Clarification - News circulating on social media that Government has borrowed from State Bank of Pakistan (SBP)

A news is circulating on social media whereby an impression is being created that Government has borrowed from State Bank of Pakistan (SBP) which is grossly incorrect and depicts the limited understanding of the monetary variables. As reported in the monetary tables (M2), the government’s borrowing from the SBP for budgetary purposes is calculated as the difference between the government’s stock of borrowing from the SBP and its deposits with the SBP. Therefore, net borrowing number may change due to fluctuation in cash balance with SBP and other accounting conventions. This change is not fresh budgetary borrowing by the government from SBP but just a change in government’s cash balance with the SBP.

Government remains committed to complying with its obligations under the amended SBP Act and IMF program conditions. There has been no fresh borrowings by the government from the SBP. In fact the government has been retiring its previous stock of debt with the SBP on its maturity.

Clarification - News circulating on social media about hacking attempt on Finance Ministry and leakage of official data

A news is circulating on social media about hacker attempt on Finance Ministry and leakage of official data. It is clarified that this news item pertains to an incident of hacking which was reported some three months earlier. Thereafter, instant steps were taken and a thorough cyber security audit was conducted. The veracity of the news was not established. Meanwhile Finance Division has put in place numerous measures and protocols to further reinforce cyber security of its IT infrastructure and official data.

Clarification - Sections of the media speculating about on-going 7th review under IMF’s Extended Fund Facility (EFF)

Sections of the media have been speculating recently about the on-going 7th review under IMF’s Extended Fund Facility (EFF). It is clarified that negotiations under the 7th review are continuing as planned and the two sides remain engaged on a regular basis at a technical level through virtual meetings and data sharing.

 The focus of negotiations under the 7th review has been on the agreed targets between the two sides, as well as the recently announced relief and industrial promotion packages. There is a consensus that all the end-December agreed targets have been achieved, while progress on other actions mentioned in the Memorandum on Economic and Financial Policies (MEFP) for the 6th review has also been found to be satisfactory.

 On the relief package, complete details, including financing options, have been shared with the IMF and a general understanding has been developed. IMF has, however, indicated the need for some further discussions on the industrial promotion package over the next few days. An understanding is expected to be developed on the said package subsequent to those discussions.

 Upon completion of the technical talks, the text of Memorandum on Economic and Financial Policies (MEFP) for the 7th review will come under discussion. The Government is confident that the finalization of the MEFP would lead to IMF Board meeting towards the end of April. The Government remains committed to completing the IMF program successfully in September.

Rebuttal - Articles published in the International media

We note with concern that certain international publications have printed fabricated narratives on the state of the Pakistan’s economy and the popularity of the Imran Khan led PTI government. These publications have printed extremely biased one sided articles, ignoring the views of the government or the independent assessments of its development partners including the IMF, World Bank and the Asian Development Bank.

Inflation has become a global challenge, with the US, UK, EU and all emerging markets facing the highest inflation in the last three decades. Pakistan’s economy is also facing the inflation headwinds due to record high international energy and food prices. However, in line with our vision of a social welfare state the government have provided unprecedented relief measures to the masses through lowering prices of petrol, diesel and electricity and rolling out the most comprehensive targeted food subsidy program across Pakistan covering 20 million households (54% of population). People recognize the steps taken by the government to provide relief to the masses.

That is why we have seen Imran Khan’s popularity rise in the last few months, with the March 2022 IRIS public survey showing that Imran Khan remains Pakistan’s most popular political leader with approval rating off 35% compared to the opposition leaders Nawaz Sharif(20%), Shahbaz Sharif (8%) and Asif Zardari (4%). Hence, we see the opposition is desperately trying to bring down the PTI government by a vote of no confidence through buying loyalties of the elected members of the ruling party and its allies.

This latest episode of political unrest is aimed at crippling the economy at a time when the economy has shown rapid recovery from the COVID pandemic shock, termed by the IMF as the worst global economic crisis since the Great Depression of the 1930s. Effective data driven response has helped Pakistan to control the pandemic and outperform other countries. GDP growth accelerated to 5.4% in 2021, after the pandemic induced contraction of -0.5% in 2020. In comparison, USA economy contracted -4%, EU -8%, India -7.3% and the Gulf states by -5%.

According to the World Bank data, Pakistan outperformed all regional economies during the 2020-2022 COVID period, with the lowest unemployment rate in the South Asia region at 4.3% compared to India 8%, Bangladesh 5.4% and Sri Lanka 5.9%. Record fiscal and monetary stimulus package of Rs 2.5 trillion (6% of GDP or $ 16 billion) was unveiled by the Government in March 2020. The stimulus package focused on emergency cash assistance to 15 million families through the Prime Minister’s EHSAAS program, the largest ever social welfare transfers in Pakistan’s history covering nearly 45% of the total population. On top of this the government has provided free of cost vaccination to over 127 million citizens against COVID.

In the current year the economy is projected to sustain growth of 5% with record exports of $30bn, record remittances and highest ever agriculture farm output. Private sector credit growth has doubled in the current year, as a result of higher manufacturing and services industry activity. Manufacturing sector has posted growth of 7.6% in the current year, and the manufacturing index (QIM) in January 2022 posted the highest ever output recorded. Profitability of the top 100 companies listed on PSX posted the growth of 62% in 2021, the highest growth in the last 10 years.

Unlike previous boom bust cycles, the government is focused on sustainable ‘inclusive’ growth. The key risk of a balance of payment crisis has been pre-empted through early monetary and exchange rate adjustments, and as a result we are already seeing that the current account deficit has started to decline, falling to $ 545mn in Feb, from average of $ 1.5 bn in the previous seven months. Similarly, on the fiscal front tax collections have increased 30% in the current year, giving much needed fiscal space for the government to undertake relief measures against inflation for the public.

Hence, not only is Pakistan’s economy on a sustainable growth path but the quality of growth has also improved considerably due to the ‘inclusive’ or bottom up approach taken by the PTI government. Inclusive growth entails providing incentives to those middle income households, small farmers, youth, women and entrepreneurs that are marginalized in the current system of trickle down growth. Towards this end the Low Cost Housing program Mera Pakistan Mera Ghar (MPMG) and the Kamyab Pakistan program (KPP) have been a huge success. According to the SBP, over Rs 366bn has been disbursed under the low cost housing MPMG program, benefitting more than 70,000 first time home buyers across Pakistan.

The Kamyab Pakistan Program (KPP) of interest free loans promises to uplift incomes and livelihoods of millions of low and middle income households. These are households that are mostly unbanked, have no access to credit and lack resources to undertake productive economic activity.

However, the recent developments in the international markets threaten the recovery of the global economy including Pakistan. Record high international prices of energy, food and other commodities combined with rising freight costs have hit Pakistan hard, with inflation rising to 12% in Feb 2022. However, inflation is not just a Pakistan specific problem, inflation in the US, UK, EU and emerging markets is the highest in three decades.
As a result, Pakistan authorities have taken unprecedented relief measures to shield the most vulnerable households. The government has reduced taxes on all petroleum products to 0% and frozen prices at the pump to shield consumers. As a result, the domestic consumers are paying Rs 150 / litre on petrol compared to Rs 187/ litre in Bangladesh and Rs 244/ litre in India. Similarly, the low and middle income households have been provided relief on their power consumption by a Rs 5 per unit reduction in their monthly bills. An estimated Rs 300bn relief has been provided to the masses to shield them from the rising international energy prices.

Prime Minister Imran Khan launched the Ehsaas ration scheme in March 2022 to provide relief to over 20 million households (54% of total population) on purchase of essential food items including flour, pulses and cooking oil. These 20mn households will receive these essential commodities at a discount of 30% from the market prices. On top of these measures, the landmark universal healthcare program Sehat Insaf card has been launched in Punjab and certain districts in Sindh and Balochistan in 2022. More than 60% of all households in Pakistan will now get free hospitalization and healthcare, providing savings of Rs 10 lakh to each citizen.

The above measures taken by the government are unprecedented and never before has any government provided relief of this scale to the masses. As a result of relief measures taken by Pakistan, inflation is likely to decline in the weeks ahead. The latest weekly SPI data shows a 1.4% decline in the index, the first weekly decline in over 7 weeks as a direct result of the relief measures taken by the government. The PTI government is able to fund higher social safety spending due to the tough and unpopular decisions in the last three and a half years.

The PTI government formed in August 2018 inherited an economy on the verge of collapse. Unpopular reforms including a market based exchange rate, reduction in power subsidies and removal of tax exemptions had to be taken to reduce the large twin deficits. These reforms not only enabled us to stabilize the economy but also to build reserves to cushion the impact of external shocks.

Strong diplomacy and active engagement with world leaders and international institutions have also strengthened the economy. The recent success in bringing Barrick Gold Corp back to Pakistan for the Reko Diq project will not only save $ 11bn in penalties but will also lead to additional $10 bn new investment in Balochistan, creating 8,000 new jobs for the locals. Under the PTI government, we have also made significant progress on the money laundering and terrorist financing front, which has saved Pakistan from financial sanctions under the FATF blacklist.

We are confident that Prime Minister Imran Khan will not only defeat the no confidence vote, but will also lead Pakistan into a decade of high growth and prosperity built on his vision of a social welfare state.

Clarification - In response to Editorial "Unfair Criticism" by daily Business Recorder

In response to Editorial “Unfair Criticism” by daily Business Recorder, it is very important to present the Government's view point if by any chance it is felt that the editorial lacks complete information, failed to mention government's viewpoint on the issue and biased reporting. The hallmark of this government is transparent & independent reporting of key data point on time.

100% numbers goes to PBS & SBP for efficiently reporting the data. Pakistan is the only country in the world that publishes CPI print on 1st of every month, trade data on 2nd of every month. Every Thursday SBP releases the weekly reserves data and Friday weekly SPI by PBS. If there is really an issue with sugar quoting and fabrication of data then it wouldn’t be possible to issue these releases promptly on time. Even the Advanced countries including the West doesn’t release their data so efficiently and timely. Our regional peers data reporting is with huge lag compared to Pakistan.

Secondly, editorial must appreciate the communication made by Finance Division & SBP, as it provides clarity not only for general public but also for think tanks, businesses and media houses.

