USF approves seven projects worth Rs7.4b
The two Optical Fiber Cable (OFC) projects will enable high-speed fixed broadband services for 2.8 million residents in two districts. The amount was approved by the Fund's board of directors.
The USF was established by the information ministry to spread the benefits of the telecom revolution across the country. It promotes the development of telecommunication services in un-served and under-served areas.
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Business Recorder
28-07-2025
- Business Recorder
Discount rate as a policy tool
Economic stability has been achieved, and the country will not be deterred from implementing the reform agenda agreed with the International Monetary Fund (IMF) – a claim that has repeatedly been pledged by the country's cabinet members. The pros and cons of economic stability are stark in Pakistan: pros include strengthening foreign exchange reserves, rising remittances, plummeting inflation and halving of the discount rate in one year (21 percent in June 2024 to 11 percent in June 2025). The cons negate these gains with (i) reserves entirely debt based as roll-overs are estimated at 16 billion dollars while reserves on 11 July 2025 reached a high of 14.525 billion dollars – a high achieved by the State Bank of Pakistan reportedly picking up 8 billion dollars from the open market that led to a severe dollar supply shortage in the open market leading to a fall in the rupee value in spite of the current account surplus; (ii) the rise in remittance inflows leading to the current account surplus is are not expected to end the boom bust trade cycle — 'economic volatility has only increased over time, with a tight correlation between Pakistan's boom-bust economic outcomes and its economic policies' was noted by the IMF in its September 2024 documents; (iii) declining inflation which has been unable to arrest the rise in poverty levels (44.2 percent at present as per the World Bank), and (iv) reduction in the discount rate that has been unable to lift the large scale manufacturing sector out of its negativity (with the latest data placing it at negative 1.52 percent). This leads one to carefully review IMF's first review documents dated May 2025 where it argues that external and domestic risks may 'quickly eviscerate Pakistan's hard won economic stability.' The key question raised in nearly all twenty-three previous IMF programmes is: did the Pakistan team propose in-house out of the box suggestions to the IMF team and which, if any of their suggestions, were entertained? A quick glance at the Memorandum of Economic and Financial Policies (MEFP) dated 2024 shows no deviation from past conditions, except that they are harsher and more upfront for the reason specified in Fund documents notably that Pakistan's implementation of agreed reforms has been poor – an opinion supported by the fact that the country either left the previous programmes mid-way or if any was completed (2016 three year loan) the government of the day quickly reversed all reforms necessitating another loan within the year of its completion. Notwithstanding the foot-dragging by Pakistan authorities to implement politically challenging reforms, there is flawed policy advice given by the Fund staff premised on economic linkages that maybe relevant in several countries but not in Pakistan. A long time Fund condition for Pakistan has been to link the discount rate to inflation – a linkage that is tenuous in Pakistan as the government remains the major borrower in the domestic market and any decline in the discount rate is seen as a means to reduce mark-up on loans secured to finance budgeted expenditure. The government budgeted bank borrowing (treasury bills, Pakistan investment Binds, sukuk) at 5.142 trillion rupees in 2024-25 while total credit to the private sector was only 676.6 billion rupees – a mere 13 percent of government borrowing. So much for claims that private sector led growth is the policy thrust. A State Bank of Pakistan Working Paper Series dated December 2022 titled 'Time Frequency Analysis Determinants of Inflation rate' in Pakistan identified short, medium, and long term determinants of inflation as follows: (i) short term (4 to 8 months) policy rate, exchange rate, government borrowing and import growth; (ii) medium term (9 to 64 months) global commodity prices (specially petroleum whose impact on the public is exacerbated by the hefty petroleum levy as well as the carbon levy that was a condition to procure 1.4 billion dollar resilience loan from the IMF) and broad money supply; and (iii) Long term (above 64 months) government borrowing which continues to rise with the focus on extending the amortisation period rather than reducing the amount), global commodity prices and money supply. The short term one may assume began soon after the 8 February 2024 elections and ended in November 2024 with three major