‘No haircuts or write-offs’: Govt mulling talking to bilateral partners for debt restructuring, says Dar

Published June 10, 2023
Finance Minister Ishaq Dar (C) addresses a post-budget press conference in Islamabad on Saturday. — Finance Minsitry photo
Finance Minister Ishaq Dar (C) addresses a post-budget press conference in Islamabad on Saturday. — Finance Minsitry photo

Finance Minister Ishaq Dar stated on Saturday that following the budget process the government is contemplating discussions with bilateral partners regarding debt restructuring.

In a post-budget press conference in Islamabad, he emphasised that the relief would not encompass “haircuts or write-offs”, and affirmed that payments to multilateral creditors will be made promptly.

“As far as Paris Club rescheduling, we have no such plan on our menu. We will not go for rescheduling multilateral debt. We will make the payments on time and when they become due. I don’t think it is a dignified way to go and tell them that we cannot pay. That means you’re declaring yourself that you are not in a position [to pay],” he added.

The minister had on Friday unveiled the budget for the fiscal year 2023-24 with a total outlay of Rs14.46 trillion, including a projected GDP growth rate of 3.5 per cent.

Talking about bilateral debt at the presser, Dar clarified that while requesting a debt restructuring or write-off was not on the table, negotiations could be pursued for extending the repayment period. This option existed and could be explored after the budget process, he added.

He reassured that the current circumstances, such as the impact of Covid-19 and natural disasters, did not necessitate an unusual approach. “Backloading the principal and focusing on debt servicing could be considered for bilateral debt rescheduling.”

Dar insisted that there were no plans to approach multilateral or development institutions to request debt rescheduling, emphasising Pakistan’s commitment to meeting its obligations.

The minister emphasised that there was no requirement for rescheduling domestic debt, expressing concerns about its impact on the government’s ability to function effectively.

Dar pointed out that the previous government had revoked the practice through amendments, which resulted in commercial banks benefiting and an increase in the policy rate. He stressed the need to review this and consider corrective actions.

The minister stated that he did not believe Pakistan had any issues concerning domestic debt, highlighting the country’s status as a sovereign nation. Regarding foreign debt, he emphasised the importance of using external resources within affordable limits and projecting future payments conservatively.

Dar expressed that if this approach had been implemented years ago, Pakistan would not have faced its current challenges. He deemed it “stupidity” to reschedule domestic debt at this time and hoped that the right time for such a move may come.

‘Pakistan economy out of vulnerability phase’

He also said that Pakistan had faced a “deep and steep” economic vulnerability, which it had successfully overcome, resulting in a halt to “any further decline”.

He underlined the government’s aim to reverse all economic losses, adding “our first objective is to go back to achieve 2017 economic indicators”.

He insisted that the proper and transparent implementation of the PSDP would facilitate the attainment of a 3.5pc GDP growth rate with ease.

He emphasised that it should be a national goal to steer Pakistan towards the path of development.

The minister shared the government’s aim to bring about an agricultural revolution, underlining that the country possessed significant untapped potential in this sector.

Dar highlighted that debt servicing constitutes one of the largest portions of the current year’s budget. He said efforts would be made to reduce this burden and reverse the prevailing trend.

Dar emphasised the importance of starting somewhere, stating that with economic growth, positive changes will follow.

He highlighted that employment opportunities would increase, leading to the correction of macroeconomic indicators, a reduction in inflation, and the creation of more jobs. Consequently, the policy interest rate would also decrease, he added.

The minister stated that there was a customary practice of forming two committees within the Federal Board of Revenue (FBR) — one for business-related issues and the other for technical matters.

He said that the FBR chairman will obtain his approval on the matter, and the committees will be formed by Monday. “The purpose of these committees is to address any missed aspects and provide an opportunity for individuals with complaints or genuine recommendations to be heard and considered by the government.”

Dar described the budget as being different from traditional budgets, emphasising its focus on progress linked to economic growth.

The minister highlighted that ad-hoc relief measures had been announced consistently, insisting that the budget should not create an impression that something unprecedented has been done for the first time.

‘Country will not default’

The minister said that there had always been a plan to make Pakistan self-sufficient and self-reliant.

He firmly stated that Pakistan will not default, adding that those who talked about default had themselves made mistakes and were complicit in the economic losses incurred by the country.

The minister stated that dignified nations should take proactive measures to prevent economic defaults, noting that Pakistan had also followed the same approach.

Dar stated that the government had prioritised the ninth and tenth reviews of the International Monetary Fund (IMF). He mentioned that he had requested the IMF to expedite the ninth review and initiate the tenth review, but acknowledged that the IMF was an independent body and the decision rested with them.

Nevertheless, Dar highlighted that the country had alternative options available. He expressed the government’s efforts in working diligently towards the ninth review and expressed hope for the disbursement of payments.

