is utilized during the 3rd and 4th quarter of each fiscal year and hence the rate of utilization would increase as per the target in the 3rd and 4th quarters.

The editorial is also incorrectly asserting that “major reasons for growth slowing down in Pakistan can be attributed to heavy borrowing from the commercial sector thereby crowding out private sector borrowing”. It may be noted that that the recent monetary aggregates released by SBP for the period 1st July-5th February FY16, the Credit to Private Sector rose to Rs.309.6 billion during this period as compared to Rs.152.7 billion in the same period last year. The credit expansion is more than 103 percent. It is therefore misleading to claim slowdown in growth due to crowding out of private sector credit. Besides, in the first two years of the present government, growth rate has been registered at 4.01% and 4.24%, which has broken the low growth equilibrium of 3%, which was the average in the five earlier years.

Regarding the view on the overvalued exchange rate, Pakistan exchange rate remained stable against the trend of global economy during current fiscal year FY 2016.The writer needs to understand that stable exchange rate is a linchpin of economy and present government, which experienced some instability due to speculative activity and decline in foreign exchange reserves on account of heavy repayments in the early months since its inception, has succeeded in stabilizing the exchange rate. The rate is market determined as nearly all foreign inflows are surrendered in the inter-bank market and all outflows for imports are made from the same market. Government or SBP does not interfere in the normal working of the market.

The editorial has also chosen to criticize economic team for resisting the recommendations of independent economists, industrialists and stakeholders and relying on data manipulation to present a favorable picture. These claims have no bases. Government welcomes constructive criticism but reserves the right to respond to misleading analysis and baseless accusations. Similarly, the Government does not believe in misrepresenting facts or manipulating data. The editorial of a leading economic and business publication is expected to avoid leveling accusations based on hearsay and not on facts. Not single instance of such accusation has been cited. The Government stands ready to explain its position if such an instance is pointed out. The Federal Bureau of Statistics is an autonomous body and re-organized under Statistics Act-2011 is doing its job professionally under the supervision of an independent council comprising economists, statisticians, demographers, academics and other professionals.

 
18 November, 2015

Rejoinder - Dr. Farrukh Saleem's article "Three Alarm Bells" does not present facts appreared in The News on 15th November 2015

Dr. Farrukh Saleem’s article “Three alarm bells” carried by The News Islamabad on 15th November 2015 needs clarifications on a number of the writers contentions.

He has stated under alarm bell-1 that government is inaugurating new power projects on monthly basis but we are producing the same electricity as we were producing four years ago in 2011. Alarm bell- 2 refers to exports that it is falling both in value and in quantities terms while alarm bell 3 states since 2013 when PML (N) government came to power the FDI is declining. He has also raised the question that amid these where the GDP growth is coming from?

There is no truth in the claim that annual power generation in 2015 is the same as it was in 2011. In 2010-11 the peak supply was recorded at 13,193 MW while in 2014-15 it was recorded at 16,500 MW, an increase of 3,307 MW or 25% since 2010-11. During the current fiscal year, the peak supply would rise to 17,500 MW, with addition of new power from several power projects.

The writer should appreciate the massive reduction in power outages during the tenure of the government. When the Government came to office, there were street protests all across the country against prolonged outages. The average load shedding was around 4000 MW, which has been brought down to 2800 MW. Today, with the exception of few sporadic episodes, no such protests are taking place as majority of consumers are getting predictable supplies, while industry has been insulated from outages. There is nearly 7000 MW of power at different stages of implementation and would come on stream by 2018. Also, there is 10,000 MW being planned under the CPEC initiative. A government focusing so much on removing the power imbalance in the country cannot be faulted that it has not even addressed the issue, which is what it means when the writer says that there is no difference in power supply position between 2011 and 2015. 

The gradual improvement in electricity generation has helped large scale manufacturing sector to register a growth of 4.0% in 2013-14, 3.4% in 2014-15 and 4.1% during Jul-Aug 2015, with 4.8% in August 2015 as compared to 1.37% of the corresponding month of last year, with the production of key industries, namely cement (12%), automobile (44%), fertilizer (15%), leather products (19%) and Chemicals (13%), showing double digit growth.

With regard to his second alarm regarding declining export, the writer should evaluate this performance in the context of what is happening to our leading competitors. China, India and Bangladesh have all experienced decline in exports at the double-digit level. This is mostly due to a major decline in international commodity prices, including rice and cotton, the mainstay of our exports. As against major export loss, Pakistan’s exports declined only by 3.7% in 2014-15, that too mostly due to price effect as opposed to quantity. Even though exports in the first four months of current fiscal year have declined, but a reversal in the trend is visible as during October 2015 exports were nearly the same as last year. More importantly, in Q1-FY16, the value of exports declined by 9% but the quantum impact increased by $197 million for 83% of exports. In particular, quantity of rice exports increased by 21.1%, vegetables 139.5%, meat by 27%, raw cotton by 41%, hosiery and knitwear by 2.9% and towels by 10.1%.

It is also not true that the foreign direct investment is persistently declining since PML (N) government came to office. In 2012-13 the total foreign investment in Pakistan was $1.6 billion, which increased to $4.4 billion in FY14 but in FY15 it slowed to $ 2.7 billion, mainly due to political turmoil and uncertainty ensued in the backdrop of the politics of dharna. However, with persistent efforts of the government the investor’s confidence has been restored and foreign investment in Pakistan during July-October FY 16 increased to $711.6 million as compared to $600.4 million in FY15 showing growth of 18.5 percent. The investment will be further geared up on account of CPEC investment program.

Having argued that the writer has sounded false alarm bells, let us turn to identify the sources of growth even though this is inherent in the arguments we have already given.

The GDP growth in FY13 was registered at 3.7 percent (with an average of 3% during 2008-13), which increased to 4.03 percent in FY 14 and 4.24 percent in FY 15. The broad based recovery in growth is witnessed in agriculture, industry and services sector.

Agriculture, which has a share of 21% in GDP, witnessed a growth of 2.9% in FY15 as compared to 2.7 percent in FY 13. The industrial sector, which contributes 20 percent in GDP, achieved a growth of 3.6 percent in FY15 as compared to 0.61 percent growth in FY13, services sector, which accounts 59 percent of the GDP, posted a growth at the same level of FY13 at 5 percent. This broad based growth is the highest in 7 years. The total investment increased to 15.1 percent (provisional) in FY 15 as compared to 14.9 percent (actual) in FY13. Likewise, the savings also witnessed growth at 14.5 percent (provisional) in FY15 as compared to 13.9 percent (actual) in FY13.

It is difficult to see how the learned writer can make an assessment of the economy on the basis of wrong data. Much of the information we have used is available in the public domain and hence there is no reason for not making use of such information, which would prevent from drawing erroneous conclusions.

 
08 November, 2015

Rejoinder - Guarantee for Sind-Engro Power Project Approved Long Ago: Spokesman, Ministry of Finance refutes statement of CM Sind

Spokesman of the Ministry of Finance has refuted the claim of CM Sindh that the Federal Government has not issued sovereign guarantee for Sind-Engro Power Project, to Chinese financiers for nearly two and half years. The fact is that the government had agreed from the outset to issue the sovereign guarantee as soon as the Sindh Government agrees on giving a counter-guarantee, as the project is a public-private partnership between Government of Sindh and a private party (Engro).

The spokesman said that the Government of Sindh took a long time to agree to this condition and as soon as they consented, the Government of Pakistan approved the issuance of the sovereign guarantee after proper documentation. This is therefore a settled matter. About a week ago, the spokesman said, the financiers approached the ministry for approval of terms of financing for the rupee portion ($500 million) and issuance of guarantee for foreign currency portion ($200 million), which are being processed for early approval in the Ministry.

The spokesman said that the Federal Government has not only agreed to issue the sovereign guarantee but has also constantly included the Thar Coal Power project among the early harvest projects under the CPEC. Despite this outstanding support, it is quite regretful that the Chief Minister, Sindh has chosen unwarranted language against federal government.

Regarding the releases for K-4 project, the spokesman stated that Government of Sindh has not released any amount for this project so far. However, during 2014-15, against a budget estimate of Rs.200 million, Federal Government had released Rs.2.2 billion for this scheme. For current fiscal year 2015-16, another Rs.500 million is budgeted. It is strange that CM Sindh has disregarded both these facts, i.e. that his government has not expended any expenditure and that federal government has released such a large amount for the project, which he has not even acknowledged. Given the significance of this scheme for the residents of Karachi, Federal Government assures the Government of Sindh that as much as they will spend on this scheme, the Federal Government will release matching grants.

The spokesman added there is no basis in the assertion that the Prime Minister had announced a package of Rs.12 billion for fight against terrorism. Equally baseless is the claim that the Government of Sindh is fighting this war alone from its own resources. The Prime Minister had not announced any such package. More importantly, law and order is the responsibility of provincial governments and they are receiving a significant portion of national revenues for fulfilling such obligations. Yet, realizing the gravity of the situation, Sindh Rangers, a part of federal civil armed forces, has been deployed in Karachi and is leading the war against terror. All expenses of this force are borne by the Federal Government, the spokesman concluded.

 
27 October, 2015

Response - Responding to News Report “Government likely to borrow more” appreared in Business Recorder on 26th October, 2015

A news report published in daily “Business Recorder” on 26th October,  “Government likely to borrow more” quotes Dr. Hafeez Pasha making a statement in a talk show on Aaj TV that government would have to borrow more for repayment of  $6.64 billion Extended Fund facility(EFF), debt servicing on loans acquired from bilateral/multilaterals and payment of maturing Eurobond/Sukuk after 2016-17.

It is important to note that Ministry of Finance in coordination with domestic as well as external stakeholders has developed and published Pakistan's first Medium Term Debt Management Strategy 2013-18 (MTDS) to identify the financing needs and sources of financing and minimizing the cost of debt while maintaining the acceptable level of risks. It was aimed at debt sustainability and enhancing the debt servicing capacity of the country. It is a public document and provides a clear strategy and debt position in 5 years time including cost/risk position. Debt Office of Finance Division is currently updating the MTDS for 2015-20.

Dr Hafiz Pasha has also mentioned that the bulk of the increase in debt has come from high-cost, shorter-maturity domestic debt, which is totally incorrect as the focus of Pakistan's debt strategy is lengthening in maturity and carrying less refinancing risk along with sufficient provision of external inflows in the medium term. In line with this strategy, Pakistan is on track to lengthen the maturity profile of domestic debt while keeping in view cost-risk tradeoffs as the share of medium to long term Pakistan Investment Bonds (PIBs) in total domestic debt increased to 34 percent by end June, 2015 as compared to only 14 percent in 2013. Accordingly, percentage of domestic debt maturing in one year reduced to 47 percent by end 2014-15 compared with 64 percent at the end of 2012-13.  

Dr Pasha has also expressed concern that exports are not increasing may lead to borrow more. It should be noted that the major cause of recent decline in exports is due to slack in global demand, particularly of country’s trade partners. In addition the international commodity prices have stayed low since June 2014. This has implications for textiles exports, which is the major export item of Pakistan. But a more basic flaw in Dr. Pasha’s reasoning is that he has looked at exports decline and not looked at the behavior of imports or the overall current account. Both these accounts have shown a countervailing effect on declining exports, with current account strengthening remarkable during the last 15 months. With healthy capital inflows we are building our reserves, which are at historic high level of more than $20 billion at End-September 2015.

He suggested that one of the way is to devalue Pakistani rupee because he believes that it is overvalued. It is suggested to him that this aspect be looked into general equilibrium perspective rather in partial equilibrium. It is important to highlight that State Bank of Pakistan (SBP) has been following a flexible exchange rate regime since early 2000 in which the value of Pak rupee vis-à-vis other currencies follows a two way movement and is largely determined in the foreign exchange market through the market forces of supply and demand.

Dr. Hafeez Pasha’s assertions on the quality of reserves have already been rebutted in response to his previous article on the subject. Here we would only say that the average cost of loans contracting by the present government is only 3.3% and there is hardly any short-term debt it has acquired. Most of the loans are of long-term maturity, 10 year or more. The exports are facing global recession and would not be corrected by an exchange rate adjustment. Pakistan’s exports performance has been far superior compared to other regional countries, which have suffered more due to global slow down in exports demand. The country is saving more in reduced import bill for oil imports compared to a small reduction in value of exports due to reduced rice and cotton prices. More importantly, as we already noted, for the bottom line of balance of payments, one looks at the current account deficit and not exports alone. Here the country’s has done much better during the last two years of the present government.