Coming back to Current account concern of media. We believe, it is important to differentiate between sustainable or unsustainable deficit. Our media has developed the habit of reporting the micro picture and ignoring the macro positives. E.g. Pakistan has always struggle to generate non-debt dollar flows in past. In this government, for the first time in ten years, exports needle has moved, remittances channeled more through official sources and finally services exports building with faster pace. But media keep reporting the imports growth without implicating the external receipts of country. Plus it has failed to appreciate the policy actions taken by government, to discourage imports growth. Encouragingly, the import growth trend is now reversing and moving towards Covid level deficits. In February, the trade deficit reduced 10% month on month, with the robust exports $2.8 billion and substantial decline in imports to $5.9 billion from almost $8 billion in December. But unfortunately, the editorial giving misleading reports related to mysterious imports.

On similar note, the section of media speculated on tax collections slowdown and remittances. Nothing has proven right since Covid.

Any seasonal dip in any data point is preferred by media to make the basis of uncertainty.

In Conclusion, we urge media to involve government's view, rather than giving one sided reports. Otherwise, we will not take time to issue clarification.

Clarification - News item published in "The News" that Finance Ministry may have misled ECC on KPP markup subsidy allocation, is misleading

The news item published in “The News” has conveniently ignored the ground realities while reporting on the “Kamyab Pakistan Program”. The calculation of subsidies under KPP were based on certain assumptions and parameters while keeping in consideration targeted level of disbursements, mark-up subsidy, loan loss coverage along with other considerations as envisaged under the program. These may or may not be materialized and actual outcome could be different depending mainly upon (i) actual loans to be disbursed under each scheme (ii) actual loan loss quantum (iii) guarantee structure as allowed under the program.

The news item also reflects poor understanding of the Programme whereby it has compared two different matters. Mark-up subsidy/loan loss coverage amounting to Rs 1,053 billion was estimated from fiscal year 2021-22 to 2027-28 (7 Years) based on projected disbursements to be made under the Programme during these years while guarantee limit for Kamyab Pakistan Programme has been initially set for the first 8 months (Nov 2021 - June 2022) amounting to Rs 40 billion with the disbursement target of Rs 80 billion in the first eight months of the Programme. It is also worth mentioning that Government had envisaged slightly lower disbursements in the initial year compared to the subsequent years primarily due to the following reasons:

• The program was initially launched to limited regions with the plan to expand it to all across Pakistan at a later stage;
• Since this is the flagship program of the Government, a reasonable time was allocated to expand the disbursement capacity of Wholesale Lender and Executing Agencies;
• Government always has the option to re-utilize the un-disbursed amount of guarantee in subsequent rounds.

After the expansion of the Programme to the whole of Pakistan, the disbursements are expected to increase. It may be noted that the Kamyab Pakistan Programme is a major initiative of the government to alleviate poverty by empowering the deprived segments of society and supporting them to transform their lives through fostering entrepreneurship, and helping in materializing the dream of home ownership. The Programme is well on track to achieve its desired objectives as encouraging participation from all the concerned stakeholders has been observed. Moreover, it has received great response from the public.

Clarification - Reference message in Urdu language being viral in social media...

Reference message in Urdu language being viral in social media today with caption " Chinese economist slaps Pak Finance Minister over a joint session yesterday at Isb... ", it is once again clarified that this same message was made viral in social media some four months earlier in English only to demage the repute of the Finance Minister. Finance Division at that time also clarified that no such meeting was held and the present message in urdu is just a replica of previous propaganda to harm the repute and prestige of the Finance Minister and put a negative impression into the minds of masses.

Further, FIA Cyber Crime has been approached to make investigation into making viral of this baseless message and take action against the responsibles.

Clarification - News published in daily Dawn that "Government is in no hurry to pass the mini-budget before the IMF Meeting" is misleading

The news published in daily Dawn today that Government is in no hurry to pass the mini- budget before the IMF meeting, is misleading. Government of Pakistan has introduced both the bills in the National Assembly and IMF has moved the 6th tranche recommendation to its board for consideration on the 12th January. As soon as the prior actions are completed by Pakistan, which the Govt is pushing hard, the IMF board will consider it for approval. IMF board can move whenever our actions are completed."

Clarification - Reference news item published in daily The Express Tribune titled "Cabinet approves $4.2b Saudi loan package"

Reference news item published in daily The Express Tribune titled “Cabinet approves $4.2b Saudi loan package”, it is clarified that in these tough times, the deposit and oil facility speaks of the strong brotherly relationship between Pakistan and Saudi Arabia. The rates would be 4% & 3.8% respectively.

Since the above is demand deposit, the right to call deposits is with depositor. So every deposit usually have this clause.

Lastly, in every MoU there is dispute resolution clause, which refer to territorial laws applicable. This does not mean that the stated country’s sovereignty is compromised.

We are grateful to the Kingdom of Saudi Arabia for helping us once again in our hour of need.

Clarification - In response to news item published in daily The Express Tribune titled "Rs40b irregularities detected in PM's Covid package"

In response to news item published in daily The Express Tribune titled “Rs40b irregularities detected in PM’s Covid package”, it is clarified that the Covid related expenditure report was part of the overall audit report prepared by Auditor General office for FY2020, which has already been laid in Parliament. As such the report is already in public knowledge.

The IMF had provided $1.4 billion last year as rapid financing instrument. The Auditor General conducted a special audit of the Covid related expenditure. Audit of emergency procurements for Covid and its publication was thus a structural benchmark established under IMF review completed in March 2021.

The exact language of the structural benchmark was:

“Auditor General of Pakistan will conduct an ex-post audit of the procurement of urgently needed medical supplies related to covid-19. Audit results will be published on the website of the Ministry of Finance.” The said structural benchmark was to be met by April 2021.

The Paras included in the Covid related expenditures report have already been discussed in the Departmental Accounts Committees meetings by the relevant divisions / organisations with the officials of the Auditor General of Pakistan. The response of the divisions / organisations for each observation/ para is part of the report.

The report was discussed in detail by officials of Auditor General of Pakistan with IMF in June 2021 as well as during the recently concluded 6th review. The IMF was fully satisfied that there was no case of fraud and embezzlement. Majority of the Paras and observations included in the report relate to procedural shortcomings due to emergency procurements. The IMF was further informed that divisions / organisations have noted those shortcomings and have taken remedial measures.

The report, which has already been laid before the Parliament and is thus public knowledge, has been placed on the website as it is a prior action under the recently completed 6th review under IMF’s EFF.

Further, the government strongly believes in and is committed to transparency and accountability.

Clarification - News item published in Daily The News titled "Govt couldn't purchase gas Cargoes in time, admits Tarin"

News item published in Daily The News titled “Govt couldn’t purchase gas
Cargoes in time, admits Tarin” is completely misleading & out of the context.

When anchor (Nadeem Malik) asked about the gas shortfall situation in the country, he stated the reasons including the ongoing global LNG shortages which have created fiasco, and it was not in control of anybody.

Government has been buying the gas as required, despite higher international prices. However, he has mentioned there was one tender scrapped in July, but this has nothing to do with winter gas. The Adviser Finance has not mentioned at any point that winter gas shortfalls are due to non procurement of LNG on time.

It is also clarified that very little LNG is diverted to domestic gas consumers because of high price differential and the gas shortages in winter which we face every year due to depletion of our local gas fields.

Clarification - On news item titled "Consumer confidence declines in third quarter of current calendar year"

The news item titled “Consumer confidence declines in third quarter of current calendar year” published in some section of Press, which is contrary to the facts. The Survey conducted by Dun & Bradstreet and Gallup Pakistan is in line with current macroeconomic situation of Pakistan.  As it is highlighted in our publication “Monthly Economic Update & Outlook Pakistan”, the economy is heading in right direction. Growth is all set to achieve 4.8% target, tax collection is above target, exports have picked up, fiscal deficit in 1Q is better than last year, above all remittances are sustaining.

Consumer Confidence Index Survey (Q3 2021) is highlighting the same economic picture as communicated by Finance Division whether it is Quarter-on-Quarter or Year-on-Year comparison. Below is the factual brief outcome of the survey conducted by Dun & Bradstreet and Gallup Pakistan.

·        Is Country heading in the right direction: the survey reported yes for last 03 months.
·       Top personal concerns of public-unemployment, inflation, increase in electricity prices, tax burden and increasing poverty: People voted unemployment, inflation and increase in electricity concern decreased from last year. But they are concern of additional tax burden and indifferent to increasing poverty.
·        What is personal financial situation: As per survey it has improved.
·        Economic situation: People are indifferent on this question as few believe it improves and few believe it get weaker.
·        Job security: Majority feels confident about job security.
·        Investment climate: People are more confident in investing than last year.
·        Purchasing durables: More people are confident of purchasing durables like cars and home than last year.
·        Purchasing household items: More confident than last year.
·        Global Consumer Confidence: It has improved a lot from last year. But there is more room for improvement.

Clarification - Response to media reports regarding "Debt has increased in line with fiscal deficit"

In response to some media reports, it is clarified that the Debt has increased in line with fiscal deficit. However, the positive development is Pakistan’s total debt to GDP has decreased to 83.50% of GDP on 30th June 2021 from 87.6% on 30th June 2020. Both domestic and external debts have depicted a downward trend from last year.

The domestic debt declined to 55.1% of GDP from 56% last year. Similarly, external debt to GDP recorded at 28.5% of GDP from 31.6% last year. It is pertinent to mention that the best way to evaluate debt trend is through debt to GDP measure.

Clarification - Response to media reports regarding increase in Public Debt during last three years

This is in response to some media reports regarding increase in public debt during last three years while these media reports ignored the underlying reasons behind such increase. Therefore, in order to fully understand the underlying economic realities, there is a need to analyze the sources of increase in total public debt during last three years:

a. Interest Expenses: Preference towards short-term domestic borrowing in absence of adequate cash buffers resulted in short-term profile of domestic debt at the end of FY2018. This short-term profile led to high interest cost on debt as interest rates had to be increased significantly to curb rising inflationary pressures.Government paid Rs 7.5 trillion against interest servicing which explained 50 percent of the increase in total public debt.

b. Currency Devaluation Impact: Exchange value of the Rupee was maintained at an artificially high level in the past which triggered the balance of payment crisis.Transition to market-based exchange rate regime, being an unavoidable policy choice, resulted in sharp exchange rate depreciation leading to high inflation, high interest rates, slower GDP growth and lower import-related tax revenues.This exchange rate depreciation added around Rs 2.9 trillion (20 percent of the increase) in public debt. It is important to highlight here that this increase was not due to borrowing but due to re-valuation of external debt in terms of rupees after currency devaluation.

c. Financing of Primary Deficit: The impact of economic slowdown due to the Covid-19 pandemic mainly resulted in higher than estimated primary deficits. Rs 3.5 trillion (23 percent of the increase) was borrowed for financing of primary deficit.

d. Cash Management & Others: Rs 1.0 trillion (7 percent of the increase) was on account of increased cash balances of the Government to meet emergency requirements as well as due to difference between the face value (which is used for recording of debt) and the realized value (which is recorded as budgetary receipt) of government bonds issued during this period. Government took the revolutionary and economically sound step of not borrowing from the SBP and maintaining a cash buffer, which led to a one-off increase in debt. However, this increase in debt was offset by corresponding increase in the Government’s liquid cash balances.

