NEWS COVERAGE PERIOD FROM JAN 27 TO FEB 02, 2020
PAKISTAN’S DEBT SURGES BY 40PC IN 15 MONTHS
Khaleeq Kiani Updated February 01, 2020
ISLAMABAD: With around 40 per cent increase in Pakistan’s public debt and liabilities in 15 months, the government on Friday conceded major violations of the Fiscal Responsibility and Debt Limitation Act (FRDLA) for massively exceeding debt acquisition limits.
In its debt policy statement laid before the parliament, the ministry of finance noted that total debt and liabilities that stood at Rs29.879 trillion at the end of the fiscal year 2018 crossed Rs41.489tr at the end of September 2019, showing an increase of Rs11.6tr or 39pc.
At the end of the fiscal year 2019, the total debt and liabilities were reported to have increased by about 35pc or Rs10.344tr to touch Rs40.223tr.
The report said the FRDLA required that the federal government take measures to reduce federal fiscal deficit and maintain total public debt within prudent limits thereof. As such, it was required to limit the federal fiscal deficit excluding foreign grants to 4pc of gross domestic product during the three years, beginning from the financial year 2018-19 and maintaining it at a maximum of three and a half per cent of the GDP thereafter.
“The federal fiscal deficit (excluding grants) was recorded at Rs3,635 billion or 9.4pc of GDP during FY 2018-19, thus, remaining higher than the threshold of four per cent,” said the debt policy statement.
In a statement laid before parliament, finance ministry admits to debt limit violations
The ministry, however, justified this due to a series of factors, most of them emanating from its policies. It said the one-off factors, which were not expected to carry over into FY 2019-20, contributed around 2.25pc of the GDP towards federal fiscal deficit. These included delay in renewing telecom licences, delay in sale of envisaged state assets and weaker than anticipated tax amnesty proceeds contributed around 1pc of the GDP. A shortfall in the transfer of State Bank profits contributed an additional 0.5pc of the GDP.
Profit of the State Bank of Pakistan (SBP) witnessed a steep decline during FY 2018-19 as the SBP incurred heavy exchange rate losses on its external liabilities. Payments of accrued interest on account of re-profiling of the SBP borrowing at end June 2019 also contributed 0.75pc of GDP in federal deficit.
In addition, the finance ministry said some other factors were beyond the control of the fiscal authorities, which contributed to higher than budgeted federal fiscal deficit during FY2018-19. These included a sharp rise in domestic interest rates and exchange rate depreciation (that escalated the debt servicing burden), legal constraints on the revenue side and an overall slowdown in the economy resulted in lower than budgeted revenue collection.
The policy statement said the law also required the government to ensure that within a period of two financial years, beginning from the fiscal year 2016-17, the total public debt shall be reduced to 60pc of the estimated GDP by end June 2018.
“However, total public debt to GDP ratio reached 72.1pc while total debt of the government to GDP ratio was 66.5pc. Total public debt and total debt of the government as percentage of GDP stood at 84.8pc and 76.6pc, respectively at end June 2019, thus, increasing further during the FY 2018-19,” the finance ministry conceded.
Apart from fiscal deficit, it said, unprecedented revaluation loss on account of currency depreciation and build-up of liquidity buffer contributed significantly towards the increase in debt to GDP ratio during FY 2018-19.
The ministry also put on the record that total debt and liabilities increased by 86.3pc of GDP at the end of FY18 to 94.3pc of GDP at the end of September 2019. It said the government’s domestic debt increased by Rs6.234tr or 38pc in 15 months (end-June 2018 to end-September 2019). It said the government domestic debt that stood at Rs16.416tr at end-June 2018 increased to Rs20.73tr by end-June 2019 and reached Rs22.65tr at end-September 2019.
Government’s external debt during the 15-month period also increased by 36pc or Rs2.8tr to Rs10.598tr from Rs7.796tr. External liabilities on the other hand increased by 160pc to Rs1.6tr by end of September 2019 from Rs622bn in June 2018.
