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Govt on fiscal tightrope as IMF talks set to begin today

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ISLAMABAD: The International Monetary Fund (IMF) is expected to discuss the deteriorating fiscal position which has been heavily affected by debt servicing which consumed the net revenue receipts of the federal government in the first quarter of the current financial year, reported The News on Thursday.

The IMF mission is expected to arrive in Pakistan today and remain till November 16 for the review ahead of the second tranche under the $3 billion Stand By Agreement (SBA).

Despite choking the release of funds for development projects and curtailing subsidies to the lowest levels, the government has been thumping on restricting budget deficit within the desired limits and especially converting the primary deficit into surplus for the first quarter of the current fiscal year.

“The IMF might raise the sustainability of such a tight fiscal position at a time when the government released development spending of just Rs40 billion against the allocation of Rs950 billion and restricted subsidies at Rs2.5 billion against the budgetary allocation of over Rs1,002 billion,” sources told The News.

However, the finance ministry officials believe that a downward revision of the policy rates is on the cards, and they have been planning for financing a budget deficit on preferably longer periods instead of relying upon shorter periods of treasury bills and domestic bonds.

“The average time to maturity will be stretched as much possible in order to reduce the over debt servicing bill in the remaining period of the current fiscal year,” said the official. The official claimed that the debt servicing bill would be curtailed within the allocated limit of Rs7.3 to Rs7.5 trillion for the current fiscal year.

Debt servicing consumed Rs1.4 trillion in the first quarter of the current fiscal year with the policy rate at 22%. The State Bank of Pakistan (SBP) on Wednesday raised Rs1,148 billion against the target of Rs975 billion, Rs173 billion higher than the target.

The 12-month yield declined by 40 basis points. The 3-month yield stands at 21.94%, 6 months at 21.98%, and 12 months at 21.99%. So overall, the market is indicating a slight reduction in the policy rates.

But the question is how would the government materialise its increasing revenue and expenditure requirements in the remaining months of the current fiscal year.

When contacted, Dr Khaqan Najeeb, former adviser to the Ministry of Finance, said an IMF programme is managed through prior actions, structural benchmarks, indicative targets, and performance criteria.

“It is safe to presume that first-quarter targets agreed with the IMF on fiscal, energy, monetary, and external are likely to be largely met. The fiscal shows a lower deficit at 0.9% vs last year and a primary surplus of 0.4%. The figures for meeting spending on income support of Rs87.5 billion are also likely to have been met. The SBP is yet to publish details of net international reserves, net domestic assets and SBP’s stock of net foreign currency swaps. But we are being assured that numbers are looking comfortable. There is probably no new borrowing by the government from SBP and the amount of government guarantees is also within the agreed limits. Hopefully, energy benchmarks are also within agreed limits,” said Dr Najeeb.

Dr Najeeb said it is also the quality of adjustments by Pakistan in reaching the first quarter targets that would be reviewed by the IMF.

“This review will affect the determination of how FY24 numbers will be met. There will likely be a dialogue on the external side where debt flows and exports are slower than anticipated. There is likely to be a discussion by the IMF of risks to the FBR collection target of Rs9,400 billion, which now requires a high growth of 33% over last year, along with expediting refund allocations,” said the former advisor.

Increased spending requirements on debt servicing of more than Rs1,000 billion compared to the budgeted amount of Rs7,300 billion along with a likely shortfall of exaggerated Rs600 billion provincial surplus will come under scrutiny by the IMF. This will set the tone for the updated Memorandum of Economic and Financial Policies, he concluded.

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Dar chairs the CCOP meeting; Blue World’s bid offer of Rs.10 billion is rejected.

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The Foreign Minister/Deputy Prime Minister chaired the Cabinet Committee on Privatization meeting.

Other committee members who attended the conference included the Federal Secretaries of several Divisions, the Ministers of Finance and Revenue, Industry and Food, Commerce, Power, and Privatization.

The CCOP took the PC Board’s recommendation into consideration and suggested that Blue World’s bid of 10 billion rupees for the sale of 60% of PIACL’s shares be rejected. The bid was rejected by the CCOP, who chose to follow the PC Board’s advice.

The government’s determination to sell out PIACL through government-to-government or privatization was reaffirmed by the CCOP.

The CCOP was pleased with the Aviation Division’s evaluation of PIACL’s sound financial standing.

Additionally, the CCOP established a committee, chaired by the Minister of State for Finance, to assess potential transaction possibilities for the privatization of the Roosevelt Hotel and the appropriate modes of adoption in light of existing legal rules.

Prior to its subsequent meeting, the CCOP also ordered that all difficulties be resolved and an agreement for the selling of services to an international hotel be concluded.

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The KSE-100 Index has surged by 790 points, resulting in an all-time peak for the stock exchange.

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The benchmark KSE-100 Index increased by 790 points, marking a new all-time high for the Pakistan Stock Exchange (PSX) at 94,982 points.

The record-breaking performance underscores a surge of optimism and investor confidence in the stock market.

As investors responded to favorable economic signals, the market experienced a significant increase of over 500 points in early trading. Later, the KSE-100 Index reached another record level of 94,786 points after adding 594 points to its upward trajectory.

This positive development comes as the State Bank of Pakistan’s (SBP) foreign exchange reserves saw an increase of $84 million, reaching $11.26 billion during the week ending November 8, according to data released by the central bank on Thursday.

This represents an increase of 0.75% from the previous week. In addition, the nation’s total liquid foreign reserves experienced a modest increase, increasing by $33.7 million or 0.21% week-on-week to $15.97 billion.

In contrast, commercial banks’ reserves experienced a decline of $50.3 million or 1.06%, ultimately settling at $4.71 billion.

Furthermore, the economic team of Pakistan has expressed confidence in the discussions with the International Monetary Fund (IMF). Minister of State for Finance Ali Pervaiz Malik, in an exclusive conversation with Samaa TV, claimed talks were moving in a positive direction.

Highlighting improvements in Pakistan’s economic conditions, Malik noted substantial progress over the past six months to a year. He emphasized that Pakistan’s current economic situation has seen significant enhancement, with a reduced current account deficit of only $100 million in the first quarter, a reflection of the government’s strategy to increase remittances and boost exports.

Malik shared that discussions with the IMF are primarily focused on external financing, and while there have been speculations about a potential mini-budget or an increase in the petroleum levy, he clarified that these are currently premature considerations.

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Positive IMF negotiations propel KSE-100 Index above 94,000 points

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As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.

The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.

Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.

Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.

In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).

The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.

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