2. A better way to measure level of debt is through Debt-to-GDP ratio instead of looking at the absolute values of debt. In this light, it is important to highlight that Pakistan has witnessed one of the smallest increases in its Debt-to-GDP ratio during pandemic. Global Debt-to-GDP ratio increased by 13 percentage points, whereas, Pakistan’s Debt-to-GDP ratio witnessed minimal increase of 1.7 percentage points in 2019-20.Pakistan’s Debt-to-GDP ratio in fact reduced by 4 percentage points indicating lower debt burden at end June 2021 as compared with last fiscal year.

3. To conclude, the increase in debt during last three years occurred mainly during FY 2018-19 due to implementing difficult and unavoidable policy choices. Had the market-based exchange rate, a sustainable level of Current Account Deficit, adequate cash buffers and long-term domestic borrowing profile been maintained, the debt burden would have been reduced further on the back of fiscal consolidation efforts supported by aggressive control on expenses and growth in tax and non-tax revenues. As most of the major adjustments to fiscal and monetary policies have been made, debt burden is projected to decline firmly over the next few years.

Clarification - In response to the articles criticizing the Government's economic growth strategy

This is in response to recent articles in the press criticizing the Government’s economic growth strategy for not being backed by rigorous enough planning. The objections are based on incomplete information and are therefore both inaccurate and misleading. It must be clarified that details shared with the press so far have been summarized versions of objectives and targets under the umbrella of Economic Advisory Council (EAC). 

 Each sectoral plan is backed by comprehensive working involving a market-based approach to identify key impediments and recommend structural changes to unlock value on a sustainable basis. There are detailed steps to be taken to achieve targets on a short, medium and long-term basis for each sector and include reforms that require political wherewithal since results will not be immediate. It is therefore premature to criticize these initiatives, many of which are long overdue. 

Clarification - regarding provision of funds to the Election Commission for holding By-Elections

In response to some media reports regarding provision of funds to the Election Commission for holding By-Elections, it is clarified that the Ministry of Finance is firmly committed to provide all funds to conduct Cantonment Elections, Local Government Elections and By-Elections.

The Ministry of Finance supports Election Commission of Pakistan (ECP) and during the CFY 2021-22, an amount of Rs.3,827 million has been allocated for ECP and the same is available with ECP for making necessary expenditures.

Furthermore, Ministry of Finance has also allocated Rs.5,000 million specifically for Local Government Elections which will be provided to ECP as per their requirement after following due approval process

Clarification - Misleading and baseless stories about French position on Pakistan's engagement with FATF

It has been noticed that some media outlets have published misleading and baseless stories about French position on Pakistan’s engagement with FATF.

It is clarified that France, like many other jurisdictions, has been an active partner of Pakistan during the implementation of its ICRG Action Plan and it has also provided technical support and guidance to Pakistan.

Pakistan has given high-level political commitment to FATF for implementation of the Action Plan and is resolved to maintaining its momentum for improving its AML/CFT regime. Over the last two years, Pakistan has made concerted efforts in this direction, which have also been recognized by the international community.

The Ministry would urge all to avoid any speculative, sensational or unsubstantiated reporting which could undermine our international cooperation and good will.

Clarification - Ministry of Finance has not delayed the printing of special audit report on COVID-19 related spending prepared by the AGP

The Ministry of Finance has not delayed the printing or publishing of the special audit report on COVID-19 related spending prepared by the Auditor General of Pakistan. Conduct of such audits is the sole prerogative of the Office of the Auditor General.

One of the structural benchmarks of the IMF’s Extended Fund Facility is an ex-post audit by the Auditor General of the ‘procurement of urgently needed medical supplies related to Covid’. To clarify the correct factual position, the Government considers this benchmark as essential to bringing about greater transparency to its pandemic response, which has been supported by our development partners, including the IMF.

Going by the contents of the news item, it appears that the scope of the Auditor General’s special audit report is far broader than the structural benchmark of the IMF’s Extended Fund Facility, and the Ministry of Finance’s understanding is that the special audit report is still to be scrutinized and finalized by the Auditor General.

Clarification - "Disparity Reduction Allowance" @ 25% of the basic pay of BPS-2017

Reference an article appeared in a section of press, it is clarified that the Federal Cabinet has approved grant of “Disparity Reduction Allowance” @ 25% of the basic pay of BPS-2017 w.e.f. 1st March 2021, for those civil employees in BPS 1 to BPS 19 of the Federal Government who have never been allowed additional salary equal to or more than 100% of the basic pay or performance allowance.

There are a number of institutions / organizations of Federal Government that have been previously granted additional allowances as 100% or more of the basic pay or performance allowance. The disparity reduction allowance aims at reducing the gap in the salaries of those already granted additional salary and those who have never been granted additional salary. The number of such employees who have never been granted additional salary is approximately 296,470 out of a total of 623,215 civilian employees.

This allowance has been granted as an interim arrangement till finalization of recommendations of Pay & Pension Commission. The Pay & Pension Commission has been asked to give its recommendations for revising the salaries of all federal government employees (civilian and Armed Forces), before the next budget so that salaries could be revised across the board for all Federal Government employees. The Commission has also been tasked to review the existing pension system of the Federal Government and give recommendations.

Clarification - Reference an article appeared in a section of press

Reference an article appearing in a section of press, it is stated that during the 1st half of current financial year 2020-21, the Consolidated Primary Balance reflected a Surplus of Rs. 337 billion (0.7% of the GDP) whereas, the overall Fiscal Balance was restricted to -2.5% of the GDP against the annual target of 7.1%. Provincial surplus of Rs. 255 billion reflects healthy fiscal position of the provinces. The whole scenario transpires better fiscal management.

During the same period, 45% of FBR Revenue target fixed for the whole year was realized, despite economic slowdown due to resurgence of COVID-19.

Unavoidable expenditures were incurred to mitigate the impact of COVID-19 and to help the vulnerable segments of society. However, debt servicing of huge domestic and external loans accumulated over the past one decade is the major fiscal challenge. Through better debt management efforts are being made to reduce the debt servicing cost.

With more revenue collection and controlled expenditures, the targets set for the whole financial year with regard to fiscal and primary balances will be met.

Clarification regarding issuance of Sukuk by Government of Pakistan

Sukuk are Shariah compliant borrowing instruments backed by physical assets, and are structured so as to pay returns on investment as rent instead of interest by utilizing an underlying asset.

Sukuk are not only issued to support the Government’s budgetary position, but also to promote Islamic banking finance in the country, which is a constitutional obligation. Government of Pakistan has issued Sukuk several times, which were backed by assets such Motorways (M1, M2, M3) and Jinnah International Airport. Other Federal Government assets such as the Islamabad Expressway, Allama Iqbal International Airport and F-9 Park have been identified, in consultation with experts in Islamic finance, as good potential candidates for Sukuk structures.

It must be emphasized that the benefits of Sukuk include:

• Lower financing cost for the Government
• Provision of Shariah-compliant investment avenues
• Fulfilment of the constitutional requirement of eradication of Riba
• Promotion of the Islamic financial industry

The Sukuk market is growing rapidly around the world. Till the close of 2019, Sukuk worth USD 1,247 billion have been issued globally. Malaysia has been the global leader in Sukuk market. Other important issuers are Saudi Arabia, UAE, Qatar, Oman, Jordan, Turkey, Morocco and Indonesia.

Clarification - Change in Public Debt from 1st July 2018 to 30th November 2020

The change in the public debt under this government is due to a correction of the flawed economic policies of the previous regime, especially its overvalued exchange rate and excessive borrowing.

• Interest Expenses: The previous government resorted to short-term debt instruments without maintaining adequate cash buffers, and relied heavily on SBP borrowing. This short-term debt profile has resulted in high interest costs on past debt. The present government has had to pay Rs 5.7 trillion (47% of the increase) as interest on debts borrowed by the previous regimes.
  
• Currency Devaluation Impact: The previous government artificially maintained the exchange rate of the Rupee much above its market value. A large increase in public debt has resulted from the abrupt exchange rate depreciation, which was inevitable because the overvalued exchange rate triggered a balance of payment crisis. The only alternative was a default on external liabilities, which was obviously not an option. Public debt increased by Rs 3 trillion (25% of the increase) due to this currency devaluation.
  
• Financing of Primary Deficit: The unjustified tax cuts by the previous government coupled with the impact of subsequent economic slowdown due to the Covid-19 pandemic resulted in higher than estimated primary deficits. Rs 2.5 trillion (21% of the increase) was borrowed for financing of primary deficit during first 29 months of the present government.
• Cash Management: Rs 0.6 trillion (5% of the increase) was on account of increased cash balances of the Government to meet emergency requirements. The present government took the economically sound policy of not borrowing from the SBP and maintaining a cash buffer, which led to a one-off increase in debt. However, this increase in debt was offset by corresponding increase in the government’s liquid cash balances. Furthermore, Rs 0.3 trillion (approx. 2% of the increase) was due to difference between the face value (which is used for recording of debt) and the realized value (which is recorded as budgetary receipt) of government bonds issued during this period.

To conclude, the increase in debt during the tenure of present government occurred mainly during FY19 as an unavoidable consequence of erroneous policies of the previous government. Had the previous government maintained a market-based exchange rate, a sustainable level of current account deficit, adequate cash buffers and a long-term domestic borrowing profile, the present government would not have had to make all these difficult adjustments and public debt burden would have been reduced on the back of fiscal consolidation efforts of the present government supported by aggressive control on expenses and growth in tax and non-tax revenues. However, as most of the major adjustments to fiscal and monetary policies have been made, Debt-to-GDP ratio is projected to decline over the next few years.

Clarification on Debt Position

Clarification - An article appeared in a section of press with arbitrary and selective financial comparison between the current government and the previous regime.

An article appeared in a section of press with arbitrary and selective financial comparison between the current government and the previous regime. The article compares apples with oranges without taking into account a holistic picture. The writer termed the tenure of a previous regime as a period of high growth, low inflation, increased per capita GDP, low interest rates, increasing tax revenues and higher investments.

