The interim government is committed to meeting the requirements of the International Monetary Fund (IMF) program to secure $700.000.000 under the Stand-By Arrangement (SBA). In addition to addressing external financing requirements, the interim government is actively pursuing $6.3 billion in concessional funding from multilateral institutions, such as the World Bank, Asian Development Bank, and Islamic Development Bank. Along with a deferred-payment energy facility, China and Saudi Arabia are being asked for bilateral assistance totaling approximately $10 billion.
While briefing the Senate Standing Committee on Finance, Dr. Shamshad Akhtar emphasized that the IMF-agreed-upon structural reforms are designed to serve Pakistan’s economic interests, as opposed to merely meeting Fund requirements. She emphasized the government’s commitment to maintaining economic stability during the interim period.
Dr. Akhtar observed that the government had effectively curtailed speculation in the foreign exchange market by taking measures to prevent the importation of dollars. Given the global rise in commodity prices, the minister acknowledged that achieving a significant reduction in inflation would be ambitious. The depreciation of the Pakistani rupee has been a significant contributor to record levels of inflation.
To address these obstacles, Dr. Akhtar stated that the Federal Board of Revenue (FBR) is undergoing modernization. Tax policy is being transferred to the Finance Ministry, with the FBR’s primary responsibility becoming tax collection. Expanding the tax base to include the retail and agricultural sectors is essential to resolving the twin deficits problem with which successive governments have struggled.
Since the outbreak of the COVID-19 pandemic, the caretaker finance minister has highlighted the profitability of the retail sector. While agriculture falls under provincial jurisdiction, Dr. Akhtar emphasized the importance of real estate taxation and the elimination of tax exemptions that resulted in a loss of Rs1.3 trillion in fiscal year 2023.
Dr. Akhtar noted, when discussing Pakistan’s debt situation, that the country’s public debt had increased substantially over the past two years as a result of heavy borrowing due to exchange rate depreciation. She noted that domestic debt exceeds external debt, and the external debt trajectory is unsustainable. Government expenditure exceeds government revenue.
The proactive measures taken by the interim government were instrumental in stabilizing the economy and restoring market confidence. The easing of import restrictions has resulted in the elimination of import payment backlogs. Additionally, foreign investors have been permitted to repatriate profits, which has served to reduce fluctuations in exchange rates.
Dr. Akhtar emphasized the significant strengthening of the Pakistani rupee on interbank and open markets as a result of State Bank of Pakistan (SBP) measures against exchange companies and illicit transactions.
The interim government has expedited concessional project and program loans from multilateral institutions, including the WB, ADB, IsDB, and AIIB, in order to secure additional funding. There are initiatives in place to encourage the use of banking channels for remittances, including incentive programs and a budget allocation of Rs80 billion for banks. The government’s remittance target for fiscal year 2024 is $32 billion, up from $27 billion in fiscal year 2023.
Regarding inflation, Dr. Akhtar noted a decrease in August to 27,3 percent. She expressed optimism that increased agricultural output and administrative measures to reduce foreign exchange market volatility would contribute to a decline in inflation.
The finance minister highlighted positive economic indicators, including increased industrial activity, higher crop production, and growth in sectors like power generation and automobile sales. In addition, the use of fertilisers, cotton production, and producers’ access to credit have increased, indicating a significant increase in agricultural activity.
In the first two months of the current year, the current account deficit (CAD) decreased to $900 million, according to Dr. Akhtar. As trade and investment flows normalize, the CAD is projected to stabilize at approximately $6.5 billion, or 1.5 percent of GDP, in fiscal year 2024.
In order to satisfy its external financing needs, the government seeks to secure $6.3 billion in concessional funding from multilateral institutions and has already received $3 billion in IMF approval. Additionally, approximately $10 billion in bilateral aid is in the works.
By June 2024, the government aims to increase SBP FX reserves to $12 billion, or three months of import coverage. This will be accomplished by increasing official inflows and foreign direct investment (FDI) through the Specialized Infrastructure Financing Company (SIFC).
Dr. Akhtar acknowledged that rising international commodity prices and petroleum oil costs, which increased to $95 per barrel in September, a 27 percent increase from June 2023’s $74 per barrel, pose the greatest threat to external stability.