Mini-budget’ with adjustments worth Rs600bn finalized...

Mini-budget’ with adjustments worth Rs600bn finalized ISLAMABAD: The government on Thursday finalized a ‘mini-budget’ involving fiscal adjustments and expenditure cuts worth about Rs600 billion as part of an understanding with the International Monetary Fund (IMF) to cool down the over-heating economy. The steps will serve to reverse the effects of the federal government’s ‘pro-growth budget’ for Fiscal Year 2022 adopted only five months ago, according to some analysts. The steps are being described as the “prior actions” that will pave way for submission of Pakistan’s request to the IMF board for approval in the middle of January. The board’s approval will ensure the release of $1bn for the country. Meanwhile, the government has removed Yusuf Khan from the position of finance secretary and appointed secretary of the Planning Division Hamid Yaqoob Sheikh in his place. Bill to be submitted to parliament after approval by the cabinet As part of the adjustments finalized, the government has decided to reduce spending under the Public Sector Development Programme by Rs200bn, with Rs50bn coming from decrease in general government expenditure. On the other hand, the withdrawal of tax exemptions will earn around Rs350bn for the government. The IMF actually wanted tax measures worth Rs700bn, including withdrawal of tax exemptions and revision of tax slabs. However, an understanding for the current fiscal year was reached only on withdrawal of tax exemptions of Rs350bn. The exemptions on food items, fertilisers and pesticides will remain. The IMF had also asked for an increase in tax on provident fund and upward revision in salary slabs for tax. However, this proposal has been set aside for the time being. A senior official in the finance ministry said a bill would ultimately be submitted to the National Assembly after vetting. It is being vetted in the law division, the official said, adding that it would then be placed before the cabinet for approval. After the cabinet’s approval the bill would be laid in the parliament. According to sources, the government has revised upwards the valuation rates in the real estate sector to 90 per cent of the market level for calculation of tax in 40 major cities of the country, including Karachi, Lahore, Peshawar and Islamabad. The number of cities in the list was increased from 20 to 40 to increase the tax collection from transactions in the real estate sector. Under the head of customs, the government has decided to consider imposing regulatory duty on import of electric vehicles to lower its import. In the budget the government had lowered duty on electric vehicles to encourage its use in the domestic market. It has also been proposed that import of complete built unit (CBU) vehicles of all types be restricted by imposing across-the-board regulatory duties. Similarly, imposition of federal excise duty on vehicles in CKD/SKD conditions is also under consideration, which amounts to more than 80pc of the total imports in the automobile sector. The CKD/SKD imports posted a massive increase in the month of November. It has also been decided that the facility of corporate guarantees against disputed import duties be reversed. Now it will be replaced with a bank guarantee or pay order. The PM’s adviser on finance also proposed imposition of regulatory duty on several non-essential and luxury items. At the same time, to discourage import of non-essential items, it has been decided that regulatory duty on 525 items be imposed. These items were already subject to 100pc cash margin, which did not help achieve the desired result of restricting the imports. Under the cash margin, the importer will deposit 100pc value of import with the bank before processing of the case. According to an official source, the commerce ministry is opposing the imposition of regulatory duties as well as cash margin on the plea that it will slow down the economy. However, the finance adviser is serious about implementing the decision. The ministry said that import value is price-driven because of increase in global prices. The situation further deteriorated because of the highest-ever depreciation of the rupee. The central bank is pushing for a cash margin proposal instead of managing the free float of the exchange rate, which leads to inflation and a high cost of energy in the country. No increase in taxes in mini-budget, some exemptions to be withdrawn: Shaukat Tarin Adviser to the Prime Minister on Finance and Revenue Shaukat Tarin on Friday assured that the government would not increase taxes in the supplementary budget it plans to introduce in the National Assembly following the agreement with the International Monetary Fund (IMF) earlier this week. However, certain exemptions will be withdrawn, he shared while talking to the media in Karachi. When a reporter asked the adviser to comment on the mini-budget, Tarin remarked that it seemed the reporter wanted to create sensationalism. "Taxes will not increase. Certain exemptions will be withdrawn. "In March, the government had signed for [removal of] Rs700bn in exemptions and [imposition] of new taxes, after which it got $500 million," he recalled. He was referring to the release of $500m by the IMF in March after approving four pending reviews of the country's