Cabinet meets another IMF condition for $1b loan

Govt to make details of the sovereign guarantees public

ISLAMABAD:

In order to meet another condition of the International Monetary Fund (IMF), the federal cabinet on Tuesday agreed to make details of the sovereign guarantees public, which were expected to rise to a record Rs3.2 trillion by June.

The massive surge in the contingent liabilities underscores deterioration in the health of the Public Sector Enterprises (PSEs), mainly the power sector, Pakistan International Airlines (PIA) and the Pakistan Steel Mills (PSM).

The federal cabinet approved the tabling of the statement of the contingent liabilities before the National Assembly as part of the Supplementary Finance Bill 2021, Information Minister Fawad Chaudhry said after the cabinet meeting, chaired by Prime Minister Imran Khan.

The contingent liabilities or sovereign guarantees is a financial obligation of the Ministry of Finance that may arise or come into being if one or more events occur. Successive governments had been deferring the fiscal obligations, either by delaying payment or by taking commercial loans against the sovereign guarantees.

Some of these guarantees are required to be issued under the international obligations, like against commercial loans for some strategically important defence projects. Details showed that the outstanding contingent liabilities that were Rs1.236 trillion at the end of the tenure of the Pakistan Muslim League-Nawaz (PML-N) government, had already doubled to Rs2.472 trillion by September 2021 – a slightly over three years tenure of the Pakistan Tehreek-e-Insaf (PTI) government.

The cabinet was informed that the Ministry of Finance would have to issue another Rs493 billion guarantees during the remaining period of the current fiscal year, which after adjusting some repayments would take the total stock to a new record of Rs3.2 trillion. The Finance Ministry stated that it was a condition of the IMF to present the list of guarantees before the National Assembly that the government wanted to issue during this fiscal year along with the mini-budget.

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The IMF has set a host of conditions for the sake of the next loan tranche of $1 billion, including bringing a mini budget, giving absolute autonomy to the central bank by approving the State Bank of Pakistan amendment Bill, increasing electricity prices and the interest rates. These conditions have put enormous burden on the people, besides pitching a few institutions and ministries against each other. The IMF has also made it binding on the government to make the list of sovereign guarantees public aimed at making the stakeholders aware of the fiscal risks that these guarantees pose to the public finances.

Outstanding guarantees position by Sept 2021

As of end-September 2021, the outstanding guarantees stock increased to Rs2.5 trillion. These include Rs915 billion guarantees issued against the loans taken to retire the circular debt, Rs829 billion in favour of Pakistan Atomic Energy Commission and Rs214 billion in favour of the PIA.

According to the documents, the sovereign guarantees equal to Rs69 billion were issued in favour of the Sindh Engro, Rs58 billion for the National Transmission & Dispatch Company (NTDC) and Rs388 billion in the category of others, related to the country’s defence needs. Guarantees worth around Rs333 billion have also been issued but these are not yet been made effective, which will take the stock as of September last to Rs2.8 trillion, according to the Finance Ministry officials.

New guarantees

The documents showed that the government was expected to issue new sovereign guarantees of Rs493 billion this fiscal year, which would take the total stock to Rs3.2 trillion by June 2022. The government is also expected to issue Rs28 billion sovereign guarantees in favour of the Kharian-Sialkot motorway, Rs5 billion in favour of the Roosevelt Hotel, New York, Rs3 billion more for the PSM,Rs4 billion for the NTDC and Rs20 billion for the Jamshoro power plant and the Lakhra power plant.

The Rs17 billion sovereign guarantees are being issued in favour of the PIA – another white elephant, Rs50 billion to Water and Power Development Authority (Wapda), Rs40 billion for the Kamyab Pakistan Programme and Rs10 billion for Kamyab Jawan programme. Another Rs306 billion new guarantees fall under the category of others, which are related to the defence needs, according to the Finance Ministry officials.

In addition to Rs3.2 trillion sovereign guarantees, there is another stock of Rs718 billion on account of quasi-fiscal operations being funded by the central bank and the commercial banks.
These guarantees are issued against the commodity financing operations undertaken by the Trading Corporation of Pakistan, the Pakistan Agriculture Storage and Services Corporation, and the provincial governments.