The finance ministry, however, said it fulfilled the limit on new sovereign guarantees. It said the law required the government not to issue new guarantees for any amount exceeding 2pc of GDP in any financial year and “during FY2018-19, the government issued new guarantees including rollovers amounting to Rs489 billion or 1.3 percent of GDP”.
Pakistan’s External Debt and Liabilities (EDL) represent debt and liabilities of public as well as the private sector. The EDL part that falls under government domain is the debt which is serviced out of consolidated fund and owed to International Monetary Fund (IMF) whereas remaining includes liabilities of central bank, debt of public sector entities, private sector and banks.
“EDL was recorded at $106.3 billion by end June 2019, registering an increase of $11.1bn compared to an increase of $11.8bn recorded a year earlier. One half of the increase in EDL was due to rise in SBP liabilities in the form of deposits placed by bilateral partners (Saudi Arabia, the UAE, Qatar),” the ministry said, adding “these deposits only provide balance of payments support, add to foreign currency reserves and do not come as an extra resource in the budget”.
Short-term external public debt maturities as percentage of official liquid reserves stood at 159pc at the end of June 2019 compared with 81pc at the end of June 2018. The higher proportion of external public maturities falling in a year compared with the level of official liquid reserves resulted in an increase in this ratio. Around 35pc of total public debt stock was denominated in foreign currencies, exposing public debt portfolio to exchange rate risk.
Published in Dawn, February 1st, 2020
DOZEN LAWS TO BE AMENDED TO MEET FATF REQUIREMENTS
Khaleeq Kiani Updated February 01, 2020
ISLAMABAD: Pakistan on Friday decided to introduce major amendments to at least a dozen of its laws over the next six months to remain in continuous compliance with requirements of the Financial Action Task Force (FATF).
The decision was taken at a meeting of the National Executive Committee (NEC) — the country’s highest body on money laundering and matters related to the FATF — presided over by Adviser to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh.
The meeting was also attended by Minister for Economic Affairs Hammad Azhar, who heads the National FATF Coordination Committee of civil and security institutions, Communications Minister Murad Saeed and heads of relevant ministries and national institutions, according to a statement issued by the Ministry of Finance.
The meeting finalised a plan for compliance with FATF standards by June 2020 and targets were set for further legislation and procedural upgradations by various agencies and institutions.
It was agreed that about 12-13 laws and sub-ordinate legislations would have to be amended by June this year to complete the overall legal framework in line with the standards of the FATF. On the basis of this legal framework, Pakistan’s performance would be judged, also to be supported by the International Monetary Fund, for full compliance in the next plenary of the FATF in October.
Anti-Money Laundering and Foreign Exchange Regulation Act cleared by Senate committee
This will be in addition to the Anti-Money Laundering and Foreign Exchange Regulation Act which was cleared by the Senate Standing Committee on Finance on Friday and would now formally go through the customary passage by parliament.
Informed sources said the top in the list of new legislations would be the Anti-Terrorism Act that was already pending with parliament, followed by the Mutual Legal Assistance Act for exchange of legal cooperation among various countries.
The sources said the United Nations (Security Council) Act of 1948 would be fully adopted by Pakistan in its updated form under which punishment for terrorist entities and individuals proscribed by the UNSC would be enhanced to Rs200 million and 10-year rigorous imprisonment from its existing fine of just Rs1 million. The Criminal Procedure Code would also be amended to meet international standards.
Also, the Companies Act of 1984 would be amended to provide enabling provisions for compliance with FATF standards.
In addition, a number of sub-ordinate legislations would be upgraded to enable the Securities and Exchange Commission of Pakistan (SECP) and other federal and provincial agencies to cover the activities of their respective areas.
The meeting also decided that about 20,000 remaining non-profit or non-governmental organisations would be further scrutinised over a period of one year —with a target of screening of 25 per cent NPOs each quarter — in coordination with the federal and provincial agencies and regulators. This will lead to creation of a national registry of all the NPOs and NGOs operating in any of the four provinces, Azad Jammu and Kashmir and Gilgit-Baltistan or the federal territory. As such, only the scrutinised NPOs and NGOs would then be allowed to raise public funds or collect donations etc.
