 "Pakistan flag")
Pakistan's Ministry of Finance (MoF) has described policy implementation, higher sovereign guarantees and poor performance of state-owned entities (SOEs) as potential risks and uncertainties that could affect the country's fiscal outlook while record inflation rates posed risks to the external stability of the country, Pakistan-based Dawn reported.
In its latest Fiscal Risk Statement (FRS) 2023-24, Pakistan's Ministry of Finance has stated that federal government exposure to SOEs in the form of the outstanding stock of loans and guarantees was at 9.7 per cent of Gross domestic product (GDP) in FY21 and public and publicly guaranteed debt stock reached 78.4 per cent of GDP at the end of FY22. Pakistan's Ministry of Finance noted that external debt was about 37 per cent of the total public debt. The fixed-rate debt portfolio has witnessed a decline in recent years and it currently stands at 26 per cent of total public debt, increasing refinancing risks, Dawn reported.
The Fiscal Risk Statement (FRS) 2023-24 focuses mainly on macroeconomic shocks, debt and guarantees, climate and natural disasters, SOEs and public-private partnerships (PPPs) considering that these represent the most important fiscal risks that are faced by the government. Among these, policy implementation and SOE have been described as high risks.
Amid challenges emanating from global factors like supply chain issues and Russia Ukraine conflict, the report said that the rise in the central bank's policy rate to tackle inflation continues to burden economic activity.
Meanwhile, on September 1, the Pakistan caretaker government hiked petrol price by PKR 14.91 per litre and high-speed diesel (HSD) price by PKR 18.44 per litre, Dawn reported.
Also Read
The petrol price is now at PKR 305.36 per litre and HSD at PKR 311.84 per litre, the Ministry of Finance said in a post on X (formerly Twitter) after midnight. No revision was specified in the rates of kerosene or light diesel oil.
The price increase comes on the heels of an already massive hike on August 15 when the interim government raised fuel prices by up to PKR 20 per litre. That jump in petroleum prices had come after similar hikes by the previous government on August 1, according to Dawn.
The price hike is based on existing tax rates and import parity prices, mainly due to currency depreciation and a slight rise in international oil prices. The Pakistani rupee on Friday continued to extend losses, sliding another PKR 1.09 against the US dollar in the interbank market.
It closed at a record low of PKR 305.54. Since the induction of the caretaker set-up, the Pakistani rupee has shed 4.6 per cent. In August, the Pakistani rupee lost 6.2 per cent.
In recent years, the inflation rate in Pakistan has been volatile, influenced by various factors like currency devaluation, energy, and food prices in the global market.
The report said, "The Pakistani rupee has experienced significant depreciation in recent years, influenced by various risk factors such as trade imbalances, external debt, political instability, and global economic conditions," according to Dawn.
It said that the pace of economic activity during FY23 has been constrained due to various factors like demand compression measures, losses in agricultural production due to floods, uncertainty regarding the resumption of the International Monetary Fund (IMF) programme, and difficulty in meeting external financing needs and maintaining foreign exchange reserves.
The FRS said, "The inflation outlook has deteriorated, and there is a heightened risk to external stability," adding that the uncertainty with regard to the future adjustment path in energy prices is the main upside risk to the inflation outlook. However, a potential moderation in international commodity prices could help in reducing inflation while the government aims to reduce the fiscal deficit by announcing measures like expanding the tax net, rationalising subsidies, and promoting economic growth.
Pakistan's Ministry of Finance said external debt is about 40.8 per cent of total public debt, which could make the government's fiscal position vulnerable in the face of high current account deficits, low foreign exchange reserves, and a weakening exchange rate, according to Dawn.
A lack of foreign exchange reserves coupled with large external payments has led to liquidity issues and destabilised the exchange rate and domestic interest rates, further increasing the burden of external loans.
Ongoing fiscal deficits need refinancing of the government's maturing debt while increasing additional debt to fulfil the fiscal shortfall. A high level of short-term debt creates potentially significant refinancing challenges during times of slower economic growth, higher fiscal deficits, and/or lower investor confidence.
The outstanding stock of commodity operations stood at PKR 1.134 trillion at the end of June 2022. A fiscal risk arises as a significant part of commodity operations lacks underlying collateral due to issues such as theft of commodities, unpaid subsidies, and wastage during storage.
Pakistan's SOE universe has 204 SOEs. Among these, 85 are categorised as commercial enterprises. Overall, SOE revenues in FY19 were approximately PKR 4 trillion and their book value of assets was PKR 19 trillion.
One of the key factors behind SOE fiscal risk arises from the absence of a clear and comprehensive framework for public sector obligations (PSOs), which would permit SOEs to be properly compensated for carrying out quasi-fiscal activities, Dawn reported.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
