Pakistan must secure a three to five-year extension for the maturity of $12 billion in debt from Saudi Arabia, China, and the UAE to gain approval from the IMF’s Executive Board for a new bailout package, Finance Minister Mohammad Aurangzeb stated on Sunday.
Key Debt Reprofiling Requirements
- Saudi Arabia: $5 billion
- China: $4 billion
- UAE: $3 billion
Aurangzeb emphasized that the external financing gap is manageable and that Pakistan is not seeking additional foreign loans. Instead, Islamabad is focusing on extending the maturity of its existing foreign deposits.
Chinese IPPs Debt Reprofiling
Pakistan has initiated the process of reprofiling debt owed to Chinese Independent Power Producers (IPPs), amounting to $15.4 billion due by 2036. A Chinese consultant will be hired to facilitate this process, aiming for a five to eight-year extension on the debt maturity.
Delicate Negotiations
Aurangzeb clarified that Pakistan is not seeking debt restructuring or haircuts but merely an extension on the maturity of its debts. China has shown support for Pakistan’s tough economic decisions and assured its backing for IMF approval.
Joint Working Groups
Nine Chinese IPPs, including one transmission line, will be involved in detailed discussions about their equity and dividend rates. Joint working groups will be formed to ensure mutually beneficial outcomes.
Additional Financial Measures
- Commercial Loan: Pakistan is negotiating a $600 million commercial loan from Chinese banks.
- Panda Bond: Pakistan plans to launch the Panda Bond, targeting $1 billion, with $150 to $200 million capitalized in the first phase.
Economic Challenges and Solutions
Aurangzeb acknowledged the economic strain from increased interest rates, electricity prices, and taxes. He attributed these issues to the previous government’s budget policies and interactions with the IMF, which depleted foreign exchange reserves and created a trust deficit.
Addressing Economic Exploitation
Price Monitoring Committees at various levels are monitoring prices to curb exploitation. The government is also planning to reduce tariffs for local IPPs while honoring existing agreements to create a balanced solution.
Tax Reforms
The Finance Minister highlighted the introduction of the Tajir Dost Scheme, imposing a fixed tax ranging from Rs100 to Rs60,000 monthly. The FBR has identified 4.9 million potential tax evaders who will be brought into the tax net.
Streamlining Tax Collection
To avoid duplication in tax notices, a central system will be implemented. Fake sales tax refund invoices and mismatched customs duty invoices, amounting to Rs800 billion, are being addressed.
Ministry Expenditure Reduction
Aurangzeb mentioned that the annual expenditure of ministries is Rs890 billion, with a target to reduce this by 20-25%.
Simplified Tax System
Efforts are underway to simplify the tax system, with a focus on introducing a streamlined tax form under the Tajir Dost Scheme.