Finance Minister Muhammad Aurangzeb announced that the International Monetary Fund (IMF) Executive Board’s approval of the staff-level agreement with Islamabad for a new bailout package hinges on $12 billion in debt re-profiling by friendly countries, The News reported on Monday.
At a press conference in Islamabad, Aurangzeb stated that the external financing gap is “manageable” and clarified that the government seeks to re-profile $12 billion in foreign deposits over a three to five-year period. This includes $5 billion from Saudi Arabia, $4 billion from China, and $3 billion from the United Arab Emirates (UAE).
His comments follow the Prime Minister Shehbaz Sharif-led government securing a 37-month, $7 billion bailout program with the Washington-based lender earlier this month. The program, however, is contingent on the approval of the IMF’s Executive Board, which Aurangzeb expects to come in late August.
Addressing the debt related to Chinese Independent Power Producers (IPPs), Aurangzeb revealed that the government has started the process of re-profiling this debt, seeking extensions in maturity. A Chinese consultant will be hired to assist in achieving these objectives. The outstanding repayment to Chinese IPPs stood at $15.4 billion until 2036, and Pakistan is requesting a debt tenor extension of five to eight years.
Aurangzeb emphasized the sensitivity of the situation, noting that Pakistan is not seeking debt restructuring or a haircut but an extension of the maturity period for both foreign deposits and Chinese IPPs debt.
Federal Minister for Energy (Power Division) Awais Leghari, in an interview with Geo News program Naya Pakistan, said detailed discussions were held with China regarding the “re-profiling” of power sector debt. This statement followed a high-level delegation visit to China, including Leghari and the finance minister, aimed at re-profiling Pakistan’s power sector debt.
Aurangzeb noted that China has praised Pakistan’s tough decisions to secure the IMF program and reaffirmed its support for obtaining the Fund’s approval. He highlighted the need for Pakistan to engage both China and the United States separately and simultaneously, given their importance to the country.
Aurangzeb announced the establishment of joint working groups to create mutually beneficial solutions for the nine Chinese IPPs, including one transmission line. These discussions will involve individual IPPs and cover equity rates and dividends in detail.
Aurangzeb also confirmed that Islamabad is negotiating a $600 million commercial loan from Chinese banks and plans to launch the Panda Bond, with an initial capitalisation of $150 to $200 million out of a targeted $1 billion.
Addressing the derailment of the IMF program during Imran Khan’s government, Aurangzeb pointed out that a combination of increased interest rates, electricity prices, and taxes have worsened economic challenges. He stressed that the previous government’s expansive budget and IMF program disruption led to a depletion of foreign exchange reserves and a trust deficit.
Aurangzeb emphasized the necessity of seeking IMF assistance and noted that Price Monitoring Committees (PMCs) at federal, provincial, and district levels are monitoring prices to prevent exploitation.
Regarding local IPPs and tariff reduction, he mentioned that the Minister for Power is developing plans to balance honoring agreements and reducing tariffs, aiming for a win-win situation.
Aurangzeb expressed empathy for the salaried class, acknowledging increased tax rates due to certain under-taxed and untaxed sectors. He introduced the Tajir Dost Scheme, a simplified tax system with fixed monthly taxes ranging from Rs100 to Rs60,000. The Federal Board of Revenue (FBR) identified 4.9 million potential tax evaders with assets, vehicles, and travel histories who have not entered the tax net.
To prevent duplication in tax notices, Aurangzeb proposed a central system for effective enforcement and collection. He highlighted issues with fake sales tax refund invoices amounting to Rs600 billion and mismatched customs duty invoices totaling Rs200 billion.
Aurangzeb also mentioned the simplification of the tax system, focusing on the Tajir Dost Scheme, and discussed rightsizing ministries to reduce their annual expenditure of Rs890 billion by 20% to 25%.