observations that challenge the linkage between the discount rate and inflation: (i) the discount rate declined by a mere 150 basis points on 10 June 2024 (from 22 percent to 20.5 percent) even though it was claimed inflation declined by 8.1 percent (from 20.7 percent in March 2024 to 12.6 percent in June); reports suggest that the Fund may have opposed a further cut in the discount rate as it is clearly stipulated in the Fund's loan documents dated September 2024 that 'there are important shortcomings' in the source data available for sectors accounting for a whopping one-third of GDP and a Technical assistance will be provided that would address these weaknesses in Government Finance Statistics and Producer Price Index; (ii) IMF condition that the interbank open market rupee-dollar parity must not be in excess of plus/minus 1.25 percent during five consecutive business period. However, the dollar scarcity has been addressed by the stakeholders through implementing law enforcement measures; and (iii) imports were restrained during this period via administrative measures while domestic government borrowing continued – up to 53.46 trillion rupees by March 2025 (no further update is available). Medium term is underway and is more dependent on global commodity prices as well as the rupee-dollar parity. Long term has not yet arrived, but one may assume that government borrowing will continue to rise, though the economic team leaders have budgeted a decline in debt servicing due to the expectation that the discount rate will decline — an expectation that would entail convincing the Fund team that the real rate has declined – an assessment that may not be forthcoming till the end of the Fund TA on addressing data shortcomings (scheduled end in June 2026). There is a need for existing researchers employed in the SBP as well as those in the federal government to not only provide accurate data to the leadership on a regular basis but also to ensure that they provide an updated analytical treatise on the outcome of reforms proposed by the Fund and those out of the box in-house measures that would achieve better results because they are premised on unique conditions prevalent in this country. To date the government has focused on reducing subsidies, passing the onus of utilities reforms onto the end users through higher tariffs, raising revenue through indirect taxes and ceasing procurement and price setting of staple food items – measures likely to exacerbate the poverty levels, which together with unemployment at a high of 22 percent bodes ill for the general public and strengthens the risk associated with 'political economy considerations and pressures from vested interests that could delay or weaken the reform momentum and put at risk the still brittle stability.' Copyright Business Recorder, 2025
Express Tribune
25-07-2025
- Express Tribune
The fix and fraud
Listen to article The tax collection machinery is in an enigma as vested interests in the business circles are defiant, and are unwilling to come under the tax net. This has landed Pakistan in a fix with the IMF, which is now insisting on a one-fourth increase in sales tax base. The Fund has also outright rejected the appeasement package doled out by the government to unregistered persons in the form of an additional 4% sales tax. This was to be charged over and above the standard 18% sales tax. A glance at this crisscross hints at capitulation of the revenue generation system, and its utter inability to broaden the tax net which is hardly composed of 200,000 registered sales tax persons, of which only 60,000 pay any tax. The tactic on the part of unregistered business circles to accept the punitive 4% extra tax is a ploy. First, the cost of it is passed on the consumers, and second, it offers them a convenient route to evade direct taxation. What makes it more horrendous is the authorities' audacity to accede to the unfair demands of the business community, and that too at the cost of national interest. It is ironic that the government has no consolation or relief for the salaried persons who are taxed at source of their income and have contributed a staggering Rs545 billion during FY25, as big-ticket business, feudal, real-estate and holy cows go unscratched. The tax sleuths must work on a realistic format of broadening the scope of taxation, and that means not only genuine reforms in the culpable bureau but also application of stringent laws to rope in the dodgers. It has no choice but to be obliged to the IMF that wants, at least, 50,000 more persons in the sales tax net. It's high time for the FBR to focus on the budgetary tax target of Rs14.13 trillion, which is 9% more than in the previous year, and not to be content with unverified claims of collecting Rs455 billion additional tax from retailers. A new and ordained across-the-board tax regime is indispensable if the economy has to stand on its feet.
