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Inflation, state-owned entities, floating debt risks to fiscal outlook: finance ministry



ISLAMABAD: The Ministry of Finance (MoF) has highlighted policy implementation, higher sovereign guarantees and poor performance of state-owned entities (SOEs) as potential risks and uncertainties that could impact the country’s fiscal outlook while record inflation rates posed heightened risks to the country’s external stability.

In its latest Fiscal Risk Statement (FRS) 2023-24, the ministry has noted that federal government exposure to SOEs, in the form of outstanding stock of loans and guarantees, stood at 9.7pc of GDP in FY21, and public and publicly guaranteed debt stock reached 78.4pc of GDP at the end of FY22.

It said the external debt, which entailed currency risk, constituted about 37pc of the total public debt. The fixed-rate debt portfolio has decreased in recent years and currently stands at only 26pc of total public debt, increasing refinancing risks. Furthermore, the average time to maturity of domestic debt was 3.6 years for FY22.

The FRS 2023-24 focuses primarily on macroeconomic shocks, debt and guarantees, climate and natural disasters, SOEs and public-private partnerships (PPPs) given that these represent the most important fiscal risks facing the government. Among them, policy implementation and SOE have been highlighted as high risks.

Amid challenges emanating from global factors — supply chain issues, inflationary trends and prolonged Russia-Ukraine war — the report said the hikes in the central bank’s policy rate to fight inflation continue to weigh on economic activity.

The inflation rate in Pakistan has been volatile in recent years, influenced by various factors such as currency devaluation, energy, and food prices in the global market.

“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”.

The pace of economic activity during FY23 has been significantly constrained due to several factors, such as demand compression measures, losses in agricultural production caused by floods, uncertainty regarding the resumption of the IMF programme, a difficulty in meeting external financing needs and maintaining foreign exchange reserves, it said.

“The inflation outlook has deteriorated, and there is a heightened risk to external stability,” the FRS said, adding that the uncertainty surrounding the future adjustment path in energy prices is the main upside risk to the inflation outlook. However, a potential moderation in international commodity prices may contribute to a reduction in inflation while the government aims to reduce the fiscal deficit by implementing measures such as expanding the tax net, rationalising subsidies, and promoting economic growth.

“External debt constitutes 40.8pc of total public debt, which may make the government’s fiscal position vulnerable in the face of high current account deficits, low foreign exchange reserves, and a weakening exchange rate,” the ministry said. A lack of foreign exchange reserves coupled with large external payments has resulted in liquidity issues and destabilised the exchange rate and domestic interest rates, further increasing the burden of external loans that are measured in local currency, it pointed out.

Ongoing fiscal deficits require refinancing of the government’s maturing debt while raising additional debt to fulfil the fiscal shortfall. A high level of short-term debt creates potentially significant refinancing challenges during periods of slower economic growth, higher fiscal deficits, and/or lower investor confidence.

Another source of fiscal risk is reflected in Pakistan’s exposure to floating debt, making it vulnerable to increase in borrowing rates that may arise due to unfavourable economic conditions. The share of a fixed rate in domestic debt was 26pc and around 70pc in external debt.

The Ministry of Finance is working with the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) to develop domestic debt capital markets and increase the participation of other entities such as insurance companies and pension funds.

The stock of guarantees stood at 4.5pc of GDP in FY22. Guarantees issued against commodity operations are not included in the estimated stock now in annual limits imposed on new issuances, on the basis that the loans are secured against the underlying commodity and are essentially self-liquidating.

The outstanding stock of commodity operations was Rs1.134 trillion at the end of June 2022. A fiscal risk arises from the fact that a significant part of commodity operations lacks underlying collateral due to issues like theft of commodities, unpaid subsidies, and wastage during storage.

Pakistan’s SOE universe comprises a total of 204 SOEs, of which 85 are categorised as commercial enterprises. Overall, SOE revenues in FY19 were approximately Rs4tr, while their book value of assets was Rs19tr.

The government guarantees to SOEs have increased in FY21 relative to FY16. While commercial SOEs are expected to be a source of revenue for the federal government, in the form of taxes and dividend payments, net inflows have been negative.

One of the key drivers of SOE fiscal risk arises from the absence of a clear and comprehensive framework for public sector obligations (PSOs), which would allow SOEs to be properly compensated for undertaking quasi-fiscal activities. The erosion of the SOE’s profitability, capacity to invest and financial viability arising from such activities may not become fully apparent for years.

“Overall, SOEs provide essential services in several sectors to many vulnerable consumers, making the complete elimination of quasi-fiscal burdens on SOEs politically and economically infeasible,” the ministry said.

Published in Dawn, September 2nd, 2023


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Pakistanis among 40 nations facing backlash for reporting rights abuses



ISLAMABAD: Pakistan is among the 40 countries across the world where over 220 individuals and 25 organisations faced threats and retaliation from the state and non-state actors for cooperating with the United Nations on human rights, reveals a new report of the UN Secretary-General.

The report titled, ‘Cooperation with the United Nations, its representatives and mechanisms in the field of human rights’ covering the period from May 1, 2022 to April 30, 2023, was recently presented at the Human Rights Council (HRC) session in Geneva. The session will continue till Oct 6.