 
27 October, 2015

Rejoinder - Responding to News Article "Pakistan's Debt Dynamic" appreared in Business Recorder on 16th October, 2015

In an article carried by daily “Business Recorder” on 16-10-2015, titled, “Pakistan’s Debt Dynamic” the writer has analyzed the Pakistan debt situation in the back drop of IMF program. He is of the view that Pakistan could find itself in a worse position a few years down the road than when it started the current program. Regarding building of foreign forex reserves, he has stated that the 50 percent fall in international oil prices, combined with declines in other commodity prices has given a very substantial boost. If oil prices had remained at the same level as in end September 2013 throughout this period, and keeping other factors constant, Pakistan’s forex reserves would have been around $3bn to $4bn lower than currently. Further, in overall terms, since July 2013, non-debt creating foreign exchange inflows (such as foreign  direct investment, remittances and exports) have increased by $2.2bn, while debt flows have increased by $4.1bn(in net terms) and  the bulk of the increase in debt has come from high-cost, shorter-maturity domestic debt.

The writer's assessment with regard to reserves is not correct. The reserves have been build up from the lower level in 2013 when there was feeling that country would default. With sincere efforts of the present government the image of the country improved which not only opened the door for multilateral and bilateral agencies but investor's confidence was also restored.FDI have started picking up and there is continued inflows from IFIs which strengthened the external position which was crucial in maintaining the exchange rate stability and also mitigating the risk perception of the country.

The writer’s assessment with regard to debt accumulation is also not correct.  Pakistan’s debt strategy is lengthening the maturity profile to reduce the refinancing risk along with sufficient provision of external inflows in the medium term. In line with the strategy, Pakistan is on track on lengthening the maturity profile of domestic debt while keeping in view cost-risk tradeoffs as the share of medium to long term Pakistan Investment Bonds (PIBs) in total domestic debt increased to 34 percent by end June, 2015 as compared with only 14 percent in 2013. Accordingly, percentage of domestic debt maturing in one year reduced to 47 percent by end 2014-15 compared with 64 percent at the end of 2012-13.

Moreover, the public debt to GDP ratio is on a declining trajectory. The fiscal consolidation paved the way for a reduction in public debt, which fell from 63.9 percent in 2012-13 to 63.4 percent at the end of 2014-15. In the next three years, debt to GDP ratio will be brought down to less than 60 percent in accordance with the provisions of the Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005 through effective fiscal and prudent debt management i.e. fiscal deficit is expected to reduce to 4 percent of GDP in 2016-17 resulting in reduction of public debt to GDP ratio to around 58.8 percent.

The writer’s concerns regarding maturing of sovereign dollar denominated bonds, repayment to the Paris Club rescheduled debt along with payments to the IMF against current programme and history of debt accumulation are nothing but his pre consciousness. We are of the view that repayments should not be looked in isolation rather it should be analyzed in conjunction with projected disbursements to have a complete picture.

 
21 October, 2015

Response - Dr. Hafiz Pasha and Ms Anjum Ibrahim's articles carried by Business Recorder on 12th October 2015 have questioned that "Reserves are highly unsustainable and would lead to higher indebtedness"

Dr. Hafiz Pasha and Ms Anjum Ibrahim’s articles carried by Business Recorder on 12th October 2015 have questioned that reserves are highly unsustainable and would lead to higher indebtedness.

A few comments are offered here to counter their contention.

In 2013 when the present government assumed responsibilities, the total reserves stood at US$11.02 billion, net reserves with Banks were US$ 5.01 billion and US$ 6.01 billion were with SBP. Because of forthcoming payments and uncertainty about the future, they further depleted to 7.75 billion, with US$5.00 billion left with the Banks and US$2.75 billion with SBP. It is due to consistent and credible reforms implemented by the present government that the reserves reached a record level of exceeding US$20.0 billion on 30th September 2015.

What is more, the SBP reserves rose to US$15.247 billion showing a higher growth than the marginal increase and commercial bank’s reserves stand at US$4.826 billion. It is worth mentioning that the present government has also made repayments of approximately US$ 9.00 billion.

Furthermore, the perception that all of it has been accumulated by way of contracting expensive external debt is patently flawed. The all inclusive cost of the external debt contracted by present government comes to around 3.28%, which is significantly lower than the domestic financing cost of about 10% even in an era of low domestic interest rates. Thus cost of the external debt contracted by current government is not only economical but is also dominated by long term funding to free up the cash flows for development needs in the near term.

In order to establish the fact that this government has not increased the debt burden of the country, we cite a leading indicator of debt burden, namely short-term foreign debts as a ratio of reserves (Short term FX Debt/ FX Reserve). This has declined or improved from 68% to 32% within the last two years of present government thus fostering confidence among international lenders about soundness of country’s external account. The stability in exchange rate has been achieved by warding off speculative attacks on rupee when the exchange rate abruptly shot to Rs. 111 / USD in the early days of present government. In this regard the role and contribution of FX reserves can hardly be over emphasized. One must also not forget that many multilateral agencies tie up their funding to a base level of reserves and it is because of this factor that now the country has qualified to access IBRD resources thereby enabling further flow of economical resources for key infrastructure projects.

The GDP growth rate of 4.24% was not only a seven years high but is a harbinger for coming years when the real growth rate is expected to range 5.5% - 7.0%. The writers must bear in mind that the economic cycle has taken an upward turn and needs time to gain momentum, which we expect too happen this year and beyond. Early indicators show that FDI during the first three months has gone up by 7.7% and exports have shown resilience even at the time of declining commodity prices in international markets that may have been a blessing in one form due to low POL prices but has been a bane on the other hand by depressing export values of our key exports, namely cotton textiles and rice. The subject of exchange rate relates to central bank. However, it should be noted that at present the central bank has adopted a flexible exchange rate that allows market forces of demand and supply to play their role. In an environment when country’s reserves are rising, the stability of exchange rate should be easily understood.

 
07 October, 2015

Rebuttal - Responding to Mr. Ihtasham ul Haq article "Chasing imperfection" and Mr. Zeeshan Haider article "Borrowing billions" published in the News dated 5th October 2015

Mr. Ihtasham ul Haq in his article “Chasing imperfection” and Mr. Zeeshan Haider article “Borrowing billions” published in the News dated 5th October 2015 have criticized the bond issuance.

The criticism is based on the notion that the present issuance of bond is expensive as compared with similar issue in the past and Pakistan could not get good price.

The critics should know that Pakistan’s own cost of domestic borrowing for a 10-year bond is 9.3% during the last auction held on 10 September 2015, thus the country has saved in terms of reduced cost of borrowing by nearly 108 BSP. There is no increase in country’s debt burden as the proceeds of the bond have gone to reduce borrowings from SBP, making room for private sector investment.

Global markets have shown confidence in Pakistan’s economy by consistent drop in yields on the country’s outstanding Eurobonds since the current government started implementing its reform agenda. As an illustration, the Eurobonds maturing in 2019 and 2024 issued at 7.25% and 8.25% respectively have yields of under 6.5% and 7.5% currently, reinforcing faith in the economic recovery.

The present government has built country’s reserves through painstaking efforts. From a near default situation of having $2.7 billion in SBP reserves, the country now has a sound and impregnable reserves base of $20 billion, of which SBP reserves are more than $15 billion. This Government has mobilized tens of billions dollars in reserves on an average cost of less than 3.6%.  The share of foreign debt in total public debt has been massively down and we have barely succeeded in bringing a nearly halt to this downward trend. At the end of last fiscal year (30-6-15), the share of external debt in total debt, as percentage of GDP, was less than 19%

There was a different economic outlook in 2014 as compared to 2015. World economic outlook were very positive and financial markets around the world were expecting that the US interest rate that was close to almost zero percent would remain the same for at least one year or may be for a longer period of time. This time around there were clear signs of hike in the Fed interest rate. Due to uncertainty over US decisions and economic turndown in China it was a wise decision to access the market to cover the forthcoming maturity of $500 million dollar bond prior to arise in US dollar bench mark rate which could have resulted in highercoupon in subsequent issuance.

The Bond issuance illustrated the strength of Pakistan’s economy which was able to raise an oversubscribed order book under circumstances where many other better rated issuers could not access the market.

Eurobond has great significance for Pakistan, as it not only introduced Pakistan back in the international capital market but also allowed access to foreign resources for building country’s reserves, which have paved the way for exchange rate stability and enhanced international credibility. The resources mobilized through the Eurobonds have also been used to retire the domestic debt.

 
07 October, 2015

Rebuttal - Responding to Dr. Hafeez Pasha's article "Misperceptions of IMF" published in Business Recorder October 5th 2015

Dr. Hafeez A Pasha has written an article: “Misperceptions of IMF”published in Business Recorder October 5th 2015. It stated that the executive board of the IMF must be thanked once again for its very sympathetic eight quarterly reviews of Pakistan, as part of the Extended Fund Facility. Two more waivers have been given against the violation of key quantitative performance criteria. Cumulatively, twelve waivers have been granted. Never before in previous programs has the Fund shown such understanding and support for Pakistan. However, the press note released after the board meeting reveals a number of misperceptions about Pakistan. The first is the statement that economic activity is picking up pace and vulnerabilities are gradually receding. Unfortunately there is not much evidence of economic activity showing revival the writer stated.

At the outset, let us respond to his unsubstantiated claim that Pakistan has received highest number of waivers in the history of IMF programs. There is a need for proper appreciation of a waiver. The request for a waiver is allowed only after ensuring that the dynamic criteria are fulfilled. The Fund program is not a one-off static assessment of certain outcomes. It is a three-year program and, in each review, the performance is assessed keeping in view the likelihood of success as the program moves forward. Invariably, the waiver is granted after making sure that not only the past efficiency has been corrected but the likelihood of fulfilling more stringent criteria for the following quarter is also met. The waiver, therefore, implies that the program remains on track.

The writer is very selective in choosing the indicators of his choice and build up the arguments. In the article he has taken major crop sector that it grew less than 1 percent as compared to 8 percent in 2013-14 and it was only through some exaggeration that a GDP growth rate of over 4 percent was shown for 2014-15.

The writer has ignored other economic indicators which are showing good performance. It is for his information that after witnessing a muted growth of less than 3% in last seven year, the GDP growth reached above 4.%in 2014 and maintained its upward trend at 4.24% in 2015which is higher in last seven years at a time when emerging economies headed towards much slower economic growth, other key macroeconomic indicators like inflation, fiscal balance, current account balance recorded improvement.

During FY  2015 the agriculture sector posted a growth of 2.9 percent against 2.7 percent of FY 2014, the services sector grew by 5 percent against 4.4 percent FY 2014, CPI inflation contained at 4.5 percent against 8.6 percent FY 2104, current account balance contained at 1 percent against 1.3 percent FY 2014 and the fiscal deficit 5.3 percent against 5.5 percent FY 2014. LSM sector in JulyFY 2016 have started showing remarkable growth at 4.67 percent.FDI during July-August 2016 increased by 7.5 percent.

External sector, in particular, has become much more stable on the back of a robust growth in worker’s remittances and continued support from IFIs. The country’s FX reserves have reached historic level of above US$ 20 billion, with a capacity to finance over 5 months of the country’s import bill. This improvement in the external sector was crucial in maintaining exchange rate stability and also in mitigating global risk perception for Pakistan.

A stable outlook of inflation and balance of payments even allowed policymakers to implement pro-growth strategies. The government has cut policy rate significantly by a cumulative 350 bps which is lowest in last 42 year to provide more credit to private sector.

Similarly, on the fiscal side, development expenditures by the government remained strong amid fiscal consolidation. Overall public investments witnessed improvement.

With regard to writer’s claim that vulnerability has increased rather than decreased. The writer is not true in this statement. With enhanced security initiatives by the government a peaceful and enabling environment is taking place through the operation Zarb-a-Azb. Karachi which is the economic hub, economic activities have started improving. Investor’s confidence has been restored which is evident from historic gains from capital market which is trading above33,000/- index. Going forward the foreign direct investment during first two months of current fiscal year has also increased. The $46 billion historic investment agreements with Chinese government will be the game changer and will spur investments.

