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Govt to further limit forex purchase

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ISLAMABAD:

In a major development, the federal government and central bank, on Monday, decided to limit the amount of foreign currency purchased per person and capped the outflow of remittances to $50,000 annually, aimed at reducing the speculations-driven high dollar value in the open market.

It has also been decided that the Federal Investigation Agency (FIA) will be used against those foreign currency dealers involved in speculative currency trading, according to the decisions taken in a meeting between Finance Minister Ishaq Dar and the Governor State Bank of Pakistan (SBP), Jameel Ahmad.

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A senior government functionary told the Express Tribune that the per day currency purchase and outward remittance limit has also been cut by half, to $5,000 with a maximum annual cap at $50,000.

The central bank will be issuing a notification shortly to amend the existing exchange companies’ regulations and give effect to these decisions. Finance Minister Ishaq Dar had asked for the meeting with the governor of the central bank after the rupee-dollar value remained over Rs230 to a dollar in the open market. The open market rate was also providing an opportunity to commercial banks to keep the interbank rate in the range of Rs222, far higher than the real inflation adjusted value of the rupee, estimated to be below Rs200 to a dollar.

The official said, during the meeting, SBP Governor Jameel Ahmad also agreed with Dar about the real value of the rupee being below Rs200 to a dollar. The governor, however, was not available for comments.

The dollar, at the interbank, fell by 26 paisas and closed at Rs221.66. The rupee was traded at Rs236 to Rs238 to a dollar in Peshawar, a city bordering Afghanistan and a source of currency smuggling. Last week, Dar sent the Prime Minister’s Special Assistant on Revenue, Tariq Pasha, to Peshawar to find out what was behind the high value of the dollar in the city.

The constant downfall of the local currency also eroded the gains that could be made from the reduction of global crude oil prices, forcing people to pay the highest rates in the Pakistan’s history.

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The senior functionary told the Express Tribune that, during the meeting, it was decided that the maximum limit per person, per day to buy foreign currency, in the form of cash or outward remittances from all exchange companies, will be reduced from $10,000 (or its equivalent in other foreign currencies) to $5,000.

Also, the maximum limit per person per calendar year to buy foreign currency, in the form of cash or outward remittances, will also be reduced from $100,000 (or its equivalent in other foreign currencies) to $50,000.

These decisions may help ease pressure on the country’s foreign exchange reserves, currently standing at $8.9 billion, despite bringing foreign trade to a halt, except the import of essential items.

The central bank is examining every letter of credit (LC) valuing over $100,000 for import due to a scarcity of reserves. Once inflows from Saudi Arabia, China and the World Bank start pouring in, however, the position of the foreign currency reserves may improve.

As fines and the suspension of licenses of a few foreign currency dealers were not helping, it was decided that the FIA would be activated against them. The central bank, however, has yet to take a firm action against the commercial banks involved in currency manipulation.

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Last month, the FIA arrested four suspects during a crackdown on illegal money changers and hundi-hawala dealers across the country. Three of the suspects were arrested from the Chaman district of Balochistan and one was arrested from Karachi.

Exchange companies purchase foreign currency from customers via outlets spread across Pakistan. This foreign currency, in cash, is subsequently exported out of Pakistan on consignment basis through Cash in Transit (CIT)/ Security Companies.

During the last fiscal year, exchange companies exported $3.1 billion in equivalent foreign currencies and then the US dollars were sold to commercial banks through Nostro Accounts.

In a parliamentary hearing, the central bank had said in September that exchange companies had purchased $4.4 billion from local clients and $2.2 billion were sold in the interbank in the previous fiscal year. An official handout from the finance ministry stated that Dar acknowledged the regulatory role of the SBP in bringing back stability to the exchange rate and showed satisfaction over the current monetary policies being undertaken.

Dar further stated that if the monetary policy always remains in consonance with the fiscal policy, sustainable growth and stability in the economy can be achieved.