economic progress following the government's decision to implement the withdrawal of corporate tax exemptions and put in place a mechanism for automatic electricity power tariff increases. "When I came [as finance minister], I had said we will not allow an increase in taxes. We will not allow [the IMF] to impose more taxes on people who are already paying them." The adviser said his ministry had stood firm on its stance of not increasing taxes during negotiations with the IMF. Tarin said the IMF questioned why Pakistan had distorted its tax system, adding that the Fund's argument held substance. "They say, 'you have imposed 17 per cent sales tax on some [sectors], zero on some and 10pc on some. Take your sales tax and give them targeted subsidies [instead]'." Talking about the fertiliser industry, the adviser said the government provided subsidised gas to companies as well as did not impose any tax. The combined subsidy provided to the fertiliser industry was around Rs150 billion, he said, questioning: "Is this reaching our farmers?" The government will use the Ehsaas database to provide direct subsidy to farmers instead, he said. 'Rupee to move on both sides' The adviser criticised people who were making speculations about the exchange rate. "First it was said that [rupee] was falling because the deal with IMF was not reached. The agreement happened [...] The benchmark is the real effective exchange rate. It compares your currency to the currency of your competitors and says your exchange rate should be around [the specific figure]. Experts say that according to the real effective exchange rate, the rupee should [be traded] around 165 or 167 or 168," he explained. He refuted rumours that the rupee will be demonetised, stressing that the government will not take any steps that will affect businesses' confidence or create distortion in the market. "We are taking some steps because of which the rupee will go on the other side. They (speculators) will be badly defeated so don't get into this kind of speculation. Rupee will move on both sides," he said. Agreement with IMF On Monday, the IMF had announced that it had reached an agreement with Pakistan on policies and reforms needed to complete the sixth review under the $6bn Extended Fund Facility (EFF) which has been 'in recess' since April. The agreement is subject to approval by the Fund's Executive Board, following the implementation of prior actions, notably on fiscal and institutional reforms, the IMF said. The approval of the agreement will make available 750m in Special Drawing Rights (SDR), equivalent to $1,059m, it added. The SDR is a basket of mixed currencies made available to member countries of the IMF. In a press conference on the same day, Tarin had made an announcement about 'five prior actions' that were needed to secure approval of the IMF board. Those actions include introducing a supplemetary budget for a net fiscal adjustment of almost Rs550bn during the remaining part of the current fiscal year through a 22pc cut in development funds, about Rs300bn increase in tax target and a Rs4 per litre monthly hike in petroleum levy on major petroleum products. Tarin said the government would also ensure "approval" of parliament to grant autonomy on matters of monetary policy, exchange rate and recruitments to the State Bank of Pakistan (SBP) that would remain answerable to parliament as it is now. Those not paying taxes shouldn't be allowed to vote: Shaukat Tarin Adviser to the Prime Minister on Finance and Revenue Shaukat Tarin on Monday called upon the public to forget the idea that they could get away by evading taxes, saying those not paying their dues shouldn't even be allowed to vote. Addressing the Kamyab Jawan Convention in Islamabad as the chief guest, Tarin announced that under his supervision, the government would abolish all taxes except the income tax and general sales tax (GST) in the coming years. "[When] the German finance minister came to meet me, she said 'no representation without taxation'. If you don't pay taxes, you don't have the right to representation or vote either," he told the gathering, jointly organised by the Islamabad Chamber of Commerce and Industry (ICCI) and the Kamyab Jawan Programmed. He said people argued that they did not pay taxes because the government did not provide any facilities in return, but pointed out that such people used roads, electricity, and benefited from the maintenance of law and order, the army defending them at the borders and the police. Read: An unfair taxation system "Where will all this [money] come from? So forget that there will be no tax. However, we will simplify [the tax regime]. There will only be two taxes — income tax and consumption tax (GST)," he said, adding that taxes such as withholding and turnover tax would be scrapped in the next 2-3 years The adviser said he had also straightforwardly told traders from across the country at a meeting last week that "we all have to pay the tax. If you think we will not, then our country will not progress." He, however, assured government facilitation for the traders, saying he had put an end to "harassment" at the hands of the Federal Board of Revenue and that in case of any disputes, third-party audits would be carried out. Tarin said the government now had all the data of tax evaders, including their