Hafeez Shaikh explains IMF repayment terms
The $6 billion IMF bailout programme will cost Pakistan approximately $180 million. This is the money Pakistan will pay in addition to returning the principal amount.
On July 3, Pakistan secured a $6 billion loan programme from the IMF under its Extended Fund Facility (EFF).
Since this is an EFF programme, Pakistan can return this money in 10 years, the Prime Minister’s Adviser on Finance, Revenue and Economic Affairs Dr Abdul Hafeez Shaikh said during a press conference on Thursday. Referring to IMF’s formula, the PM’s adviser said the rate of interest on this loan will be less than 3%. This means the IMF loan will cost Pakistan $180 million or less.
Under the programme, the country’s 13th bailout program since the 1980s, Pakistan will receive $2 billion per year over the next three years. The IMF has already released $1 billion, which will be received within days.
The IMF dollars will help Pakistan improve its dwindling foreign exchange reserves, which stand at their lowest level in five years. The country has little over $7 billion in its reserves, barely enough to sustain two months of imports as opposed to the international threshold of three months.
We are in this default-like situation because of our inability to earn dollars. For every dollar earned, Pakistan spends two because its exports have remained stagnant, at times fell, for nearly 10 years. Foreign direct investment is not increasing either while imports kept rising. The dollar drain put Pakistani rupee under pressure, which has depreciated by more than 25% since August.
To address this economic imbalance, the government has knocked doors of friendly countries of China, Saudi Arabia, the UAE and Qatar and received more than $10 billion in support.
However, its external financing needs for the next two years stand at $20 billion. By entering the IMF programme, Pakistan will also be able to receive support from the World Bank and Asian Development Bank that have already pledged budgetary support. On the other hand, it has increased duties on luxury imported items and given subsidies to export-oriented sectors so our trade loss can be reduced to a level, which is sustainable.
The FBR collected Rs70 billion in taxes as 137,000 people registered themselves with the government under its asset declaration scheme, Shaikh said.
The PM’s adviser said most people who availed the scheme were non-filers. These are the people who came under the tax net for the first time. He said these people declared assets worth Rs3,000 billion (Rs3 trillion) — these are provisional estimates and actual figures will be released later.
The amnesty scheme, which expired on July 3, was an option for people who come under the tax net by declaring their undisclosed assets and paying taxes on them at reduced rates or risk paying higher tax later. People who availed the scheme would not be asked any questions about their source of income. In other words, it was their chance to wash off their dirty money or pay less tax for past income that evaded taxes. Those who did not avail the scheme and owned benami assets can face the music because if they are identified and caught by the government their assets will be seized.