The report says human rights defenders and other civil society activists are increasingly under surveillance and continued to face legal proceedings, travel bans and threats and they are given prison sentences for cooperating with UN’s human mechanisms.

The UN secretary-general said that the organisation has a collective responsibility to prevent and address intimidation and reprisals, guided by the principle of “do no harm” and a victim- and survivor-oriented approach.

Civil society activists face legal proceedings, jail sentence, travel bans and threats for cooperating with UN’s rights mechanism, says report

“Considerable progress has been made in shedding light on and addressing the issue, including through initiatives on civic space under ‘Call to Action for Human Rights’, the UN chief said.

“The UN is committed to strengthening its efforts to prevent reprisals, including through clear zero-tolerance messages and by awareness-raising among staff, member states and civil society interlocutors. We will further strengthen our response to reprisal cases and ensure appropriate systems are in place to identify, document and report on incidents, including those in the annual reports. We will reinforce the dissemination of information on what reprisals are and how to report incidents, in particular for UN bodies where reprisals are repeatedly reported,” he added.

“A global context of shrinking civic space is making it increasingly difficult to properly document, report and respond to cases of reprisals, which means that the number is likely much higher,” said Ilze Brands Kehris, Assistant Secretary-General for Human Rights, in her presentation to the HRC on Thursday.

“Despite ongoing efforts, regrettably, the number of reported acts of intimidation and reprisal by state and non-state actors remains high and their severity is very concerning,” she said.

“The global trends documented this year are also similar to those identified in previous reports, but with new emerging tendencies,” the UN official said.

Among the growing trends noted in the report is the increase in the number of people either choosing not to cooperate with the UN due to concerns for their safety, or only doing so if their identities remain anonymous.

Victims and witnesses in two-thirds of the countries listed in the report requested anonymous reporting of reprisals, compared with one-third in the last year’s report.

Most of the people who reported facing reprisals for their cooperation with the Security Council and its peace operations, as well as with the UN Permanent Forum on Indigenous Issues did so on the condition of anonymity.

Algeria, Afghanistan, Andorra, Bahrain, Bangladesh, Belarus, Burundi, Cameroon, China, Colombia, Cuba, Democratic Republic of the Congo, Djibouti, Egypt, France, Guatemala, India, Indonesia, Iran, Iraq, Israel, Saudi Arabia, Libya, Maldives, Mali, Mexico, Myanmar, Nicaragua, the Philippines, Qatar, the Russian Federation, South Sudan, United Republic of Tanzania, United Arab Emirates, Uzbekistan, Vietnam, Venezuela (Bolivarian Republic of), Yemen, and the State of Palestine are also on the list alongside Pakistan.

Published in Dawn, October 2nd, 2023


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Trump business empire under threat as New York fraud trial opens



Former US president Donald Trump will appear in a New York court on Monday as a civil fraud trial against him and two of his sons kicks off, with the case threatening the Republican’s business empire as he campaigns to retake the White House.

In Monday’s case, Judge Arthur Engoron has already ruled that Trump and his sons Eric and Don Jr committed fraud by inflating the value of the real estate and financial assets of the Trump Organization for years.

New York Attorney General Letitia James is now seeking $250 million in penalties and the removal of Trump and his sons from management of the family empire.

Trump said late Sunday he planned to be present for the start of the trial on Monday morning.

“I’m going to Court tomorrow morning to fight for my name and reputation,” the 77-year-old wrote on his Truth Social platform. “This whole case is a sham!!!”

In addition to this civil case, Trump also faces several major criminal proceedings in the months ahead.

He is scheduled to appear before a federal judge in Washington on March 4 on charges of trying to overthrow the results of the 2020 presidential election won by Joe Biden.

Trump will then be back in New York state court, this time on criminal hush money charges, and later in a Florida federal court, where he is accused of mishandling classified documents after leaving office.

Finally, he will also have to answer to state charges in Georgia, where prosecutors say Trump illegally tried to get the southern state’s 2020 election results changed in his favor.

In the New York civil case, Engoron ruled that Trump, his two eldest sons, and other Trump Organisation executives lied to tax collectors, lenders, and insurers for years in a scheme that exaggerated the value of their properties by $812 million to $2.2 billion between 2014 and 2021.


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At least 38 injured in police station fire in Egypt’s Ismailia



A huge fire broke out at a police headquarters in the Egyptian city of Ismailia on Monday, injuring at least 38 people, according to local media.

No fatalities were immediately reported but the building is staffed by soldiers at all hours and hospitals were placed on alert.

Footage on local media showed smoke rising from the entirely blackened multi-storey building.

The cause of the blaze, which broke out at the headquarters of the Ismailia Security Directorate before dawn, is not yet known.

Of 26 wounded who were transferred to a local hospital, 24 had suffered from “asphyxiation” and two from burns, local media reported citing the health ministry.

Twelve more were treated at the scene.

The health ministry deployed 50 ambulances to the scene, which were joined by military emergency services including two planes, according to state media.

Deadly fires are a common hazard in Egypt, where fire codes are rarely enforced and emergency services are often slow to arrive.

In August 2022, a fire caused by a short circuit killed 41 worshippers in a Cairo church, prompting calls to improve the country’s infrastructure and the response time of the fire brigade.

In March 2021, at least 20 people died in a fire at a textile factory in the capital, while in 2020, two hospital fires killed 14 people.


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