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According to the finance ministry, the SBP governor said that the government’s continued administrative efforts coupled with the SBP’s policy measures resulted in the rupee value and exchange rate volatility becoming stable.

Dar and the SBP governor also discussed the fiscal and monetary measures being undertaken for economic stability, revival and growth of the country. The coordination of fiscal and monetary policy was also discussed in the meeting.

The SBP governor also apprised the finance minister about the different macroeconomic policy initiatives taken in line with the objectives of fiscal policy to achieve sustainable growth. He said that the SBP is fully committed to supporting the process of economic revival as per the policies of the present government and its mandate statutory.

Published in The Express Tribune, November 8th, 2022.

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Privatisation fails to meet objectives

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ISLAMABAD:

The success of Pakistan’s privatisation programme has remained limited to only generating $11 billion in sale proceeds, as the country could not achieve the post-privatisation objectives of improving efficiency and competition, says a new independent study.

The findings come amid the International Monetary Fund’s (IMF) push for approval of the State-Owned Enterprises (SOEs) Bill to improve efficiency and management of public sector firms. The finance ministry has requested the holding of a joint session of parliament to approve the law, after the bill was rejected by the Senate.

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In a study titled “Public Sector Enterprises (PSEs) in Post-Privatisation: Evidence from Pakistan”, authors Naseem Faraz and Dr Ghulam Samad concluded that the key objectives of the privatisation programme had remained unfulfilled. The study has been published in the Journal of Applied Economics.

“Our main finding is that the performance of firms has improved in the post-privatisation period but (it is) statistically insignificant,” said the authors. Privatisation has been carried out with the motive of reducing the fiscal burden and increasing the efficiency of the inefficient PSEs. Since 1991, the sale of PSEs has raised revenues of Rs649 billion, or $11 billion.

The $11 billion has been worked out by applying the exchange rate of the year when a privatisation transaction took place.

Pakistan is one of the developing countries where privatisation of a large number of PSEs has taken place, but the post-privatisation effect is yet to be analysed. Second, rather than focusing on one or a few sectors, the study considers all the privatised PSEs.

The study showed that the performance of a few firms improved in the post-privatisation period but it largely remained negative.

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“In particular, the privatised PSEs in energy, cement and chemical sectors do not show positive gains in the post-privatisation period. However, the telecom and textile sectors have experienced a positive change in the performance of the privatised PSEs.” “Similarly, the results also showed that the efficiency of firms did not increase significantly.”

The authors said that according to their assessment through the Key Informant Interviews, the malfunctioning of regulatory environment led to the market failure that eventually resulted in market exploitation.

Regulations and regulators are captured by the market, bureaucrats, judiciary and politicians. An effective regulatory environment does not exist to force the privatised entities to have higher efficiency and develop a competitive environment.

Government intervention in the regulatory sphere is dominant. Every regulatory authority has a board member from the government. This practice is clearly not aligned with the privatisation regulations.

The government intervention (secretary sitting as a board member) creates conflict of interest by having ownership and management together.

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The privatised banking and energy companies have failed to bring in the benefits of sell-off, according to the study. The process of privatisation and rewards distribution favoured mainly the buyers, while the government faced risk and cost.

According to the authors, the privatised companies earned a higher average rate of return on assets compared to their fully government-owned counterparts, as measured by the total net profits-to-sales ratio.

The higher returns on assets suggest a favourable effect of privatisation. On the contrary, the profitability or productivity measure (net profits-to-sales ratio) was relatively higher for the privatised firms but it was statistically insignificant compared to the period when the firms were fully government owned.

“The privatised firms experience a mild increase in productivity compared to their pre-privatisation period. This difference in performance is not statistically significant.”

Privatisation also did not enhance the efficiency of the privatised firms in terms of increase in sales. It suggested that the efficiency improvement was merely coming through the reduction in cost of production.

