Pakistan plans to lower electricity costs to boost manufacturing, says finance minister: Aims to diversify funding with Panda bond

Pakistan is planning to lower electricity costs as part of a broader plan to bring relief to manufacturers and increase exports, in a move that comes shortly after reaching an agreement to unlock more cash from the International Monetary Fund (IMF), reports Bloomberg.

The government plans to soon make an announcement to lower electricity tariffs, Finance Minister Muhammad Aurangzeb said in an interview on the sidelines of the Boao Forum in China on Thursday. That goes along with other efforts to lower financing costs and taxation burdens to help the manufacturing sector boost output and overseas sales.

“Fundamentally, the DNA of the economy has to change to make it export-led,” Aurangzeb said. “On the energy side, we are working under the prime minister’s leadership to bring the tariffs down and the prime minister is going to make an announcement around that in the coming days,” the Bloomberg report added.

Electricity bills have tripled for some people in Pakistan over the past few years, which has hurt consumption and made manufacturing less competitive regionally.

Prime Minister Shehbaz Sharif’s plans to reshape the tattered economy received a boost Wednesday when the IMF agreed to provide $2.3 billion to Pakistan in two separate loans as it seeks to recover from a dollar shortage that brought the nation to the brink of collapse in 2022.

The government is currently putting together a budget that broadens the tax base by including sectors such as real estate, retail and agriculture, Aurangzeb said. That could allow officials to reduce the burden on the manufacturing sector, which has been paying disproportionately high taxes, he said. The State Bank of Pakistan has already dropped its key policy rate to 12 per cent from 22 per cent last April, but unexpectedly this month held its benchmark rate. Aurangzeb said that while policy rates are the purview of the central bank, he sees more room for them to come down later this year.

“Given where the headline inflation is, where the core inflation is, I do expect that during this calendar year we’ll see rates coming down further,” he said.In the fourth quarter, Pakistan plans to launch its first Chinese yuan-denominated bond in the range of $200 million to $250 million to fund climate-related projects, Aurangzeb said.

“We are actively pursuing this initiative and aim to launch and issue the inaugural bond within this calendar year. We have appointed CICC as our adviser and are working closely with the Asian Infrastructure Investment Bank (AIIB) and the Asian Development Bank (ADB) for credit enhancement. In doing so, we are following the Egyptian model to some extent.”

While Pakistan is already heavily indebted to China’s development banks for infrastructure projects, it’s important for the country to diversify its funding bases beyond the US, Europe and Islamic sukuk, he said. “It is about time that we now tap the second-largest and deepest capital market in the world,” Aurangzeb said, this is why our focus is on the inaugural Panda bond.”