The updated laws would also empower the Federal Board of Revenue (FBR), the SECP and Ministry of Finance to regulate chartered accountants and related professions, Pakistan Post and National Savings under a supervisory board.
The meeting was told that consultants funded by the World Bank had provided enabling rules for sectoral regulators which would have real time interface to trigger any suspicious transactions or activities and report to the Financial Monitoring Unit.
These laws would provide enabling legal framework to bring all the unregulated sectors of economy under a proper regulatory framework in line with FATF standards. The FBR would be legally empowered to be a regulator for real estate sector, gems and jewellery, diamonds and precious stones.
Likewise, the Ministry of Law and the Pakistan Bar Council would be legally empowered to play the role of regulator for lawyers, legal advisers and law firms. Similarly, chartered accountants, cost and management accountants, financial consultants and all those relating to accounts groups would come under the regulatory domain of the SECP.
An official statement said the meeting was informed about the steps taken by various civil and security agencies to check money laundering and positive outcome achieved so far. An official told Dawn that Dr Shaikh also apprised the meeting of his interactions with world’s leading financial institutions and leaders during his recent visit to Davos who were appreciative of Pakistan’s robust progress over a short period of time.
The meeting discussed measures to make Pakistan’s presence at the coming plenary of the FATF in Paris on Feb 16-21 and agreed to further coordinate integrated efforts to achieve positive outcome, the statement said. The meeting appreciated the support provided by the friendly countries in Pakistan’s efforts to comply with FATF action plan and stressed the need for aggressive coordination with such friends for further cooperation.
Published in Dawn, February 1st, 2020
NEWS COVERAGE PERIOD FROM JAN 20 TO 26, 2020
GROWING EXPORTS IN A DOLLAR-STARVED ECONOMY
Mohiuddin Aazim January 20, 2020
Pakistan earned an additional $354 million in exports in July-December 2019 as foreign exchange earnings during this period rose to $11.53 billion from $11.18bn a year ago. This translates into an average monthly increase of $59m.
This is unacceptable. Prime Minister Imran Khan and our powerful establishment are unhappy. Mr Khan has instructed the Ministry of Commerce to ensure that a higher growth target be achieved in the next six months at every cost.
Unless exports grow by $200-300m a month from now onwards, a further cut in the trade deficit through a reduction in imports will not be sustainable. There are two reasons for this: first, a massive reduction in imports has already started hurting industrial and import revenue growth; and second, there is not much room for the further tightening of import tariffs.
Our trade tariffs are already far higher than those in regional countries. The State Bank of Pakistan (SBP) has acknowledged this fact in its first quarterly report for the current fiscal year.
If the trade deficit has to fall further — and it has to fall to keep the current account balance and foreign exchange reserves in shape — then that has to come from a mix of a surge in exports and a slip in imports. We also need to remember that the prevalence of higher import tariffs, particularly on non-essential goods, continues to discourage foreign direct investment. They also annoy our trade partners negotiating fresh deals with us.
We need to let raw material imports increase to achieve higher exports
Pakistan managed to cut the import bill by $4.79bn to $23.16bn in July-December 2019 from $27.95bn a year ago. That means it saved an average of $798m on monthly imports. This is optimal in our context as a steeper decline in imports in the future will make the task of reversing the declining trend in industrial activity almost impossible. In July-October 2019, the large-scale manufacturing output already receded by 6.5pc on a year-on-year basis.
Now the government must aim at accelerating exports while expecting that imports may not — in fact they should not — decline as fast as they did in July-December 2019. For achieving a faster growth in exports, we always need to let imports of raw materials increase. However, since we need to watch even a little rise in imports because of the paucity of foreign exchange, import substitution, a more productive use of imported stuff in exportable goods, higher value addition in exports and improved productivity of export industries will be the key to success.
Real brainstorming and input-seeking from all stakeholders is necessary. A change in the sourcing of imported raw materials for price consideration and deeper penetration into export markets where our low-to-medium value-added goods are acceptable can provide some relief in the short term.
