ISLAMABAD: The windfall gain of $5 billion to $8 billion on account of reduced petroleum oil and lubricants (POL) and commodities prices on the international market has given the government a cushion to pass the benefit on to the consumers.
According to media, Prime Minister Imran Khan can announce a multisectoral relief package on coming Tuesday in the wake of coronavirus outbreak that is going to hit different sectors of the economy.
On Saturday, Adviser to the PM on Finance Dr Abdul Hafeez Shaikh continued his discussion with different stakeholders, including the finance ministry officials, economic advisers and experts, to finalise the salient features of the proposed fiscal package.
Top official sources confirmed to The News on Saturday that the government has decided in principle that it will not seek any additional funding from the International Monetary Fund (IMF) from its allocated additional resources of $50 billion but the IMF will be approached to convince on tax breaks and subsidies under the proposed fiscal stimulus package.
However, the IMF has made it clear to Pakistan that any relief through tax breaks or subsidies should be given through the budget only and any steps that create distortions in the taxation or fiscal system, such as tax exemptions, should be avoided.
When the IMF’s Resident Chief in Pakistan Teresa Daban Sanchez was contacted for comments, she said, “We are working with the Pakistani authorities on a continuous basis to evaluate developments and identify courses of actions”.
Official sources said the Ministry of Finance had estimated that the massive decline in POL prices that tumbled from $55 per barrel to less than $25 barrel as well as the palm oil prices which nosedived more than 40% provided a cushion of $5-$8 billion to Pakistan.
They said if the government passed this benefit fully on to the consumers, the prices of petrol, diesel, electricity and ghee/cooking oil could reduce significantly on the domestic market.
When contacted, Special Secretary Finance Omar Hamid Khan, who is also official spokesman, said the government was working on multisectoral relief package including agriculture, fiscal side, exporters, SMEs and others to protect them from the negative impacts of the coronavirus.
He said the ministry was working on the fiscal package on the directives of the prime minister.
Pakistan’s exports, tax collection, remittances and foreign investment are going to face a major hit because of coronavirus.
Exporters have witnessed cancellation of orders and the government estimates that the exports might face $500 million to $1 billion reductions in March-June period of 2020. So exports might fetch a maximum $20 billion earnings against the earlier target of $24 billion for the current fiscal year 2019-20.
The exporters are expecting a major fiscal stimulus package from the government on account of reduction in tax rates, and release of stuck-up refunds, rebates and incentives on an immediate basis to help them to overcome their losses.
The daily wagers can be provided with financial assistance through the safety net programs such as the Ehsas programme.
The government will also provide special incentives to the construction industry, while the launch of small works schemes through the federal PSDP program is also under consideration.
Although the State Bank of Pakistan (SBP) has slashed its policy rate by 75 basis points bringing it down from 13.25% to 12.5% in its recently announced monetary policy, with decreased POL and commodities prices, the headline inflation would be heading towards single digit within next few weeks so the SBP must move fast based on its argument that it raised the policy rate by adopting a forward-looking approach so this policy must be adopted now when the inflationary pressures are on receding motion.
A federal minister, on the condition of anonymity, commented that when all central banks of the world were fighting against stagflation in the aftermath of coronavirus, the SBP was still fighting headline inflation.