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Express Tribune
18-07-2025
- Business
- Express Tribune
Govt plans to build Chenab dam amid IWT row
Listen to article The International Monetary Fund has rejected Pakistan's proposal to impose 1% water storage cess on goods to build mega dams and instead suggested to increase the 18% standard sales tax rate for funding any enlarged size of the federal development programme. The development came amid an anticipated revision in the cost of the Diamer-Basha dam and needing funds to build a new Chenab dam over the Chenab river, which will require at least additional Rs800 billion, according to the government sources. Official sources said that the global lender did not endorse the proposal to impose water storage cess, which the government wanted to introduce on every taxable product produced in the country, except electrical energy and medicines. The cess has been proposed to fund two mega water storage dams and build a new one as a solution to deal with Indian water aggression. The development pushes the government in a tight spot, which was willing to increase the tax burden but only in a fashion that would ensure that 100% of the collection stays in the federal kitty instead of being shared with provinces. In case of cess, the government will have the full right on the collection while sales tax would become part of the federal divisible pool. The government had sought the IMF's permission to impose the new tax after majority of the provincial governments showed reluctance to finance the early completion of the Diamer-Bhasha dam and the Mohmand Dam. The government had proposed that the provinces should pick half of the Rs716 billion cost of the Benazir Income Support Programme and the Rs358 billion fiscal space will be used to build dams at a faster pace to deal with Indian aggression. The provinces refused. The spokesman of Ministry of Finance Qumar Abbasi did not comment on the development. The sources said that the IMF has many objections to the water storage cess proposal, including the legal and governance challenges. They added the Fund was of the view that any special levy reduces the flexibility in the budget and the sales tax can give such flexibility. Moreover, the IMF was not comfortable with the idea of giving the control of the new cess to the Water and Power Development Authority (Wapda), they added. The IMF had earlier asked the government to fund these dams from the Rs1 trillion worth Public Sector Development Programme (PSDP). But the government was not inclined to get more money from the PSDP, which this year was focusing more on the needs of the coalition partners than having mega strategic projects as national priority. The sources said that the IMF informed Pakistan that if it wanted to get more money for development spending then it can consider increasing the rate of sales tax. The standard sales tax rate is 18% while the government also charges 3% extra sales tax rate in case a good is sold to an unregistered person. The government's earlier decision to increase the petroleum levy rate to give electricity subsidy and fund a road in Balochistan has led to abnormal increase in prices of diesel and petrol since July 1st. The landed cost of diesel is Rs177.89 per liter and petrol's Rs168.73 per liter, excluding all types of margins, rupee depreciation impact and taxes. However, after adding these additional costs, the high-speed diesel price is set at Rs284.35 and petrol at Rs272.15 per liter. Seven years ago, the government had approved the Diamer-Bhasha dam at a cost Rs479 billion and Mohmand at Rs310 billion. The sources said that the revised estimates suggest that the Diamer Basha dam cost may skyrocket to over Rs1.1 trillion, an addition of around Rs620 billion. The exact cost will be determined when the Planning Ministry receives the revised documents. Even against the original Rs479 billion cost, the government needed Rs365 billion more to complete the work. For this fiscal year, only Rs25 billion has been allocated for the Diamer Basha dam, which is even less than last fiscal year. Likewise, the Mohmand dam was approved at a cost of Rs310 billion seven years ago and it still requires a minimum of Rs173 billion more at the old price. Only Rs35.7 billion has been allocated for the new fiscal year. Likewise, the government is planning to build a dam on the Chenab river with a cost of about Rs220 billion. This requires an additional Rs800 billion for Chenab dam and Diamer-Basha dam. After adding up the remaining financing requirements, the government needs a total Rs1.35 trillion for just these three dams. India has threatened to cut water supplies after it held the Indus Waters Treaty (IWT) in abeyance in violation of the treaty provisions and in the breach of the international law. Islamabad has plainly told India that any such act would be considered as an act of war. For this fiscal year, the government has reduced the water sector development budget by 28% to Rs133 billion. Now it wants to offset this by introducing a new tax. One of the options is that instead of levying a new 1% cess or increasing GST rate, the government should amend the GIDC law and divert the already collected much over Rs400 billion money towards building dams. The Ministry of Water Resources has informed the government that it would take 15 years to complete the Mohmand dam and over 20 years to finish work on the Diamer-Bhasha dam at the current pace of the budget allocations. Ahsan Iqbal, the federal minister for Planning and Development has already ruled out creating any further space in the PSDP to fund the large projects. The government has held meetings this week in the Planning Ministry and the Prime Minister's Office to finalize a strategy for funding other projects, which can be completed and to be inaugurated by Prime Minister Shehbaz Sharif this year.