bills, bank accounts and information about travel, cars and houses, which it would use to estimate such people's income through artificial intelligence as well. "You will get a bill saying this is your income and this is the tax due," he said, emphasizing that authorities would not use any force but request people to pay their dues if they thought they had been accurately calculated. "It is the state's right to receive tax," he added. He noted that the current tax-to-GDP ratio in Pakistan was nine per cent which was very low and needed to be doubled to 20pc. Raising the ratio to 20pc could improve the growth rate and provide employment opportunities to the youth, he said. Promising consultations with traders, the adviser said he had offered them to bring a delegation to him and share their complaints so that they could be resolved. Tarin further said the government wanted to bring back Pakistan's past economic glory when the country was one of the four largest economies in Asia. In the 1960s, “we were counted among economies like China and Japan, when we were economically strong,” he recalled, adding that the government was focusing on human resource capital and small and medium enterprises (SMEs), which would be its top priority going forward. He cited the provision of interest-free loans, skills development courses for young people, agricultural loans, home loans in easy instalments and health cards as steps in this direction. Tarin emphasised that the country could not move forward without empowering its youth, which accounted for 60pc of the population. Stabilization in exchange rate must to overcome inflation, says Shaukat Tarin Advisor to the Prime Minister on Finance and Revenue Shaukat Tarin has stressed the need for stabilising the exchange rate to overcome inflation. "Instability in the exchange rate has increased inflation and the government is trying to lessen its burden on people of low-income group," Radio Pakistan quotes Tarin as saying during an interview in Samaa TV show 'Nadeem Malik Live' on Tuesday. He said the government needed to maintain the rate near to the "real effective exchange rate". He said the declining exchange rate had a huge impact on inflation. Track and trace system to broaden tax net The finance adviser said the track and trace system (TTS) of the Federal Board of Revenue (FBR) will be implemented in various sectors to broaden the tax net, adding technology was being employed for the purpose. Prime Minister Imran Khan had on Tuesday inaugurated the TTS aimed at helping the government to minimise tax evasion and crack down on illicit trade in different sectors. In the first phase, TTS has been implemented in the sugar industry to monitor the movement of sugar from factories in order to check tax evasion. The sugar industry has emerged as the second sector after cigarettes to be brought under the electronic monitoring system. The FBR is planning to bring the beverage, cement, fertiliser, iron and petroleum sectors under this system. In reply to a question about an increase in power tariff, Tarin acknowledged that the International Monetary Fund (IMF) had demanded of the government to change the tariff rate. However, he said that any hike in power tariff by the government would be less than what the IMF had demanded. Replying to another question about tax collection targets, he said the assessment would be made on real assets of the people so that actual tax could be imposed on them. The adviser said net international reserves of the SBP showed that equalisation was taking place on a net basis. "It also shows that your foreign currency reserves are not undergoing a rundown," he added. He stressed that the government was looking to provide respite to the urban middle class, which had been affected badly by the inflation. Pressure on current account deficit The finance adviser explained that the core inflation rate in the country still stood at 7.15 per cent. He said the pressure on the current account deficit was letting people to "psychologically convert goods into dollars, hence increase in the discount rate can stop that process". Responding to a question about grants from Saudi Arabia, he said there were some legal clauses in the KSA agreement draft, which the Law Ministry had vetted and the matter had been virtually settled. Austerity plan for revival of IMF package outlined ISLAMABAD: Adviser to the Prime Minister on Finance Shaukat Tarin and Minister for Energy Hammad Azhar addressing a press conference on Monday.—White Star • Supplementary budget to be introduced • Fiscal adjustment requires cut in uplift funds, increase in tax target, Rs4 per litre monthly hike in petroleum levy • Tarin says govt to ensure parliamentary approval to grant SBP autonomy • IMF wants audit of Covid funds, names of contractors ISLAMABAD: The government on Monday committed to introducing a supplementary budget as part of an agreement with the International Mone­tary Fund (IMF) for a net fiscal adjustment of almost Rs550 billion during the remaining part of the current fiscal year through a 22 per cent cut in development funds, about Rs300bn increase in tax target and a Rs4 per litre monthly hike in petroleum levy on major petroleum products. Making an upfront announcement about ‘five prior actions’ to secure approval of the IMF board for disbursement of