With regard to his observationthat reforms should aim at securing a reliable supplyof electricity and gas and reduce fiscal risks posed by these sectors. In 2014-15, electricity consumption increased only modestly while that of the natural gas declined. The tariff differential subsidy in the power sector was higher by Rs.36 billion over the budget estimates. Similarly, there was a big shortfall in revenues from GIDC of Rs.88 billion. The circular debt in the power sector has approached Rs.300 billion and the government has pursued the easy policy of selling off shareof profitable entities to help build foreign exchange reserves. Meanwhile, subventions continue to PASMIC, PIA and the Railways. Restructuring is proceeding at a slow pace.

It is for his information that Power Policy has pushed the structural reforms forward. The operationalization of the Central Power Purchase Agency (Guarantee) Limited (“CPPA –G”) is a major milestone in this regard.

With the introduction of merit order in fuel supply and gradual elimination of circular debt, the supply of electricity is already improving and unplanned outages, trappings and forced load-shedding has almost been controlled across the country. As a result of better sector management, supply of electricity has improved. The average daily shortage in FY 2015 fell to 2,900 MW, compared to 3,800 MW during FY 2014 and 4,000 MW in FY 2013. 

The recovery of GIDC is a continuous phenomenon and Government has already recovered Rs. 76 billion through GIDC.However, the process of timely collection of GIDC has been hampered by periodic court stays. The release of Tariff Differential Subsidy to Power Sector during FY 2015 remained within the budget including supplementary grant that was required due to delay caused  by the decision of Lahore High Court to not to recover Power Sector Tariff Surcharges that was later suspended by Supreme Court of Pakistan.Efforts are underway to improve power sector fuel mix in the country to reduce price of power basket and improve financial viability.

With regard to Privatization and Restructuring, the strategy is based on a number of pillars, which include divestment through strategic partnership and public offerings, strengthening enforcement of corporate governance rules, implementation of restructuring plans and regulatory reforms.

Transactions of United Bank Limited, Pakistan Petroleum Limited and Habib Bank Limited have been completed so far, while Financial Advisors have been appointed for eight DISCOs - Islamabad, Lahore, Faisalabad,Hyderabad, Peshawar, Quetta, Sukkur and Multan Electric Supply Companies (IESCO, LESCO, FESCO,HESCO, PESCO, QESCO, SEPCO and MEPCO, respectively), with transactions planned to be completed from end-March 2016 onwards. 

Railway Revitalization Strategy has been implemented, under which Pakistan Railways (PR) has been making institutional, operational and financial progress since FY2013-14.

Financial advisors have been appointed for Pakistan International Airlines (PIA) to seek potential options for restructuring and strategic private sector participation in the core airline business. The diligence process has been completed which will be followed by transaction advisory and finalization of restructuring options. A comprehensive restructuring plan has been implemented for Pakistan Steel Mills to prepare for potential strategic private sector participation in the company. Operational efficiency has begun to improve and capacity utilization has increased from 18 to 40 percent.

 

Syed Ejaz Wasti
Economic Advisor,
Ministry of Finance

Islamabad

 
06 October, 2015

Rebuttal - Responding to Saqib Sherani's article "Adrift without a Plan" published in Daily Dawn October 2nd 2015

Mr. Saqib Sherani’s article: “Adrift without a plan the government’s economic management is divorced and desultory” in Dawn warrants immediate rebuttal.

Pakistan successfully issued the $500 million Eurobond with a 10-year maturity in the international market at a rate of 8.25%. This is the same rate at which 10 year Eurobond was issued in April 2014. Despite tight and weak global market conditions and jittery investors’ sentiments, the issue was twice over subscribed. The economic downturn in China and uncertainty created by Fed decision punctuated the weak market conditions forcing cancellation of planned issues by several issuers having strong credit ratings. Under the circumstances, the Finance Minister with the approval of the Prime Minister decided that it would be prudent to restrict the issue to the intended and announced level of $500 million in order to cover the forthcoming maturity in March 2016 of a bond issued in 2006.

Eurobond has not only re-established Pakistan in the international capital market but also won her access to foreign resources for building country’s reserves, which in turn have paved the way for exchange rate stability and enhanced international credibility. The resources mobilized through the Eurobond have also been used to retire the domestic debt with lower cost. The interest rate on 10-year PIB was registered at 9.33%, which is higher by 1.08 BPS compared to Euro Bond. With exchange rate stability, there is no fear of capital loss and hence the bond will remain competitive.

Government is gradually moving towards achieving revenue surplus and reducing its public debt to GDP below 60 percent to ensure that both the level and rate of growth in public debt is fundamentally sustainable and can be serviced under a wide range of circumstances while meeting cost and risk objectives. Accordingly, debt to GDP ratio is on a declining trend.

The writer is perhaps unaware of the turnaround achieved in the economy which was near default when the reins of power were handed over to the present government.     Mr. Sherani needs to understand that it is the vision of Prime Minister Muhammad Nawaz Sharif that has guided the work for the revival of economy in just two years. The GDP growth has been 4.02% and 4.24% in the last year, significantly better than the average growth rate of 3% during the preceding 5 years, when he served as Principal Economic Adviser of the Government. This performance is respectable under an environment when most emerging markets are afflicted by low growth cycles. Key macroeconomic indicators like inflation, fiscal balance, and current account balance have recorded unprecedented improvement. This is not a picture of an economy in drift, but one that is gaining momentum, stability, growth and prosperity. Mr. Sheerani has to evaluate these gains dispassionately and without having preconceived notions.

External sector, in particular, has become much more stable on the back of a robust growth in worker’s remittances and continued support from IFIs. The country’s FX reserves have reached historic level of above US$20 billion, with a capacity to finance over 5 months of the country’s import bill. This improvement in the external sector was crucial in maintaining exchange rate stability and also in mitigating global risk perception for Pakistan.

A stable outlook of inflation and balance of payments even allowed policymakers to implement pro-growth strategies. The government has cut policy rate significantly by a cumulative 350 bps which is lowest in last 42 year to provide more credit to private sector.

Similarly, on the fiscal side, development expenditures by the government remained strong amid fiscal consolidation. Overall public investments witnessed improvement. Mr. Sherani has completely ignored the $46 billion historic investment agreements with Chinese government taken within the short period of the present government after coming into power. The investor’s confidence which was shattered has been revived which is evident from the all time historic gains is capital market.

Going forward to sustain the economy the leadership has given vision 2025 to put Pakistan on a fast track of development with the ultimate goal of transforming it to become one of the leading economies of the world, much earlier than the time indicated in O’Neil Report.

It is requested that the above may please be accommodated as a response from the Ministry of Finance.

 

Syed Ejaz Wasti
Economic Advisor,
Ministry of Finance

Islamabad

 
02 October, 2015

Rebuttal - Responding to Mr. Asad Omer statement published in The News 29th & 30th September 2015

Mr. Asad Omer has criticized recent lunching of euro bond saying that it received poor response by the global markets as investors remain unconvinced of the improved economy narrative that the Government of Pakistan has been trying to sell. The statements have appeared in “The News” dated 29th and 30th September 2015.

Mr. Asad’s assertion is not true. Pakistan has successfully issued a new Bond of $500 million with a maturity of 10 year in the international Euro Bond market. The coupon rate was 8.25% equal to the rate at which it issued such bonds last year in April.

Pakistan came to the market on the back of a good track record of economic management since its last issue. The investors were appreciative of the progress made in stabilizing the economy and reforms carried out in critical sectors of energy, privatization, tax administration and investment climate.

Despite tight and weak global market conditions and jittery investors’ sentiments, the issue was twice over subscribed. The economic downturn in China and uncertainty created by Fed decision has punctuated the weak market conditions forcing cancellation of planned issues by several issuers having strong credit ratings.

Under the circumstances, the Finance Minister with the approval of the Prime Minister decided that it would be prudent to restrict the issue to the intended and announced level of $500 million in order to cover the forthcoming maturity in March 2016 of a bond issued in 2006.

The writer has also criticized that they see no fundamental economic reforms taking place. The writer is not true in his statement, he should be mindful that the international agencies who evaluate the performance of the member countries has appreciated the reform programs in Pakistan like JETRO has declared Pakistan as likely to be second choicest place for FDI; Jim O’Neill has forecast that Pakistan would be world’s 18th largest economy by 2050 from its present 44th position; Overseas Investors’ Chamber of Commerce and Industry (OICCI) has found that Business Confidence Index amongst its members, which stood at -34 has climbed to as high as +18; Moody’s and Standard and Poor’s have both improved Pakistan’s outlook from negative to stable and recently from stable to positive; as well Fitch assigns Pakistan rating of B/Stable. Bloomberg News says that despite challenges (a) corporate earnings in Pakistan are soaring and (b) stocks have surged. The Economist London in its 2nd May 2015 issue has praised Pakistan’s economic recovery and so has the World Trade Organization (WTO) Trade Policy Review. Similarly, 3 top world media houses like the Bloomberg, Forbes and the Economist etc have reviewed that with a fast improving security, dynamic Pakistan has the potential to be a global turnaround story.

Furthermore, Pakistan has witnessed the resumption of policy lending from the World Bank and Asian Development Bank, which was suspended for the lack of a stable macroeconomic framework before June 2013.  After achieving macroeconomic stability and the requisite increase in foreign reserves in February 2015, Pakistan is declared eligible again for IBRD facilities.

The writer’s view regarding increasing cost of doing business is also baseless. The writer must know the facts that present government is sternly focused on improving investment climate in the country through the implementation of Investment Strategy 2013-17.  BOI in consultation with Finance Division, SECP, FBR, and EOBI including provincial governments and private sector are working to improve the investment climate in the country by reducing the procedures and cost / time, focusing on the Ease of Doing Business indicators. For improving investment climate, the government has developed an action plan for improving Pakistan’s Business Environment which was finalized after in depth consultations with concerned federal and provincial stakeholders.

With respect to the writer’s observations regarding current account deficit, it is stated that CA deficit recorded a persistent decline from $3.13 billion (-1.3 percent of GDP) in FY14 to $2.22 billion (-0.8 percent of GDP) in FY15. Additionally, remarkable increase in foreign exchange reserves has also helped in abridge the current account gap. During Jul-Aug FY16, current account deficit also shown a downward trajectory and remained $394 million against the deficit of $1,456 million in the same period of FY15 despite muted exports. The government is cognizant of the slowdown in exports, a Cabinet sub-committee has been constituted under the chairmanship of the Finance Minister to accord greater attention to exports and related production sector. The committee has been tasked to device steps and measures, which could enhance exports in the short term on one hand and deepen the orientation of economy towards exports on the other hand.  

The FDI which writer stated that it has declined in FY15, he knows the reasons of decline in FDI in FY15 as compared to last year. The investors adopted wait and see policy due to the uncertainty created in the initial month of last year, but now things have started improving. During July-August FY16, there is uptick in FDI as it witnessed a growth of 7.5 percent. It will further improve on account CPEC investment programme.

Pakistan holds enormous potential for economic growth. The revival of growth that started in 2013-14 has accelerated in 2014-15. The Medium Term Budgetary Framework is a roadmap and sets timelines for achieving high growth rate. The growth of GDP is targeted for 2015-16 at 5.5 percent and gradually steering to over 7.0 percent by 2017-18 in the coming years.

Syed Ejaz Wasti
Economic Advisor,
Ministry of Finance

Islamabad

Honourbale Editor,
The News.

 
01 September, 2015

Rejoinder - SA to PM rebuffs Zardari's allegations

Special Assistant to Prime Minister on Law, Ashtar Ausaf Ali, Advocate in a statement issued here on Tuesday strongly rebutted Mr. Asif Ali Zardari’s allegations against the Finance Minister.

He said that it is unfortunate that Mr. Zardari has leveled a wild allegation against the Finance Minister Mr. Ishaq Dar. He seems to have been ill informed and ill advised.

Mr. Ashtar Ausaf went on to say that insinuation reported in the media calls for clarification so that the truth accepted by superior Courts be made public. The record should be corrected once for all, he stressed.