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The study identified weak regulators as a reason for the failure to achieve the privatisation objectives.

“Unfortunately, the regulator Pakistan Telecommunication Authority (PTA) did not influence PTCL and other related entities to work in a regulated market environment.”

The role of the PTA is limited to overseeing the determination of market prices. PTCL’s privatisation was not a fair deal. It lost $800 million and also did not improve the market in terms of competition.

“The government sold 26% shares to Etisalat and also transferred the management, which is against the rule, which requires 51% shares,” emphasised the authors.

The government had agreed that Etisalat would pay $2.6 billion by making upfront payment of $1.4 billion and the remaining $1.2 billion in nine installments of $33 million each. For the deal, the government received only $1.8 billion and the remaining $800 million was never paid.

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“The monopoly of the telecom sector persisted despite the privatisation and drove away billions of dollars.”

The privatisation of KESC, now KE, also did not achieve the objectives. Though the main reason of the privatisation was to get rid of the loss-making enterprise, unfortunately the government is paying more after privatisation, according to the study.

Published in The Express Tribune, November 24th, 2022.

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Tractor maker faces legal action over fraud

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KARACHI:

The Federal Tax Ombudsman (FTO) has ordered legal action against a tractor manufacturing company as the Federal Board of Revenue (FBR) reported a fraud of more than Rs10 billion.

According to FBR sources, the tractor company has allegedly committed a fraud of over Rs10 billion under the previous government’s initiative to provide tractors at a lower cost to the farmers.

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As part of the subsidy scheme, the government gave billions of rupees to the deserving and underprivileged farmers for the purchase of tractors.

Sources said that the tractor manufacturer had claimed sales tax refunds on fake documents and flying invoices. The FBR then referred the case to the FTO.

They added that the FBR recommended the application of the Benami Transactions Act while taking legal action against the tractor manufacturer.

“The respondent company misused pay orders of the complainant by issuing bogus and fake sales tax invoices to other persons for obtaining fraudulent adjustment and refund,” a notification of the FTO office read.

The FBR has initiated legal proceedings against the owners and dealers of the tractor manufacturing company for the recovery of money obtained through fraudulent means.

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The Directorate General of Intelligence and Investigation, Inland Revenue has been tasked with investigating the fraud and tax evasion case.

Published in The Express Tribune, November 24th, 2022.

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G7 looking at Russian oil price cap of $65-70

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BRUSSELS:

The Group of Seven nations (G7) are looking at a price cap on Russian sea-borne oil in the range of $65-70 per barrel, a European Union (EU) diplomat said on Wednesday.

Views in the EU are split, with some pushing for a much lower price cap and other arguing for a higher one. The G7, including the United States, as well as the whole of the EU and Australia, are slated to implement the price cap on sea-borne exports of Russian oil on December 5.

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“The G7 apparently is looking at a $65-70 per barrel bandwidth,” the EU diplomat said.

“Poland, Lithuania and Estonia consider this too high because they want the price set at the cost of production, while Cyprus, Greece and Malta find it too low, because of the risk of more deflagging of their vessels, which might mean the G7 has found a good middle-ground,” the diplomat said.

Some 70%-85% of Russia’s crude exports are carried by tankers rather than pipelines.

The idea of the price cap is to prohibit shipping, insurance and re-insurance companies from handling cargos of Russian crude around the globe, unless it is sold for no more than the maximum price set by the G7 and its allies.

Because the world’s key shipping and insurance firms are based in G7 countries, the price cap would make it very difficult for Moscow to sell its oil – its biggest export item accounting for some 10% of world supply – for a higher price.

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At the same time, because production costs are estimated at around $20 per barrel, the cap would still make it profitable for Russia to sell its oil and in this way prevent a supply shortage on the global market.

Brent crude front-month future oil prices initially fell to $86.54 from $87.30 on the news.

Published in The Express Tribune, November 24th, 2022.

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