While feeling growing pressure on foreign exchange reserves due to a persistence fall in exports, Finance Minister Ishaq Dar-led Economic Co-ordination Committee (ECC) of the Cabinet Monday has approved issuance of Sukuk Bonds to raise foreign inflows from international debt market against Islamabad-Lahore Motorway (M-2). This was the second meeting of the ECC in last four days after the one held on Friday that gave blanket approval to Finance Minister for taking decision about size, maturity and pricing for bonds. The ECC on a proposal moved by Finance Division also approved exemption of duties and taxes on the proposed bonds for making transaction attractive in the international market.
Finance Division informed the ECC that maintaining a stable foreign exchange regime depends on having a comfortable level of foreign exchange reserves ideally supported by foreign exchange earnings and development flows. Foreign exchange reserves also constituted a very important ingredient of the national economic interests of country. Finance Ministry conceded in the proposal that Pakistan''s export earnings were US $25.07 billion in fiscal year 2013-14and slumped to US $21.97 billion in fiscal year 2015-16, registering a decline of 12.4 percent in the period. The Ministry cited a loss of export values due to low commodity prices in the international market even though volume of exports has generally been rising.
The ECC was informed that the country has saved more in oil import bill but these savings have been used up to support higher imports of machinery and industrial raw materials to support a growing economy. Accordingly, the trade account has been worsening and consequently pressures are building on the balance of payment. The continuously fluctuating commodity prices in the international markets would further impact Pakistan''s export earnings, adversely affecting the government''s efforts to maintain a stable foreign exchange regime. To mitigate the adverse impact of these developments it is important to remain active in the international capital markets so that opportunities to access relatively competitive foreign resources, made possible because of impressive economic performance of the economy, should be taken advantage of. Pakistan has successfully tapped the market in April 2014, November 2014 and September 2015.
The meeting was proposed to raise fresh financing from the capital markets by issuing international Sukuk. Market, stating feedback indicates that in the backdrop of substantive economic progress achieved in the last three years, a good yield/pricing is expected on a sovereign Sukuk issue by Pakistan.
For the proposed transaction, a special vehicle company, the Third Pakistan International Sukuk Company Limited has been incorporated by the Finance Division. The essential structure of a Sukuk issue necessitates an underlying asset which involves sales, purchase and transfer of the asset from one entity to another.
These transactions result in imposition of different federal and provincial duties and taxes making the overall cost of a Sukuk issue relatively expensive form a regular international bond issue. Some of the taxes relate to the income of non-resident Sukuk holders as well. If these taxes are not exempted, the transaction cost makes a Sukuk issue undesirable for international investors resulting in a higher pricing for the country.
Section 53(2) of the Income Tax Ordinance, 2001 empowers the ECC of the Cabinet to grant exemptions from such taxes. This requires specific exemptions under different Sections of the Ordinance including Sections 46, 113,147, 150A, 152, 153,231, and 236.
The Meeting considered and approved the Summary presented by Ministry of Industries and Production for a reduction in the price of imported urea fertiliser lying with NFML. The Committee had earlier fixed the price of the imported urea Rs 1310/- per bag. The ECC had earlier formed a Committee headed by Secretary Industries and Production to propose steps for the enhancement of sales of the imported urea. The Committee in yesterday''s meeting presented its report and suggested measures to boost the sales and recommended a reduction in price. ECC, after detailed deliberations, reduced the price to Rs 1200/- per bag.
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