ISLAMABAD: The Senate Standing committee on Finance and Revenue, while observing increasing distortions in resources distribution under the 7th National Finance Commission (NFC) Award, asked Finance Minister Muhammad Aurangzeb to call a meeting of the Commission to review the resources’ distribution under the next award.
The committee which met with Saleem Mandviwalla in the chair was also informed by the finance secretary that there is no condition related to any change in the NFC Award from the International Monetary Fund (IMF).
Senator Syed Shibli Faraz raised the matter while saying that following the erstwhile FATA’s merger with Khyber Pakhtunkhwa, resources were not enhanced as per one of the criteria i.e. population, which resulted in the distortions.
Aurangzeb rules out ‘mini-budget’
The finance secretary said that the 7th NFC was in place, according to which 60 percent share goes to provinces and 40 percent to the federal government.
However, after this arrangement, fiscal and debt burden for the federal government increased.
He said that there is no condition in the IMF programme to revise the NFC Award. He said that Rs66 billion was allocated for the erstwhile FATA in the budget for the current fiscal year.
The finance minister said that it was decided to end tax exemptions under the head of sale tax and income tax for erstwhile FATA, however, on the Prime Minister intervention, the decision was withdrawn. Finance Minister assured the committee that any IMF conditions relating to fiscal policy, including the NFC Award, will be fully transparent.
The Finance Division secretary said the National Fiscal Pact among the Centre and the provinces would create a fiscal space by shifting the provincial nature development projects to federating units. The pact would focus on three major areas, including raising tax revenues through close coordination such as slapping Agriculture Income Tax (AIT) by the provinces and devolving expenditures.
Mandviwala recommended that work on a new NFC Award begin immediately, proposing that a new consultation process between the federation and the provinces should be initiated to review the distribution of resources under the next NFC Award.
Furthermore, the committee received a briefing on terms and conditions of IMF loan and commercial loans obtained. It was briefed on Pakistan’s ongoing discussions with the IMF regarding the new programme.
Aurangzeb confirmed that the new IMF agreement is extensive and comes with additional conditions. He also noted that talks with the IMF on climate financing have been progressing since October, with climate-related projects to be identified for funding.
About the terms and conditions of the current IMF programme, Secretary Finance informed that these include 4.5 years grace period, 10 years payment in 12 equal semi-annual instalments. The interest rate includes SDR rate+1 percent, said the secretary, adding that SDR is currently equivalent to 3.37. He further said that tan additional service charge of 50 basis points is applied on each amount drawn.
The committee was informed that the government has borrowed $ 7.4 billion from foreign commercial banks with general maturity tenor of 24 -36 months.
The committee was informed that $ 200 million for balance of payments and budgetary support was borrowed from Bank of China at interest rate of 3M term SOFR+3.15 margin in September 2024 with 24 months tenor. An additional $ 300 million was borrowed from the same bank at interest rate of 3M term SOFR +3.5 percent margin in June 2023 with tenor of 24 months.
The country borrowed $ 700 million from China Development Bank in February 2023 at interest rate of overnight SOFR +2 percent margin with 36 months tenor. Another $ 1 billion was borrowed from the same bank in June 2023, at interest rate of overnight SOFR +2 percent margin with 36 months tenor.
Another RMB7,2616 billion was borrowed in June 2024 at interest rate of 4.5 percent with 36 months tenor.
The country borrowed $ 500 million from Industrial and Commercial Bank of China in March 2023 at interest rate of overnight SOFR +2.95 percent margin with 24 months tenor. The country borrowed another $ 500 million from the same bank in March 2023 at interest rate of overnight SOFR +2.95 percent margin with 24 months tenor.
Another $ 300 million was borrowed from the same bank in April 2023 at interest rate of overnight SOFR +2.95 percent margin with 24 months tenor.
The country borrowed RMB 15,000 billion from syndicated loan facility (CDB, ICBC, BoC) in June 2022 at interest rate of 6M SHIBOR +1.50 percent with 36 months tenor.
The country borrowed $ 700 million from SCBL and WB PBG amortized loan facility in June 2017 at interest rate of overnight SOFR+2.25 percent (with a CAP of 4.47 percent due to IRS) with 120 months tenor. The country borrowed $ 36 million from ECO Trade and Development Bank in February 2019 at interest rate of 6M term SOFR + 0.42826 percent CAS +1.90 margin.
The minister rejected the notion that Pakistan was seeking expensive external commercial loans and emphasized that any loans taken in the future would only be necessary and on terms favourable to the country. The minister revealed that discussions with international commercial banks had been ongoing since April, but no decisions had been made to secure commercial loans at this stage.
The government would maintain transparency regarding future borrowing decisions, he added.
Aurangzeb informed the committee that a B rating upgrade from agencies would help Pakistan tap into international markets. He said it would be pointless to access these markets with the current CCC rating.
Aurangzeb also hinted at approaching the international capital market soon, with plans to issue Panda Bonds by the end of this fiscal year or early in the next. The committee also hinted further decline in policy rate, with inflation coming down.
On other matters, the Finance Minister dismissed any proposal to decrease the retirement age of government employees to 55, stating that this issue is not under consideration.
Copyright Business Recorder, 2024