The fact of the matter is that in FY 2018 Pakistan faced multiple fiscal, external and real sector challenges. For instance, the trade deficit was 9.8% of GDP, an overvalued exchange rate had consumed precious foreign exchange reserves, and twin deficits had reached a record level. Consumption led growth had created a balance of payment crisis as well as fiscal imbalance. The current rise in inflation could be traced back to the delay in policy adjustments required in the FY-2018.

As a result, the present government had to impose a strict financial discipline, curtail excessive government expenditure, increase revenue collection, introduce market driven exchange rate, remove large tax exemptions, discourage imports and stop borrowing from the State Bank of Pakistan.

As a consequence of these prudent policies, Pakistan witnessed remarkable improvement in fiscal and current account deficits. Similarly, Pakistan registered a primary surplus which is unprecedented and a great achievement despite the COVID-19 pandemic. Pakistan also had an upward trend in foreign remittances and FDI during first quarter of FY 2020-21.

The government was also able to give the largest ever Fiscal Stimulus Package of Rs.1240 billion to cover emergency response, support businesses and provide relief to citizens in the crisis created by the pandemic.

The government has also taken several initiatives to accelerate economic recovery. A relief package for Small Medium Enterprises (SMEs) has shielded against insolvency and joblessness. Similarly, a special package has been announced to boost Construction sector, which includes amnesty scheme, tax exemptions and subsidies to stimulate economic growth. The COVID-19 pandemic has disrupted supply chains which added to food inflation. However, the Government has taken effective policy and administrative measures to minimize inflation. At present, there is a consistent decline in prices of essential commodities.

The government is firmly committed to correct the fundamentals of the economy through effective policy making and targeted reforms. The objective is to achieve sustainable and inclusive economic growth in the long run.

Clarification regarding Nominees in case of National Savings Schemes (NSS)

In response to news item regarding “nominee” in National Savings Schemes (NSS), the Ministry of Finance would like to clarify that Honorable Sindh High Court, in its judgment dated 23-08-2016 ordered to align NSS rules/procedures so that payment of principal amount and profit thereon (if any), in case of death of certificate purchaser/investor, would be paid to legal heirs according to succession certificate issued by a court of competent jurisdiction in accordance with Muslim Law of Inheritance as applicable in Pakistan instead of previous practice whereby a person was nominated by certificate purchaser/investor in the event of his/her death.

In light of the orders of the Honorable Sindh High Court, the proposed changes in the rules were twice widely publicized through print and electronic media to solicit public opinion. Central Directorate of National Savings (CDNS) carried out further due diligence keeping in view the suggestions received from the public and in light of decision of Sindh High Court and decisions of Supreme Court given on different petitions. The rules were vetted by the Law and Justice Division, which were subsequently approved by the CCLC and Federal Cabinet.

It is also informed that the response of the general public has been very positive as many legal heirs were being deprived of their due inheritance as the previous rules were not in line with the law of the land.

Sources of increase in External Debt and Liabilities during 24-month

Sources of increase in External Debt and Liabilities during 24-month period from 30 June 2018 to 30 June 20

This is with reference to a news item published in a section of press regarding the increase in external debt and liabilities of the country during the past two years. The figure of increase in External Debt and Liabilities by $ 17billion reported by SBP needs to be properly interpreted for a better understanding.

The figure of External Debt and Liabilities consists of the following four components:

1. External Public Debt

2. Public Sector Entities’ (PSE) Debt

3. Foreign Exchange Liabilities of State Bank of Pakistan (SBP)

4. Private Sector’s External Debt

Out of the total increase of $ 17.6 billion in External Debt and Liabilities during Jun 2018 -Jun 2020:

· $7.8billion (44% of the increase) has been borrowed by the Government for financing of its Fiscal Deficit. This amount of $ 7.8billion was the actual borrowing of the present Government during its first two years. It is important to highlight that these additional borrowings were from multilateral and bilateral development partners whereas portion of loans from commercial sources were repaid. Borrowings from multilateral and bilateral development partners were contracted on low cost and longer tenor, which contributed towards enhanced external public debt sustainability during the tenure of present government;

· $4.8billion (27% of the increase) is on account of SBP’s foreign exchange liabilities. It should not be interpreted as Government’s Debt because it is offset by cash balances and liquid assets of SBP;

· $2.9billion (16% of the increase) has been borrowed by private sector from external sources which is a healthy sign indicating private sector’s capacity to borrow from abroad for domestic investments;

· $2.2billion (13% of the increase) has been borrowed primarily by PSEs for spending on their financing needs mostly related to development expenditure.

Rebuttal - Finance Division rebuts report on Depleting Foreign Exchange Reserves and the Bond Programme

A news report published in a section of press claiming that Pakistan’s foreign exchange reserves are depleting and that it would not be possible to float bonds unless the stalled IMF programme is revived, is completely fallacious and misleading on all three counts.

First, Pakistan’s foreign exchange reserves are stable and certainly not depleting. The marginal fall in reserves referred to in the news item is because of the outflows of loans taken from commercial banks. The Ministry of Finance has already completed the process for refinancing of these loans and the funds are expected to flow back in during the next two to three weeks. More so, the stability in our foreign exchange reserves is reflected in the improving exchange value of the rupee.

Second, the IMF programme has not stalled. The Government of Pakistan, including the Ministry of Finance and the State Bank of Pakistan as well as all ministries concerned, are in constant consultation with the IMF regarding the different policy initiatives and interventions currently being undertaken. As a trusted development partner and economic advisor, the IMF is consistently guiding and steadfastly supporting the Government during these unprecedentedly difficult times created by the Covid-19 pandemic. As the Ministry of Finance has clarified earlier also, we can no longer view the IMF programme in the conventional sense. Programme benchmarks, of course, remain critical, but their timing has to be adjusted according to grave socioeconomic challenges posed by the pandemic.

Third, Pakistan’s ongoing Medium-Term Note (MTN) Programme for the issuance of Eurobonds/international Sukuk is on track. The Ministry of Finance has already initiated the process for engagement of Financial Advisors, which is expected to be completed by mid-November 2020. After completion of all required formalities, the international capital markets will be tapped during January/February 2021. It must be noted that yields on Pakistan’s international bonds have returned to pre-Covid levels and these bonds are trading at a premium, indicating the confidence of global investors in Pakistan’s economy. Therefore, the Government does not feel any cause of concern with respect to new issuances and the execution of the MTN programme.

The Ministry of Finance would like to make it very clear that Pakistan’s bond programme or its external sector stability is not under any kind of threat, as has been falsely claimed in the news report in question.

Spokesperson,
Ministry of Finance

Clarification - Misleading tweets regarding conduct of government securities auctions and re-profiling of debt obtained from SBP

In response to certain misleading tweets regarding conduct of government securities auctions and re-profiling of debt obtained from SBP, the official Spokesperson of the Ministry of Finance would like to clarify that every month, Ministry of Finance announces auction calendar for next 3 months (on rolling monthly basis) for raising of debt through issuance of government securities including T-bills, PIBs and Sukuks. On April 10, 2020 MOF announced schedule of auction of Government Securities which was also confirmed on June 16, 2020 according to which the instant auction was scheduled on 24th June 2020. The fact can be reconfirmed Pictures still available on Bloomberg terminal also.

On 24thJune 2020, as per the preannounced schedule monthly auction of Pakistan Investment Bonds (PIBs) was held. On 25th June 2020, SBP held an “unscheduled emergency meeting of Monetary Policy Committee” and reduced the Policy Rate by 1%.
By suggesting that SBP should have either held the MPC meeting earlier or informed MOF to delay the auction to take advantage of the reduction in Policy Rate, an incorrect impression is being created that, by not influencing each other’s decision, MOF and SBP have caused a loss to the Government Exchequer which is grossly incorrect as both the agencies are working in a professional manner and in their own domain. The said auction of PIBs is being linked with re-profiling of debt obtained from SBP, which is also not correct.

It is reiterated that borrowing is a function of Ministry of Finance (MOF) whereas setting the Policy Rate is the function of SBP. International best practices require the two agencies to act independently and professionally. If these agencies start influencing each other’s decisions, then monetary policy can become hostage to the budgetary/borrowing considerations and vice versa. The independent exercise of these functions is important for economic and financial stability of the country.

Re-profiling and retirement of debt obtained from the State Bank of Pakistan (SBP)
At the end of FY19, GOP decided that short-term debt of Rs 7.7 trillion obtained from SBP over the years shall be converted into long-term debt and retired over next 10 years. Accordingly, a policy decision was taken to terminate borrowing from SBP. This decision has been appreciated by the international credit rating agencies and multilateral institutions such as IMF as it reflects government’s commitment to greater fiscal discipline, macroeconomic stability and financial market development.

It is, therefore, regrettable that this paradigm shift in right direction is being negatively portrayed to mislead the public.

Rebuttal - Finance Division rebuts news reports on Audit Report 2019-20

The Ministry of Finance has refuted news reports appearing in a section of the press claiming that the first audit report of the present government reveals irregularities and corruption amounting to Rs. 270 billion by 40 government departments and ministries during FY 2018-19.

Describing these reports categorically as baseless, misinformed and erroneous, the Ministry of Finance in an official statement has said that the Audit Report for FY 2019-20, like all audit reports, consists of preliminary observations: it identifies some gaps in completing formalities while processing different cases by government entities and indicates various shortcomings in the provision of documents to the audit teams in certain other instances. But to conclude that each procedural deficiency is tantamount to corruption is incorrect and misleading.

The Ministry of Finance would like to make it clear that by their very nature audit reports identify procedural deficiencies, and are not evidence of corruption – let alone ‘conclusive proof’ of corruption as certain sections of the media have attempted to portray. Furthermore, these audit reports are subsequently considered exhaustively at several forums, including by the departmental audit committees and the Public Accounts Committees, where ministries and other government institutions are given an opportunity to defend their cases and rectify the procedural shortcomings. Even these forums are not competent to establish whether or not corruption has been committed.

It must also be understood that on provision of the requisite documents – and occasionally completion of the requisite approval processes – the vast majority of audit paras are settled at these forums. Only in a few instances, where the deficiencies cannot be met, has punitive action been necessary.

Moreover, within the above-clarified context of the nature of audit reports, it is very important to note that the audit report of the incumbent government actually reflects vast improvement in governance. For instance, comparing earlier audit reports, as covered by the press in previous years, with the one in question reveals that while audit paras related to expenditures of only Rs. 270 billion in FY 2018-19, the Audit Reports of FY 2015-16, FY 2016-17 and FY 2017-18 presented audit paras on expenditures as huge as Rs. 3.2 trillion, Rs. 5.8 trillion and Rs 15.7 trillion respectively.

