'$10b US facility not a loan'

FinMin says backup facility to allow market financing, reduce rollover need

ISLAMABAD:

Finance Minister Muhammad Aurangzeb said on Wednesday that an under-discussion $10 billion facility by the United States would not be a loan but would be used to raise long-term debt from global capital markets to replace bilateral loans.

In his first public statement regarding a request made to the US, the finance minister said Pakistan was expecting a response from the US Treasury by the end of September.

"This is not about a credit line or a loan or whatever. This is a signal about our currency stability, a signal about exchange rate stability and that in turn allows us to go to the markets to raise debt," said Aurangzeb, clearing the air about the $10 billion facility.

Pakistan has asked the US for the facility from the US Treasury's Exchange Stabilisation Fund.

The minister was speaking to the media after the formal launch of a simplified tax scheme for small traders, offering them a 1% income tax on sales in return for exemption from audit, installation of digital sales machines and exemption from becoming withholding agents.

Aurangzeb said the request for the facility's approval was with the US treasury and the government was also in discussions with the US Export-Import Bank (EXIM) and the Development Finance Corporation (DFC).

"We hope to get some reaction from the US by the end of September," he added.

The minister said these efforts were aimed at achieving the objective of getting market loans, adding that some may succeed and some may face issues.

Explaining the purpose of the facility, the finance minister said the government does not want to increase bilateral external debt and will try to replace it with market-based debt with longer maturity.

"We will go towards market-based financing and will rely less on bilateral support," he added.

Pakistan owes short-term $12.3 billion debt to three bilateral creditors: Saudi Arabia, China and Kuwait. Saudi Arabia has recently rolled over $5 billion till December 2028 but has given another $3 billion for three months. China is rolling over $4 billion annually.

These short-term loans keep the government's political and economic options limited, and the prime minister must make personal requests every year, in some cases quarterly, to get them rolled over.

Aurangzeb thanked the bilateral partners for their support over the past decade.

The finance minister said the government has already appointed three consortiums for floating Eurobonds, sukuk and dollar-settled rupee bonds. The government will try its best to float five, seven and 10-year bonds, he added.

However, Pakistan's credit rating is still low to get market loans at competitive rates despite the recent upgrade to B, which is still below investment grade. Pakistan raised a $250 million Panda bond in the last fiscal year on guarantees from the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB).

Pakistan-US relations have warmed in recent months, and the request for a $10 billion backup facility is seen in the context of enhanced diplomatic relations.

Traders Scheme

Aurangzeb also launched the simplified tax scheme for traders, offering them a simplified return form they can fill and submit through mobile devices.

The scheme has been finalised by Minister of State for Finance Bilal Kayani in consultation with traders. Traders have been offered to join the scheme by paying only 1% tax on annual sales or a minimum Rs25,000 per annum. They are offered to declare their assets with legal guarantees that they will never be asked to disclose the source of assets.

A trader having only one shop and maximum annual sales of Rs200 million is eligible.

Federal Board of Revenue (FBR) Chairman Rashid Langrial said if the scheme became successful, millions of currently non-filing traders will join the tax base. Even if it fails despite accepting all traders' demands, tens of thousands will still become part of the base, he added.

Langrial said there were 4.2 million retailers using commercial connections, while trader representative Ajmal Baloch said there were 12.5 million retailers in Pakistan.

Aurangzeb said if retailers do not opt to become filers even after this scheme, the government will take appropriate action.

Kayani said beneficiaries will be given a tax plate displayed at the shop, and no taxman will be allowed to question a trader who has opted for the scheme.

Langrial said the income tax return was difficult to comprehend, which, coupled with fear of harassment, deters people from becoming filers.

Asked whether the government would extend the same scheme to salaried persons, Aurangzeb said the government would launch a simplified return form for them, with a possibility that they may also not be questioned by FBR.

Langrial ruled out extending the 1% tax rate to the salaried class, which paid Rs630 billion in the last fiscal year compared to paltry taxes paid by traders.