Five weeks after congratulatory messages by Prime Minister Imran Khan about reduction in sugar prices, the government on Wednesday allowed import of additional 800,000 metric tons of sugar and 300,000 metric ton of wheat to arrest their soaring prices.
The Economic Coordination Committee (ECC) of the Cabinet took the decisions while also setting up a committee to approve the second bailout package of $36 million for the Roosevelt Hotel in the last four months.
According to a handout issued by the Ministry of Finance, it also decided to relax foreign investment policy, allowing people to make acquisitions and set up subsidiaries and holding companies abroad.
The ECC approved a proposal to lower taxes and allow import of 300,000 metric tons of raw sugar by millers and 500,000 metric tons of white sugar by the Trading Corporation of Pakistan (TCP).
It approved reduction in withholding income tax on commercial import of white sugar and raw sugar from 5.5% to 0.25% and removal of Value Added Sales Tax on import of white sugar. The reduction in taxes will incentivize the sugar mills for import of 300,000MT raw sugar up to June 30.
The ECC further directed the TCP to import white sugar up to 500,000 MT, if and when needed during the current season, said the ministry’s statement.
With the fresh approvals, the total sugar import by the PTI government would surge to 1.1 million metric tons which is equivalent to the quantity that it had allowed to export after coming into power.
The Ministry of Industries presented a summary before the ECC for import of sugar to reduce upward pressure on prices of sugar and to buffer up carry-over stocks before the arrival of the fresh crop. The decision has been taken five weeks after the PM congratulated his team over reduction in prices.
“MashaAllah sugar is selling at a national average of Rs81 per kg vs Rs102 per kg a month back. I want to congratulate my team for bringing the sugar prices down through a multi-pronged strategy”, tweeted Imran Khan on December 12.
“The recent price hike indicates that the market has gone into a speculative mode owing to high prices in the last four months of the 2019-20 season and anticipated shortage towards the end of the current season due to non-availability of carryover stocks,” admitted the Ministry of Industries.
In the last season, the production of sugar was 4.9 million metric tons and in the current season, the estimated production is 5.5 million tons, according to estimates presented in the meeting.
The government of Punjab has “anticipated shortage of sugar towards the end of current season in October or November 2021”. Punjab cane commissioner said despite 20% high production this year, the Punjab government was anticipating 300,000 metric tons of sugar.
The crushing is in process and the clear position of stocks can only be gauged at the end of the crushing activity in April this year. The ECC was informed that after lowering taxes, the imported sugar would cost around Rs80 per kg. In the open market, the sugar was available in the range of Rs100 to Rs115 per kg.
The ECC also approved import of 300,000 metric tons of wheat, taking the total wheat quantity to be imported by the PTI government to 2.5 million metric tons. During the past five years, Pakistan has exported 5.5 million metric tons of wheat, including a significant quantity by the PTI government.
The Ministry of National Food Security had sought permission to authorize the TCP to make immediate arrangements for import of 300,000 MT of wheat through a tendering process as ratified by the cabinet.
It had nominated Pakistan Agricultural Storage and Services Corporation (Passco) as a recipient agency for the imported wheat to replenish its stock as needed.
The ECC also approved another summary by the Ministry of National Food Security and Research regarding allocation of 60,000 MT of wheat for Food Department, Balochistan from Passco’s existing stock on the subsidized rate as per previous practice.
The ECC decided to set up a committee headed by the Planning Commission deputy chairman to consider a second bailout package of $35.6 million for the Roosevelt Hotel, New York. The hotel has recently been attached by the British Virgin Island court in a Reko Dek judgment case.
Four months ago, the ECC had also approved $142 million to address immediate financial requirements of the Roosevelt Hotel and $13 million as annual carrying cost till such time the federal government finalizes lease agreement with a joint venture partner.
The Ministry of Finance had arranged $142 million as loan from the National Bank of Pakistan with interest of $5.9 million per annum. The PIA had sought additional $35.6 million including $13 million annual carrying cost.
The ECC was informed that the Roosevelt Hotel has experienced extreme cash flow constraints since March last year in the wake of the coronavirus pandemic.
The hotel has been shut down since last one month and the government has repaid $106 million debt in Oct last year. In addition to that $13.7 million has also been paid to the 426 employees of the hotel as severance cost. Another $18 million have been earmarked for paying pension liabilities of the hotel employees.
The ECC approved a supplementary budget of 310,000 British Pound or Rs67.5 million for making payment to a British law firm M/s Gurenica International that had been engaged by Pakistan to pursue money laundering cases against MQM founder Altaf Husain and murder case of Imran Farooq.
The ECC also approved a draft policy on equity investment abroad by residents /firms, which caters to the needs of the business community.
Only those resident individuals and companies are allowed to make equity-based investments abroad without prior central bank approval that do not face any money laundering and terror financing related investigation.
The authorized banks have been allowed to remit up to a maximum $25,000 in a calendar year on behalf of resident individuals for acquisition of listed securities abroad approval.
The maximum shareholding by an individual in a single company under this general permission shall not exceed 1% shares of the investee company at any time.
A general permission has been granted to the resident employees of subsidiaries of foreign companies in Pakistan to participate in their share option plans, subject to remittance of $50,000 in a calendar year. The maximum shareholding under this category should not exceed 3% of the investee company.
A new concept of sweat equity is being introduced to allow resident individuals to acquire shares of companies abroad against their efforts and services without any monetary considerations.
The residents of Pakistan including firms and companies are allowed to make equity-based investment in entities abroad on repatriable basis, with prior permission of the central bank and on fulfillment of certain conditions.
It has been decided to allow the exporters to remit up to 10% of their average annual export earnings of the last three years or $100,000, whichever is higher, to establish subsidiaries without prior approval of the State Bank of Pakistan (SBP).
To facilitate venture capitals and startups, the ECC approved a proposal to remit $10,000 abroad for setting up a holding company by a resident company without prior consent of the central bank.
The permission is applicable for only those companies that have annual revenues below Rs2 billion and its equity below Rs300 million as per latest audited accounts.
Currently, the central bank has a mandate to give permission for up to $10 million investment while cases for higher than this threshold are approved by the ECC.
The SBP was of the view that the existing limits do not cater the business needs of member companies of the Pakistan Business Council, software exporters, venture capital firms and startups.
Conversion of NHA loans
The ECC allowed a nine months period to the National Highway Authority (NHA) to prepare commercially viable business plans. The NHA’s debt restructuring plan would be linked with the outcomes of the business plan to be prepared by an international consultant.
The outstanding mark-up accrued will be capitalized in June 2020 and there will be a moratorium on further accrual of mark-up till finalization of business plan. The Ministry of Finance will no more deduct markup from the NHA’s budget.