Express Tribune
25-06-2025
- Business
- Express Tribune
China to reschedule $1.8b debt
Pakistan faces over $8 billion in external debt maturities in FY25 (excluding $13 billion in routinely rolled-over bilateral loans) and any delay in debt rollovers can put the IMF programme at risk. photo: file Listen to article China has shown willingness to reschedule $1.8 billion debt for a period of two years, which is about half of the amount that Pakistan had requested last year but is still critical for meeting requirements of the International Monetary Fund (IMF) programme. Islamabad sought the rescheduling of the government's concessional loans, preferential buyer credit, and the buyer's credit from the Export-Import (Exim) Bank of China, according to government officials. China has not agreed to reschedule the buyer's credit loans, they added. There is now a possibility that China may reschedule $1.8 billion worth of government concessional loans and the preferential buyer credit by next month, they added. These loans have been taken for various projects and are over and above the commercial financing that Chinese banks have given to Pakistan. The Ministry of Finance spokesman Qumar Abbasi did not respond to requests for comments despite repeated reminders during the past many days. The development came amid thin foreign exchange reserves temporarily slipping below $10 billion after Islamabad made bullet commercial debt repayments to Beijing last week. However, the figure is expected to jump to close to $14 billion in the next one week, once China refinances these facilities. Finance Minister Muhammad Aurangzeb has already announced that the foreign exchange reserves would close over $14 billion by the end of this fiscal year. The fiscal year 2024-25 would close on the coming Monday. Pakistan had initially requested China to reschedule $3.4 billion Exim Bank debt for two years to bridge a foreign funding gap identified by the IMF. Deputy Prime Minister Ishaq Dar also took up the issue during his visit to Beijing in February this year. The government had requested the Exim Bank of China to consider rearrangement of its loans falling due from October 2024 till September 2027. China was not willing to negotiate the further rescheduling of the COVID-19 period loans, which consumed significant time, according to government officials. Under the $7 billion deal, the IMF had identified a $5 billion external financing gap for the three-year programme period. The Exim Bank has extended direct lending to the federal government and guaranteed lending to State-Owned Enterprises, said the sources. Pakistan has sought a two-year extension in repayment of the official and guaranteed debt obtained from Exim Bank. The country would keep making interest payments. During recently held negotiations, the Exim Bank had proposed that in order to expedite the rescheduling process, Pakistan should exclude the buyer's credit from the request, said the sources. The Chinese authorities were of the view that rescheduling of the buyer's credit was not possible. After excluding the buyer's credit, the remaining amount is $1.8 billion for the period spanning from July 2025 to June 2027. The IMF programme will end in September 2027 but it will review the government's targets till the June 2027 period. China had also proposed that Pakistan should get rescheduling of the loans maturing from September 2025 to September 2027, to which the Ministry of Finance did not agree. China has also placed a condition that its loans should be converted from the US currency to the Chinese currency. It will be the second time that the Chinese Exim Bank would reschedule Pakistani debt during the past two years. Earlier, in July 2023, the then Finance Minister and now Deputy Prime Minister Ishaq Dar had announced the $2.43 billion worth of 31 loans rescheduled by China for two years. Pakistan is heavily dependent on Beijing for remaining afloat and meeting the IMF-determined foreign reserves requirements. Pakistan's foreign exchange reserves have temporarily slipped to below $10 billion after the country repaid the $2.1 billion Chinese facility last week in the hope of receiving the money back before the end of the month. In total, Pakistan has returned $3.7 billion of Chinese commercial loans in the past three months, which the Chinese are expected to refinance before the end of this month. The ADB-backed $1 billion foreign non-Chinese commercial loan is expected to be disbursed by June 26th, according to central bank officials, in addition to another $415 million facility. This would return the reserves level back to double digits. Pakistan has assured the IMF that its gross foreign exchange reserves would close at $13.9 billion by the end of this fiscal year. This is only possible if China refinances three separate loan facilities valued at $3.7 billion. About $20 billion of public external debt matures in the next fiscal year, including nearly $13 billion in bilateral deposits. The bilateral partners will roll over, as per their promises to the IMF.