He said that the Hudabiya Paper Mills case (Reference No. 5 of 2000) was quashed by the honorable Lahore High Court, vide its judgment dated 11-3-2014 passed in Writ Petition No. 2617/2011 which held that the alleged statement is illegal and without lawful authority. This verdict has become final and should suffice to put an end to the malicious propaganda on the subject.

That even earlier the Hudabiya Paper Mills case was thrown out by the Lahore High court, as far back as 1996, yet unscrupulous elements keep referring to it for ulterior purposes. The campaign of vilification and slander against the Finance Minister despite the said judgment goes on for ulterior motives.

Mr. Ashtar added that despite microscopic and forensic examination of record, both private and public, no wrongdoing was ever found by any of the investigating agencies. This speaks volumes of unblemished professional and political career of the Finance Minister.   

The SA to PM further said that persons involved in the shameful and unscrupulous maneuvering against the Finance Minister are called upon to restrain from further propaganda about any alleged confessional statement and should appreciate for once, the ruthless pressure faced by him and the sufferings of the family which was resisted even in the most oppressive regime of Gen. Musharaf and details of which were made public in 2003 without any rebuttal from any quarter.

He stated that the above facts have been given in detail to prevent people from disrespecting the judgments of the superior courts as well as publishing slanderous statement about the Finance Minister. However, should someone was to continue to level baseless accusations against him, he would have the right to take legal action against the Kazzaab (Liar) which may not be limited to civil proceedings only but may also entail criminal proceedings under the law within and outside Pakistan, Ashtar concluded.


 
21 August, 2015

Rebuttal - Responding to the article "Partners In Crime" appreaed in daily "The News" on 17th August 2015.

This is with reference to article in The News titled “Partners in Crime” dated 17th August 2015. 

It is mentioned in the write up that successful eight reviews by the IMF are on the behest of the United States whose interest is peaceful withdrawal of troops and equipment through Pakistani territory and hence influence the IMF to facilitate the ongoing process. This is all termed as a joint operation of the three stakeholders.

The writer should be mindful that the IMF as an independent institution makes assessment of every member country separately based on thorough research and does not blindly follow the facts and figures provided to them. The principles and rules framed by IMF are applicable worldwide. No specific rules/regulations are being adopted by IMF for Pakistan. The fact remains that ground realities are not changed through assumptions.

The writers should understand that the present government inherited a fragile and weak economy which was on the verge of collapse. The government took bold initiatives keeping aside political considerations and swallowed the bitter pill to cure the health of the economy.

The structural adjustment programme was taken in an environment of challenges and lot of work was undertaken to accomplish the bench-marks in a given time frame which smoothened the reviews. The economy after facing headwinds in early part of last fiscal year came back on track and achieved a growth of 4.24% which is highest for the last seven years, despite floods and shortages of energy and gas supplies.

The writer’s claim that industrial growth is stagnant at 1.1 percent, agriculture is growing at 2.5 percent, private sector is not borrowing to expand businesses, exports are falling and that foreign direct investment is declining rapidly, is not correct. The agriculture sector grew by 2.9% better than last year, despite floods, LSM grew at 3.3% in June as compared to 1.08 of last year despite gas/power shortage. Now the issues are being addressed and outlook is much brighter. Though  foreign direct investment remained muted last year, the reasons are known to all, the investors adopted wait and see policy, but as things turned better, July of current financial year witnessed remarkable growth of 307%. Going forward the Chinese government has also come up with historic investment program, which is a good omen and will have direct and indirect impact on the economic health of the country both from supply and demand side.

Undoubtedly, international prices of commodities and petroleum products have a role in slowing the inflationary pressures. But this trend was set in motion well before the downturn in the international prices. The fundamental factor behind the lowering inflation is the fiscal adjustment and monetary containments, both of which have been achieved during last year.

With regard to falling export it should also be looked into the context of global economic environment. However, the government is cognizant of the issue and taking all possible measures to increase the level of exports. The discount rate has been lowered down which will increase credit to private sector to enhance productivity and exports. 

The author has objected to the treatment of HBL privatization proceeds as revenue. He has also questioned that how SBP as a regulator can hold the shares of a commercial bank. In this regard, it may be noted that shares of the commercial banks (HBL, UBL, ABL, MCB) have been held by SBP since the nationalization of these banks i.e. during the 70s. The shares of banks have not been privatized during the present regime only; shares of banks were also sold in the market in the earlier periods. The treatment of publicly held shares is the same as was adopted in the previous periods, including the then Fund program. The figures relating to financing of the budget deficit have no basis as assumed by the writer.

With regard to budget deficit the present government inherited fiscal deficit  more than 8 percent of GDP which has been reduced to 5.3 percent of GDP in 2014-15. The writer should understand that country is facing security challenges and operation Zarb-e-Azb and settlement of IDPs were the major factors which were undoubtedly necessary for creating enabling and peaceful environment for the people of the country which has been suffering for the last more than a decade and amid these challenges fiscal deficit has been contained. The writer should acknowledge the sacrifices our forces are making to carry out operations to achieve peace which will further ensure investment and savings which are mirror image of the country.

The international analysts and observers are all praising our performance and potential for future growth. JETRO has declared Pakistan as likely to be second choicest place for FDI; Jim O’Neill has forecast that Pakistan would be world’s 18th largest economy by 2050 from its present 44th position; Overseas Investors’ Chamber of Commerce and Industry (OICCI) has found that Business Confidence Index amongst its members, which stood at -34 has climbed to as high as +18; Moody’s and Standard and Poor’s have both improved Pakistan’s outlook from negative to stable and recently from stable to positive. Moody’s has upgraded Pakistan’s rating from Caa to -B; Bloomberg News says that despite challenges (a) corporate earnings in Pakistan are soaring and (b) stocks have surged. The Economist London in its 2nd May 2015 issue praised Pakistan’s economic recovery and so has the World Trade Organization (WTO) Trade Policy Review. Similarly, 3 top world media houses like the Bloomberg, Forbes and the Economist etc have reviewed that with fast improving security, dynamic a Pakistan has the potential to be a global turnaround story.

Syed Ejaz Wasti
Economic Advisor,
Ministry of Finance

Islamabad
20.8.15

Honourbale Editor,
The News.


 
19 August, 2015

Rebuttal - Responding to Anjum Ibrahim's Article "IMF's eighth review" appreared in Business Recorder on 17th August, 2015

An article “IMF’s eighth review” by Anjum Ibrahim in  Business Recorder (17th August) has stated that “under the EFF, Pakistan has completed nearly two years or around 66 percent of the program and received a total of 2.88 billion dollars, while the 23-month Stand By Arrangement (SBA) signed between the PPP government and the Fund in November 2008 led to disbursement of 7.27 billion dollars. Therefore, the PPP government completed nearly 75 percent of the program before the cessation of the SBA”.

The writer has made comparison between SBA and EFF programs. It may be noted that both the programs are totally different in terms of their structure. The SBA was a 23 month program for an amount of $7.2 billion, which was approved by their Executive Board in November, 2008 and was meant for budgetary support as well as for the Balance of Payment (BOP) and its upfront disbursement was more. The arrangement was augmented to $11.3 billion (700 percent of quota). After the completion of the 4th Review in 2010, the program was extended till 30 September, 2011. But the Program was suspended due to non implementation of some of the very significant conditions attached with the loan such as limiting fiscal deficit targets, implementation of VAT regime, finalization of amendments in legislative framework for the State Bank of Pakistan and the energy sector reforms. Therefore, the Program was suspended after merely four reviews.

The suspension of the program posed negative impact on the economy. As IBRD funding was stopped, World Bank and other international financial institutions closed the doors. International rating agencies downgraded their ratings for Pakistan. Foreign exchange reserves dropped significantly. International predictions were that Pakistan would default in June, 2014.

On the other hand, the EFF Program is for strengthening the BOP position as well as the repayment of earlier loan taken by the previous government. Pakistan has completely repaid the earlier loan. If a comparison has to be made, it is more appropriate to compare that the SBA had only completed 4 out of 7 schedule reviews which were 57 percent of the program, whereas under the EFF, 8 reviews out of 12 have been successfully completed which is 66 percent. Therefore, the EFF is much more successful a Program. Further in terms of tranches received under both the programs, it may be noted that Pakistan has received $4.3 billion out of agreed amount of $6.2 billion with present SDR rate, which comprises 69 percent and the Program is still ongoing successfully and its 4 tranches are yet to be disbursed. Conversely, only 65 percent of the total amount was disbursed under SBA.

The writer has also not given due importance to highlighting the economic conditions prevalent at the time of two Programs. When the present government came into power, it embarked on its comprehensive reform agenda to reinvigorate the economy, spur growth, maintain price stability, provide jobs to the youth and rebuild the key infrastructure of the country, which were the main feature of its manifesto. Therefore, Pakistan entered into IMF program to improve the medium-term growth outlook, provide macroeconomic stability, strengthen its reserves and Balance of Payment position and open the window for multilateral, bi-lateral foreign funding for our mega development projects.

The present IMF program is the only program that has run successfully despite having a broad based structural reforms agenda besides the standard aggregate demand management features. Never before, the country has seen such major turn-around in its economic health as has been achieved during the program. All major economic indicators have recorded remarkable improvement. One cannot find rival examples of the bold initiatives the present government has taken in making the adjustments in administered prices and new tax measures even at the risk of losing its political capital. The government did not hesitate to clear the mess it had inherited and swallowed the bitter pill of taking tough decisions only to restore the economic health of country.

Thanks to these interventions, IBRD after a gap of 3 years has allowed Pakistan to access its funding facilities. Likewise, World Bank, ADB have opened their windows.  International rating agencies have changed their outlook from stable to positive and  China and Pakistan has signed agreements worth $46bn. 

The writer has, apparently, ignored all these facts and instead of acknowledging the milestone achievements secured as a result of the reform agenda, has tried to mislead the readers by comparing the presently ongoing EFF program and the previously SBA program totally out of context.

Syed Ejaz Wasti
Economic Advisor,
Ministry of Finance

 
22 February, 2015

Rebuttal - Finance Ministry Spokesman rebuts harangue by PTI Spokesman

The Spokesman of the Ministry of Finance here on Sunday, while responding to PTI spokesperson’s statement asking Finance Minister Ishaq Dar to disclose his assets and sources of income, said demanding same again is mere mischief mongering, height of ignorance and harping on the same string. He said the Finance Minister in his letter to PTI Chief Imran Khan had categorically stated that details of all his sources of income and assets have been regularly reported in his tax returns which he filed with the FBR. Details of his assets are also annually filed with Election Commission of Pakistan, which makes the same public through gazette notification and anybody can access this information and detail.

The spokesman said that it is once again clarified that contrary to PTI Chief Imran Khan’s claim of Finance Minister sending money to his son from Pakistan to Dubai, Finance Minister actually received from his son from Dubai to Pakistan through proper banking channels in settlement of loan given to his sons, out of his professional earnings abroad during the period 2002 to 2008. Finance Minister was then working as Financial Advisor and ex-officio Chief Executive. It is pity that instead of realizing the mistake after receiving aforesaid letter, the PTI spokesperson continued disseminating baseless and malafide stand in order to mislead people at large.

The spokesman said that just the other day, country’s top economists and professionals in a meeting at national level, endorsed Finance Minister’s repeated calls (to all political parties) for a ‘Charter of Economy’ but it appears that PTI leadership is hell bent to advocate for a ‘Charter of Acrimony’, something which we should all avoid at this critical juncture of our history in the national interest, the spokesman concluded. 

 
20 February, 2015

Rebuttal - Finance Minister's Letter to PTI Chief, Imran Khan

Download Finance Minister letter to PTI Chief, Imran Khan

 
25 January, 2015

Clarification - Finance Ministry Spokesman Clarifies reports on SBP Policy Rate Announcement

The spokesman of the Ministry of Finance here Saturday evening said that the decision about policy rate by SBP was taken at about 2 P.M today. It is important to note that is responsibility of the Secretary Finance to apprise the Finance Minister about the decisions of SBP Board of Directors after conclusion of its meeting.

As customary, the Secretary Finance informed the Finance Minister about the decision on policy rate after conclusion of the SBP Board of Directors meeting today.  The Minister in turn shared this information with the media at 4.00 P.M during his press conference.

Some media have reported that the Finance Minister announced the policy rate while the meeting of the SBP Board of Directors was still on which is misleading as the said meeting had already concluded at 2 P.M. The Finance Minister announced it at 4.00 P.M.

