Pakistan on Tuesday (March 21) approved a supplementary grant of around US$330K to prevent an impending default on account of diesel purchase payments to Kuwait, owing to the nation’s efforts to keep total spending within the limits agreed upon with the International Monetary Fund (IMF).
The cabinet’s Economic Coordination Committee (ECC), which also approved the supplementary grant to pay for the diesel, granted an additional US$35K to help partially make up for the area of Gilgit-wheat Baltistan’s deficit.
The two decisions made by the cabinet body highlight the severe fiscal challenges the administration is facing in trying to avert a default in one area without jeopardising others, as reported by the Express Tribune.
According to sources in the finance ministry who spoke to the Express Tribune, the accountant general of Pakistan revenue (AGPR) was verbally told to postpone the clearance of some non-salary invoices for a few weeks in order to free up some cash flow.
In a handout from the finance ministry, it was stated that the Petroleum Division had provided a summary of the credit facility provided by the Kuwait Petroleum Corporation (KPC) against the supply of diesel under a contract with the Pakistan State Oil (PSO) since 2000 to the ECC.
It was also said that the term contract had an annual extension and that the deal had already expired in December.
“In the current situation, this account has witnessed huge exchange losses due to upheaval in the rupee-dollar parity during the last 12 months,” the finance ministry’s statement read.
“Considering the above situation, the ECC approved an immediate technical supplementary grant of Rs27 billion (US$330K) for [the] Kuwait Petroleum Company,” it added.
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As part of an agreement with the IMF, Pakistan is required to reduce spending by the same amount as a supplemental grant or impose additional taxes equal to that amount.
A committee was formed by the ECC to make suggestions for resolving claims for foreign exchange losses incurred as a result of the KPC credit facility, the FE-25 loan guarantee, and Islamic Trade Finance Corporation (ITFC) funding that the PSO had used to finance imports.
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