Express Tribune
16-06-2025
- Business
- Express Tribune
Govt plans tax to counter India's water threat
Pakistan has sought the International Monetary Fund's (IMF) permission to impose a special 1% tax on every taxable product produced in the country, except electrical energy and medicines, to fund two mega water storage dams as a solution to deal with Indian water aggression. The decision to impose a new cess has been taken after majority of the provincial governments showed reluctance to finance the early completion of the Diamer-Bhasha Dam and the Mohmand Dam, according to the sources in the Ministry of Water Resource and the Ministry of Finance. However, the government was also meeting opposition from the IMF, which has urged the federal government to try to find a space within the approved Rs1 trillion federal Public Sector Development programme, the sources revealed. The Diamer-Bhasha Dam worth Rs480 billion and Mohmand Dam – originally estimated to cost Rs310 billion – had been approved in 2018 but still a minimum Rs540 billion was needed for their completion. India has threatened to cut water supplies after it held the Indus Waters Treaty (IWT) in abeyance in violation of the treaty provisions and in the breach of the international law. Islamabad has plainly told India that any such act would be considered as an act of war. The sources said that as an alternate strategy, Pakistan has decided to fast track the construction of the two dams. However, due to its political priorities and pressing demands by the coalition partners, the government has reduced the water sector development budget by 28% to Rs133 billion for the next fiscal year. Now it wants to offset this by introducing a new tax. The sources said that the government has decided to levy a 1% cess on the gross value of all local taxable supplies to raise the additional funds, subject to the approval by the IMF and by parliament. They said that all the goods produced in Pakistan and subjected to tax are proposed to be charged at a new cess rate of 1%. The goods that are currently exempted from the sales tax under the Sixth Schedule, or are charged at a zero rate under the Fifth Schedule of the sales tax law would be immune to the cess. Likewise, the electrical energy goods and pharmaceutical goods are proposed to be exempted from the new cess. Cess is different from a normal tax and it can only be levied for a specific purpose, like the Gas Infrastructure Development Cess (GIDC) that had been imposed to fund Iran-Pakistan Gas Pipeline. Effectively, every good produced in Pakistan and consumed by all households would be subject to 1% new special tax, said the sources. The Ministry of Finance spokesman Qumar Abbasi and the Secretary Water Resources Ministry Syed Ali Murtaza did not respond to the request for comments. They have been asked to confirm the development and also the IMF's position. A senior Finance Ministry official said that the proposal was under consideration but the discussions with the IMF were still going on. He said that the cess would not be imposed through the Finance Act 2025, and instead a new separate bill will be introduced in parliament, subject to the IMF clearance. In the case of GIDC, the Supreme Court has decided that the cess can only be levied for a specific purpose and it requires separate legislation. This binds the government's hands from introducing the cess through the Finance Act, which is currently under discussion in parliament. The GIDC case is also an example of how the government is indifferent. The textile and fertiliser companies have not yet deposited over Rs400 billion in the kitty despite collecting those from the consumers. The finance and petroleum ministries are not able to make an effective strategy. One of the options is that instead of levy a new 1% cess, the government should amend the GIDC law and divert the already collected money towards building dams. On the intervention of the Petroleum Minister Ali Pervaiz, the government has again constituted a committee under the chairmanship of Finance Minister Muhammad Aurangzeb to recover the GIDC. But this committee too is moving at a snail's pace. The sources said that the IMF's view was that the government should fund the dam projects from the PSDP instead of imposing more burden on the people. However, the Ministry of Water Resources has informed the government that it would take 15 years to complete the Mohmand Dam and over 20 years to finish work on the Diamer-Bhasha Dam at the current pace of the budget allocations. The PSDP is already overstretched and there is no space to fund these projects beyond the allocations made in the new budget, said Ahsan Iqbal, the federal minister for Planning and Development. He said that out of the Rs1 trillion allocations, effectively, Rs640 billion was available for funding the PSDP. Iqbal said that the remaining Rs360 billion had been allocated for spending on N-25 Karachi-Quetta