Cabinet defers Rs360b mini-budget

ISLAMABAD:

The federal cabinet on Tuesday delayed the approval of a mini-budget to the tune of Rs360 billion and a controversial central bank autonomy bill aimed at assessing their impact on the political capital of the ruling party and national security.

The government had planned to take the cabinet’s nod to the Supplementary Finance Bill, 2021 to slap highly inflationary Rs360 billion in indirect taxes. It also intended to have the cabinet approve the State Bank of Pakistan Amendment Bill, 2021 to meet prior conditions set by the International Monetary Fund (IMF).

Pakistan is ought to approve the bills if it wants to qualify for the next IMF loan tranche of $1 billion.
However, the government decided to delay the approval of both the bills after it faced defeat in local government elections in its stronghold – Khyber-Pakhtunkhwa.

The ruling party members attributed the defeat to rising inflation in the country. The federal cabinet, however, gave an ex-post facto approval to the highly expensive -- nearly $4 billion -- short-term foreign commercial loans that the ruling party has taken to artificially inflate the foreign exchange reserves. The move is also intended to meet foreign debt-related obligations.

“The (Supplementary) Finance Bill has been withdrawn from the cabinet meeting agenda,” Federal Information Minister Fawad Chaudhry told The Express Tribune. To a question whether or not the mini-budget had been withdrawn due to political reasons, the minister replied: “it is obvious.”

Fawad said that the bill would again be brought before the cabinet in the next couple of days. Finance Adviser Shaukat Tarin also said the both the SBP Amendment Bill and the Supplementary Finance Bill would be presented to the federal cabinet before the end of this week.

The imposition of roughly Rs360 billion additional taxes and approval of the SBP Amendment Bill are the pre-conditions that the IMF has set for reviving the $6 billion stalled bailout programme. However, it seems that the government is going to miss the date of January 12 for the IMF board meeting, as securing the approval of parliament for both the bills before the end of this month now seems impossible.

A country’s case has to be circulated among the board members at least two weeks before the scheduled board meeting date. The SBP Amendment Bill was cleared by the Cabinet Committee on Legislative Cases (CCLC) after holding two consecutive sessions. The CCLC had made minor changes in the proposed revised draft and cleared it without suggesting any major change, said the sources.

The sources added that some of institutions responsible for national security had expressed their reservations over giving unchecked autonomy to the central bank without any accountability. The information minister said the SBP Amendment Bill was not final yet and the CCLC would make more changes in it.

In March this year, the federal cabinet had approved the SBP Amendment Bill without discussing it.
Subsequently, Law Minister Farogh Naseem had termed some of the clauses that were part of the March bill as “unconstitutional”. In a bid to revive the $6 billion loan programme, the finance ministry had conceded significant ground to the central bank but in return it could not ensure accountability, missing the key objective of legal amendments.

The most crucial objective for any central bank is price stability through explicit targeting of inflation but it that was missing from the SBP Amendment Bill. The IMF has rejected Pakistan’s request to keep a door open for borrowing from the central bank and also did not agree on any meaningful accountability of SBP. The ban on borrowing from the central bank has left the government at the mercy of commercial banks that have in recent weeks demanded an interest rate that is significantly higher than the key policy rate.

The central bank’s profit would also not be transferred 100% to the federal government until the SBP gets cover to back its monetary liabilities. The IMF did not accept Pakistan’s demand to retain the Monetary and Fiscal Policy Coordination Board, which is proposed to be abolished. The IMF also did not accept a proposal that the federal government would give an inflation target to the central bank.

READ No new taxes in mini-budget, says Tarin

While addressing the news conference, the law minister said the federal cabinet had given the nod to $3.9 billion foreign commercial loans. The finance ministry had taken these loans to repay old ones from December 2020 to November 2021 without prior approval of the cabinet. “Our condition is such that we are taking new loans to repay old ones,” said Fawad.

But he hastily blamed the last governments for the mess. He claimed that that the previous governments took short-term loans which the PTI government was now replacing with long-term ones.The cabinet also gave ex-post facto approval to Dubai Islamic Bank’s loan worth $420 million, Credit Suisse’s $85 million, Industrial and Commercial Bank of China’s $800 million, ECO Trade and Development Bank’s $40 million, Ajman Bank’s $350 million, China Development Bank’s $1 billion, Standard Chartered Bank’s $800 million, Dubai Islamic Bank’s $215 million, and Mashraq Bank’s $270.5 million.

