Progress made on financing pledges from friendly countries, Senate panel told

ISLAMABAD: The government on Wednesday said to have achieved ‘progress’ in external financing from Saudi Arabia and the United Arab Emirates direly needed to reach a staff-level agreement (SLA) with International Monetary Fund (IMF) that has been in limbo since Feb 9.

The statement came from Minister of State for Finance and Revenue Dr Aisha Ghaus Pasha before a parliamentary panel on a day UAE’s ambassador in Islamabad Hamad Obaid Ibrahim Salim Al-Zaabi met Finance Minister Ishaq Dar and expressed UAE’s interest “in augmenting and furthering investment in various sectors of the economy of Pakistan”.

Simultaneously, the foreign exchange association of Pakistan said billions of dollars could be diverted to the system provided unnecessary controls and documentation were eased and unofficial outflows to Afghanistan were contained.

Testifying before the Senate Standing Committee on Finance and later talking to journalists, Dr Pasha said “there has been some progress from Saudi Arabia and UAE on external financing” — the only pending thing after the completion of technical negotiations.

Deal with IMF will be signed shortly after verification, says state minister

Pakistan and the IMF Staff Mission had completed physical talks on Feb 9 for the conclusion of the 9th review of the $7bn extended fund facility that had gone off track since September last year.

“There are some indications that something is coming very shortly and the matters with IMF are close to settlement as the Fund had been looking for commitments from the brotherly countries. There has been some progress on that,” she reiterated without elaborating but added that a trust deficit had been delaying the SLA with IMF.

Responding to a question, she said Pakistan’s external financing needs were higher but support from friendly countries followed by the IMF tranche would unblock flows from other multilateral agencies and the matters would move forward towards normalcy.

The meeting presided over by Senator Saleem Mandviwalla was told by Exchange Companies Association of Pakistan Chairman Malik Bostan that unnecessary controls were the key reason for exchange rate instability. He said that if policies are revised and restrictions are relaxed keeping in view the current economic situation, rate stability could be achieved.

He said the central bank should allow deposits of up to $10,000 without verification as people diverted their resources to the black market. He said the exchange companies brought $4bn last year and can bring $1bn every month.

Dr Pasha told the committee that all the prerequisite actions have been taken for the release of the $1.1bn tranche, the only touch point is external financing which is being verified by the IMF from China, UAE and Saudi Arabia.

She said all three friendly countries had extended full support in this regard. However, the verification is still pending which will be done shortly after the IMF deal will be finalised.

Petrol subsidy

Answering a query about the petrol subsidy scheme, she said it had not yet been put into practice and a plan was being worked out. She said the IMF opposed indirect subsidies but the petrol subsidy had not been discussed with the fund.

She said the government would not provide any subsidy but once the scheme is finalised and it meets the IMF parameters through cross-subsidisation, the fund may not have any objections.

Senator Farooq Naek suggested that there should be a proper regular programme on food subsidies for the lower middle class to absorb inflationary impacts instead of providing free food that encouraged behaviours of beggary.

Banking scam

On the question of State Bank of Pakistan (SBP) investigations into a banking scam alleging extra US dollar rates charged by banks from customers for the opening of letters of credit (LCs). Officials of SBP informed the committee that the investigation has been concluded and SBP was in deliberations with Finance Division to determine whether the action should be on the fiscal end or regulatory. The SBP representatives assured the committee that action will be taken soon. The committee directed the SBP to submit its report on the matter within two weeks.

The chairman of the committee inquired about the current situation of LCs being opened by banks and claimed that plenty of complaints had been received in which banks had refused to make payments even after the opening of LCs. Officials of SBP claimed the central bank was monitoring the situation and banks were being pushed to open LCs for all the necessary items.

Fake pensioners

On the matter of fake pensioners and further strategy to resolve the issue briefing was taken by the Ministry of Finance. The committee was informed that for transparency and to facilitate pensioners, the federal government has introduced the Direct Credit System (DCS) scheme for resolving the issue of fake pensioners.

In this system, the amount is deposited directly in pensioners’ bank accounts opened in any scheduled bank, including National Savings Centres for this purpose. The committee was told that the total number of pensioners stood at 3.328 million. Out of which 71pc is on DCS while the remaining 29pc is being operated manually.

Similarly, 40pc of military accounts are on DCS and 60pc are non-DCS. As per this system, if a pensioner fails to submit a life certificate or undergoes biometric verification during March and October or does not draw pension for consecutive six months, the account shall become dormant. The chairman committee deferred the matter for further report and inquiry.

Published in Dawn, March 30th, 2023