The Ministry of Finance, therefore, strongly rejects the misleading conclusions presented by certain sections of the press on the basis of the Audit Report for FY 2018-19.

This is with reference to the statement by Mr. Murtaza Wahab, Adviser to CM Sindh on 15th June 2020 that "SINDH GETS RS.234 BILLION LESS IN NFC AWARD: published in a section of press

This is with reference to the statement by Mr. Murtaza Wahab on 15th June 2020 that “SINDH GETS RS.234 BILLION LESS IN NFC AWARD:  published in a section of press.

 The official spokesperson of the Finance Ministry likes to clarify that at the start of each financial year, FBR gives estimates of tax collection during the financial year. Based on those estimates, the share of each province under the 7th NFC Award is conveyed for budget preparation. However the release of share of each province depends on actual collection of taxes reported by FBR and not on estimates as provided under the 7th NFC Award.

 The share of Sindh in the divisible pool taxes and grant-in-aid was estimated to be Rs.781 billion for the current financial year 2019-2020 based on estimated FBR Receipts of Rs.5,555 billion. However, FBR collected Rs.3,670 billion up to May, 2020 due to various factors. Based on this actual collection, the share of Sindh Province together with grant-in-aid stood  out to be Rs.484 billion (up to May 2020) in accordance with the 7th NFC Award (24.55% share of Sindh Province) and the same stands released. The Federal Government has not withheld any amount from due share of the province of Sindh.

It is further pointed out that the estimates of FBR receipts have been revised at Rs.3,908 billion till June, 2020. Based on this revised figure, the share of Sindh works out to be Rs.549 billion and the same has already been conveyed to the provincial government. The release will, however, depend on the actual collection by FBR.

No downgrading of Pakistan's B3 rating by Moody's: Finance Division

The Ministry of Finance has said that the rating review conducted by Moody’s Investor Service on 14th May 2020 does not downgrade Pakistan’s B3 rating.

In a statement on Friday, the Ministry has said that the Moody’s Investor Service has only placed the current rating under review for downgrade in case the G-20 Covid-19 Debt Service Suspension Initiative (G-20 DSSI) extends to private sector creditors. The action is, therefore, not Pakistan specific and is in line with Moody’s global approach to place under review for downgrade all sovereigns availing the G-20 DSSI.

The Ministry of Finance has further said that the review by the Moody’s Investor Service acknowledges that Pakistan has not indicated any interest in extending its debt service relief request to the private sector creditors and that the country’s fundamentals remain strong and on track. The review also appreciates that amid the pandemic, Pakistan’s economic, financial and institutional strength remains materially unchanged.

Finance Division denied any cut in PSDP

The Ministry of Finance has denied a news report published in a section of the press suggesting and insinuating a Rs 100 billion cut in the Public Sector Development Programme (PSDP) for the current fiscal year as per briefing by the Finance Secretary to the National Assembly’s Standing Committee on Finance and Revenue the other day.

The Finance Division strongly denies and rebuts this news report as the Secretary Finance never stated at any point during his presentation to the National Assembly’s Standing Committee on Finance and Revenue that there could be cut in the federal development programme this year, said an official statement issued by the Finance Division today.

The statement asserted that the Finance Division has actually facilitated maximum and speedy disbursements for the year and there is no cut planned or suggested in the development spending for the current fiscal year. The Finance Division has always provided full support to Planning Division to ensure timely expenditure, said the statement.

Finance Division dismisses speculations on IMF Review

The Ministry of Finance has described as misleading and factually incorrect a news item published in a section of the press suggesting that tough prior actions [are] needed for IMF’s $452 million third tranche.

In an official statement issued here, the Ministry of Finance has stated that it is completely normal for quarterly reviews to sometimes take a few days more than planned, which must never be viewed as something extraordinary; the second and third quarterly reviews will be presented before the IMF board separately as planned; no decision has been taken as to any prior actions; China is Pakistan’s iron brother and there is no apprehension whatsoever on the roll-over/refinancing of Chinese loans.

The article in question is equally ill-conceived in trying to portray that only a miracle can save the IMF program. The press statement issued by the IMF on Friday explains that:

“The IMF staff team had constructive and productive discussions with the Pakistani authorities and commended them on the considerable progress made during the last few months in advancing reforms and continuing with sound economic policies,” and that “[a]ll end-December performance criteria were met, and structural benchmarks have been completed.”

The Finance Division would like to make it very clear that the Government’s reform program supported by the IMF’s Extended Fund Facility is on track.

Finance Division urges careful reporting of ebb and flow in stock market

The Ministry of Finance has described certain reports appearing in a section of the press over the ebb and flow of the Pakistan Stock Exchange yesterday as being unfortunate as such reports highlighting sharp volatility in the market damage the interest of the small investors and create uncertainty in the market.

“The role of the media in reporting the ebb and flow in the market needs to be carefully analysed particularly in the wake of rumours spread by a section of the media regarding alleged changes in the government’s economic team which sent wrong signal to the market and damaged the interest of small investors and hurt overall sentiment in the market,” says an official statement released by the Finance Division today.

The Ministry of Finance has noted that it is natural for the market to see a correction after rising sharply by over 50%. “Yesterday, the market fell 846 points. Today the market gained 417 points. These ebbs and flows of the market are driven by sentiments, whereas the fundamentals remain strong and continue to improve.”

The Ministry of Finance also pointed out that after rising by 50% from August 2019 to January 2020, the KSE 100 index had already been named as the top performing market in the world by Bloomberg in December 2019. The improved investor confidence was based on corrective measures taken by the government to reduce the twin deficits. These measures were also strongly endorsed by Moody’s Investor Services in December 2019 with an upgrade in outlook to ‘stable’ from ‘negative’. Foreign portfolio investment in the stock market during the first 6 months of the current fiscal year has also stood at US$ 18.8 million after 4 years of heavy selling by foreign investors.

Govt policies based on good economic management -- Finance Division

The Ministry of Finance has said that the economic policies and economic reforms programme of the government being implemented with the support of IMF are based on sound and well-established principles of good economic management.

“The objective of these policies is stabilization in the first phase, followed by rapid, sustainable and inclusive growth,” says the Finance Division in response to certain news reports insinuating that the “IMF policies [are] leading to destruction of economy”.

The Finance Division has maintained that the government’s policies have already started showing positive results. There is significant improvement in economic indicators. The external sector has stabilized and the fiscal deficit has declined significantly in the first six months of the financial year.

Low tax-to-GDP ratio is amongst the fundamental problems of Pakistan’s economy. Unless this is corrected, the country cannot achieve prosperity. Therefore, a multi-pronged revenue mobilization strategy is being pursued to broaden the tax base and raise tax revenues in a balanced and equitable manner.

To cushion the low-income groups from any adverse effects of stabilization measures, the Government has allocated sufficient resources for income support and social protection programs and has increased spending on health and education. Furthermore, targeted energy subsidies have been given to the vulnerable group.

Govt borrowed Rs 4.11 trillion to finance budget deficit in 15 months -- Finance Division

Finance Division lays before the National Assembly the Debt Policy Statement and Fiscal Policy Statement every year to fulfil the requirements laid out under Section 6 and 7 of the Fiscal Responsibility and Debt Limitation Act 2005. The recent statements cover the 15-month period including FY 2018-19 and first quarter of FY 2019-20 and contain all factual information with respect to debt and fiscal performance over the stated period.

The figure of increase in Total Debt and Liabilities by Rs 11.61 trillion being reported in the media needs to be properly interpreted, says a press release issued by the Ministry of Finance, as the Government borrowed only Rs 4.11 trillion to finance its budget deficit.

The figure of Total Debt and Liabilities consists of the following five components:

1. Total Public Debt
2. Public Sector Entities’ (PSE) Debt
3. Debt for Commodity Operations
4. Foreign Exchange Liabilities of State Bank of Pakistan (SBP)
5. Private Sector’s External Debt

Out of the total increase of Rs 11.61 trillion in Total Debt and Liabilities during Jul 2018 - Sep 2019,

• Rs 3.54 trillion (31% of the increase) is due to currency depreciation which is a consequence of the misplaced exchange-rate, industrial, and trade policies of the previous government that led to large and unsustainable current account deficits and ultimately to sharp exchange rate adjustment;
• Rs 3.13 trillion (27% of the increase) is on account of cash balances and SBP’s foreign exchange liabilities. It should not be interpreted as Debt because it is offset by cash balances of government and liquid assets of SBP.
• Rs 4.11 trillion (35% of the increase) has been borrowed for financing of fiscal deficit;
• Rs 0.47 trillion (4% of the increase) has been borrowed by PSEs for spending on their financing needs;
• Rs 0.08 trillion (-1% of the increase) has been retired on account of commodity operations which is a welcome development;
• Rs 0.25 trillion (2% of the increase) is due to accounting adjustment due to difference in realized value and face value of long-term bonds issued during this period;
• Rs 0.18 trillion (2% of the increase) has been borrowed by private sector from external sources which is a healthy sign indicating private sector’s capacity to borrow from abroad for domestic investments.

Finance Division has taken a strong exception to a news report published in Daily Express Tribune and Daily Express

Ministry of Finance has taken a strong exception to a news report published in Daily Express Tribune and Daily Express insinuating and portraying a situation of clash between two government departments over the government’s foreign borrowing during July-Dec 2019 period.

In an official statement, Finance Division spokesperson has described the reporting by both newspapers as being unethical and against the canons of professional journalism as their reports twist and paint a straightforward clarification issued by Finance Division on 25th January 2020 over government’s net foreign borrowing of US$ 1.7 billion in the July-Dec 2019 period, as rejection of data of another government department which was not even mentioned in the Ministry’s clarification.

The Spokesperson has maintained that the clarification issued by the Finance Division was only related to misreporting in a section of the media of gross external debt inflows which did not take into account outflows on account of repayments, and thereby presented only one side of the picture. The Ministry had clarified that “whereas the reported gross disbursement is US$ 5.5 billion during Jul - Dec 2019, deducting the US$ 3.8 billion which the government paid back during the said period leaves a net figure of US$ 1.7 billion ... therefore, the real addition was US$ 1.7 billion, not US$ 5.5 billion as claimed by a section of the press”.

Hence, the reporter has attempted to create a situation of so-called rift between two government departments and rejection of data by Finance Division of another government division whose input was duly taken in the Finance Division’s clarification, which is unethical and against the canons of professional journalism, said the statement.

Rebuttal - Finance Division rebuts news regarding 20 % drop in FDI

Finance Division has described as factually incorrect and misleading a news item published in a section of the press claiming that the foreign direct investment flows into Pakistan had dropped by 20 per cent in 2019.