But the medium- and long-term goal of addressing structural flaws in our export sector ought not to be forgotten at all. SBP Governor Dr Reza Baqir made it a point during his address at a recent seminar in Karachi. That exports suffer from structural flaws is evident from the fact that in the best-case scenario total earnings in 2019-20 will be closer to what Pakistan earned 10 years ago.
Last week, NutriCo Morinaga, a joint venture of Japan’s Morinaga, ICI Pakistan and another local company Unibrands Ltd, started commercial production of formula milk in Sheikhupura, Punjab. The Rs5.5bn facility has an installed production capacity of 12,000 tonnes of formula every year.
It is a heartening development. We certainly need such joint ventures across agricultural and industrial sectors to cut imports.
In its first quarterly report for this fiscal year, the SBP laments the fact that the share of foreign value-added components in Pakistan’s exports is “quite small”. This is a worthy observation. Whereas import substitution is a must for foreign exchange–starved countries like ours, it is also essential that we learn to use imported stuff more efficiently for producing exportable goods. That can also help boost our forward participation in global value chains or GVCs.
The SBP report notes with concern that in a span of 15 years (2000–15), Pakistan increased its GVC participation by only $6.7bn. “This shows the low presence of Pakistani companies in the network of coordinated transactions among different layers of firms on a global scale.”
More meaningful participation in GVCs is a must for Pakistan to rationalise its external trade and take exports to a respectable level. But to make that happen, the government needs to work closely with the private sector. The services sector, particularly ICT, has real potential for Pakistan’s active participation in GVCs and reaping greater benefits. But the government must first come up with a comprehensive policy on this subject.
Owing to the absence of such a policy and leakages in the channelling of export proceeds through banks, the compound annual growth rate of Pakistan’s realised exports of ICT value chain remains very low. According to an SBP study, during the past 13 years, such proceeds grew between 3.4pc and 28.5pc, depending on the nature of the export service. Export earnings can get a quick boost if these two issues are addressed, immediately and adequately.
Published in Dawn, The Business and Finance Weekly, January 20th, 2020
NEWS COVERAGE PERIOD FROM JAN 06 TO 12, 2020
4PC GROWTH TARGET TO BE MISSED: SBP
Shahid Iqbal Updated January 07, 2020
KARACHI: Pakistan’s economy is unlikely to meet the GDP growth target of four per cent whereas inflation is expected to remain within the 11-12pc range, said the State Bank of Pakistan (SBP) in its first quarterly report of FY20 issued on Monday.
Meanwhile, the bank estimates the current account deficit to remain low at 1.5-2.5pc in the ongoing fiscal year.
The SBP said the agriculture output would be lower than target while the industrial sector’s performance would be subdued; only the services sector would be close to previous fiscal year.
The performance of commodity-producing sectors is also likely to remain restrained. In case of agriculture, targets for the overall crop sector may not be achieved, said the report.
The industrial sector is also expected to remain under stress. The latest large scale manufacturing index (LSMI) for October 2019 shows an 8pc decline on a year-on-year basis, steeper than the 5.9pc decline recorded in 1QFY20.
The government’s decision to postpone regulatory actions for businesses for implementation of the CNIC condition up till February, 2020 and axle load restriction may ease manufacturers’ operational constraints to some extent, it added.
“In view of these developments, achieving the real GDP growth target of 4pc appears unlikely,” side the SBP report.
With the industrial sector under stress, its demand for imported raw material is expected to remain low as well. Commodity prices are also subdued, amid slowdown in world economy and absence of key triggers (resolution of the US-China trade dispute and Brexit).
“On balance, the current account deficit for FY20 is likely to stay within the range of 1.5 – 2.5pc of GDP,” said the SBP report.
The central bank estimates average headline CPI inflation to stay within the range of 11 – 12pc. “This forecast is subject to upside risks in the form of a reversal in global crude prices, exchange rate depreciation and increased budgetary borrowings.”
This high inflation outcome was driven largely by the pass-through of the exchange rate depreciation, correction in energy prices, shortage of food items, and revenue measures taken by the government, said the SBP.