about $1.06bn and revival of the Fund programme in January, Adviser to the Prime Minister on Finance and Revenue Shaukat Tarin said the government would also ensure “approval” of parliament to grant autonomy on matters of monetary policy, exchange rate and recruitments to the State Bank of Pakistan (SBP) that would remain answerable to parliament as it is now. Speaking at a joint news conference with Energy Minister Hammad Azhar, Mr Tarin said the government would also get completed the post-facto audit of Covid-related expenditures and make public the beneficial owners of suppliers of vaccines and related procurements as part of the IMF agreement. As such, five prior actions he listed include about Rs350bn worth of general sales tax exemptions through supplementary finance bill, Rs4 per litre increase in petroleum levy every month, autonomy to the SBP, audit of Covid-19 funds and declaration of their beneficial owners and Rs200bn reduction in the Public Sector Development Programme to Rs700bn. About Rs50bn cut has also been imposed on grants. The revenue target has now been set at Rs6.1 trillion instead of Rs5.8tr in the original budget for 2021-22, Mr Tarin said, adding that the Federal Board of Revenue had already collected Rs225bn higher than the target in the first four months of the current fiscal year. The IMF was, however, unimpressed by the revenue collection and wanted implementation of policy actions to remove distortions like different GST rates for various sectors, he added. Earlier in the morning, the IMF said its staff and the Pakistani authorities had “reached a staff-level agreement on policies and reforms needed to complete the sixth review” under the $6bn Extended Fund Facility (EFF). “The agreement is subject to approval by the Executive Board, following the implementation of prior actions, notably on fiscal and institutional reforms,” it added. This will enable disbursement of $1.059bn, bringing total disbursements under the EFF to about $3.027bn. An official said the legislative part of the IMF deal — SBP amendment bill and supplementary finance bill for withdrawal of tax exemptions — would be introduced in parliament next week. Shaukat Tarin said the IMF board meeting would be called after Xmas holidays, most probably on January 12, to approve the agreement and the authorities would have the time until then to complete prior actions and ensure approval of the SBP amendment law by parliament. He said the government would increase the rate of petroleum levy to Rs30 per litre through monthly increase of Rs4 to secure Rs356bn against a budgeted target of Rs610bn which was no more achievable. Without directly naming former finance adviser Dr Hafeez Shaikh and incumbent SBP Governor Dr Baqir Reza, Mr Tarin said the IMF talks had prolonged because “we started the journey from where it was left in March-April with a commitment to withdraw Rs700bn tax exemptions, Rs4.95 per unit increase in electricity tariff and autonomy to the SBP against the constitutional previsions”. “Let bygone be bygone, we have tackled whatever was wrong,” he said while responding to a question about accountability for such tough conditions as some of them were against the Constitution. Mr Tarin said he remained steadfast against increasing taxes and energy tariff like a pyramid because that would have made the industry uncompetitive and affected the common man. He said he also insisted on ‘rationalising’ the SBP law in a manner that it was not seen an outside institution. “The IMF team was in a fix because we had made commitments and got $500 million and it was difficult for them to go back to the IMF board to justify why commitments were made when these were against the Constitution.” The adviser said the team of officials he led was “not experienced” as some people described them unlike ‘experienced teams’ earlier, but they worked hard and “succeeded in major relaxations through give and take”. He said he was able to protect agriculture, tractors, food items, pesticides from sales tax, besides increase in tax rates and slabs for income tax and tax on provident fund. “Instead of Rs700bn worth of fiscal adjustment, we were able to save almost half and brought it down to Rs350bn,” he said. Mr Tarin said he fully supported the SBP independence and its accountability as was for judges and other similar institutions. The central bank should not look like an alien institution and the applicability of accountability through the National Accountability Bureau or the Federal Investigation Agency would be like on it was the prime minister, parliamentarians and judges. Additionally, there would be no monetary and fiscal policy board where the finance secretary used to have a say, but this has now to be replaced with a liaison between the finance minister and the SBP governor. Responding to a question, Mr Tarin said the government would appoint the SBP governor and board of directors who would be completely free in monetary policy decisions, exchange rate adjustments and price determination. The governor and the board would have the powers to appoint deputy governors and the finance ministry would have no role in approving foreign visits of deputy governors and other senior officials. Mr Tarin said the economic growth exceeded the government’s expectations in the first four months of the