road, provincial schemes and special areas' allocations. The sources said that after the National Economic Council (NEC) meeting earlier this month, Prime Minister Shehbaz Sharif had also chaired a special meeting with the provinces to convince them to fund these two dams to deal with Indian aggression. In a follow-up meeting with Deputy Prime Minister Ishaq Dar, the provinces except Khyber-Pakhtunkhwa showed reluctance to fund federal projects, said the sources. The cost of the Diamer-Bhasha Dam had been estimated at Rs480 billion seven years ago and it still needs Rs365 billion more to complete the work against a price that is likely to increase further. For the next fiscal year, only Rs25 billion has been allocated for project, which is even less than this fiscal year. Likewise, the Mohmand Dam was approved at a cost of Rs310 billion seven years ago and it still requires a minimum of Rs173 billion more at the old price. Only Rs35.7 billion has been allocated in the new fiscal year. Earlier this week, Ahsan Iqbal said that the government has advanced the completion of both the projects by two years and these dams will be completed by 2030. He said that on completion, Pakistan will have 7 million acre feet of additional water storage capacity. Pakistan's two reservoirs Tarbela and Mangla dams are facing storage related issues due to sedimentation and other technical issues. The Sindh government has given a deficit budget for the next fiscal year and also showed zero-balance for the outgoing fiscal year. This has surprised many, as the provincial government had a cash surplus of Rs395 billion till March this year, according to the Ministry of Finance's fiscal operations summary. For the next fiscal year, Sindh has shown a Rs38.5 billion deficit budget, which defeats the IMF's core objective of getting Rs1.4 trillion cash surpluses from all the four provinces.
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Business Standard
14-05-2025
- Business
- Business Standard
IMF disburses $1.023 bn tranche to Pak; to hold discussions about budget
The International Monetary Fund has disbursed a second tranche of $1.023 billion under the Extended Fund Facility programme for Pakistan, the central bank said on Wednesday. The disbursement of the second tranche comes on a day when the International Monetary Fund (IMF) is holding virtual discussions on Pakistan's upcoming budget as the visit of its mission to Islamabad was delayed due to security concerns in the region. The federal government is planning to unveil the budget for fiscal 2025-26 on June 2. The IMF talks will continue until May 16. The Central bank said the second tranche amount would be reflected in its foreign exchange reserves for the week ending May 16. The amount was approved last week by the IMF board under the ongoing Extended Fund Facility (EFF) and allowed an additional arrangement for the $1.4 billion Resilience and Sustainability Facility (RSF). The decision to release the funds came after the IMF expressed satisfaction on the first review of Pakistan's economic reform programme supported by the EFF Arrangement, the bank said. The IMF noted that Pakistan's policy efforts under the EFF had already delivered significant progress in stabilising the economy and rebuilding confidence, amidst a challenging global environment. Fiscal performance has been strong, with a primary surplus of two per cent of gross domestic product achieved in the first half of FY25, keeping Pakistan on track to meet the end-FY25 target of 2.1 per cent of GDP. Pakistan's gross reserves stood at $10.3 billion at end-April, up from $9.4 billion in August 2024, and are projected to reach $13.9 billion by end-June 2025 and continue to be rebuilt over the medium term, it was pointed out. Meanwhile, the IMF talks that started virtually Wednesday will continue until May 16. The global lender has appointed a new mission chief to Pakistan and the mission is now expected to travel to Islamabad over the weekend, subject to the security situation, government sources told The Express Tribune on Tuesday. The IMF mission delayed its scheduled arrival here on Tuesday due to uncertainty caused by the India-Pakistan conflict that had affected air travel across the region. Virtual discussions are expected to be held from today. For the second and final leg of the talks, the IMF team is expected to arrive in Islamabad on Saturday and stay until May 23, the source said. The IMF's Resident Representative to Pakistan Mahir Binici did not respond to a request for comment on the change in the travel plan. Finance Ministry spokesperson Qumar Abbasi also did not respond to questions on the change in the travel plans. Meanwhile, the IMF appointed Iva Petrova, a Bulgarian origin staff member, as new Mission Chief to Pakistan. She would join the discussions along with the outgoing Mission Chief Nathan Porter who served in the position for an extended term. Binici also did