In an official statement, the Finance Division has clarified that a news report published in a segment of the press has highlighted that Foreign Direct Investment (FDI) inflows into Pakistan declined by 20 percent to $1.9 billion in 2019 (calendar year) against $2.4 billion in 2018.

In this context, it is clarified that FDI data is collected on the basis of fiscal years, whereas the quoted figure is taken on calendar year basis.

Furthermore, on fiscal year basis, FDI has increased by 68.3 percent during July-December 2019 as compared to same period of last year (from $0.797 billion to $1.341 billion)

Economy moving progressively on adjustment, stabilisation path

The Ministry of Finance has said that the government’s extensive measures have helped the economy move progressively along the adjustment path and stabilization process and economic recovery is expected towards the end of FY2020.

“The government is focused on bringing improvement in the real sector growth through inclusive growth in agriculture, industrial and services sectors,” said a statement by the Finance Division in response to certain news reports carried in a section of the regarding downward revision of growth by the World Bank.

The government is cognizant of challenges and stringently focused on resolving them particularly, reducing inflation, creating job opportunities and achieving high growth rate. Keeping in view the positive developments on major economic indicators, we expect that the economy will likely to achieve better growth prospects as against the projections of the World Bank.

The World Bank in its report ‘2020 Global Economic Prospects’ had forecasted Pakistan`s current year growth rate at 2.4% before touching 3 % next fiscal year and 3.9 % in FY2022. The bank’s report had also mentioned that the growth had decelerated an estimated 3.3 % in FY2018-19, reflecting a broad-based weakening in domestic demand. In addition, the report had described that significant depreciation of the Pakistani rupee resulted in inflationary pressures, monetary policy tightening restricted access to credit, curtailing public investment to deal with large twin deficits and budget deficit rose more sharply than expected.

It may be pointed out that during FY2019, the slowdown in economy was largely attributed to various policy measures to manage the twin deficit crisis. Consequently, these measures helped to contain demand pressures and contributed to import compression. However, the outcomes of these measures were realized on the industrial sector. Particularly LSM sector witnessed a negative growth. At the same time, high input costs along with water shortages weakened agriculture sector’s output and hence, the drag in the commodity-producing segments spilled over to the services sector as well. Resultantly, the real GDP growth recorded at 3.3 percent.

At the start of current fiscal year, with government’s extensive measures, Pakistan’s economy is now moving progressively along the adjustment path and stabilization process; however towards the end of FY2020, economic recovery is expected. In this regard, Government is focused on bringing improvement in the real sector growth through inclusive growth in agriculture, industrial and services sectors.

For growth in agriculture sector, the target production of wheat is 27 million tons given by FCA in last meeting held in October. In addition to uplift agriculture sector “National Agriculture Emergency Programme” in coordination with all provinces has been introduced and approved 13 mega projects at the cost of Rs 287 billion. Agriculture credit disbursement target for CFY20 has been set at Rs.1,350 billion. Agriculture credit disbursement increased by 20% to Rs 482 bn during Jul-Nov, FY2020 against Rs.402 bn last year.

To boost industrial sector, the government is providing a series of subsidies and incentives to industrial sector. These include subsidies to industry for electricity and gas, export development package and continue to provide Long-Term Trade Financing (LTFF) and Export-Refinancing Scheme (ERS) at subsidized rate.

Similarly, PSDP release process is simplified and up to 3rd January, 2020 Rs.301.4bn (Rs.225.4 bn) released to encourage construction related industries especially cement & steel. In addition, Cement dispatches growth of 6.55% (24.8 mn) during July-Dec, FY2020 against 23.2 mn in the last year. This development would likely stimulate the growth in LSM in coming months.

On fiscal side, to control expenditures, government is following austerity measures with complete restriction on supplementary grants. For export promotion several initiatives have been announced such as support duty structure on raw materials and intermediate goods, improve mechanism for tax refunds, provide electricity and gas at competitive cost, and make Pakistan part of the global value chain.

Government’s various measures to stabilize the economy has already started to reap benefits in the form of sustained adjustment in current account deficit (CAD) and continued fiscal prudence. A brief review indicates that CAD reduced by 72.9% during July-November FY2020, Fiscal deficit contained at 1.6% of GDP (Rs 686 bn) during Jul-Nov FY2020 ,Primary balance posted surplus of Rs 117 bn during Jul-Nov, FY2020 (0.3 percent of GDP), significant rise in FBR tax revenues to Rs.2085.2 bn (16.4 %) during July-December, FY2020, improved ranking in ease of doing business, ranked among the world’s top 10 best business climate improver and ‘Stable’’ credit outlook to B3 from ‘Negative’ by Moody’s is an affirmation of Government’s success in stabilizing the economy and laying a foundation for robust growth.

Development Spending Grows by 27% in Four Months -- Ministry of Finance

The Ministry of Finance has said that the development spending during the first four months witnessed a growth of 27% compared to the same period of last financial year while the development spending of the four provinces (combined) during the first four months also stood at Rs.112 billion as compared to Rs.88 billion spent during the same period of last financial year.

“It is incorrect to say that the provincial government has provided the surpluses at the cost of development activities,” said the Finance Division in an official statement in response to certain media reports appearing in a section of the press claiming that the "provinces forego uplift plans and return Rs.202 billion to Centre".

In its statement, the Ministry of Finance described the media reports as "misleading" and "incorrect" and maintained that as per the factual position, neither the provincial surplus is Rs.202 billion nor the surplus amount had been transferred/ returned to the federal government. The actual provincial surplus for the period July-September, 2019 is Rs.190 billion, it added.

The Finance Division further stated that according to standard procedure federal transfers are made to the provincial governments as per NFC formula and are transferred from Federal Government Account to the respective Provincial Government Account maintained with State Bank of Pakistan. The amount so transferred remains available to the respective Provincial Government all the time in their separate accounts with State Bank of Pakistan.

The statement further clarified that the Ministry of Finance compiles and consolidates fiscal operations of State of Pakistan (Federal Government and all the four provincial governments) on quarterly basis. The cash balance position of Federal Government and provinces is shown in a consolidated manner. The consolidated cash surplus position helps in driving the fiscal policy of the Government. Federal Government has neither a role in provincial expenditure planning nor its spending. Provincial surplus for the same period of last financial year was Rs.199 billion.

Rebuttal - Ministry of Finance rebuts newspaper editorial on 'flawed narrative'

The Ministry of Finance has rebutted an editorial published in a Karachi-based business newspaper accusing the Minister for Economic Affairs Division Mr. Muhammad Hammad Azhar of a “flawed narrative” even as the Minister has discharged his responsibilities as an official spokesperson of the Federal government representing the collective view of all economic ministries.

In an official statement, Spokesperson Ministry of Finance has said that the views expressed by the newspaper in its editorial captioned ‘Azhar’s flawed narrative continues’ dated 07 November 2019 are a fanciful articulation of personalised nature rather than being an objective assessment of the spokesperson’s narrative. The editorial makes some sweeping claims that are not based on data but either inaccurate information or simply value statements.

The newspaper claims that the Minister’s comparison of the first-year inflation figures of PTI with PMLN & PPP is not appropriate. The Minister has simply reminded the protesting opposition parties that the inflation rates during their own tenures rose to higher rates as compared to the first 13 months of PTI government. 

The newspaper dismisses the achievement of Foreign Portfolio Investment flows becoming positive in Pakistan after three years and links this inflow to the of loss of employment in SME sector. This is stated to be not based on any data but an ‘anecdotal survey of Islamabad’. The above merits no response.

The stock market’s surge of 6500 point since August that the Minister mentioned in his presser is reported as 500 points in the editorial and then dismissed as not warranting importance because the market has players that according to the editor ‘manipulate’ the stock market and does not cover 99% of country’s population. This view is quite opposite to the importance that Business Recorder itself gives to the stock market on a regular basis, printing analysis, reports and headlines carrying its movement and trends.

The improvement in fiscal deficit In Q1 FY20 is then criticized in the piece for being compared to the last year, which in fact is a standard practice. The PTI government achieved success in curtailing the external deficit in its first year of government by 32% (and further by 64% in first quarter of FY20). Now the government has focused on fiscal consolidation in this year (first quarter fiscal deficit is 0.7% vs 1.4% last year). This is rational sequencing and is now acknowledged by informed analysts. The editorial itself mentions ‘appropriate phasing’ as the correct strategy to ease the stabilisation process.
The claim of rising export volumes is disputed in the editorial and is attributed largely to increase in rice import by China. Data on volume of exports published for last year and this year shows the above assertion to be incorrect. During last fiscal year, as per the SBP, the total volumes of export grew by 12%. The breakdown of exports provided by PBS shows that exports of Cotton Cloth increased by 16.61%, Bedwear by 8.18%, Readymade Garments by 32.77% and Knitwear by 15.52%. The above make up for 40% of Pakistan’s exports. The first quarter data of this FY20 also shows a healthy increase in volumes. Therefore, to attribute the entire exports volume growth to just rice imported by China is not supported by data and shows bias in the newspaper’s analysis.

The decrease in circular debt flow is contested in the editorial. During the last year of PMLN government, circular debt flow was Rs 38 Billion/month on average, whereas during the first year of PTI government it reduced to Rs 27.8 Billion/month. This year it will be less than Rs 12 billion/month on an annual average. The Power Ministry has confirmed these numbers.

Lastly, whilst making personal attacks, the newspaper has also portrayed Minister Hammad Azhar as purely a lawyer and ignored the fact that he graduated in Development Economics from the School of Oriental and African Studies, University of London. He also has experience in managing industry for the last 13 years.

It is hoped that the newspaper in future will desist from such subjective analysis based on personal and biased views which is not the hallmark of a standard bearer newspaper such as ‘The Business Recorder’.

Rebuttal - 3.3% growth in FY19 and host of economic measures set to benefit common man

Ministry of Finance has said that the government’s macroeconomic adjustment and demand management policies for stabilization have started making an impact as visible in the moderate growth of 3.3 % in the FY2019 as well as introduction of a host of measures to bring down inflation, jack up economic activities, strengthening of social security net, increase in employment opportunities and containment of fiscal and trade deficits.

The result of what has been achieved so far needs to be seen and contextualised in the backdrop of a very difficult situation of the economy inherited by the government and how the measures taken by the government during the last one year have not only effectively checked the economic slide but turn the wheel in various sectors of the economy to ensure their long-term fruits for businesses and the common man.

In a detailed statement, the Finance Division has rejected the news reports published on the basis of a news article in an online international newspaper and claiming that the “Voters, traders feeling pain of the government’s economic plan” due to what the report suggests as rising inflation and other reasons.

