Sub­tle moves to de­flect FBR from re­pay­ing un­paid ex­port re­bates

The Pak Banker - - COMPANIES/BOSS - Rahim Sheikh

THE an­nounce­ment by the Prime Min­is­ter that a ' Ze­roRated' Ex­port Scheme was to be put into place has been seen as ' band aid' on a larger govern­ment-cre­ated prob­lem. The FBR is hold­ing up an un­be­liev­able Rs. 200 bil­lion of cash that be­longs to ex­porters in the form of un­paid ex­port re­bates.

Now get things in per­spec­tive. The zero-rat­ing will cost the govern­ment less than Rs. 9 bil­lion only. The un­paid re­bate is Rs. 200 bil­lion. Get the drift? So the ques­tion re­ally is: does ' zero-rat­ing' mat­ter in the to­tal pic­ture? The an­swer re­ally is not. If Rs. 200 bil­lion of un­paid re­bate was in­vested in govern­ment 'bonds' at 8% (this was the in­ter­est rate of the last bond sell­ing to com­mer­cial banks), this would mean that the ex­porters of Pak­istan should be also paid an­other Rs. 16 bil­lion an­nu­ally. Given that such re­bates have been held for over three years, they are owed an ad­di­tional Rs. 50 bil­lion.

So is this en­tire mat­ter just an­other eye-wash, a move to de­flect from the bad gov­er­nance that plagues Pak­istan's fi­nan­cial affairs. The prob­lems is gov­ern­mentcre­ated, which bears sole re­spon­si­bil­ity for the cur­rent ' cash crunch' mess. So let us take a brief look at three mat­ters. Firstly is the 'cash crunch' faced by the govern­ment. Se­condly, is the cash crunch that ex­porters face. Lastly is the 'cash crunch' that the peo­ple of this coun­try will face in the years to come.

First, the govern­ment. There is no doubt that the busi­ness com­mu­nity of Pak­istan are the main sup­port­ers of this PML Nawaz govern­ment. In re­turn the PML Nawaz rep­re­sents the busi­ness com­mu­nity. It is as sim­ple as that. Now does the busi­ness com­mu­nity pay their taxes? A few multi­na­tion­als and big busi­ness com­pa­nies do, and they do so hon­estly. But the vast ma­jor­ity of traders, es­pe­cially the shop­keeper com­mu­nity are not, legally, pay­ing their full and cor­rect taxes. It is very easy for jour­nal­ists like me to point out ex­am­ples by the dozen. But that is not the point.

The point is that the govern­ment is un­der­tak­ing ma­jor in­fras­truc­tural schemes, and for that it needs money. So it is bor­row­ing from banks in the form of 'junk bonds', bonds that will never be re­paid in cash, but will merely see more and more 'junk bonds' cre­ated to re­pay old money. Yes, for the time be­ing the banks' lend­ing to the govern­ment will have im­pres­sive profit fig­ures. But they are all 'pa­per profit'. The end re­sult will be one, and only one, and that is that a few banks will col­lapse un­der the weight of 'pa­per prof­its'.

Who will be re­spon­si­ble for such an even­tu­al­ity? The an­swer will be the govern­ment, and the bankers, termed 'of­fi­cial clerks' by a World Bank re­port. Who will be the losers? Nat­u­rally the de­pos­i­tors who trust the in­sti­tu­tion of a bank. So with a cash-strapped govern­ment hold­ing up a mas­sive Rs. 200 bil­lion of un­paid 'ex­port re­bates', does get­ting a 'Zero Rated' ex­port regime make sense? The an­swer is that it is all hog­wash.

If this govern­ment was in­ter­ested in find­ing an an­swer to the un­paid ex­port re­bates owed to the ex­porters of Pak­istan, then there is just one an­swer, and let this news­pa­per put for­ward a pro­posal to solve this dif­fi­cult prob­lem. But be­fore we make the pro­posal let us dwell on the rea­son the FBR gives for not pay­ing ex­port re­bates.

They claim that those with lo­cal sales can­not be paid re­bates. Fair enough. The ques­tion is that does not lo­cal Sales Tax cover this por­tion of the in­puts? Just where did they buy their in­puts from? Even in this case it is the FBR that is to blame.

So how does the FBR pay back the Rs. 200 bil­lion owed to ex­porters? Given that banks are not lend­ing to se­ri­ous busi­ness houses be­cause of the cash crunch cre­ated by 'junk bonds', the fact is that a ma­jor por­tion of the cash of busi­ness houses is cur­rently be­ing utilised by govern­ment it­self. If govern­ment can pay banks up to 8% in an­nual in­ter­est, it goes with­out say­ing that this in­ter­est on the cash owed to ex­porters must also be paid back to them.

How do we see this be­ing done in op­er­a­tional terms? Sim­ple. Let the FBR cre­ate ' Ex­port Re­bate Bonds' that have a State Bank of Pak­istan guar­an­tee, and let busi­ness house sell th­ese bonds to banks and let the govern­ment re­pay the ac­tual as well as the in­ter­est. In this way the busi­ness house will have cash to use in an en­vi­ron­ment where cash is hard to get from banks be­cause of the ' junk bond' cri­sis. On the other hand the FBR will man­age to fur­ther post­pone re­pay­ing stuck up ex­port re­bates to the tune of Rs. 200 bil­lion.

This is the only vi­able way for­ward, and one that can man­age to get ex­port busi­nesses to move for­ward. We also know that tex­tile and leather ex­porters, be­cause of the cash crunch, are ex­pe­ri­enc­ing fall­ing ex­ports. This will, prob­a­bly, man­age to re­verse this trend. Given this sit­u­a­tion to an­nounce a ' Zero Rated Ex­port Regime' with­out find­ing an an­swer to stuck up ex­port re­bates is surely an­other bluff.

But in the long-term there is a need for the govern­ment to cre­ate a sit­u­a­tion whereby there is a ceil­ing on govern­ment bor­row­ing from com­mer­cial banks. Govern­ment must not be al­lowed to go wild in its bor­row­ing. Af­ter all it is play­ing with the fu­ture of its cit­i­zens by, in­di­rectly, mak­ing them poorer. Banks must also face SBP leg­is­la­tion whereby they are lim­its to pro­vid­ing ' junk bond' loans to govern­ment.

This is, to be hon­est, a so­phis­ti­cated fraud. To an ac­coun­tant happy to bal­ance books with­out a care of where the money comes, or goes to, reeks of an ir­re­spon­si­ble bend of mind. The banks just can­not be al­lowed to play havoc with the sav­ings of de­pos­i­tors. The govern­ment can­not be al­lowed to bor­row with­out some mod­icum of re­spon­si­ble gov­er­nance. It is time to leg­is­late ap­pro­pri­ate fi­nan­cial laws. But then who will bell this set of wild cats?

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