27 September, 2014

Clarification - Finance Ministry Spokesman Clarifies Reports about Hike in Power Tariff

The spokesman of the Ministry of Finance said here on Saturday that a section of media had carried misleading reports about hike in power tariff and inflated billing with certain insinuations.

The spokesman categorically stated that the Finance Ministry had nothing to do with the hike in power rates or for that matter with the inflated billing. In fact, the decision about raise in power rates was taken during the caretaker government prior to General elections 2013 but the then Minister for Water & Power had inexplicably withheld it.  He said the effect of that tariff had been fully absorbed during the last fiscal year. The spokesman affirmed that Finance Ministry was helping the Ministry of Water & Power to implement power sector reforms but the fact remained that all matters relating to power sector were the sole domain of the Ministry of Water & Power.

As far as the reported over billing last month is concerned, the spokesman clarified that it was the Finance Minister who recommended to the Cabinet to appoint independent auditors to scrutinize the reported over billing so that exact responsibility can be fixed, action taken against those responsible and corrective measures also be taken. The Cabinet approved the Finance Minister’s proposal and directed the Ministry of Water and Power to immediately appoint the independent auditors for the needful.

 
06 September, 2014

Rebuttal - Allegations of Allama Tahirul Qadri

Finance Minister Senator Ishaq Dar has said that the allegations of Allama Tahirul Qadri that at the time of taking over by this government, the total debt was Rs.6.5 trillion and during the last fourteen months the government has added Rs.5.5 trillion in public debt is absolutely incorrect and baseless.

He said that when the government of PML-N took over, the total public debt was Rs.14.5 trillion and during the last one year, there has been no significant increase in the overall public debt. He further said that the government is working on a well-planned comprehensive strategy to shift expensive debt into a cheaper debt in order to reduce the overall public liabilities.

 
13 August, 2014

Rejoinder to PTI's White Paper - A Pack of Lies

Download Rejoinder to PTI's White Paper

 
18 July, 2014

Rebuttal - Dr Yaqoob's news item titled "The IMF Whitewash", published in "The News" on July 10, 2014

Dr Yaqoob in his article “The IMF Whitewash”, (The News July 10, 2014) has mentioned that the growth which the government has estimated at 4.14 percent is contrary to what the IMF in the report have estimated at 3.3 percent and the inflation rebounded to 9.2 percent year to year in April and 12 month inflation likely to edge up to 9.5 percent by end June, 2014. Similarly he has also made some comments on the monetary expansion, budget as well as public debt
.
The writer is totally wrong in his statement that” “The selected economic indicators show a decline in the rate of economic growth from 3.6 percent in FY13 to 3.3 percent in FY14”. He should understand that IMF earlier estimated growth at 2.5 percent, which was scaled up to 2.8 percent in first review and further 3.1 percent in the second review and thereafter to 3.3 percent in their third review based on two quarterly economic and financial performances, which they termed positive development on the part of Pakistan economy.

Similarly, the writer should also understand that IMF earlier projected 10 percent inflation and in third review revised down to 9.5 percent on the basis of contained inflationary trend since November, 2014, which had risen to double digit. Furthermore the full year data has been released, according to which inflation is restricted at 8.6 percent despite adjustments in administrative prices, which were delayed by the previous government and huge stock of subsidies were building up and fiscal deficit was rising. These achievements may be looked into the background when economy was facing challenges like security issues, lost confidence of the investors, high fiscal deficit, low tax collection, high budgetary borrowing, and unstable exchange rate and depleted foreign exchange reserves etc.
It is important that the writer should understand that the 4.14 percent growth was based on three quarters economic performance against the revised growth of 3.7 percent for 2012-13, which increased on account of present government followed a focused policy particularly resolving energy crises which helped in stimulating muted LSM growth. IMF has acknowledged that Pakistan’s economy is improving and program is on track. Moreover, it is equally important for thewriter to understand that the growth numbers are based on nine months data. These numbers are provisional and remain provisional till full data becomes available over the following months. He should also understand the methodology of IMF working, which estimates the growth numbers on the basis of economic performance of major economic indicators based on the available statistics at the time of their estimation.

The writer has also mentioned that the monetary sector continues to show high rate of increase in money supply which at 12.4 percent in FY14, is four times the increase in output.
The writer should look into the latest estimates of monetary aggregates, according to which broad money grew at slower pace during July-2013 to 27th June FY14 than expected earlier. As it increased by 12.19 percent (Rs.1,079.6 billion) against the expansion of 16.40 percent (Rs.1,253.5 billion) in the comparable period last year. Moreover, government borrowing was significantly contained as it stood at Rs.287.2 billion from Rs.1,320.3 billion over the previous period. Considerable fall in government borrowings from the banking system, due to contained fiscal deficit and higher financing from non-bank sources was the main reason behind this deceleration in monetary expansion. It is also worth noting that this growth is well in line with SBP’s projection according to which money supply was expected to grow between 12-13 percent for FY14.

Present government has undertaken fundamental structural reforms such as reduction in un- targeted subsidies, broadening tax base, restructuring PSEs, building foreign exchange reserves, rationalizing expenditure and reducing fiscal deficit to overcome the challenges faced by the government at the beginning of its terms.

Budget deficit is considered as the main cause behind economic instability as it leads to both inflation and exposes the country to external vulnerabilities. In this regard, the government is making significant progress in reducing deficit, as it was brought down to 5.8 percent from 8.2 percent last year and lower than target of 6.3 percent. This year it will be brought down to 4.9 percent.

Present government is following a comprehensive resource mobilization strategy with the aim to increase tax to GDP ratio to 15 percent in the next few years. It comprises three-pronged measures such as broadening of tax base, removing anomalies in the taxation system improving tax compliance, and elimination of SROs regime with an aim to evolving a simple, transparent and an equitable tax structure. These efforts will also lead to a tax regime which will help in promoting the growth paradigm.

It is also pertinent to mention here, that number of SROs issued over many years have now been focused to phase out the concessionary regime, which has not only caused huge loss to national exchequer . In this connection a high-powered committee approved by the Prime Minister diligently reviewed and extensively deliberated on the entire concessionary regime on the basis of principles developed after broad-based consultations. The committee, which included representatives of trade and industry, recommended phasing out of the concessions over a period of three years, which has been approved.

In order to maintain the fiscal discipline, government has stringently focused on prudent expenditure management through curtailing current expenditures, phasing out of electricity subsidies and restructuring of PSEs.  Moreover, the provinces have supported the consolidation efforts and are on-track to deliver the envisaged surpluses. As far Dr Yaqoob’s claim on “drastic cut in development expenditure is concerned, it is to be mentioned that no such drastic cut was imposed during the current fiscal year. Rather, government was more cautious in executing development plans. In this regard, government is giving priority to only those sectors of the economy whose revival is crucial for the sustainable economic growth of the economy like irrigation, water, power, infrastructure and education.

Similarly to enhance export led growth, number of measures has been introduced for export promotion such as:

  • The Government has decided to set up the Export-Import (EXIM) Bank of Pakistan to enhance export credit and reduce cost of borrowing for exporting sectors on long term basis and help reduce their risks through export credit guarantees and insurance facilities.
  • The Government, through the State Bank of Pakistan, has arranged to reduce its mark-up rate on exports finance from 9.4% to 7.5%, which will bring it in line with such rate prevailing in the countries competing with Pakistan which will reduce the financial cost of exporters by 2%;
  • The Government, through the State Bank of Pakistan has arranged to reduce its mark-up rate on long term financing facility for 3-10 years duration from around 11.4% to 9%w.e.f 1st July 2014 which will reduce financial cost of exporters by 2.4%;
  • A tariff rationalization program, being announced in the present budget, which will gradually remove the anti-export bias in country’s tariff policy and make exports more competitive.
 
03 July, 2014

Rebuttal - Mr. Shahbaz Rana news item titled "Deviating from the agreement: Bureau of Statistics violates IMF's guidelines" appeared in daily "Express Tribune" on July 03, 2014

To
                   The Editor,
                   The Daily Express Tribune,
                   Islamabad

Subject:       REBUTTAL

Dear Sir,

I want to invite your attention towards the article captioned “Deviating from the agreement: Bureau of Statistics violates IMF’s guidelines” by Mr. Shahbaz Rana dated 03rd July, 2014.The author has based his article on the policy decision of the Governing Council where in it was decided that quarterly GDP figures would be released within 3 months of the quarter however, the announcement of quarterly GDP growth number has not been released till June 30.

It is clarified that the author has mislead his readers by providing partial/incomplete information. Pakistan Bureau of Statistics posted the annual release calendar, duly approved by the Governing Council on its website in October, 2013. As per the release calendar, Q3, Q4 and annual GDP growth numbers combined to be released in May. The detail clarifies that provisional figures, revised and final figures of previous years will be released. A cursory reading of the same would show that the PBS has not deviated from its schedule. As for numbers for all four quarters, they would be released in October after reconciliation with annual accounts.

It is further added that Pakistan has not yet subscribed to the Special Data Dissemination Standards of IMF. It was in the ROSC Report of IMF of 2004 that recommendation was made to prepare Quarterly GDP data so that Pakistan could graduate to SDDS. Therefore, question of violation of SDDS does not arise.
 
26 June, 2014

Rebuttal - Syed Khalid Mustafa news item titled "GDP Growth Worked Out?" appeared in daily "The News " on June 23, 2014

The News item titled “GDP Growth Worked Out?” written by Syed Khalid Mustafa published in daily “The News” dated June 23, 2014 is misleading and based on an ignorance of the system of computation of GDP estimates followed in Pakistan as well as internationally. The author is harping on the issue that the GDP growth number for 2013-14 are much lower than those estimated by the PBS. This issue has already been responded by Pakistan Bureau of Statistics (PBS) in different newspapers.

It is clarified that annual estimates of GDP as well as GFCF for the year 2011-12 (Final), 2012-13 (Revised) and 2013-14 (Provisional) were approved by the National Accounts Committee (NAC) Meeting on 15th May, 2014 purely on the basis of data available up to that point of time and not in accordance with the desires of any one in the government hierarchy. The data for the balance of the year is projected, which is the reason that these numbers are provisional, and remain provisional till full data becomes available over the following months.

The correspondent has also commented on the quarterly GDP estimates. The first quarter growth and the second quarter/mid-year growth, both were released by PBS; one is acceptable to the writer while the other is not. The IMF accepted the figure of PBS which should be ample proof of the reliability of the statistics released by PBS.

As far as the question of withholding the information of large scale manufacturing is concerned, it is completely baseless. The Quantum Index Manufacturing Industries (QIM), the indicator being used to measure the performance of this sector, is compiled on the basis of information received from three major sources including Oil Companies Advisory Committee (OCAC), Ministry of Industries and Provincial Bureau of Statistics which takes time and is published after certain time lag. The latest available information was up to the month of February, 2014 was used to derive the estimates of large scale manufacturing which were approved by the NAC. Further, the writer has completely misstated the facts by quoting that the budgeted PSDP of Rs. 1150 billion has been used in the compilation of value addition of construction. The fact is that total value addition of construction sector even at current prices is Rs. 494.3 billion; therefore, the question of inclusion or exclusion of these PSDP figures is not relevant.

The correspondent has also mistakenly attributed the profits of commercial banks with the value addition of finance and insurance sector. The value addition of this sector, being compiled through Financial Intermediaries Services Measured (FISM), is based on the amount of advances and loans and not on profits of banks.

The correspondent gives his verdict that the GDP growth is 3.5 %. He has not given any analysis to support his claim but has picked up a number that is being bandied about in the press. The commentators need to familiarize themselves with the methods of GDP computation before commenting on technical issues.

In connection with his view on budget number to show lower budget deficit; it is stated that writer’s view is not correct. PTA is a Government Authority responsible to collect the licensing / auction fees on behalf of the Federal Government and such auction fees on behalf of the Federal Government and such auction fees are always form part of the Federal Consolidated Fund. Similarly, the non-tax revenues receipts are revenue of the Federal Government administered by various Ministries/Divisions/Departments and comprise of following main sources:

i)          Income from property and enterprise.
ii)         Receipts from civil administration and other functions.
iii)        Miscellaneous receipts.