Briefing the media after the meeting of the federal cabinet, Fawad said all economic indicators presented a positive outlook, adding that the country’s financial situation was “clearly stable”. He said the country had to repay $12.27 billion this year and $12.5 billion the next year. He added that these loans were taken by former premier Nawaz Sharif and ex-president Asif Ali Zardari. “We have to repay a total of $55 billion.”

The minister maintained that the textile sector grew by 30% and IT exports were expected to double by the end of the year. Fawad said that income tax had increased by 31% and record production of all crops had been achieved. “This can be used to gauge the growth of the economy.” He also said despite the huge cost, Pakistan was far ahead in terms of importing vaccines. “The way it [the country] has fought the corona[virus] war is unmatched.”

Talking about independent power producers (IPPs), the minister said the country had made payments of Rs134 billion to them. “These payments were due from the time of previous rulers.” Fawad said cotton crop production had increased by 19.5% and rice and sugarcane cultivation had also been record-high recently.

“Wheat production stood at 27.3 metric tonnes and maize 8.5 million tonnes last year.” The minister claimed that because of the new auto policy, the sector had improved and at present, 240,000 vehicles were being manufactured in the country. “The government aims to take this figure to 500,000. This will help develop the entire industry.”

He said that in the past two years, the number of local car manufacturers had increased from five to 15.
“New investments are being made in this sector and the banks have increased financing for vehicle purchases. During the past five months, 111,435 cars were manufactured against 65,998 last year.”
Presenting consumption figures, the minister said electricity and diesel consumption had increased by 13% and 26% respectively.

Fawad said the country’s foreign exchange reserves had increased from $20.3 billion to $25.2 billion, export volume by 29% and private businesses had grown by 44%. “[Around] 0.2 million companies are registered with the SECP [Securities and Exchange Commission of Pakistan], of which 150,000 were formed in the last three years. This gives an idea of how businesses have grown in Pakistan.”

Fawad also said the country would hold a formal session of the Organisation of Islamic Cooperation (OIC) in March. Speaking about matters concerning elections, the minister said Federal Minister for Science and Technology Shibli Faraz and Federal Minister for IT Syed Aminul Haque would meet the chief election commissioner (CEC) over electronic voting machines (EVMs).

READ Mini budget under preparation, Senate panel told

He noted that the cabinet had emphasised that the procurement of the machines was the responsibility of the Election Commission of Pakistan (ECP). He further said the cabinet had vowed to hold the next elections through EMVs and also requested the deployment of 3,900 to 4,000 voting machines for local government elections in Islamabad.

The minister said the ECP should issue a tender for this purpose so these machines could be procured in time for the next elections. Talking about regularisation of government employees, the minister said in view of the court’s decisions and the Establishment Division’s recommendations, the cabinet had declared that ad hoc, temporary, contractual and daily wage workers were not entitled to it.

Fawad said the federal cabinet had approved in principle amendments to Section 122 (6) of the Election Act 2017. He added that the apex court had said that the vote of the Senate should be traceable, and in case of allegations of horse trading, the ECP should know where the ballot came from.

“If they [amendments] are approved, it will put an end to horse trading in the Senate.” The minister also said that the cabinet had approved the official nominations for the council of the Institute of Chartered Accountants of Pakistan (ICAP). Following the approval, the ICAP council includes the SECP chairman, State Bank of Pakistan (SBP) Deputy Governor Syed Najam Ali and Feroz Rizvi.

He also said that the cabinet approved the proposed draft of the Islamabad Police Act 2021. To approve and implement the National Food Security Policy, the cabinet had formed a committee. The chairman of the committee would be the prime minister, while the federal ministers for planning, food security, finance and industry; the Federal Board of Revenue chairman, all provincial chief ministers and chief secretaries and secretaries of relevant federal divisions would be its members.

The cabinet also ratified the decisions made at the meetings of its Economic Coordination Committee (ECC) held on December 16 and 17.(With input from agencies)