The Finance Division has maintained that at the very outset, it is important to mention that when the present government assumed the office, the economy was facing multiple challenges relating to fiscal, external and real sector of the economy. The unaddressed macroeconomic imbalances and long awaited structural reforms needed urgent policy actions. To address these issues, the present government thus introduced a comprehensive set of economic and structural reforms and the impact of macroeconomic adjustment and demand management policies for stabilization were now visible as FY2019 witnessed moderate growth of 3.3 percent.

The Finance Division pointed out that the media reports while referring to increase in prices did not take into consideration the major causes behind this rise and instead stated the figures whereas major reasons for the rise in inflation are (i) sustained pressures on twin deficits which induced the government to adjust administered prices upwards and also impose regulatory duties on imported items; (ii) supply constraints of certain food items and imposition of FED on cigarettes; (iii) and the impact of rise in fuel prices and exchange rate depreciations.

The Finance Division has further stated that the rise in inflation was mainly due to delay in policy adjustments required during FY2018 as the present government had to make difficult decisions of upward adjustment in overdue gas and electricity prices, market-based exchange rate adjustments, increase in interest rates etc to correct the macroeconomic imbalances. The government also adopted prudent expenditure management and contractionary monetary policy to compress the aggregate demand. To this effect, the State Bank of Pakistan raised the policy rate to 13.25% to arrest inflationary pressures.

The Finance Division further clarified that the government was making all efforts to control inflation by ensuring smooth supply of commodities, checking undue profiteering & hoarding and vigilant monitoring of prices both at federal and provincial level. To address the issue of severe macroeconomic instability and to put the economy on the path of sustained growth and stability, some tough immediate steps were required. The present government thus introduced a comprehensive set of economic and structural reforms. In this regard, Finance Division has worked out a strategy to control inflationary pressures in the economy.

Explaining the measures to control inflationary pressures on the economy, the Finance Division said the government had discontinued borrowing from the State Bank of Pakistan which had an inflationary impact, and switched to commercial banks for borrowing which was less inflationary in nature. Similarly, National Price Monitoring Committee (NPMC) in consultation with the provinces was regularly monitoring the prices and supply of essential food and non-food items.

The Finance Division further noted that on the expenditures side, the government was following austerity measures with complete restriction on supplementary grants. This is helping to control the aggregate demand to ease out the inflationary pressure in the country. The government is also committed to imposing the burden of adjustments in energy prices on those who can afford rather than the poor segments of the society. A subsidy of Rs. 226.5 billion had been allocated in the budget for customers who use less than 300 units of electricity in a month (comprises 75% of total electricity consumers).
The Finance Division also referred to the ECC of the Cabinet’s decision to provide relief to the ‘Roti Tandoors’ for provision of cheap roti to the common man by giving the subsidy of Rs.1.5 billion. Similarly, the federal and provincial governments are ensuring smooth supply of essential items at affordable prices by organising the more sasta bazaars as well as in the open markets.

The Finance Division also mentioned that social protection through poverty alleviation programs had been introduced to protect the poor as the cost of structural reforms would fall disproportionately on the vulnerable segments of the society. Under Poverty Alleviation Division, the government has allocated an additional amount of Rs.80 billion in the country’s social protection spending for 2019-20 with a total allocation of Rs 1 protect 90 billion for the Social Safety Net Programme.

To improve socio-economic condition of the common man and to boost agriculture sector, the Federal government is implementing “National Agriculture Emergency Programme” and has approved 13 mega projects at the cost of Rs 287 billion. The programme is being executed with the coordination of all provinces aimed at boosting crops yield, fisheries and livestock development as well as water conservation.

To facilitate Industrial Sector, the government was providing a series of targeted subsidies and incentives to industrial sector. These include subsidies to industry for electricity and gas, export development package and continue to provide Long-Term Trade Financing (LTFF) and Export Refinancing Scheme (ERS) at subsidized rate.

During July-September FY2020, exports increased by 2.4 percent to US $ 6.033 billion against $ 5.893 billion in last year. Imports decreased by 22.7 percent during July-September FY2020, to US $ 11.032 billion against US $ 14.275 billion in last year. As a result, the trade deficit had shrunk to 34.85 percent to US $ 5.727 billion.

With regard to the reports on employment creation, the Finance Division said that it was important to highlight that Job creation was one of the key objective of government economic reform program and the government was evaluating specific proposals for job creation with strong participation by the private sector. The important initiatives include ‘Naya Pakistan Housing Program’ which is envisaged to construct 5 million homes over the next five years. With its strong backward linkages, development of housing sector will also lead to significant increase in growth of at least 40 different industries.

Similarly, ‘Kamyab Jawan Program’ launched recently had two tiers program whereby tier 1 ranged from 0.1 million to 0.5 million while tier 2 ranged from 0.5 million to 5.0 million. Loans for tier 1 made available at a subsidized rate of 6% while for tier 2 rate is 8%. 110,000 loans will be disbursed under tier 1 and 29,000 loans will be disbursed under tier 2 over a 5-year period with subsidy of Rs 15 billion.

The Finance Division also reminded that the government had allocated Rs 5 billion for Prime Minister's Youth skill Development in the budget 2019-20 while the government had set a target to create 100,000 jobs in IT in 2019 with the PSDP earmarked for ICT sector for 2019-20 at Rs.11,140 million, showing an increase of 52.6 percent over the corresponding period of last year.

The Finance Division further noted that investments in tourism had the potential to generate over half a million new direct and induced jobs over the next five years. To increase the number of tourist, the government had introduced an open Online Visa System for the citizens from 50 Countries. The government had allocated Rs 2 billion for Clean Green Pakistan Movement/ Tourism in budget 2019-20.

The Finance Division also said that the 10 Billion Tree Tsunami would create a total of 2 million jobs over the life of the project. Similarly, during calendar year 2018, 3, 82439 people were registered for overseas employment while from Jan-August 2019, 373,225 Pakistanis were registered by Bureau of Emigration and Overseas Employment for employment as compared to 244,504 emigrants during the corresponding period last year.

The Finance Division also noted that in the current budget, government had protected the vulnerable segments from utility price increases. The government had also protected the low-gas consumers from high gas price. Similarly, to keep the Roti prices at the lower level, the government had been providing subsidy of Rs 1.5 billion to the Roti Tandoors. GST on LPG had been reduced from 17% to 10% while low electricity consumers were also being protected from full impact of price increase.

Rebuttal - Finance Division rebuts news report on state of economy

Finance Division has described as “incorrect” the impression created in a section of the media that the Pakistan economy is shrinking.

In a statement, the Finance Division has asserted that the macroeconomic adjustment policies introduced by the government to support balance of payment and strengthen the market confidence, which will also move toward higher and inclusive growth. The contention of a section of the media talking about “shrinking economy” seems incorrect as the early signs of recovery of economic activities in fiscal year 2020 are very much encouraging.

On agriculture front, Federal government is implementing “National Agriculture Emergency Programme” and has approved 08 mega projects at the cost of Rs. 235 billion. This will encourage economic activities in rural areas and create employment opportunities in the country. Credit to agriculture sector has increased by 20.7 percent; the sowing of cotton crop has also increased by 14.4 percent as compared to last year which will increase cotton crop in double digit. The import of agriculture machinery has recorded a growth of 8.7 during FY2019 which is a good indicator. The base effect will also support growth in agriculture.

Earlier estimates of cotton crop suggest that cotton production will increase at least by 3 million bales in FY2020 from last year. All these developments forecast agriculture is likely to rebound and grow more than 3.0 percent in CFY. This is likely boost growth in LSM and the exports of the country, as well. Similarly, the LSM is likely to recover in current fiscal year on the back of better expected growth in agriculture sector along with government initiatives in the construction, SMEs, tourism and automobile sectors. Better growth in agriculture and LSM sector are likely to have a good impact on services sector.

To boost jobs in the industrial sector, the government is providing a series of focused subsidies and incentives to industrial sector. These include subsidies to industry for electricity and gas, export development package and continue to provide Long-Term Trade Financing (LTFF) and Export Refinancing Scheme (ERS) at subsidized rate.

Impact of better cotton production and subsidy schemes have spillover effect on export growth and textile sector which will supports further current account and balance of payments position.

For inclusive growth and to protect the vulnerable segments of the society, various social protection programs (through a newly created poverty alleviation division) have been introduced. Under Poverty Alleviation, the government has allocated an additional amount of Rs.80 billion in the country’s social protection spending for 2019-20 which cumulatively reached at Rs 190 billion which will also have spillover effect on private sector activities.
The editor further stated that “the Government will have to request the Fund for waivers due to its failure in achieving two performance targets i.e.  tax collection and circular debt. This is, according to the Editorial, due to failure of both the Government and the Fund to do their homework before setting targets for the IMF program signed by the government in June this year”.

It is clarified that the government has pursued the performance targets of the EFF program vigorously during the first quarter of CFY. Resultantly, tax collection during the period has so far been 16 percent higher than the tax collection of the same period last year. It is also clarified that the numbers regarding circular debt have not been finalized as yet and it is premature to say that the target has not been achieved and that the price hike has not worked.

As far as the investment in domestic securities by non-residents is concerned, it may be noted that this is a positive development. This will expand and diversify the investor base and enhance competition, leading to liquidity in primary as well as secondary markets.
Over the long-run, greater competition among investors and greater liquidity in the markets will result in lowering borrowing costs for the Government and also increasing the depth of domestic capital market. This is an aspect not previously covered or thought-out by the previous governments.

The IMF agreement is based on broader policy reforms to address the issue of macroeconomic instability stemming from budgetary and current account deficit. Most of the targets are related to initiation and continuation of structural reforms which include various policy, administration and enforcement intervention.

The benchmarks in this program have been set in terms of qualitative initiatives and not exactly in terms of numbers. The indicative targets in numbers are based on certain assumptions related to growth, imports, exports, inflation, independently determined policy rate and a market based exchange rate. Any change in assumed rates in the initial model results in varying targets such as tax and non-tax revenues. The tax target is not something given by IMF but is a number assigned by Government of Pakistan to FBR as revenue target and so far FBR has achieved more than 90 percent of its target despite huge import compression.

The indicative targets of refunds are related to retirement of refunds, stocks and so far FBR has issued all determined refunds of sales tax till September 2019. It is a common practice that businesses claim huge refunds but the authentication of these refunds usually remains below 30 percent of claimed amounts due to non-matching of invoice data. The IMF team is in touch with Pakistan authorities on all issues of program and is also providing technical assistance to the Government on various aspects of the programs. Last week a team of experts provided technical assistance on expenditure side, next week a team of experts on tax policy is visiting Islamabad. The opinion expressed in editorial is probably based on cursory reading of the staff level agreement without going into the detailed qualitative benchmarks agreed by the government and the IMF.