The income from property includes the mark up recovered from the Provinces and Public Sector Enterprises, Dividend and other receipts of the Regulatory Bodies. The receipts from Civil Administration comprise of State Bank of Pakistan (SBP) Profit, Defense Receipts, Law & Order Receipts etc. The Foreign Grants are reflected under non-tax receipts according to the Chart of Accounts, as per International Best Practices. These are always form part of the Federal Government and the actual receipts under these heads can be verified from the historical data disseminated on the Website of the Finance Division.
 
21 June, 2014

Rejoinder - Daud Khan Daudzai's report titled "Sirajul Haq Blames Centre for Capital Flight from KP" appeared in daily "The News" on June 16, 2014

Reference Daud Khan Daudzai’s report titled “Sirajul Haq Blames Centre for Capital Flight from KP” published in daily “The News” Rawalpindi dated 16 June, 2014.

The Senior Minister for Finance Khyber Pakhtunkhwa (KPK) while addressing a post budget press conference blamed the policies of the Federal Government that led to a war like situation in the Province and causing a huge capital flight from KPK province. The respectable Minister need to remember the fact that the War against Terrorism is not started in the current regime, rather this situation is ongoing since 2001. This conflict and instability adversely impacted the overall growth in all major sectors of the economy.

Pakistan on the whole continues to pay a heavy price both in the economic & security terms due to this situation and substantial portion of precious national resources both men & material, have been directed to address the emerging security challenges for last several years. During the last 13 years, the direct & indirect cost incurred by Pakistan due to incidents of terrorism amounted to US$ 102.51 billion.

The present government’s resolution is to provide enabling environment conducive for investment in all over the country. The government has taken a number of measures to restore confidence of the investors and other stakeholders which includes efforts on better energy supply, launching of EURO bonds, successful launching of long pending 3G/4G licenses, achieving of GSP plus status, initiatives on infrastructure developments etc. These initiatives are improving investment climate not only in the KPK but also in all parts of the country. Government is also making best efforts on various dimensions by taking all stakeholders on board to improve the security situation in all part of the country including KPK to increase the confidence level of the economic agents to improve investment climate in the country.
 
21 June, 2014

Rejoinder - Dr. Yaqoob's article titled "Flawed Economic Management" appeared in daily "The News" on June 18, 2014

Reference article titled “Flawed Economic Management” by Dr. Muhammad Yaqub, published by daily The News on 18 June, 2014.

The article states that the present government is following the same path as the previous governments in their reliance on borrowing without any effort to restructure economic policies for improving economic indicators viz. net foreign exchange reserves and the nominal effective exchange rate. The article also highlights that the reserve build-up has been made possible by large-scale foreign borrowing, a one-time large grant from Saudi Arabia, sale of bonds in the international markets and continuous rise in home remittances, none of which are policy-induced inflows. The article goes on to mention that the policy-related fundamentals of the balance of payments have recorded deterioration, the current account deficit is widening, remittances are not sustainable,  excessive foreign borrowing would need to be serviced and repaid by generations to come and the real effective exchange rate is appreciating, all of which are alarming signals for the future. The present government is not following the same path as the previous government, which is evident from the facts narrated below:

a.    During the tenure of the present government, the economy has recorded a growth of 4.14 percent, highest since 2008-09. The current account deficit has remained at 1 percent of GDP while inflation was contained within a single digit. Moreover, the projected fiscal deficit for the FY 13-14 is expected to be below 6 percent as compared to over 8 percent during last fiscal year.

b.    As regards building of foreign exchange through borrowing from IMF, it may be mentioned that the present the government is not a net borrower from IMF as it has paid $3247 million to IMF and has received only $1653 million, which shows a net repayment of $1594 million.   Moreover, improvement in foreign reserves during the current financial year is an evidence of confidence of investors I International Financial Institutions' in Pakistan's economy. As a result of the efforts of the government, the foreign exchange reserves improved and stood at US$ 13.89 billion on 19th June 2014.

c.    As far as home remittances are concerned, the government has taken steps to ensure sustainability of these inflows through policy measures focusing on promotion of formal channel for international remittances through banks and money transfer services under its Pakistan Remittances Initiatives (PRI).

d.     The present government has undertaken fundamental structural reforms such as reduction in un-targeted subsidies, broadening tax base, restructuring PSEs, building foreign exchange reserves, rationalizing expenditure and reducing fiscal deficit to overcome the challenges faced by the government at the beginning of its term.

e.    The present government has also initiated a number of steps to address energy shortfall and improve law and order situation in the country. It is expected that with the increased availability of power and gas supplies to industrial units, improved law & order situation and grant of GSP Plus status by the EU, our export earnings are likely to increase in future.

f.     With regard to the observation that appreciation of Real Effective Exchange Rate (Reer), is due to a continuous higher differential in the inflation rate with its trading partner, it is stated that REER is dependent on Relative Price Index (RPI) and nominal effective exchange rate. With the appreciation of the nominal exchange rate and expected decline in inflation, REER would improve.
 
21 June, 2014

Clarification - Aftab Ahmed Sherpao news item titled "No allocation has been made in the Budget for IDP's affected by operation" appeared in daily "Dunya" on June 17, 2014

Reference news item titled “No allocation has been made in the Budget for IDP’s affected by operation; Aftab Ahmed Sherpao” published in daily “Dunya” dated 17th June, 2014. The observation made by the Member National Assembly is not based on facts.

The Government has decided to launch operation named “Zarb-e-Azab” in North Waziristan area of Pakistan to eliminate militants after presentation of Budget 2014-15 on 3rdJune, 2014 in the Parliament. Therefore, Budget allocation specifically for IDP’s is not included in the Budget 2014-15.

Our brave forces have assigned the task to eliminate militancy in North-Waziristan and they have started operation accordingly to bring ultimate peace in the homeland. Present Government is fully committed to continue the operation as long as the militancy is completely wiped-out from the country and the Government will provide all required resources to complete the operation which is ensured by the Finance Minister in the Parliament. The Finance Minister further assured that Government will provide all necessary assistance to IDPs so that they can meet their basic needs and live a smooth & comfortable life.

Under the constitution, Government can re-appropriate funds from one head to another to meet unforeseen or any abnormal expenditures. There is also provision to make excess expenditure when it becomes necessary in certain circumstances through Supplementary Grants. However, keeping in view of the emergent need/ground fact, the government has released Rs.500 million through Supplementary Grant with the approval of Honorable Prime Minister. Further release will also be considered after utilization of this released amount.
 
20 June, 2014

Clarification - Mr. Shahbaz Rana news item titled "Unsatisfactory Progress: IMF puts off fourth Review of Pakistan's Economy" appeared in daily Express Tribune on June 18, 2014

Reference news item entitled “Unsatisfactory Progress: IMF puts off fourth Review of Pakistan’s Economy” by Mr. Shahbaz Rana, in the Express Tribune on June 18, 2014. The news item has inaccurately stated the facts and circumstances surrounding the upcoming fourth review by the IMF.
The news item highlights that the fourth review under the IMF Extended Fund Facility was scheduled to be held during mid July in Istanbul and is delayed because of the slow progress on restructuring the power sector’s regulator and the delay in appointing a financial advisor for the privatization of PIA. Delay in the restructuring of NEPRA will also affect the privatization plan for power distribution companies.

It is clarified that the fourth review under the IMF Extended Fund Facility is tentatively planned in August 2014 and not in July and the place of the meeting is also not decided as yet. Most of the Policy Actions and Structural Benchmarks for the fourth quarter of FY 13-14 are to be met by end June 2014 and therefore it is early to judge if the Government is lagging behind on them or not. It is clarified that there is no delay on account of slow progress of GoP to undertake necessary policy actions. The fourth review meeting is as scheduled which is the quarterly after the last review in April, 2014.

On the restructuring of NEPRA the government is on track, entry and middle management positions have already been hired to enhance the technical capacity of the regulatory body and in order to begin addressing the administrative and technical constraints a diagnostic study of the regulatory framework of power sector has been conducted and an interim report prepared. Moreover, it is incorrectly stated that NEPRA has refused to accept government’s directives on T&D losses. The ECC had approved the issuance of policy guidelines to NEPRA for rationalization of line losses. NEPRA has already carried out a review filed by DISCOs and favorably considered a revision of T&D losses. Extensive work has been done by the GoP on a three year plan to phase out tax exemptions granted through the SROs. Initial phase of removal of exemptions has also been incorporated in the Budget 2014-15.

It is also clarified that the government is committed to restructure and strategic sale of PIA. For this purpose, the process of the appointment of the Financial Advisor is in progress. The advertisement has been placed in the newspaper and the appointment is expected to be finalized within the stipulated time frame.
 
18 June, 2014

Clarification - Reference news item appeared in daily "Express " on June 16, 2014 in which it was stated that public debt has reached Rs.18, 795 billion and increased by Rs.4, 795 billion since July 1, 2013.

This is with reference to news item appeared in Daily Express dated June 16, 2014 in which it was stated that public debt has reached Rs.18, 795 billion and increased by Rs.4, 795 billion since July 1, 2013. It was further mentioned that out of this total increase, two third was contributed by external debt. It appears from the news item that the reporting of the public debt is incorrect as it contains self contradictory statements. For example the reporter has mentioned in the later part that Rs. 4,795 bullion was obtained from the external sources while in the earlier part he reported that out of this amount two-third is from the external sources.

It is clarified that the public debt at the end of April, 2014 stood at Rs. 15,851 billion and not Rs. 18,795 billion. Similarly increase in public debt since July 1st 2013 is Rs. 1,484 billion and not Rs.4795 billion. The increase in external debt since July 1, 2013 is Rs.105 billion and not Rs.4, 795 billion.
 
16 June, 2014

Rebuttal - Mr. Shahbaz Rana report titled "Playing with numbers: Projecting a rosy picture" appeared in daily "Express Tribune" on June 16, 2014

The above titled report appearing in the Express Tribune on 16-6-2014 by Mr. Shahbaz Rana is an extremely irresponsible report based, as it is, on the figment of imagination of the writer.

Regarding the first allegation of fudging relating to the growth rate for the year 2013-14, his detailed report appearing in the Express Tribune dated 7th June, 2014 has been rebutted extensively by the Ministry of Finance and a version of it was published in the Express Tribune on 12th June, 2014. Accordingly, we need not add anything more to this baseless allegation.

His second allegation regarding fudging of deficit figures is again baseless and reflects a lack of proper understanding to read budgetary documents on the part of the writer. Here again, a detailed rebuttal of the report has been issued to the Express Tribune today, a copy of which is also enclosed herewith.

His final allegation relates to withdrawal of exemptions worth Rs.103 billion, which he claims to be inflated and alludes to budgetary documents for the same without making any specific references. It is reaffirmed that the measures announced in the budget relating to withdrawal of SROs will have financial impact of Rs.103 billion.
 
16 June, 2014

Rebuttal - Reference news item appeared in daily Express Tribune on June 14, 2014 titled "Figures fudging? Budget deficit understated by Rs.280 billion"

The daily EXPRESS TRIBUNE in its paper for 14 June, 2014, carries an article titled "Figures fudging? Budget deficit understated by Rs.280 billion".

The subject article mistakenly asserts that the federal government has excluded items such as other development expenditure worth Rs.162 billion and net lending of Rs.120 billion from its calculation of the budget deficit at 4.9% of GDP or Rs.1424 billion projected for the fiscal year 2014-15 in the budget documents and as such the budget deficit has been understated by Rs.280 billion.

The Finance Minister announced the Budget 2014-15 on 3rd June 2014 in the National Assembly. Just after the announcement of the budget all budget documents including the budget speech were uploaded on the Website of the Ministry of Finance "www.finance.gov.pk" for general information and awareness about the budget.

In the document Budget in Brief, available on the website, a table at page 47 provides details of the calculation of the fiscal deficit and financing thereof during the year 2014-15.Gross Federal revenue receipts for FY15 have been estimated at Rs.3945 billion. After transfer of Provincial share in revenue amounting to Rs.1720 billion, net federal revenue receipts work out at Rs.2225 billion. In turn, the total federal expenditure estimated at Rs.3936 billion includes Rs.3130 billion for current expenditure and Rs.806 billion for development and net lending.  The development expenditure of Rs.806 billion is made up of federal public sector development program at Rs.525 billion, other development expenditure Rs.162 billion and net lending at Rs.120 billion. The federal budget deficit of Rs.1711 billion is estimated after taking thedifference in federal revenues and expenditures. When the estimated provincial surplus of Rs.289 billion is factored in we are left with an overall fiscal deficit of Rs.1422 billion or 4.9% of GDP.

