After giving it for 50 years, the government on Wednesday pulled the plug on a hidden export subsidy scheme and approved its transfer to the federal budget but rejected a proposal to increase the wheat support price to Rs4,000 per 40 kg.
The Economic Coordination Committee (ECC) of the cabinet, which made those decisions, also sanctioned Rs319 billion for clearing the liabilities of K-Electric (KE) and the government-owned power plants. The committee eased the government’s foreign funding policy to give a $24.6 million World Bank loan to NADRA as a grant.
It agreed to phase out the Export Finance Scheme of the State Bank of Pakistan (SBP), a requirement of the International Monetary Fund’s (IMF) standby arrangement, according to a statement issued by the Ministry of Finance after the meeting.
In order to put in place a new arrangement, the ECC gave approval for releasing Rs3.9 billion to Exim Bank in the current fiscal year.
Pakistan has agreed with the IMF that it will end the hidden unbudgeted subsidies for exporters and shift them from the central bank to the federal budget. In the first phase, the government has pulled the plug on a short-term export financing scheme.
Exporters will still get loans at a rate 3% lower than the key policy rate but the money will be provided by banks and the markup difference will be borne by the federal government. The end-user markup subsidy has been kept at 3% below the SBP’s policy rate, currently standing at 19%, while a 2% spread is kept for banks for arranging commercial liquidity.
The subsidy will be provided by the government through Exim Bank. Besides allocating Rs5.7 billion during financial year 2023-24 for the purpose, the government will earmark the markup subsidy annually under the scheme till 2028 for gradual portfolio shift.
The government had introduced these export finance schemes in 1973 to enhance exports – an objective that could not be fully met due to the monopoly of a few families in export policies.
Two short-term schemes, the export finance subsidy scheme related to pre-shipment and post-shipment have been transferred to Exim Bank and commercial banks. The banks will extend financing to exporters from their own sources. Exim Bank will allocate limits to every participating bank subject to its criteria under the scheme. The banks will allocate financing limits to exporters as per their own criteria.
Wheat price
The ECC rejected a summary seeking further increase in the wheat support price to Rs4,000 per 40 kg, up Rs100 over last year’s price.
Read Wheat support price set at Rs4,000 per maund
After detailed deliberations with all provinces, the committee recommended the last year’s price of Rs3,900 per 40 kg, given the substantial increase of 77% in the support price in the previous year.
The ECC endorsed that there should be no subsidy on agricultural inputs, which was the responsibility of provinces. It gave approval for the notification of minimum indicative prices of tobacco crop for 2024 and the revision in cess rates on tobacco for the year 2024-25.
Power subsidy
The ECC approved a summary of the Ministry of Energy for the release of Rs57 billion in advanced subsidy for payment of KE arrears.
It approved another summary of the Power Division for the settlement of payables to government-owned power plants (GPPs) at par with the independent power producers (IPPs) and directed to release Rs262 billion to the public sector power plants.
In 2022, the last government had approved a plan to clear Rs445 billion worth of liabilities of GPPs. About Rs182 billion had been paid in the previous fiscal year and for the remaining payment of Rs262 billion to Wapda and other GPPs, a summary was tabled before the ECC.
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The government has already allocated funds in the budget. Out of the Rs262 billion, an amount of Rs131 billion will be released in December and the remaining Rs131 billion will be provided in the next quarter.
Some Rs54 billion will be paid to Genco-II, Rs6 billion to Genco-III, Rs167 billion to Wapda, Rs32 billion to the Quaid-e-Azam Thermal Power Plant (RLNG) and Rs3.4 billion to the Quaid-e-Azam Solar Power Plant. The finance ministry had proposed that out of the Rs262 billion, an amount of Rs155 billion should be recovered on account of its own claims and various taxes. But no agreement could be reached.
The circular debt stood at Rs2.61 trillion as of the end of October. The payables to power producers have reached Rs1.76 trillion.
PSM payments
Finance Minister Dr Shamshad Akhtar directed the Ministry of Industries to carry out a diagnostic survey to determine why liabilities of Pakistan Steel Mills (PSM) had persisted even though it had not been operational since 2015, according to the statement.
It added that Akhtar directed a probe as to how PSM land had been allocated to housing companies and served other industries without due process.
The ECC showed its displeasure over the PSM board and recommended that the Industries Division may look into the issue for further necessary action.
NADRA grant
The ECC approved exemption from the payment of principal and interest on a $24.6 million foreign loan for NADRA in relaxation of the policies. The loan has been given as a grant under the World Bank-funded Digital Economy Enhancement Project (DEEP).
Published in The Express Tribune, December 21st, 2023.
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