Rebuttal - Finance Division rebuts news report regarding rate hikes, rupee fall having serious social impact

In response to an article, titled “Rate hikes, rupee fall to have serious social impact” published in Express Tribune dated September 16, 2019, it is to be noted that the writer has exaggerated the cost of stabilization under the IMF program while ignoring the anticipated positive impact of the same.

The article suggests that increase in key policy rate is aimed at attracting yield seekers and to attract the so called “hot money”. However the writer ignored to mention the key reasons for increase in policy rate, which includes build-up in excessive demand pressures in recent years and associated increase in inflationary expectations in the economy. This, together with other administrative measures helped to discourage the imports of non-essential items in order to keep a check on otherwise widening trade deficit. Although the rate hike may induce some “hot money” to get into Pakistan as mentioned, it is not to be used by any means as a strategy for accumulating foreign reserves. This is evident from recent increase in foreign exchange reserves, which has been achieved primarily by reduction in trade deficit.

Furthermore, the article also suggests that both increase in policy rate and PKR depreciation impacted the cost structure of the listed companies through increasing their cost of raw materials. However, the author didn’t consider the fact that the government has provided a number of incentives to industries. Indeed, in budget FY19-20, the government has provided relief to export-oriented sectors which can now import more than 1600 raw material items at reduced/zero tariff rates. Additionally, the SBP has kept the lending rates unchanged for export oriented sectors under its Long-term finance facility (LTFF) and Export Finance Scheme (EFS). Over the short-to-medium-term, this would help to reduce chronic woes of the external sector through improving trade balance.

Furthermore, the author claims that the agreement with the IMF may give rise to social crisis and gave the example of Egypt in this regard. On the contrary, IMF, in its recent country report, emphasized the need to increase social safety net spending. For example, a new Division of Poverty Alleviation and Social Safety has been established to design and implement social safety programmes in the country. Under the head of Social Protection, an amount of Rs 190.6 billion has been allocated in the budget 2019-20 for welfare of the poor segment of the society.The beneficiaries of Ehsaas programme are extreme poor, orphans, widows, the homeless, the differently abled, medically challenged, and the jobless, who will be paid as per establish terms of a National Socio-Economic Registry or data bank based on poverty score card.

Rebuttal - Finance Division rebuts news regarding IMF bar on sovereign guarantees

The Ministry of Finance has contradicted a news report published in a section of the press claiming that IMF has barred Pakistan from extending sovereign guarantees till December Review.

In a statement, Finance Division has termed the report and its headline as false and contradictory to an official response provided to the newspaper in advance of the published report.

The Ministry has maintained that the concerned reporter who has filed the story had approached the Finance Division Spokesperson Mr. Omar Hamid Khan with a question whatsapped to the latter on why in the reporter's words the “Finance Ministry is not extending the sovereign guarantees against Rs 200bn loan to be borrowed from Islamic banks to reduce the circular debt”.

In response, Finance Division Spokesperson Mr. Omar Hamid Khan clearly told the reporter in a written reply that “In order to ensure fiscal discipline and debt sustainability, GOP has developed a policy framework which has also been agreed as part of the Extended Fund Facility provided by IMF. Under this framework, GOP has decided to set a ceiling (equal to 3.6% of GDP) on government guaranteed debt. The framework is reviewed on a quarterly basis in the light of progress already made, prevailing economic circumstances, and the overall objectives of achieving higher economic growth and debt sustainability."

However, despite a clear response in no way indicating that the IMF had in any way barred Pakistan from extending sovereign gurrantees, the reporter went ahead and falsely attributed the Finance Division Spokesperson as having confirmed to him that the IMF has barred Pakistan from extending sovereign guarantees till December Review” which is contrary to the facts as shared with him in a written response by the Finance Division. “Such an irresponsible reporting of even written words and flashing them as headline is unethical and against the spirit of healthy journalism and such a tendency must be avoided to retain the trust and credibility of readers and state institutions,” said the statement.

Response - to some tickers run on certain channels regarding arrangement of Rs 200 billion to bring down the circular debt

In response to some tickers run on certain channels regarding arrangement of Rs 200 billion to bring down the circular debt, the Ministry of Finance would like to clarify that it is considering various options to complete the transaction as soon as possible. Negotiations with banks are going on.

The matter has also been discussed with IMF team during its recent visit. Hopefully the matter will be resolved soon.

Rejoinder - to the News Item published on 6th September 2019 regarding the IMF Programme and Upcoming Staff Visit

A certain news item published on 6th September 2019 has reported that the IMF is sending an SOS mission to Pakistan owing to the fiscal outcomes of FY 2018-19. The news item has also claimed that programme may be renegotiated.

It is clarified that both these assertions are completely incorrect are not based on actual ground realities.

The upcoming IMF Mission is a staff level visit that had been planned much earlier and it is absolutely erroneous to construe that the IMF staff level mission is any kind of SOS mission.

The claim that the IMF programme is being renegotiated is equally misconceived. The Government of Pakistan remains firmly committed to implement the policies and reforms spelled out in the IMF-supported program. As indicated in the program documents, the IMF-supported program will be monitored and reviewed according to a calendar of quarterly reviews. The first one is scheduled to take place at some point in December. Our understanding is that as part of our technical work program, an IMF team will come on a routine Staff Visit in mid September 16-20.  

Rebuttal - Pakistan rebuts Indian Media reports on FATF

This is with reference to the news published in Indian media about Pakistan being black listed by APG. It is clarified that APG in its 22nd Annual Meeting held in Canberra, Australia from 18-23 August 2019 has adopted Pakistan’s 3rd Mutual Evaluation Report and has put Pakistan in its enhanced follow-up as per APG’s Third Round Mutual Evaluation Procedures. In line with APG’s Third Round Mutual Evaluation Procedures, Pakistan would be required to submit follow-up progress reports to APG on quarterly basis. It is further clarified that the media reports being circulated about Pakistan being blacklisted by APG are incorrect and baseless.

Clarification - Reference News item published in the newspaper titled "Pakistan's external debt estimated at $130b by FY23"

This is with reference to the news item published in the newspaper “Express Tribune" titled “Pakistan’s external debt estimated at $130b by FY23” dated 10.07.2017. The article’s commentary is based upon external debt and liabilities and comments regarding external public debt are as under:

The news report used exaggerated statements and drew baseless conclusions with the intention to create sensation and mislead the general public. The news item has quoted that as per International Monetary Fund (IMF) External Debt is estimated to reach US$ 130 billion by fiscal year 2022/23 with a net addition of $34.6 billion during the tenure of the present Government from US$ 95.4 billion in FY2017/18.

The news is referring to External Debt and Liabilities (EDL) of the country which includes private sector debt, debt of banks etc. in addition to the external public debt. Time and again it has been clarified that EDL does not constitute borrowing of the Government since it includes borrowing of PSEs, liabilities of the central bank, borrowing of banks and of the private sector.

Clarification - Ministry of Finance issued a clarification

In order to bring clarity about the budget and expenditure figures for Prime Minister Office, Finance Division presents following facts, with a view to address certain misconceptions in Media

• During the Current Financial Year 2018-19, PM Office had a budgetary allocation of Rs. 986 million. However, owing to ongoing austerity drive and with a view to set the example from the top, PM Office has successfully managed to squeeze its expenditures up to Rs. 675 million, which is 32% reduction that is unprecedented.

•  Further analysis reflects that the expenditure of PM Office (Public) has been curtailed from Rs. 514 million (budgeted) to Rs. 305 million (actual till end June), thereby reflecting the saving of 41%.

• Similarly, PM Office (Internal) brought down its expenditures up to Rs. 370 million, against the budgetary allocation of Rs. 472 million, which reflects the expenditure squeeze of 22%.

• To achieve this goal of expenditure rationalization and austerity, PM Office slashed 35% HR and massively reduced expenditure on refreshments, fuels, Procurement of Equipments and Machinery and adoption of a basic economical non lavish style of official working.

• The budgetary allocation for PM Office (Public + Internal) for next financial year 2019-20 is Rs. 862.9 million which is again 12% less than budgetary allocation for FY 2018-19. In spite of rising inflation, increase in salaries and demand for replacements of physical assets and refurbishment etc, budgetary allocations for PM Office have been kept to bare minimum levels, to set an example for other Federal Ministries / Divisions & Departments.

• For further clarity, it is informed that the Printed Budget for PM Office has been reflected in the Volume-I of Federal Budget 2019-20 (Current Expenditure). The relevant pages are 302-310.

•  Electronic Media has been flashing page 302 of this book which reflects the PM Office Budget worth Rs. 1172 million for financial year 2019-20 against the existing budgetary allocation of Rs. 986 million for FY. 2018-19. As elaborated in the table, the PM Office budget of Rs. 1172 million also includes the budgetary allocation (Rs. 309 million) for National Disaster Management Authority (NDMA). NDMA, although autonomous with its own budget line has been parked under the PM Office. Previously it was under the Ministry of Climate Change. Hence, the budget of NDMA must not be and should not be confused with the distinct budget items of PM Office. Data table may be referred for more clarity on this.

• For purpose of budget preparation, revised budget estimates comprise of 8 months actual expenditure plus 4 months anticipated expenditures. The budget book page No. 302 reflects revised estimate of Rs. 820 million against the budget of Rs. 986 million for the PM Office. However, PM office went through further belt tightening and has successfully been able to close the financial year at an actual expenditure of approximately Rs. 675 million which is even 18% lesser than the revised expenditure estimates.

• The budgetary allocation for PM Office for next financial year 2019-20 is approximately Rs. 863 million which is 12% lesser than budget allocation for FY 2018-19. This existing spending level of PM Office (Rs 675 million) is actually touching the expenditure levels in FY 2014-15, which speaks volumes about the austerity drive in the PM office.

In nutshell, Finance Division clarifies that PM office has actually reduced its expenditure by 32% during the CFY 2018-19. Its next year budgetary allocation is 12% less than the budget for 2018-19. The coordinated effort to bring austerity through rationalization of current federal expenditures would continue in future under the high standards set by the PM Office, based on the PM’s vision of cutting down expenditures.

Following is the complete budget analysis of the Prime Minister Office:-

Prime Minister’s Office
Budget & Expenditure Analysis
(2018-19)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Rebuttal - Position on transfers made to Sindh

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

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

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

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

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

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

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

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

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

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

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

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

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