Heavy agenda awaits ECC meeting on 16th

Published December 14, 2020
A view of the Economic Coordination Committee (ECC) meeting on Nov 16. — PID/File
A view of the Economic Coordination Committee (ECC) meeting on Nov 16. — PID/File

ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet, expected to meet on Wednesday, would be taking up a heavy agenda, including $200 million rupee-linked offshore bonds, revised markup rates on federal loans for provinces and public sector entities, the Rs739 billion Karachi Transformation Plan (KTP) and the first phase of the rationalisation plan for federal subsidies.

Informed sources told Dawn that newly appointed Finance Minister Dr Hafeez Shaikh had been assured by the prime minister at a weekend meeting that the Revenue Division would be restored to his portfolio. As a result, the twice postponed ECC meeting was being fixed for Wednesday (Dec 16).

The meeting will take up at least 8-point agenda. One of them related to technical supplementary grants (TSG) for projects of the Islamabad Capital Territory Administration after transfer of some crucial responsibilities from Municipal Corporation Islamabad. Another pertains to Pakistan’s contributions to international organisations, like United Nations Population Fund, Partners in Population and Development (PPD) and International Planned Parenthood Federation — Family Planning Association of Pakistan (IPPF-FPAP) for three years i.e FY2018-19 to FY2020-21 and outstanding contribution to World Health Organisation (WHO).

The sources said the ECC would approve the launch of Pakistani rupee-linked offshore bonds by International Finance Corporation (IFC) worth about $200m. They said the Ministry of Finance, State Bank of Pakistan and the Securities and Exchange Commission of Pakistan had completed the consultations for the offshore bond launch.

$200m offshore bonds, revised markup rates on federal loans, Rs739bn KTP among matters to be taken up

The ECC is also expected to approve a revised relending policy 2020 for federal loans to provinces, corporations and autonomous bodies. This comes just a week after the finance ministry notified final markup rates for cash development loans to provinces, loans to local bodies, financial and non-financial institutions and other corporations and capital outlays of the federal government in commercial departments.

Last week, the finance ministry notified 6.62pc markup rate per annum for FY2017-18, 11.53pc for FY2018-19 and 12.20pc for FY2019-20. As per the Re-lending Policy 2016 in vogue, for provincial governments, re-lending rates were at the actual rate but for the federal government’s departments, rates were 9pc, autonomous bodies 12pc and DFIs 9pc, respectively.

The revised policy envisages that re-lending policy should accurately reflect the changes in the borrowing cost of the government, exchange risk coverage (ERC) and an in-built fiscal incentive to encourage repayment culture by borrowers. The average cost of external borrowing of the federal government for the last five years was 3.6pc while Pak rupee depreciated by 9.1pc against the dollar during the same period.

The summary to the ECC now seeks the foreign loans be relent to the federal government’s departments, autonomous bodies and DFIs on the same terms and conditions at which these have been borrowed, like provincial governments, with some administrative cost of 0.25pc to be applied on time over the maturity period of loans. Two per cent penal interest would be charged on the amounts that remain unpaid for 30 days after due time.

The proposed Re-lending Policy 2020 is based on four key considerations: it should reflect changes in borrowing cost of the government, variations in the exchange rate, reduce risk of the federal government and pass on actual rates to borrowers for transparency.

Another key item on the agenda of the ECC would be the first phase of rationalisation for subsidies following a recent presentation to the federal cabinet showing the cost of all existing, coming, due and hidden subsidies and contingent liabilities and transfers at about Rs5.2 trillion.

A recent assessment by a team led by Dr Waqar Masood Khan estimated total subsidies of about Rs2 trillion per annum. It was explained that large amounts of past investments, loans, guarantees and uncovered borrowings also posed actual and potential loss to the government in the absence of adequate returns. As such, total stock of such liabilities and subsidies by the end of FY2020 was put at Rs.5.2 trillion, almost one-fourth of domestic debt.

The sources said a part of the first phase of rationalisation plan had already been set to motion in the shape of reduced return on equity in case of public sector power plants, including hydropower and nuclear and Gencos.

The plan proposes that subsidy on electricity to low-income consumers should be provided through Ehsaas programme, beginning from the Islamabad Electric Supply Company. The subsidy to industries should be targeted through elimination of industrial support package of Rs3 per unit with effect from July 1, 2021. Calculation of arrears and settlement of claims with industries will be finalised up to June 30, 2020. This is expected to reduce the subsidy by about Rs75bn.

Published in Dawn, December 14th, 2020

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