Express Tribune
25-07-2025
- Express Tribune
S&P upgrades credit rating to B-
Listen to article Standard & Poor's (S&P) credit rating agency on Thursday upgraded Pakistan's rating by a notch to B negative, which is better than the previous standing but still two positions below investment grade. The revision was made due to the implementation of reforms and a reduction in sovereign default risks. S&P Global Ratings raised Pakistan's long-term sovereign credit rating from CCC+ to B- after a gap of two and a half years, according to an announcement made by the agency, one of the three largest global credit rating firms. It also assigned a stable outlook to Pakistan. The upgrade improved Pakistan's credit standing from "very high credit risk, vulnerable to non-payment" to "highly speculative." Due to its junk rating, Pakistan was unable to issue international bonds in the last fiscal year to raise external debt. S&P stated that "the coalition government led by the Pakistan Muslim League-Nawaz (PML-N) party has so far demonstrated its ability to navigate the necessary reform implementation under the International Monetary Fund (IMF) programme without significant social unrest." The note underlined that the policymakers' willingness to maintain expenditure controls while making continued enhancements to the tax revenue base will be critical to meeting the remaining targets under the Extended Fund Facility (EFF). The Ministry of Finance has played a key role in staying aligned with the IMF programme, often taking criticism for tough decisions needed to complete the first programme review and align the federal budget with Fund requirements. The upgrade reflects S&P's view that Pakistan is now less reliant upon on favourable macroeconomic and financial conditions to meet its obligations. Pakistan has replenished its foreign exchange reserves over the past 12 months, and near-term default risks have declined. However, concerns remain over exchange rate management, prompting intervention by the military establishment to curb the reemergence of the grey market. S&P noted that the depreciation of the Pakistani rupee against the US dollar in recent years has contributed to stagnation in nominal GDP per capita. It stated that with rupee stability in the last fiscal year and rising real growth, GDP per capita is projected to exceed $2,000 by FY2027. The agency stressed that political stability and improved security are necessary for further upgrades. However, it expects political uncertainty to remain elevated due to a fragmented political environment. "Pakistani politics has been in a state of flux since the ouster of former Prime Minister Imran Khan of the Pakistan Tehreek-e-Insaf (PTI) party in a parliamentary no-confidence motion in April 2022." "We believe a stable political environment in Pakistan is an important precondition to further improvements in the government's creditworthiness." While security has improved since the early 2010s, the potential for deterioration remains, it added. Border tensions with India, as evident in the recent outbreak of hostilities in the wake of the Pahalgam terrorist attack in May 2025, can raise the spectre of miscalculations and accidental clashes that could escalate well beyond the intentions of both sides, according to S&P. Debt servicing also remains a significant concern for the ratings agency. S&P said that Pakistan's stable outlook reflects its expectation that external support from key multilateral and bilateral partners, along with fiscal improvement, will continue over the next 12 months to meet large debt obligations. It added that continued economic recovery and efforts to enhance revenue will stabilise Pakistan's fiscal and debt metrics. The country's current account posted a surplus in FY2025, the first in 14 years, amounting to 0.5% of GDP. The surplus was driven by record-high remittances of $39 billion, or 9.5% of GDP, according to the agency. These gains have improved Pakistan's external indicators and eased near-term financial pressure. Reforms under the IMF programme have also boosted tax revenues by 3% of GDP in the past year. Combined with spending controls, S&P projects the general government deficit will decline to 5.1% of GDP in FY2026, but still above the government's budgeted target. Inflation is expected to remain around 6.5% over the next two to three years. As a result, monetary conditions will ease further. With lower interest rates, interest payments are projected to fall to 41% of revenue over the next three years, down from over 60% in FY2024. "Nevertheless, Pakistan's interest servicing-to-revenue ratio remains one of the highest globally among rated sovereigns," the agency noted. It added that the country's high interest expenses remain the main constraint on debt sustainability. The debt-to-revenue ratio is projected to worsen from 443% to 454% in FY2025, according to the agency. Future warning "We may lower our ratings if Pakistan's external or fiscal indicators deteriorate well beyond their current levels," S&P warned. Downward pressure would emerge if financial support from key bilateral and multilateral partners quickly erodes, or usable foreign exchange reserves fall substantially to levels indicating difficulties in servicing its external debt obligations, it added. The agency added that should interest rates surge again and materially i add to the government's already-heavy debt servicing burden, we would view that as an indication of domestic financing stress, warned the agency.
