ISLAMABAD: The government on Friday reduced gas prices for industry by about 33 per cent and settled a Rs78 billion dispute with the Sindh government over outstanding electricity bills against a payment of Rs27.4bn.
These decisions were taken at a meeting of the Economic Coordination Committee (ECC) of the Cabinet presided over by Finance Minister Ishaq Dar that also allowed tax exemptions on procurement of furniture and other supplies in 15 earthquake affected districts and extended time for export of wheat products.
The ECC approved reduction of gas price for all industries from Rs600 per million British thermal unit (mmBtu) to Rs400 per mmBtu to pass on the benefit of reduction in international crude oil prices. The reduced gas rate would also be applicable to fertiliser sector to the extent of its fuel consumption because its gas supply for feedstock is already subsidised under the Fertiliser Policy 2001.
Sindh to pay Rs27.4bn to settle disputed Rs78bn electricity dues
The producer price of natural gas produced domestically is linked to international oil prices under successive petroleum policies but the impact of plunge in international crude prices could not be passed on to the domestic industry as the government enjoyed windfall revenues for almost two years.
The domestic industry in the meanwhile turned uncompetitive on the world markets as export industries of peer economies gained greater share in the global market because of lower costs of doing business. Pakistan’s exports have been on a sliding scale for two years.
POWER BILLS: The meeting also approved a settlement agreement reached between the Ministry of Water and Power and the Government of Sindh to resolve the issue of outstanding bills of public sector consumers in Sindh. The agreement had already been approved by the Sindh Cabinet on September 19 on behalf of the provincial government after the endorsement by board of directors of Hyderabad Electric Supply Company (Hesco) and Sukkur Electric Power Company (Sepco).
This settles an outstanding dispute over unpaid electricity bills by the government consumers of Sindh and the two distribution companies between July 2010 and July 2016. Under the agreement, Sindh would pay Rs27.4bn in six monthly instalments of Rs4.56bn each and partially finance installation of automatic/advance meters within in four months and ensure full recoveries in future.
KARACHI: The State Bank of Pakistan (SBP) injected Rs700 billion into the banking system on Friday.
Banks have been investing heavily in government papers while the government has also borrowed Rs847bn from the central bank since the beginning of the fiscal year. The government has been retiring long-term Pakistan Investment Bonds (PIBs), which benefited the government due to the low interest rate. However, banks still hold PIBs worth Rs3 trillion.
The low interest rate significantly reduced the government’s debt servicing in the current as well as previous fiscal years. The government spent 41pc of its tax revenues on interest payments in 2015-16. It had spent half of its revenues on interest payments in the preceding year.
The interest rate during the current fiscal year has remained as low as 5.75pc, which benefited the government while almost all banks reported lower profits.
The SBP injected Rs700bn for seven days at the rate of 5.81pc, which is just six paisa higher than the policy rate. The SBP conducted an auction for treasury bills on Nov 23 to raise Rs289bn for three-, six- and 12-month instruments while the cut-off yield remained almost the same (5.94pc) with slight variations for all tenors.
It reflects that banks are doing business with the government at a narrow margin, but not extending loans to the private sector. An SBP report issued early in the week showed that private-sector credit off-take during 130 days of the current fiscal year was still negative at Rs21bn.
Increased borrowings by the government have led to monetary expansion, which clocked up at 1.49pc (Rs190bn) in 2016-17 so far against 0.46pc monetary growth in the same period of 2015-16.
Higher government borrowings reflect the widening fiscal gap, which means the deficit can exceed the target set in the budget. The fiscal deficit for the first quarter was reported at 1.3pc of the gross domestic product (GDP), although it should ideally be restricted to 3.8pc for the entire fiscal year.
The SBP will announce monetary policy for the next two months today. Most analysts believe the SBP will keep the interest rate unchanged on grounds of the prevailing low inflation, greater benefit for the government in terms of reduced debt servicing and enhanced monetary expansion.
The SBP in its annual report for 2015-16 acknowledged that the decline in the interest burden in the fiscal year was due to a fall in overall interest payments as well as a sharp rise in the federal tax collection. However, the same report said the tax-to-GDP ratio in Pakistan is still one of the lowest in the world.
Courtesy : Dawn News