‘Amount allocated for general elections in budget’

Responding to a question, Dar clarified that no government members had made any statements regarding the delay of elections. He explained that if any coalition members made such statements, it was within their right to express their views.

Dar emphasised that the budget allocation for general elections was made based on consultations with the Election Commission of Pakistan. He stated that the government could not dictate its coalition partners and prevent them from making statements.

He said that a party mentioned had not made any unconstitutional remarks, and the Constitution itself provides provisions for such situations. Dar affirmed that funds had been earmarked for elections and stressed the importance of holding elections on time.

Regarding statements made by leaders of other parties, Dar mentioned that the government would engage in discussions with them, reiterating that the government had no ill intentions regarding the matter.

More reforms needed in power sector

Regarding subsidies, the minister acknowledged that the government had provided numerous subsidies. Specifically, he mentioned that over Rs1900 billion was allocated solely to the power sector.

He underlined the need to address and improve this sector, highlighting the efforts made thus far. He also noted that the power sector had been a significant “stumbling block” in the talks with the IMF, but it remained an area of focus.

Furthermore, he mentioned the emphasis placed on renewable green energy and clarified that no new subsidies were being introduced in this sector.

The minister addressed the circulation of another report regarding the withdrawal of edible oil, clarifying that no such withdrawal has taken place.

When asked about the government’s promised targeted subsidy for motorists regarding fuel, the minister clarified that the plan involved charging vehicles above 800cc at a higher rate, while those below 800cc would receive a discount of Rs50 on fuel.

He mentioned that although the plan was feasible, it faced challenges in terms of the “current lending and borrowing process we are undergoing”.

However, he said that this matter was unrelated to the budget.

GSP Plus status

Dar highlighted that Pakistan had been recognised as the 24th largest economy in the world by global institutions during his party’s previous tenure. He reiterated the government’s strong commitment to boosting exports and mentioned that timely payments were made by Pakistan.

He stated that the government prioritised the export sector. He acknowledged the overall contraction of business, resulting in a growth rate of 0.29pc.

Regarding the GSP Plus status, he noted the involvement of human rights and political influence, mentioning that the commerce ministry and Foreign Office were proactively handling the matter. He expressed hope for the extension of the GSP Plus status for the country.

Minimum wage

Dar also clarified that the minimum wage has been increased from Rs25,000 to Rs32,000 and not Rs30,000 as was mentioned in the booklets distributed to officials and reporters.

He also highlighted that the pension amount was increased from Rs10,000 to Rs12,000, as well as “some allowances”.

When asked about cases where companies failed to comply with the rule and given an example that private security guards were paid as low as Rs10,000, Dar emphasised that civil society must also play its role.

The minister added that in such a case, a complaint should be forwarded to the relevant authorities. “I will make sure that it is taken up by the interior ministry”, he asserted.

While noting that it was the nation’s collective responsibility to ensure the welfare of everyone, Dar said the government had “no tool” to monitor who was adhering to the minimum wage guidelines and who was not.

Budgetary proposals

Unveiling the budgetary measures on Friday, Dar had announced the government’s proposal to increase the salaries of government employees by 30pc-35pc and 17.5pc in the pensions of retired persons.

There would be a raise of 35pc in the salaries of employees from grades 1-16 and 30pc to grades 17-22 employees aimed at increasing their purchase power.

Besides that, the government proposed to fix the minimum pension at Rs 12,000 and raised the minimum monthly wage from Rs 25,000 to Rs 32,000.

The government has budgeted total current expenditure at Rs13.3tr for FY24, which is 53pc higher than last year’s budgeted figure.

Of that, defence expenditure constitutes Rs1.8tr, 15.4pc higher than last year’s budget, making up 1.7pc of GDP.

The government has projected a fiscal deficit of Rs7.57tr (7.1pc of GDP) for the upcoming year, which is the highest in history, surpassing the Rs6.4tr recorded during the current fiscal year. This will be partially offset by an anticipated Rs650bn provincial cash surplus, bringing the consolidated deficit to Rs6.9tr or 6.5pc of GDP.

Interest payments, or debt servicing, budgeted for FY24 have risen a whopping 85pc from last year to Rs7,303bn — accounting for 55pc of total current expenditure — making it the single largest expenditure of the government.

The tax collection target for the FBR has been set at Rs9.2tr, which is 23pc higher than last year’s target.

Following last year’s actual high inflation at 28.2pc, the government set a target of 21pc for the next fiscal year.

Even though the finance minister insisted that all conditions of the IMF had been met and that a staff-level agreement over the ninth review can be signed at the earliest, the budget documents indicated no inflows from the IMF for the remainder of this year.

The external borrowing projections for the next fiscal are 114pc higher than the actual Rs3.2tr of inflows recorded this year. The government expects a total of $5bn in inflows from Saudi Arabia, including $3bn in time deposits and $2bn fresh deposit, compared to about $2bn received this year.


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