“For businesses, perceptions about the current economic conditions remained below the threshold level.” In addition to government’s revenue measures and tight credit conditions, this may also reflect the impact of the Federal Board of Revenue’s instructions to businesses to record CNIC numbers of buyers and suppliers while filing sales tax returns, said the SBP report.
The large businesses refrained from taking a long-term view. This cautious behavior, coupled with tapering demand and the compression of unregistered businesses reinforced the economic slowdown.
From the policy perspective, it is important to continue with the adjustment process despite weakening economic activity, as well as the visible stability gains in terms of falling twin deficits, said the report.
It said the policy continuation is warranted given the lingering vulnerabilities in economy and chronic nature of structural weaknesses.
The bank also stressed for implementation of announced documentation-related measures suggesting food price management.
In the agriculture sector, revised estimates for the kharif season suggest that the production of important crops is likely to fall short of targets.
With the increase in financial and operational costs, a number of industries, including steel, automobiles, chemicals and cement, cut their production. Furthermore, the government’s policy to shift away from furnace oil for power generation forced local refineries to scale back their operations.
In the services sector, trends in proxy indicators – like the decline in LSMI and imports, and lower sectoral credit off-take compared to 1QFY19 – suggest that wholesale and retail trade activities were relatively subdued.
“The headline CPI inflation recorded a broad-based increase of 11.5pc during the quarter – the highest quarterly inflation since 4QFY12,” said the report.
Energy prices posted the steepest rise of 32.5pc during the quarter, with an upward revision in gas prices alone contributing 1.6 percentage points to the headline inflation. Food inflation rose to 11.8pc during 1QFY20, said the report.
Published in Dawn, January 7th, 2020
IN PAKISTAN, GROWTH OF MAJOR SECTORS IN LSM TUMBLES
By Usman Hanif Published: January 8, 2020
KARACHI: Owing to rising financial and operational costs, the growth in major sectors in the large-scale manufacturing (LSM) segment including automobile, steel, chemical and cement remained on a downward trajectory in first quarter (Jul-Sept) of the current fiscal year.
“The impact of macroeconomic stabilisation policies and the second-round impact of exchange rate depreciation contributed to both supply-side pressures (expensive inputs) and lower demand (marginal growth in real incomes) for domestic industries,” stated the State Bank of Pakistan in its report “The State of Pakistan’s Economy – First Quarterly Report for the year 2019-2020”.
The growth of automobile sector contracted sharply by 34.1% in the first quarter of fiscal year 2019-20 compared to a slight decline of 1.2% in the same period of previous fiscal year, said the report issued on Monday.
During the quarter, players in the automobile segment hiked prices multiple times to meet the inflated cost of production. In June 2019, the rupee depreciated 6% against the US dollar, which added to the initial woes of existing players.
Besides this, the government imposed federal excise duty (FED) of 2.5% on cars having engine capacity of less than 1,000cc, 5% on engine capacities falling between 1,001 and 2,000cc and 7.5% on engines of more than 2,000cc, the report said.
It added that the government also increased additional customs duty on automobile parts at a time when real incomes of the prospective customers fell owing to a slump in the economy.
In addition to this, the eight-year high interest rate of 13.25% also deterred consumers from availing car financing facilities.
“This behavioral shift became evident from the net retirement of Rs1.9 billion recorded under auto finance in the first quarter of FY20 as opposed to Rs5 billion uptake in the same months of FY19,” the SBP said. “This also contributed to a subdued demand for automobiles during the quarter.”
New entrants in the auto sector have also started production activities, especially in the car segment, at a time when the sector is experiencing a slump.
However, these newcomers as well as the existing players faced a testing period as the economy was going through a low growth phase, the report pointed out.
Suggesting recommendations for the sector, the SBP stressed the need for increasing the local parts content in automobile assembly, providing a level-playing field in the sector by doing away with the protective policies and addressing market frictions in the auto-financing business.
Following the trend of the auto sector, the growth of steel segment dipped 17% in the first quarter of FY20. The sector suffered because of the decline in construction activities in the country.
