Pakistan seeks roll over of existing $1b, pursues additional $300m from Bank of China

Federal Minister for Finance and Revenue, Ishaq Dar, announced on Friday that China would soon roll over a $1 billion loan that was recently paid back by the Pakistani government, providing relief during the country’s acute forex crisis.

During a meeting of the National Assembly Standing Committee on Finance and Revenue in Islamabad, the finance minister briefed the committee about China’s imminent rollover of the loan, which had been fully repaid earlier. Dar stated that Pakistan would receive the $1 billion either on the same day or on Monday.

Additionally, he mentioned that Pakistan is in talks with the Bank of China for an additional loan amount of $300 million.

On the subject of defaulting, the finance minister highlighted that Pakistan possesses assets worth billions of dollars, including the Reko Diq mine with assets valued at $3,000 billion.

While acknowledging Pakistan’s severe external debt-servicing issue, Dar reiterated the country’s commitment to meeting its financial obligations and assured that Pakistan would not default. He attributed the problems faced by Pakistan to global politics but expressed hope that adverse consequences could be avoided.

Pakistan is currently seeking forex cover to prevent defaulting on its debt obligations. The government has been engaged in ongoing discussions with the International Monetary Fund (IMF) since November for a bailout, but China has been the only source of assistance thus far.

In March, the State Bank of Pakistan received $500 million from the Commercial Bank of China, marking the second $500 million transfer as part of a $1.3 billion rollover facility. Furthermore, in February, the Chinese Development Bank refinanced a $700 million loan, bringing the total facility from Chinese institutions to $2 billion.

During the committee meeting, it was informed that the selection process for presidential roles at the National Bank and the Zarai Taraqiati Bank Limited (ZTBL) is nearing its final stages. Shortlisted candidates are awaiting final interviews with the Minister for Finance and Revenue.

The committee raised concerns about the sustainability of the proposed budget, questioning its feasibility in light of the current economic situation in Pakistan. However, the finance minister presented statistical evidence to support the revenue targets outlined in the budget proposal, projecting a growth rate of 3.5% with the proposed budget’s aid. Dar emphasized the government’s commitment to implementing challenging but necessary economic reforms and urged Chambers of Commerce to refrain from spreading misinformation that could destabilize the market.

The committee, along with multiple Chambers of Commerce, acknowledged the government’s dedication to incentivizing Small and Medium Enterprises (SMEs) through equitable loan distribution, IT sector reforms, support for the agriculture industry, and measures aimed at women’s empowerment.

In response to concerns raised during the meeting, the FBR Chairman and the Finance Minister affirmed the imposition of a 0.6% tax on cash withdrawals, as a move toward documenting and digitalizing the economy. However, the committee proposed reducing the tax rate to 0.2% to address concerns about cash transactions and smuggling.

The committee also recommended an equitable tax regime for raw material traders, increasing the tax net by incentivizing new filers, and offering discounted rates for credit card usage in restaurants. Furthermore, concerns were raised about the allocation of $3 billion by the previous government at minimal interest rates and the non-utilization of crop insurance for the farming community.

Regarding the IMF, the Finance Minister stated that all technical measures were finalized, and a staff-level agreement should be signed within the same month. Delays in the budget strategy paper were attributed to ongoing discussions with the IMF, with geopolitical factors potentially influencing the release of tranches.

The meeting was attended by members of the National Assembly, senior officers from the Finance Division, M/o Law and Justice, State Bank of Pakistan (SBP), Zarai Taraqiati Bank Limited (ZTBL), and representatives from all Chambers of Commerce and Industry.

Meanwhile, the Senate Standing Committee on Finance and Revenue successfully concluded its deliberations and recommendations on the Finance Bill, 2023-2024. The committee reviewed deferred items, made recommendations and decisions, accepted certain items, and rejected others for finalization of the report. The committee also decided to discuss various recommendations even after the budget.

All the deferred items of the customs act were accepted after due deliberation, and the committee emphasized the potential burden on consumers with the taxation of consumer goods sold under brand names and trademarks. Sections related to “Bonus share” and “Super Tax” were unanimously rejected by the committee.

The committee received general recommendations from Senators Rukhsana Zuberi and Saadia Abbasi, which were included in the budget. Various stakeholders, including the Telecom Foundation and the Pepsi-Cola International representative, expressed concerns over regulatory duties and taxes, advocating for reductions and rationalizations. The committee will continue its deliberations on the final recommendations and report on Monday.