ISLAMABAD: A strong agenda, including $200 million rupee-linked offshore bonds, revised markup prices on federal loans to provinces and public sector agencies, the Rs739 billion Karachi Transformation Plan (KTP) and the first phase of the rationalisation plan for federal subsidies, is scheduled to be taken up by the cabinet’s Economic Coordination Committee (ECC) on Wednesday.
Informed sources told Dawn that the Prime Minister had assured the newly named Finance Minister Dr Hafeez Shaikh at a weekend meeting that the Tax Division would be returned to his portfolio. As a result, the ECC conference that was twice postponed was scheduled for Wednesday (Dec 16).
At least an 8-point agenda will be taken up by the meeting. One of them related to technical supplementary grants (TSG) for projects of the Islamabad Capital Territory Administration after transfer of some crucial responsibilities from Municipal Corporation Islamabad.
Another is the donations of Pakistan to international organisations such as the United Nations Demographic Fund, Population and Development Partners (PPD) and the Pakistan Family Planning Association (IPPF-FPAP) for three years, i.e. FY2018-19 to FY2020-21, and the outstanding contribution to the World Health Organization (WHO).
The sources said the ECC would authorise the International Finance Corporation’s (IFC) launch of Pakistani rupee-linked offshore bonds worth about $200 million. They said the consultations on the launch of offshore bonds had been concluded by the Ministry of Finance, the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan.
$200m offshore bonds, revised markup rates on federal loans, Rs739bn KTP among matters to be taken up
A updated 2020 relief programme for federal loans to regions, companies and autonomous entities is also scheduled to be accepted by the ECC. This comes only a week after the Ministry of Finance reported final mark-up prices for regional cash growth loans, loans to municipal bodies, financial and non-financial institutions and other companies, and the federal government’s spending on commercial departments.
Last week for FY2017-18, 11.53pc for FY2018-19, and 12.20pc for FY2019-20, the finance ministry announced a 6.62pc markup average per year. As per the Re-lending Policy 2016 in vogue, re-lending rates were at the real rate for provincial governments, but rates were 9pc for the agencies of the federal government, 12pc for autonomous bodies and 9pc for DFIs, respectively.
The revised policy envisages that the re-lending policy should adequately reflect shifts in government borrowing rates, exchange risk coverage (ERC) and an in-built fiscal opportunity for borrowers to foster a repayment culture. For the last five years the average cost of foreign borrowing from the federal government was 3.6pc, whereas over the same time, the Pak rupee depreciated by 9.1pc against the dollar.
The ECC summary now seeks to refer foreign loans to the departments, autonomous bodies and DFIs of the federal government on the same terms and conditions under which they were borrowed, such as provincial governments, with some administrative costs of 0.25pc to be applied on time over the loan maturity period. On the sums which remain unpaid for 30 days after due time, two per cent punitive interest will be levied.
The proposed Re-lending Strategy 2020 is based on four main considerations: it should incorporate shifts in government borrowing costs, exchange rate volatility, reduce the federal government’s risk, and pass on transparency to borrowers at real rates.
Following a recent presentation to the federal cabinet showing the cost of all current, coming, due and secret subsidies and contingent liabilities and transfers at around Rs5.2 trillion, another primary item on the ECC agenda will be the first step of rationalisation for subsidies.
A recent assessment by Dr Waqar Masood Khan’s team projected overall subsidies to be roughly Rs2 trillion per annum. It was clarified that in the absence of sufficient returns, substantial quantities of past expenditure loans, guarantees and uncovered borrowings have reflected real and future liabilities to the government.
As such, total stock of such liabilities and subsidies by the end of FY2020 was put at Rs.5.2 trillion almost one-fourth of domestic debt.
The sources said that part of the first step of the rationalisation strategy has already been put in motion in the form of a lowered return on equity for power plants in the public sector, including hydroelectric and nuclear power plants and Gencos.
The proposal suggests that energy subsidies should be given to low-income customers, starting with the Islamabad Electric Supply Company, through the Ehsaas scheme. Industry subsidies can be targeted, with effect from 1 July 2021, by withdrawing the industrial support package of Rs3 per unit. By June 30, 2020, the assessment of arrears and resolution of disputes with industries will be finalised. Which is expected to slash the subsidy by about Rs75bn.