The government is considering currency hedging

ISLAMABAD:

Finance and Revenue Minister Shaukat Tarin floated the idea of ​​seeking the support of commercial banks and international financial institutions to hedge against risks arising from the depreciation of the rupee.

The proposal came as the government wanted to reduce the currency risk for foreign-funded projects due to the weakening of the rupee against the US dollar.

Tarin came up with the idea while chairing a meeting of the Executive Committee of the National Economic Council (Ecnec), which met recently to consider Punjab’s arterial road improvement scheme.

The meeting was informed that the sponsoring agency of the project should plan to reduce the foreign exchange risk for projects receiving foreign aid.

The chairman of the committee called for engaging banks/commercial funds and international financial institutions to get their support and advice to hedge against risks from the depreciation of the rupee.

The Ministry of Planning informed Ecnec about the Punjab Roads Improvement Project, recalling that it was reviewed by the Central Development Working Group (CDWP) during its meeting held on November 8, 2021.

He recommended approval of the project by Ecnec at a total cost of 129.94 billion rupees ($773.20 million), including foreign aid of 115.78 billion rupees ($688.92 million) to the condition of coming up with an approved Punjab government toll policy and details. annual operating and maintenance (O&M) budget and expenditures over the past five years.

It approved a criterion for the O&M budget as well as projections for the next five years.

The Government of Punjab has confirmed compliance with the above CDWP decisions. The Ministry of Planning has submitted a few proposals for review by the ECNEC.

He recommended that the project be submitted for review by Ecnec at a total cost of 129.94 billion rupees ($773.20 million), including foreign aid of 115.78 billion rupees ($688.92 million) with the directive that the Government of Punjab would ensure the implementation of the toll policy/framework approved by the Provincial Development Task Force.

The project would be financed to the tune of 14.16 billion rupees from the Punjab government’s own resources, 64.97 billion rupees (386.60 million dollars) from the Asian Development Bank (ADB) and 50.81 billion rupees ($302.32 million) by Asian Infrastructure. Investment Bank (AIIB), the ministry said.

He proposed that the repayment of the loan should be borne by the sponsoring agency (the government of Punjab).

All road rehabilitation projects funded by development partners would only be processed if operation and maintenance expenses were covered by toll/revenue generation charges, the ministry recommended.

During the discussion, the Chairman of ECNEC remarked that it would be very important to establish a mechanism for O&M expenses after the completion of the project.

It was emphasized that the sponsoring agency should establish the O&M mechanism from the outset for all such projects to ensure subsequent maintenance work.

The creation of an O&M fund was also suggested to finance the estimated expenses.

Ecnec reviewed a summary submitted by the Ministry of Planning titled “Punjab Arterial Roads Improvement Scheme”. He endorsed the proposal that the Punjab government should set up an asset management fund, into which all toll collection would be deposited directly, and the fund should be used exclusively for road operation and maintenance.

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