current fiscal year owing to expansionary fiscal and monetary policies and both the central bank and the government would now tighten them up as the economy had started overheating and such a growth rate was unsustainable. The SBP, he said, had already started mopping up excess money in the market through cash margins and monetary policy that would also slow down inflation. Energy Minister Hammad Azhar said the base power tariff would not be increased for the time being and seasonal winter tariff and industrial support tariff of Rs12.96 for domestic, commercial and industrial consumers would remain protected. The IMF appreciated the government for policy actions during Covid-19 period and as required under the Fund programme, but warned that external pressures had started emerging and needed to be addressed. These include widening of the current account deficit and depreciation pressures on the exchange rate — mainly reflecting the compound effects of the stronger economic activity, an expansionary macroeconomic policy mix, and higher international commodity prices. In response, the authorities have started adjusting policies, including by gradually unwinding Covid-related stimulus measures. Published in, November 23rd, 2021 Pakistan, IMF reach staff-level agreement on steps for revival of package The International Monetary Fund (IMF) and Pakistan reached a staff-level agreement on policies and reforms needed to complete the sixth review under the $6 billion Extended Fund Facility (EFF) which has been 'in recess' since April, the Fund announced in a statement on Monday. The agreement is subject to approval by the Fund's Executive Board, following the implementation of prior actions, notably on fiscal and institutional reforms, the IMF said. The approval of the agreement will make available 750 million in Special Drawing Rights (SDR), equivalent to $,1059m, it added. This would bring the total disbursements under the programmed to $3,027m and help unlock funding from bilateral and multilateral partners, according to the IMF statement. The SDR is a basket of mixed currencies made available to member countries of the IMF. In its statement following discussions with Pakistani officials, the IMF acknowledged the country's progress in implementing the programmed "despite a difficult environment". "All quantitative performance criteria (PCs) for end-June were met with wide margins, except for that on the primary budget deficit," the Fund noted, adding that finalization of the National Socio-economic Registry (NSER) update, adoption of amendments in the National Electric Power Regulatory Authority (Nepra) Act, notification of all pending quarterly power tariff adjustments, and payment of the first tranche of outstanding arrears to independent power producers (IPPs) were "notable" achievements on the structural front. The Fund also acknowledged Pakistan's progress in improving its anti-money laundering and combating the financing of terrorism (AML/CFT) regime. However, additional time was needed to strengthen its effectiveness, according to the statement. 'Strong economic recovery has gained hold' "Available data suggests that a strong economic recovery has gained hold, benefiting from the authorities' multifaceted policy response to the Covid-19 pandemic that has helped contain its human and macroeconomic ramifications," the IMF said. It noted that the tax revenue collection by the Federal Board of Revenue (FBR) had also been strong. "At the same time, external pressures have started to emerge: a widening of the current account deficit and depreciation pressures on the exchange rate — mainly reflecting the compound effects of the stronger economic activity, an expansionary macroeconomic policy mix, and higher international commodity prices." It observed that the government had gradually started to unwind corona virus-related stimulus measures in response. The Fund said the State Bank of Pakistan (SBP) had "taken the right steps" by starting to reverse the accommodative monetary policy stance, strengthening some macro prudential measures to contain consumer credit growth, and providing forward guidance. The SBP had raised its benchmark interest rate by 150 basis points to 8.75 per cent last week as it grappled with surging inflation and uncertainty. The government's policies would help safeguard the positive near-term outlook, the Fund stated, predicting that Pakistan's economic growth rate would reach or go beyond four per cent in the current fiscal year and 4.5pc in FY23. It noted that inflation in the country remained high, adding that it "should start to see a declining trend once the pass-through of rupee depreciation is absorbed, and temporary supply-side constraints and demand-side pressures dissipate". Regarding the current account deficit, the IMF said it was expected to widen in FY22. Discussions between the IMF and government officials also focused on policies to help Pakistan achieve sustainable and resilient growth, according to the statement. "On the fiscal policy front, staying on course on achieving small primary surpluses remains critical to reduce high public debt and fiscal vulnerabilities. Continued efforts to broaden the tax base by removing remaining preferential tax treatments and exemptions will help generate much-needed resources to scale up critical social