From the above clarification, it is abundantly clear that all items of expenditures have been accounted for and nothing understated in working out the budgetdeficit.
 
09 June, 2014

Rebuttal - Reference news item entitled "Budget confirms agriculture not on government's priority list" by Mr. Usman Cheema published in Daily "The Nation" dated 09-06-2014)

Reference news item entitled “Budget confirms agriculture not on government’s priority list” by Mr. Usman Cheema published in Daily “The Nation” today (9-6-2014).

The facts have been ignored in the news report regarding measures related to agriculture sector announced in the Federal Budget 2014-15. It indicates lack of information and understanding about the initiatives undertaken in agriculture sector by the Federal Government. The government has announced a number of measures to provide incentives to the agriculture sector, including introduction of Credit Guarantee Scheme, Crop Loans Insurance Scheme, Live Stock Insurance Scheme, enhanced credit to farmers, reduction of sales tax on tractors, etc.

Through the Financial Bill the government has proposed to introduce Credit Guarantee Scheme in order to encourage banks for financing small farmers. The Government through State Bank of Pakistan will provide guarantee to banks for up to 50% loss sharing. It will benefit 300,000 farmers and size of the total disbursement will be Rs.30 billion.

Reimbursement of Crop Loan Insurance Scheme will cover the risk to various crops for farmers with land holdings up to 12.5 acres. Budget cost of this scheme is Rs 2.5 billion. Moreover livestock insurance scheme for all farmers up to 10 cattle has been introduced with allocation of Rs. 300 million.
It has also been proposed to reduce sales taxes on tractors from 16 percent to 10 percent and this reduction alone will benefit the whole farming sector in Pakistan. The government will also provide facilitation through State Bank of Pakistan for developing a mechanism to establish quality warehouses, cold storages and cold chains.

Last but not the least, during the next financial year the SBP will provide Rs.500 billion credit to the farmers and it will result in enhancing framers’ productivity.
08 June, 2014

Rebuttal - Allegation made by Mr Imran Khan and Mr Asad Umar in the Press Conference regarding measures announced in the budget are factually incorrect and indicate lack of information and understanding about the issues involved

Replies to Imran Khan’s Allegations (Finance Division related)

  • The allegation made by Mr Imran Khan and Mr Asad Umar in the Press Conference regarding measures announced in the budget are factually incorrect and indicate lack of information and understanding about the issues involved.  For example, it has been claimed that Rs.100 billion have been placed at the disposal of Maryam Nawaz Sharif for youth schemes. It is categorically stated that not a single penny is at the disposal of the Chairperson of the schemes.  All the schemes are being run by the Finance Division with the help of other banks and institutions and loans are being provided by the banks through a transparent mechanism.
  • It is also factually incorrect that the government has taken or is considering to take loans of US Dollar 50 billion and thus has mortgaged the next two generations. The government has only entered into Extended Fund Facility (EFF) with the IMF for an amount of US$ 6.64 billion, mainly to pay back previous loans that were becoming due. Even in 2013-14 payments to IMF were higher as compared to inflows of US $ around 2.20 billion.  In addition, concessional loans of US$ 1.4 billion have been obtained from the World Bank and ADB besides tapping the international market through US$ 2 billion Eurobonds. 
  • It is also incorrect that the development funds of provinces other than Punjab have been cut to provide funds for development projects in Punjab. All Provinces have been and are being allocated funds as per NFC Award and there has been no cut in the development funds of any province.  The Karachi Circular Railway and Lahore Orange Line are two entirely separate projects.  The Karachi Circular Railway is to be funded by the Japanese assistance and Lahore Orange Line has been funded with Chinese assistance. The Karachi Circular Railway project’s funding remains unaffected due to the planned Lahore Orange Line Project. 
  • The expenses of Prime Minister’s House were drastically cut upto 40% in 2013-14 and in 2014-15 budget funds for only essential requirements of PM House have been allocated.
  • It is this government which took notice of news reports regarding US$ 200 billion lying in Swiss banks and contacted the Swiss government. The government is now in contact with Swiss authorities to allow access to reported US $ 200 billion in the Swiss banks. FBR will hold negotiations with the relevant Swiss authorities in August, 2014 for amendments in the bilateral agreement that will allow access to Swiss bank accounts under the new Swiss Law. The government should be appreciated for taking these steps. 
  • A member of Mr Imrna Khan’s party had predicted that the Pak rupee would depreciate to Rs 127 to a dollar while his ally had stated that Pak rupee would never come down to Rs 98 to a dollar. The government took a number of steps to curb speculative activity and raise forex level. This first stabilized the exchange rate and then resulted in appreciation of the Pak rupee. This has happened only for the second time in the history of Pakistan. The previous such instance was also during PML(N) government. Instead of criticizing the government of bringing down the exchange rate, Mr Imran Khan should actually be appreciating the government for the steps taken in this regard which have not only brought down the country’s debt by around Rs 700 billion but will also attract Foreign Direct Investment thereby benefitting the masses.
  • The claim by Mr. Shah Mahmood Qureshi that the agriculture sector has been    neglected in the present budget is incorrect.  The government has announced a number of measures to provide incentives to the agriculture sector, including introduction of credit guarantee scheme, crop loans insurance scheme, live stock insurance scheme, reduction of sales tax on tractors, etc.

  • The claim by Mr. Asad Umar that the inflation rate in the country rose by 60% and the trade deficit rose from $ 1.5 billion to $ 2.1 billion is also not borne out by facts and statistical data. Inflation in the last five years averaged 12% while the present government has brought it down into single digit. Inflation during 2013-14 would have been even lower if the previous caretaker government had taken necessary revenue measures and also raised power tariff appropriately.
 
05 June, 2014

Rebuttal - Reference editorial published in "Daily Dawn" titled "A disappointing budget"

Contrary to what has been asserted in the editorial “A disappointing budget” in today’s Dawn, the current economic situation of the Country is much better as compared to exactly one year back when the new government took over.

It’s unfortunate that the editorial has ignored the mismanagement of the last decade while analyzing the Economic Survey for 2013-14 and did not focus on the strategy undertaken by the government to bring in structural reforms in the economy through the medium term frame work. Using Clichés like run-of-the-mill, business-as-usual, few-new-ideas for the budget 2014-15 could only be used at the altar of objectivity for which Dawn used to be known for. It has become an old fashion to dismiss the change and progress by criticizing something which otherwise is opposite to reality.

As the Finance Minister said in his budget speech that the current year was fire fighting year and after period of consolidation and reforms we have now adopted to look Out Of the Box and shifted in different modes to bring consistencies in the policies for betterment of the economy. We have now focused on lengthening the maturity profile to reduce the re-financing risk along with sufficient provision of external inflows to help in reducing the pressure on domestic resources. The government has also launched secondary market trading of government debt securities at the stock exchanges in the country which will also be helpful in obtaining long term financing for the government in future.

Similarly, the Government reviewed the Statutory Regulatory Orders (SROs) issued over the last few decades with an independent and open mind and conducted an exercise to remove distortions and disparities created due to the issuance of arbitrary SROs. Multiple SROs are being eliminated through Finance bill 2014-15 and the whole cleansing exercise will take 3 years to be completed.
 
23 May, 2014

Rebuttal - Reference editorial titled "Austerity Drive" published in Daily Nation

Reference editorial entitled “Austerity Drive” published by the Nation today. The editorial is not only based on factually incorrect news item but also contains unfounded assertions.  

The matter of the fact is that the premier civilian intelligence agency of Pakistan, in the wake of prevailing spate of terrorism and the increased level of threat, moved a summary for the purchase of two high security vehicles for security duties which are adequately equipped to meet the requirements. It may be mentioned that there were frequent visits to Pakistan by the foreign dignitaries in the last six months and the requirements to purchase these two cars were aimed at providing fool proof security during these high profile visits. The Cabinet Division did not have the resources to meet the specific requirements.

Moreover it’s the prime duty of the intelligence agency to identify and neutralize threats to national security and it employs human and material resources for this purpose. The permission to import two cars for security purposes was granted in the view of the above mentioned circumstances and not for any other purposes.

The exemption from taxes was granted with a view to minimize public expense. It is categorically denied that these cars have been purchased for the Prime Minister or are being included in his security detail. These vehicles are exclusively reserved for the V.I.P dignitaries visiting from abroad.

It is highly unfortunate that instead of appreciating government’s economic performance in the last 10 months, the editorial has criticized the Government on the counts where economy has performed much better as compared to the corresponding period of the last fiscal year. Revenue collection has been Rs. 1745 bn in July- Apr 2013-14 as compared to Rs 1509 in corresponding period of last fiscal year, registering an increase of 15.6 %. Similarly budget deficit has decreased to 4.0 % as compared to 5.5 % in the same period. Trade deficit has been down by 2.5 % and GDP growth rate is 4.1% as compared to 3.4% in first half of the financial year.

 It is due to better economic performance that the international financial institutions including World Bank and Asian Development Bank are back in business with Pakistan after lapse of 5-7 years. Moreover State Bank of Pakistan forex reserves have increased significantly in the last 6 months and have reached around US $ 9 Billion. This is a level where the country can deal with international institutions in a dignified manner.

The reference to borrowing and debts is again misrepresentation of the true picture. It is the responsibility of the government to pay back what the country owes to the financial institutions and the present government has paid back US $ 800 million more than what it has borrowed during the current fiscal year till March 2014. It may be mentioned that there is no increase in the overall debt of the Country. The government has retired equivalent value highly expensive domestic debt as a result of foreign inflows, which has saved billions of rupees to the government on account of interest only.

 
22 May, 2014

Rebuttal - Reference Khawar Ghumman's news item titled "PM gets two BMWs amid austerity claims" published in Daily Dawn

Reference Khawar Ghumman’s news item entitled “PM gets two BMWs amid austerity claims” published today in Daily Dawn. The news item contains information which is contrary to the facts.

The matter of the fact is that the premier civilian intelligence agency of Pakistan, in the wake of prevailing spate of terrorism and the increased level of threat, moved a summary for the purchase of two high security vehicles for security duties which are adequately equipped to meet the requirements. It may be mentioned that there were frequent visits to Pakistan by the foreign dignitaries in the last six months and the requirements to purchase these two cars were aimed at providing fool proof security during these high profile visits. The Cabinet Division did not have the resources to meet the specific requirements.

Moreover it’s the prime duty of the intelligence agency to identify and neutralize threats to national security and it employs human and material resources for this purpose. The permission to import two cars for security purposes was granted in the view of the above mentioned circumstances and not for any other purposes.

The exemption from taxes was granted with a view to minimize public expense. It is categorically denied that these cars have been purchased for the Prime Minister or are being included in his security detail. These vehicles are exclusively reserved for the V.I.P dignitaries visiting from abroad.

As far as austerity is concerned, the Finance Minister Senator Ishaq Dar has introduced financial discipline in the Federal Government. It should be appreciated that for the first time in the history of Pakistan, discretionary funds of the Prime Minister and the Federal Ministers have been abolished. Moreover, the secret funds of the Federal Ministries excluding national security institutions were also abolished.

It is pertinent to mention here that there was a cut in non salary expenditure of the Prime Minister’s Office by 40% and of the Federal Ministries by 30% in the current fiscal year. Furthermore it is due to prudent austerity measures that the government has been able to control the fiscal deficit to 4.0 % during July 2013 to April 2014 as compared to 5.5% in the corresponding period of the last financial year.
 
20 May, 2014

Rebuttal - Reference news report published in Daily Nawa-e-Waqt on May 12, 2014 titled "Qarzay lene ki huddain par, ghair mulki qarzay 60% ki muqarara hudd se tajawaz"

This is with reference to the news report published in Daily Nawa-e-Waqt on May 12, 2014 titled “Qarzay lene ki huddain par, ghair mulki qarzay 60% ki muqarara hudd se tajawaz”.

The news report has made certain incorrect statements such as the external debt has crossed the ratio of 60% of GDP and has increased by US$ 15 billion during the tenure of the current government, further the report has also mentioned that the external debt is expected to reach US$ 72 billion by the end of the current fiscal year.