“The production of billets used in construction declined by around one-third compared to the first quarter of FY19,” the report pointed out. “Construction in the country slowed down primarily due to higher cost.”
According to the report, on the one hand, the depreciated rupee increased financing cost for the customers while on the other hand, it discouraged producers by restricting their pricing power as demand fell due to higher prices. Profit margins of the industry were squeezed as well, the report added.
The cement segment was another area affected by the ongoing economic slowdown. However, it received a relatively softer blow in growth – of negative 1.5% – compared to rest of the sectors.
The sector had recorded a growth of 0.1% in the same quarter of FY19. It displayed signs of improvement in September 2019 before which it reported dismal figures.
Cement exports helped the entire sector restrict the decline in growth, otherwise it would have witnessed a steep dip.
Citing the data released by the All Pakistan Cement Manufacturers Association (Apcma), the report noted that exports rose 17.6% in the first quarter of fiscal year 2019-20 compared to 13.8% growth in the corresponding quarter of previous fiscal year.
In February 2019, tensions between India and Pakistan escalated and as a result, cement exports to India declined.
“As exports to India tapered, exports of the finished commodity to Afghanistan and clinker to mainly African countries rose sharply, to the benefit of local producers,” the report said.
It added that exports of clinker grew 121.9% over last year, providing the much-needed boost to Pakistan’s cement sector, which had undertaken extensive capacity enhancement in the last few years.
The sector added over 20% to the overall capacity in the past two years.
During the quarter under review, domestic cement sales remained dull as public and private spending on infrastructure and housing remained subdued due to a higher cost of construction, cited the report.
Besides, large-scale developers, who rely on bank borrowing to fund their operations, held their investment owing to increase in financing costs, the SBP said.
Published in The Express Tribune, January 8th, 2020.
GOVT SAYS ECONOMIC RECOVERY EXPECTED BY END FY2020
By APP Published: January 10, 2020
ISLAMABAD: The government claimed on Thursday its extensive measures helped the economy to move progressively along the adjustment path and expressed the hope that stabilisation process and economic recovery was expected towards the end of FY2020.
A statement issued by the Finance Division said that the government was cognisant of challenges and “stringently focused” on resolving them particularly, reducing inflation, creating job opportunities and achieving high growth rate.
“The government is focusing on bringing improvement in the real sector growth through inclusive growth in agriculture, industrial and services sectors,” said the statement issued in response to reports regarding downward revision of growth by the World Bank.
Keeping in view the positive developments on major economic indicators, the economy was likely to achieve better growth prospects as against the projections of the World Bank, the Finance Division statement added.
The World Bank in its report ‘2020 Global Economic Prospects’ had forecast Pakistan’s growth rate during the current year at 2.4%, 3% in the next fiscal year and 3.9% in 2022. It said the growth decelerated in 2018-19, reflecting a broad-based weakening in domestic demand.
In addition, the report had described that significant depreciation of the Pakistani rupee resulted in inflationary pressures, monetary policy tightening restricted access to credit, curtailing public investment to deal with large twin deficits and budget deficit rose more sharply than expected.
Saudi Arabia, UAE likely to back Pakistan at FATF moot
The statement pointed out that during the fiscal year 2019, the slowdown in economy was largely attributed to various policy measures to manage the twin deficit crisis. Consequently, these measures helped contain demand pressures and contributed to import compression.
However, the outcomes of these measures were realised in the industrial sector, particularly the large scale manufacturing (LSM) sector, which witnessed a negative growth. At the same time, high input costs along with water shortages weakened agriculture sector’s output and hence, the drag in the commodity-producing segments spilled over to the services sector as well.
As result, the real GDP growth recorded at 3.3%, said the statement. It added that due to government’s extensive measures at the start of the current fiscal year, Pakistan’s economy was moving progressively along the adjustment path and stabilisation process; however economic recovery is expected towards the end of FY2020.