and development spending." Monetary policy The IMF emphasized that the monetary policy needs to remain focused on curbing inflation, preserving exchange rate flexibility, and strengthening international reserves. As economic stability deepens and the SBP Amendments Act is passed by parliament, the central bank should "gradually advance the preparatory work to formally adopt an inflation targeting regime in the medium term, underpinned by a forward-looking and interest-rate-focused operational framework", the Fund said. It also underscored the importance of reforms in the electricity sector to make it financially viable and tackle its adverse effects on the budget, financial sector and real economy. "In this regard, steadfast implementation of the Circular Debt Management Plan (CDMP) will help guide the planned management improvements, cost reductions, timely alignment of tariffs with cost recovery levels, and better targeting of subsidies to the most vulnerable," it noted. Increased focus was needed to strengthen economic productivity, investment and private sector development, including improving the governance, transparency, and efficiency of the state-owned enterprise (SOE) sector, fostering the business environment, governance, and the control of corruption, boosting competitiveness and exports, promoting financial deepening and inclusion and stepping up to climate change, the IMF said. Commenting on the development, Finance Ministry spokesperson Muzzammil Aslam said the agreement — which was achieved after 45 days of discussions between the IMF and the government — would "remove a lot of uncertainties". Sources had earlier told Dawn that discussions between the two sides had concluded on Friday. The announcement of policy rate by the SBP was the last administrative and policy action in the domain of the economic team and stood accomplished. "Everything is agreed to, ready and finished, except legislative part," the sources said. Officials explained that the government had partially returned to the policy path given up in April 2021, albeit with certain modifications in line with the changed ground situation. The two sides were originally scheduled to conclude the talks on revival of the IMF programme on October 16 but continued face-to-face dialogue until October 28, followed by virtual discussions until last weekend. Adviser to the Prime Minister on Finance and Revenue Shaukat Tarin had conceded last week that five prior actions had been agreed, including State Bank of Pakistan (Amendment) Bill, withdrawal of tax exemptions and an increase in energy tariff. The prior action pertaining to tariff adjustment had already been met for now with a recent Rs1.39 per unit increase in power tariff, while the bills to end tax exemptions and give autonomy to the SBP had been prepared. The next tariff increase would take place by February-March 2022 as the power regulator is still in the process of conducting public hearings on tariff adjustments. SBP to be made autonomous in line with IMF terms • Cabinet clears three crucial bills • State enterprises to be free from ministries’ interference • Withdrawal of corporate income tax exemptions to generate Rs70-140 billion ISLAMABAD: In order to meet IMF conditions for revival of its stalled programme, the federal cabinet on Tuesday cleared for introduction in parliament three crucial bills, including the one allowing unprecedented autonomy to the State Bank of Pakistan to target inflation, rather than economic growth. “We will take these bills to fast-track legislation,” said Finance Minister Dr Abdul Hafeez Shaikh at a news conference after a meeting of the cabinet, adding that relationship with the International Monetary Fund, which had been under a “pause” for about a year, had formally started. He said the IMF board would soon meet to complete the review and its lending to Pakistan would resume immediately. The two other bills approved by the cabinet relate to withdrawal of corporate income tax exemptions (Income Tax Second Amendment Act 2021) to generate Rs70-140 billion in additional revenue with effect from July 1, 2021, and State Owned Enterprises (Governance and Operations) Bill 2021. Dr Shaikh, who was accompanied by Minister for Industries Hammad Azhar, Adviser to the Prime Minister on Reforms and Austerity Dr Ishrat Hussain, the finance secretary and FBR chairman, said the SOEs were operating in the country in a hotchpotch manner and reporting to various ministries and regulators, but now they would be governed by respective boards, free from interference of the ministries. He said the government would appoint boards of directors and the chairmen and chief executive officers of the SOEs would be appointed by the boards instead of secretaries and ministers to bring professionalism to the public sector. Also, these commercial SOEs would be exempted from the application of procurement rules to let them take independent decisions and compete with the private sector through speedy decision-making. The proposed bills would strengthen the country’s institutions and resultantly the economy, the minister said, adding that greater autonomy to the central bank was in line with international standards with the mandate of price control and fighting inflation by adopting exchange rate and monetary policy in an autonomous manner