Finance Minister Muhammad Aurangzeb claimed on Wednesday that the International Monetary Fund (IMF) is 'expected' to approve Pakistan's $7 billion programme in September, though he refrained from specifying a new date.
In his first public appearance after the IMF removed Pakistan from its August 30th board meeting agenda, the finance minister sought to reassure the public that progress is still on track despite the recent setback. "We are fully engaged with the IMF and moving in the right direction," said Aurangzeb during the Senate Standing Committee on Finance meeting. He added that the board meeting is anticipated to take place in September but did not announce a specific date.
The finance minister did not provide reasons for the government's failure to secure the $7 billion loan by August 30th, despite earlier public assurances. Senator Saleem Mandviwalla, Chairman of the Senate Standing Committee on Finance, voiced concerns about the lack of transparency, suggesting that the government might be withholding information about the IMF negotiations. "People suspect that the government is not giving full disclosure, but I hope there is no truth in it," remarked Mandviwalla.
"The staff-level agreement has already been achieved, and we expect the board meeting to happen in September," Aurangzeb reiterated. Pakistan and the IMF reached a staff-level agreement on July 12th for the $7 billion Extended Fund Facility (EFF). Aurangzeb had previously stated that the board would meet before the end of August to approve the case.
Typically, the IMF takes four to six weeks to approve a programme, but Pakistan has been unable to secure the necessary stamp of approval, a critical step to meet its $26.4 billion external debt repayment obligations for this fiscal year. The delay stems from Pakistan's failure to secure timely commitments from Saudi Arabia, the United Arab Emirates, and China for rollovers of $12 billion in cash deposits and $3.9 billion in Chinese commercial loans. Additionally, Pakistan has yet to obtain $2 billion in additional financing commitments from bilateral or multilateral creditors to satisfy IMF conditions.
Governor of the State Bank of Pakistan (SBP), Jameel Ahmad, addressed the standing committee, stating, "In our view, there is no external financing gap, and our needs are fully met with the help of planned rollovers." When questioned about the $12 billion cash deposit rollovers, the governor deferred to the finance ministry for a response.
Criticism was also directed at the government for imposing Rs1.8 trillion in additional taxes and increasing electricity prices by up to 51% to secure the IMF deal, yet failing to convince lenders to refinance the maturing debt.
The SBP governor also briefed the standing committee on an alleged Rs70 billion money laundering case involving the import of solar panels and the plan to introduce new currency notes.
In November of last year, tax authorities uncovered a Rs70 billion money laundering scheme involving the import of solar panels, with funds transferred to Switzerland and Singapore via five domestic commercial banks. "We have imposed Rs208 million in penalties on the banks for their role in money laundering," said SBP Deputy Governor Dr Inayat Husain. However, Senator Mohsin Aziz criticised the penalties as insufficient, stating they were not even equal to the transaction costs of the Rs70 billion money laundering operation.
The FBR had earlier informed the standing committee that Askari Bank, Meezan Bank, Faysal Bank Limited, JS Bank, and Dubai Islamic Bank were used to launder money overseas through heavy cash transactions. Askari Bank alone saw Rs15.7 billion deposited by 83 depositors in cash.
"This is trade-based money laundering," stated Amjad Zubair Tiwana, the then-chairman of the Federal Board of Revenue (FBR), while briefing the committee on the alleged Rs70 billion laundering scheme. The investigation revealed that the funds were transferred to countries like Switzerland, Singapore, and the UAE under the guise of imports from China. Over Rs16.5 billion was funneled to the UAE and Singapore alone. The FBR also uncovered that five major commercial banks facilitated the laundering through large cash transactions, with some accounts receiving over Rs10 million in a single deposit, categorising them as "high-risk" for money laundering.
The standing committee expressed dissatisfaction with the SBP's response and decided to establish a sub-committee to further investigate the matter.
New currency notes
The SBP governor stated that there are no plans to withdraw the Rs5,000 denomination currency note, noting that its value is now significantly lower compared to other regional currencies. While there has been a longstanding demand to withdraw these notes to curb corruption and black money, Senator Shibli Faraz, leader of the opposition in the Senate, reiterated the call for their removal.
As of the end of May, central bank data shows that 990 million Rs5,000 notes were in circulation, amounting to Rs4.95 trillionthe highest value among all denominations. Additionally, Rs3.2 trillion is in circulation via 3.2 billion Rs1,000 notes, and Rs820 billion through Rs500 notes. The SBP governor informed the standing committee that all existing denomination notes will be replaced with new designs by the end of the year. He also announced the introduction of a new polymer denomination note.
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