Despite a worsening economic situation and just one and a half months after the budget was approved, the government assumed responsibility for more than Rs80 billion in financial liabilities of Pakistan International Airlines (PIA) and Pakistan State Oil (PSO) on Thursday.
In order to match the prices of locally manufactured goods, the Economic Coordination Committee (ECC), the cabinet body that made these choices, also approved a 25% rise in the price of imported fertilizer to Rs2,150 per bag. The ECC meeting was presided over by Finance Minister Miftah Ismail.
According to a statement released by the Ministry of Finance, the ECC approved a request to issue the Letter of Comfort in favor of PSO for generating a borrowing facility of Rs50 billion on an urgent basis.
As an additional instruction, the ECC told the Finance Division not to go above the Rs105 billion limit on domestic guarantees for the first quarter of the current fiscal year.
Following bank rejections for loans due to PSO’s worsening state, the Petroleum Division sought the ECC to request that it issue sovereign guarantees in PSO’s favor in order to assist PSO in raising Rs50 billion in debt.
The Petroleum Division notified the ECC that PSO urgently need cash to avoid defaulting on its international obligations totaling Rs110 billion that were due before August 15.
Government ministries now regularly present last-minute suggestions to the ECC meeting in an effort to pressure it into making decisions in order to prevent default.
On the same justification, the ECC had earlier authorized a Rs 30 billion supplementary budget for PSO.
ABL, NBP, MCB, and UBL were among the banks that HBL had assembled into a bank consortium in order to sanction the loan of Rs. 50 billion to PSO with government backing. The banks have indicated their willingness to start the process of issuing the loan on the Letter of Comfort, and the ECC was informed of this because the issuance of the guarantee will take some time.
The ECC also authorized the National Bank of Pakistan (NBP) to receive a sovereign guarantee for a financing facility in the amount of $142 million, or Rs30.6 billion, in order to provide PIA with a loan to pay off its debt to the Roosevelt Hotel in New York.
Roosevelt Hotel is owned by PIA through its affiliate PIA Investment Limited (PIA-IL). The summary of the issuing of sovereign guarantees in favor of NBP was provided by the Ministry of Aviation.
To prevent losses, the Roosevelt Hotel has been closed since December 2020. The prior government had given $142 million in support for lowering the debt owed by the Roosevelt Hotel after considering the recommendations of a committee led by Dr. Jehanzeb Khan, a former deputy chairman of the Planning Commission. The Finance Division had secured finance in the form of NBP loans.
Due to litigation by Tethyan Copper Company Limited (TCC) in the Reko Diq case, the Law Division then prohibited the government from providing the guarantees.
The government has chosen to provide guarantees because Pakistan and TCC have agreed to a standstill until December 15, 2022.
The Ministry of Finance would repay the loan to NBP and other commercial banks if PSO and PIA failed to fulfill their financial commitments.
The fact that the government accepted responsibility just one and a half months after the budget was approved suggests that either it undervalued expenditures on purpose or that the relevant ministries were unaware of their financial responsibilities.
The Ministry of Industries and Production tabled a summary for revision in the price of imported urea. It was informed that the price of imported urea stored in NFML warehouses was lower than the locally manufactured urea.
The ECC decided to increase the imported urea price by Rs432 per bag to Rs2,150, a surge of 25%.