without government’s interventions. Dr Shaikh said the draft law also provided a five-year guaranteed term to the SBP governor instead of the existing three years and surrendered government’s right to borrow from the central bank and instead adopt measures to meet its financial requirements through its own resources. He said the Monetary Policy and Fiscal Coordina­tion Board was being abolished and the federal government would coordinate with the central bank thro­ugh various committees. Responding to questions, the minister and his companions said the governor or the SBP would not remain unaccountable despite full autonomy and would be answerable to parliament where they would submit their reports instead of the federal government. They did not answer when asked what made the government to change its stance on ‘absolute autonomy’ to the SBP which it had been resisting until a few months ago and for almost a decade when Dr Shaikh was finance minister. Finance Secretary Kamran Ali Afzal agreed that “price stability” had not been defined in straight jacket in the law. But Dr Ishrat said inflation targets would continue to be set by the National Economic Council comprising the prime minister and provincial leaders and the governor and central bank would adopt exchange rate and monetary policies on the basis of NEC’s targets and would be judged on that basis. A senior official said submission of the SBP amendment bill to parliament was a prior action required by the IMF for taking up Pakistan’s case for revival of Extended Fund Facility by its executive board. Therefore, the cabinet also waived the requirement of mandatory clearance of the old and disputed bill from the Cabinet Committee on Disposal of Legislative Cases that had already taken up a revised draft ‘reconciled’ by the finance ministry and SBP. Under the SBP amendment bill, the authorised capital of the central bank would be Rs500bn and the SBP board would be empowered to increase the authorised capital through a resolution subject to government’s consent. The paid-up capital of the SBP will be Rs100bn to be made up through issuance of bonus shares by capitalising profits or general reserve or through subscription of shares in cash by the federal government. The board with a prior approval by the government will be able to increase paid-up capital as well. The SBP board led by the governor would be free to define, approve and determine general internal policies and rules of the bank regarding execution of its functions and approve internal rules and formulate and oversee foreign exchange reserve management, strategic investment and risk policy. The board will be also empowered to approve the central bank’s budget, annual reports and financial statements and adopt and monitor SBP’s policies on internal and external audit, compliance, internal controls and risk management. The SBP will not guarantee any loan, advance or investment entered into by the government or its entities. Provided that the existing outstanding debt owed to the SBP in the form of loans, advances or government securities purchased on the primary market, at the time of the enactment of the SBP (Amendment) Act 2021 shall be retired in accordance with the terms and conditions under which such outstanding debts were extended. In compliance with the prohibition of monetary financing under this section, no roll-over or re-profiting of such existing outstanding debt of the governments shall be permitted. The guarantees issued by the SBP to secure the obligations of the government outstanding as at the date of the enactment of the draft law shall not be increased, but can be rolled over in accordance with the terms and conditions under which such outstanding guarantees were issued. The amount of overdraft outstanding against Pakistan Railways shall be converted into long-term debt with duration of eight years and remunerated at market interest rates. The SBP shall not purchase securities issued by the government or, any government-owned entity or any other public entity on the primary market but would be allowed to purchase such securities in the secondary market. The governor and the finance minister shall establish a close liaison with each other and shall keep each other fully informed on all matters which jointly concern the SBP and the Ministry of Finance. The Auditor General of Pakistan may, without prejudice to the autonomy of the bank and the audits conducted by the external auditors, conduct audit of the accounts of the SBP, but such audit will not have concern with the merits of the policy decisions. The governor, board of directors or deputy governor and members of the monetary policy, officers and employees of the SBP would be protected against any suit, prosecution or any other legal proceeding, including for damages “for any act of commission or omission done in exercise or performance of any functions, power or duty”. The governor, deputy governors, directors, members of any board committee and Monetary Policy Committee, officers and employees of the bank shall not be liable in their personal capacity for any act of commission or omission done in their official capacity in good faith and they would also be exempted from the National Accountability Bureau and Federal Investigation Agency. 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