In the later part of the same news report there are certain contradictions such as; the external debt is 27.7% of the GDP; during the current fiscal year, external debt has decreased; public debt is expected to remain below 60% during the current fiscal year.

The Ministry of Finance would like to set the record straight by presenting a truthful picture to the public for removing any misconception which might have aroused in the minds of the readers. First of all, the report has mentioned that the external debt to GDP ratio has reached over 60% but in reality it is just 19.2%. Secondly, the article mentioned that the external debt has increased by 15 billion dollars in the current fiscal year but we would like to mention that our government has been efficient and responsible in paying off its liabilities which have accumulated because of the imprudent fiscal management of our predecessors but still are the responsibility of the Government of Pakistan. We have paid 800 million dollars more than what we have borrowed during the current fiscal year till March 2014.

We hope that your newspaper will also give the rebuttal prominent place on its pages.

 
19 May, 2014

Clarification - Reference new items published on May 08th 2014, in the national press, containing comments of former Finance Minister Dr. Hafeez Pasha made while speaking at an event on budget proposals organized by the Institute for Policy Reforms.

Reference new items published on May 08th 2014, in the national press, containing comments of former Finance Minister Dr. Hafeez Pasha made while speaking at an event on budget proposals organized by the Institute for Policy Reforms.

The comments and conclusions drawn were not only based on inaccurate facts and figures but also contained assumptions dependant on future transactions without taking into account the repayments of loans being made regularly.

We must not forget that the present government started off its term with inherited challenges including large fiscal deficit, unfavorable balance of payment position, depleting foreign exchange reserves, limited revenue base, rising current expenditures, circular debt, energy crises, flight of capital and shaken investor’s confidence. Add to it Pakistan needed to pay off the due repayments to IFIs including IMF.

The statement regarding signing/loan agreements amounting to US$ 52 billion presents one side of the picture. It is worth mentioning that borrowing is beneficial for economic development of any country as long as it is undertaken to facilitate the well thought out road map devised with due diligence. As the above mentioned borrowing will be mostly done for the development purposes & BoP support and that too on concessional terms, it will accelerate the pace of economic growth and help the government to accomplish its social and developmental goals. These loans are expected to remove the structural bottlenecks which are hindering the development of the economy like energy crises. Dr. Pasha has already endorsed the government plan to revive the     energy sector as most of the current borrowing is done to overcome the energy      crises. These loans will promote economic development and bring prosperity to the future generations instead of exerting dire consequences.

It is most important to mention that Mr. Pasha ignores the fact that the government is required to repay over US$ 30 billion in next 10 years while maintaining sufficient foreign exchange reserves. The said amount will result in reduction in public debt stock. Moreover, the above mentioned loans would be disbursed over next 3 to 7 years and not a part of public debt today, therefore, presently the government is not in violation of Fiscal Responsibility and Debt  Limitation Act, 2005.

Regarding Dr. Pasha’s suggestion that the government should prepare a detailed medium term action plan to come up within the limits imposed by the Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005, the government has already taken appropriate measures in this regard through; Medium Term Budgetary Statement (2013-14 - 2015-16) and Medium Term Debt Management Strategy (2013-14 - 2017-18).

Medium Term Budgetary Statement (2013-14 - 2015-16) was presented to the National Assembly along with the budget 2013-14. According to said statement, the public debt to GDP is projected to be brought down to 55.2 percent by 2015-16.

The government has also developed its first Medium Term Debt Management Strategy (MTDS) to ensure that both the level and rate of growth in public debt is fundamentally sustainable and can be serviced under different circumstances while meeting cost and risk objectives. The MTDS contains a policy advice on an appropriate mix of financing from different sources with the spirit to uphold the integrity of the Fiscal Responsibility & Debt Limitation Act, 2005. In accordance with MTDS  public debt to GDP ratio is expected to be around 52 percent by end of 2017-18 which is well below the threshold of 60 percent as mentioned in Fiscal Responsibility & Debt Limitation Act, 2005.

It may be mentioned that there is no overall debt increase. As a result of the external financing, the Government of Pakistan has off loaded a proportionate domestic debt. Moreover, the rate of interest on  domestic borrowing is over 12% per annum. Whereas, the external borrowing has been made on a minimal interest rate. It has saved Government of Pakistan a huge amount on account of interests only.

Misplaced notions like mortgaging generations etc sounds like political rhetoric but does not comensurate with the well established robust relationship between growth, financial stability and foreign capital inflow. Moreover, FDI inflows are positively associated with economic growth, especially when exchange rates are stable and monetary policy independent. This is what the government aims for in the medium to long term economic policies.
 
05 May, 2014

Clarification - Reference to the news item titled "Pakistan's debt swells by Rs. 1.293tr in 9 months" published in "The News" on 5th May, 2014 edition.

This is with reference to the news item titled “Pakistan's debt swells by Rs. 1.293tr in 9 months” published today in The News. The news item contains paragraphs on external borrowings which do not fully reflect the true picture.

Firstly the present government started off its term with inherited challenges including large fiscal deficit, unfavorable balance of payment position, depleting foreign exchange reserves, limited revenue base, rising current expenditures, circular debt, energy crises, flight of capital and shaken investor’s confidence. Add to it Pakistan needed to pay off the due repayments to IFIs including IMF.

In order to cope with the said challenges, the Government started revamping the economy through structural measures such as broadening the tax base, restructuring the PSEs, building foreign exchange reserves and reducing the fiscal deficit. IMF supported these measures and approved EFF for next three years. The receipts are to be used for balance of payment support and fulfilling the foreign obligations resultantly averting the danger of default. The external inflows, altogether, provided stability to rupee exchange rate with other currencies and opportunity for accelerated economic growth.

Secondly, the external loans obtained from multilateral sources are on concessional terms and beneficial for any developing country. The World Bank has recently approved a concessionary loan of US $ one billion on a nominal markup of 2% and it is to be payable in next 30 years.The amount of US$ 600 millions mentioned against loans from consortium led by Standard Chartered Bank is also incorrect and is in fact around US$ 300 millions only. Moreover, US $ 11 billion pledged by the World Bank reflects donor's confidence on Pakistan’s government. The pledged disbursements are expected to be made in next five years and not a part of public debt today. The said paragraph also ignores the external debt repayments over the next five years.

It may be mentioned that there is no overall debt increase. As a result of the external financing, the Government of Pakistan has off loaded a proportionate domestic debt. Moreover, the rate of interest on  domestic borrowing is over 12% per annum. Whereas, the external borrowing has been made on a minimal interest rate. It has saved Government of Pakistan a huge amount on account of interests only. Morover, the claim of Debt to GDP ratio of 63 percent in nine months is also incorrect.

The main objective of the foreign borrowing is to supplement the domestic and external resources required to accelerate the pace of economic development and make positive contribution towards developing the country’s infrastructure base. Loans from IMF are mostly obtained for Balance of Payment support. These loans are reflected in foreign exchange reserves of the country.
 
28 April, 2014

Rebuttal - Reference news item "IMF asks government to raise retirement age" published by "Daily Dawn" on April 28th 2014.

Reference news item “IMF asks government to raise retirement age” published by Dawn today (April 28th 2014)

.The Spokesman of the Finance Ministry has categorically said that no suggestion has been made by the IMF during the spring meeting at Washington DC. He said that no such proposal is under discussion or being considered at any level.

 
27 March, 2014

Clarification - Reference news item, published in a section of press, quoting Finance Minister that there is no proposal to consider increase in the pay and pension of the government employees.

Reference news item, published in a section of press, quoting Finance Minister that there is no proposal to consider increase in the pay and pension of the government employees.

The Finance Minister has categorically denied that he has made any statement to this effect in the National Assembly. However, in a written reply to a question by an Honourable Member National Assembly, the Ministry of Finance had stated that “presently no such proposal was under consideration”.

The Finance Minister has stated that the budget preparation for the fiscal year 2014-15 has just started and the decision regarding pay and pension is made at the time of budget finalization by the Cabinet which in generally holds its meeting  around end May or beginning of June. However, he said that increase in pay and pension is always decided keeping in view the inflation, resource envelop and other factors. He added that in line with the past practice, our Government will also take the decision about the increase in pay and pension before the announcement of budget for 2014-15, in early June 2014.
 
07 March, 2014

Clarification - Reference news item, published in a section of press, quoting Finance Minister has "admitted failure" in achieving budgeted revenue collection of Rs.2475 billion for the current fiscal year and revised it to Rs. 2345 billion.

It has been reported by a section of press that Finance Minister Senator Mohammad Ishaq Dar has “admitted failure” in achieving budgeted revenue collection of Rs.2475 billion for the current fiscal year and revised it to Rs. 2345 billion.

It is to clarify that the FBR receipts were estimated as Rs.2475 billion for the current year, which are based on revised projected receipts of Rs. 2050 billion for last fiscal year. FBR collected Rs. 1,946 billion in the last fiscal year instead of the target of Rs. 2,050 billion so the base effect resulted into shortfall. FBR has achieved over 17% growth in revenue collection against a growth of 3% in the same period of the previous fiscal year.

Finance Minister has always stated that Rs.115 billion has been allocated as lumpsum to PSDP which are contingent upon budgeted receipts of FBR. This amount were not allocated to any project and, therefore, question of  slashing  PSDP from Rs. 540 billion to Rs. 425 billion does not arise. Provinces are already aware of this development.
 
24 December, 2013

Rebuttal - Response to the article captioned "Statistical Issues Revisited" by Dr. Ashfaq Hassan Khan dated 24th December.

The Editor,
The News International,
Islamabad

REBUTTAL
               
This is in response to the article captioned “Statistical Issues Revisited” by  Dr. Ashfaq Hassan Khan dated 24th December.

At the very outset, it must be pointed that the article in question has totally missed the mark. The author himself states that he has calculated the Quarterly National Accounts (QNA) by the expenditure method. He then launches into an academic discussion on the method to calculate the QNA via the expenditure route. Relying on BR Research, he proceeds to give his numbers on the various components of growth. The data used for exports and imports is taken from different sources (PBS for exports, SBP for imports) and the negative growth shown in investment measured through PSDP expenditures is not borne out by the Fiscal Operations data. The major weakness in his computation of QNA stems from private consumption numbers, which carry a hefty 77% weight. In absence of any reliable data, the author relies on sales tax, excise duty and petroleum levy to calculate the size of private expenditure. The three proxies are themselves beset with inherent weaknesses of coverage. Moreover, the expenditure side of GDP has never been used for annual national accounts because of huge data gaps.

The Pakistan Bureau of Statistics has compiled the QNA through the production method. The constraints of time, resources and data availability are more in QNA. The QNA adopts the same principles, definitions and structure as the Annual National Accounts (ANA). The overall reference for concepts and methods is the System of National Accounts (SNA) 2008 and the Manual of International Monetary Fund (IMF) on QNA. Change of base of National Accounts of Pakistan, 2005-06 document has been followed in QNA. The methods of the annual compilations have been adopted where ever possible.

The procedures/ methods and sources were presented to a committee appointed for the purpose by the PBS Governing Council. Dr. Waqar Masood, Dr. Asad Zaman, Dr. Eshya Mujahid and the national accounts compilers discussed the issues and reviewed the estimates prior to release.

QNA has to be consistent with the ANA and more accurate estimates of the ANA will improve the quality of QNA. Since the sources of both estimates are same, discrepancies will not be high. Sum of the four quarters will be equal to the annual estimates. While aligning the QNA to the ANA, the short term movements of the QNA will be preserved as much as possible. This is the central theme for this exercise.

The pattern of the finalization of ANA will be followed in the QNA as well. The quarterly accounts within a year will become final when the annual accounts of that year are declared as final. Current year quarterly and annual accounts will remain provisional. However the previous year quarters will be treated as revised. Results of QNA are mainly compiled for the purpose of observing the business cycle. They are meant for evidence based decisions of the government, Ministry of Finance, State Bank and Planning in their role of counteracting undesirable short-term developments of the economy and monitoring as early as possible.

As this was a maiden effort by the PBS, in-house experts reviewed this entire exercise. However the PBS plans to present the data sources and methods to international experts as soon as they are available.
 
 
 
 
 
 
 
 
 
 
 
 

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