Pakistan on Wednesday repaid $1 billion in debt that had been raised in October 2016 through floating international Sukuk at 5.5% return, as per the Ministry of Finance.
The repayment will briefly hit the debt-based foreign exchange reserves that stand at nearly $19 billion at the moment.
Officials from the Ministry of Finance said that it is at an advanced stage to borrow another $1 billion by floating International Sukuk. The Pakistan Tehreek-e-Insaf (PTI) government has issued sovereign bonds in order to borrow $3.5 billion in the last few months.
The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Wednesday wrote a letter to Finance Minister Shaukat Tarin. The letter asked the minister to refrain from adding tax burden on people while suggesting Tarin launch a high-level inquiry to discover the authority that raised the interest rate to 13.25% around two years ago.
The FPPI shared that the Federal Board of Revenue (FBR) surpassed the quarterly tax collection target by Rs187 billion. As a result, the business community which is a major contributor to tax collection expected a significant tax relief for the industry as well as the general public who bears the burden of indirect taxes.
“It is disturbing for us to learn through press reports that the International Monetary Fund (IMF) has demanded imposition of taxes of Rs500 billion during the current financial year.” It added that this reflects an obvious disconnect between the tax targets and fiscal management.
Chairman of Policy Advisory Board of the FPCCI Younas Dagha and President of the FPCCI Nasser Hayat Maggo co-signed the letter.
As per FPCCI, “The industry of Pakistan is of the view that mismanagement of federal debt needs to be addressed rather than increasing the tax burden and restricting the economic growth.”
The apex added that the increase in interest rate of 13.25% was unjustified when inflation stood at 8-9% at the start of the IMF programme. It resulted in derailing of the economy and Pakistan experienced negative growth for the first time after 1952.
It added, “The decision to fix the interest rate at 13.25% diverted an additional Rs1.1 trillion of taxpayers’ money into banks annually, which is almost equal to our defense budget, increasing our debt servicing to Rs2.71 trillion in 2019-20. A high-level inquiry should be conducted into the deliberate acts of debt mismanagement, which has cost the country’s taxpayers Rs2.5 trillion and it is still draining fiscal resources”.
FPCCI expressed surprise at the then finance minister’s unjustified decision to commit the federal government to impose higher interest for the coming few years through re-profiling short-term loans to the longer term at very high rates despite the expectation of lower rates in the coming years, under the watch of IMF.
Banks saw up to 100% growth in their profits as a result of such decisions. The FPCCI advised Shaukat Tarin to renegotiate the debt deals contracted with commercial banks to lower the cost of debt servicing.
“Such acts of debt mismanagement need to be reversed to address the fiscal needs.” The minister has also expressed his disapproval of the decision to increase the interest rate at 13.25% in 2019. He said that it added a major debt burden to the fiscal framework of the country.
Dr. Zubair Khan, a former IMF official, has filed a petition in the Supreme Court of Pakistan, asking it to probe those who set the high-interest rate.
The Supreme Court had in April this year accepted the petition for hearing. Khan in this petition pleaded that the self-imposed decision to raise the interest rate to 13.25% could have been avoided and it was an “ill-designed exercise detrimental to the economic interests of Pakistan.”
A recent report issued by the Ministry of Finance said that the country’s public debt maturity profile shrunk further in the last fiscal year owing to increased reliance on short-term loans, exposing the government to refinancing risks.
The finance ministry stated that the average time to maturity of domestic debt was further lowered from four years and one month to just three and a half years.
At the same time, the average time of external debt maturity also deteriorated from last year’s level of seven years to six years and eight months.