not comment on whether both outgoing and new mission chiefs would join both rounds of talks. Petrova, who holds a PhD degree in economics from the Michigan State University, has been serving as the IMF Mission Chief to Armenia. Previously, she had served with the missions to Israel, Iceland and Latvia. In Pakistan, the fiscal policy is expected to remain tight in the next fiscal year too. The IMF has asked Pakistan to make a budget on the assumption of having 1.6 per cent of the GDP primary budget surplus, which will require generating about Rs 2 trillion over and above the non-interest expenses. The tax target for the Federal Board of Revenue (FBR) is proposed to be 11 per cent of the GDP or Rs 14.3 trillion. The IMF would examine whether the government plans to take credibly realistic measures to back the new tax target, said the sources. The IMF has set multiple fiscal conditions, whose successful completion has so far helped smooth continuation of the programme despite initial setbacks. Pakistan has met the IMF targets for a primary budget surplus by the federal government, as well as net revenue collection and cash surplus targets by the four provinces. Against a primary surplus target of Rs 2.7 trillion, the federal government reported a surplus of Rs 3.5 trillion, or 2.8 per cent of GDP. The size of the federal budget still remains tentative due to redoing of defence needs and the government plans to announce less than Rs 18 trillion budget. The overall budget deficit target after incorporating large provincial cash surpluses is projected at 5.1 per cent of the GDP or Rs 6.7 trillion, the sources said.
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Business Standard
14-05-2025
- Business
- Business Standard
IMF to hold virtual talks on Pakistan's budget amid security concerns
The International Monetary Fund will on Wednesday hold virtual discussions on Pakistan's upcoming budget as the visit of its mission to Islamabad was delayed due to security concerns in the region. The federal government is planning to unveil the budget for fiscal 2025-26 on June 2. The International Monetary Fund (IMF) talks will continue until May 16. The global lender has appointed a new mission chief to Pakistan and the mission is now expected to travel to Islamabad over the weekend, subject to the security situation, government sources told The Express Tribune on Tuesday. The IMF mission delayed its scheduled arrival here on Tuesday due to uncertainty caused by the ongoing India-Pakistan conflict that has affected air travel across the region. Virtual discussions are expected to be held from today. For the second and final leg of the talks, the IMF team is expected to arrive in Islamabad on Saturday and stay until May 23, the source said. The IMF's Resident Representative to Pakistan Mahir Binici did not respond to a request for comment on the change in the travel plan. Finance Ministry spokesperson Qumar Abbasi also did not respond to questions on the change in the travel plans. Meanwhile, the IMF appointed Iva Petrova, a Bulgarian origin staff member, as new Mission Chief to Pakistan. She would join the discussions along with the outgoing Mission Chief Nathan Porter who served in the position for an extended term. Binici also did not comment on whether both outgoing and new mission chiefs would join both rounds of talks. Petrova, who holds a PhD degree in economics from the Michigan State University, has been serving as the IMF Mission Chief to Armenia. Previously, she had served with the missions to Israel, Iceland and Latvia. In Pakistan, the fiscal policy is expected to remain tight in the next fiscal year too. The IMF has asked Pakistan to make a budget on the assumption of having 1.6 per cent of the GDP primary budget surplus, which will require generating about Rs 2 trillion over and above the non-interest expenses. The tax target for the Federal Board of Revenue (FBR) is proposed to be 11 per cent of the GDP or Rs 14.3 trillion. The IMF would examine whether the government plans to take credibly realistic measures to back the new tax target, said the sources. The IMF has set multiple fiscal conditions, whose successful completion has so far helped smooth continuation of the programme despite initial setbacks. Pakistan has met the IMF targets for a primary budget surplus by the federal government, as well as net revenue collection and cash surplus targets by the four provinces. Against a primary surplus target of Rs 2.7 trillion, the federal government reported a surplus of Rs 3.5 trillion, or 2.8 per cent of GDP. The size of the federal budget still remains tentative due to redoing of defence needs and the government plans to announce less than Rs 18 trillion budget. The overall budget deficit target after incorporating large provincial cash surpluses is projected at 5.1 per cent of the GDP or Rs 6.7 trillion, the sources said. (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