For growth in agriculture sector, the target production of wheat is 27 million tonnes, given by FCA in last meeting in October. In addition to uplifting the agriculture sector the “National Agriculture Emergency Programme” in coordination with all the provinces has been introduced and approval has been granted to 13 mega projects at a cost of Rs287 billion.
Agriculture credit disbursement target for FY2020 has been set at Rs1,350 billion. Agriculture credit disbursement has increased by 20% to Rs482 billion during July-November period of FY2020 against Rs402 billion last year, the statement continued.
To boost industrial sector, the government has been providing a series of subsidies and incentives to industrial sector. These include subsidies to industry on electricity and gas, export development package and it continued to provide Long-Term Trade Financing (LTFF) and Export-Refinancing Scheme (ERS) at subsidised rate.
Similarly, the Public Sector Development Programme (PSDP) release process is simplified and by January 3, 2020 Rs301.4b had been released to encourage construction-related industries, especially cement and steel.
In addition, cement dispatches growth of 6.55% during July-December period of FY2020. “This development will likely to stimulate the growth in the LSM in coming months,” according to the statement.
On the fiscal side, to control expenditures, the government was following austerity measures with complete restriction on supplementary grants. For export promotion several initiatives had been announced.
These initiatives include support to duty structure on raw materials and intermediate goods, improvement in mechanism for tax refunds, provision of electricity and gas at competitive cost, and making Pakistan a part of the global value chain.
The government’s various measures to stabilise the economy had already started to reap benefits in the form of sustained adjustment in current account deficit (CAD) and continued fiscal prudence. A brief review indicates that during July-November period of FY2020 CAD reduced by 72.9%, fiscal deficit contained at 1.6% of GDP (Rs686 billion) and primary balance posted surplus of Rs 117 billion (0.3% of GDP).
At the same time significant rise was recorded in FBR tax revenues to Rs2085.2 billion (16.4%) during July-December period of FY2020, improved ranking in ease of doing business, ranking among the world’s top 10 best business climate improver and ‘Stable” credit outlook to B3 from ‘Negative’ by Moody’s was an affirmation of the government’s success in stabilising the economy and laying a foundation for robust growth, the statement concluded.
PRODUCTIVE ECONOMIC ACTIVITIES: FWCCI FOR INVOLVING HALF OF FEMALE POPULATION
By RECORDER REPORT on January 11, 2020
Faisalabad Women Chamber of Commerce & Industry (FWCCI) is making strenuous efforts to involve half of female population in productive economic activities in order to make Pakistan a progressive and prosperous country, said President Miss Qurrat-ul-Ain.
She was addressing a function to interact with the media persons here Friday. Explaining the economic strength of Faisalabad, she told that female entrepreneurs are also contributing their humble role in the overall development of Faisalabad and Pakistan but a major chunk of this sector is still untapped and marginalized. She told that FWCCI has launched a vigorous membership campaign to allure and attract females already working at the domestic or small scale.
Continuing, she said that there are some social and family constraints which are discouraging women to actively or independently start their own businesses and in this connection FWCCI is already organizing awareness and guidance training session in order to sensitized them. She told that she has chalked out a progressive strategy to involve the newly passed out female students of local universities and colleges in the productive economic activities.
“In this connection, FWCCI will try to provide the facility of incubation centers where females could give practical shape to their unique and innovative ideas”, she added. She also told that State Bank of Pakistan has already offered a number of income generating schemes for the female entrepreneurs while startups will also be encouraged to avail from these schemes and “Kamyab Jawan” Program.
She further told that women could also be encouraged to enter into the tax net by availing from the facilities offered by FBR. “Under this scheme females have been given special privileges to file returns with zero return for 3 consecutive years”, she added. Ms Qurrat-Ul-Ain told that Memorandum of Understanding (MoU) would also be inked with educational institutions and under this program, the passed out students would be offered short term entrepreneurship courses enabling them to start them own businesses instead of running after jobs.
President FWCCI told that she has planned various trade delegations for UK, Europe and Australia.
“The traditional and non-traditional markets would be explored to enhance Pakistani export to these emerging a potential market”, she told and hoped that these delegations would also play their role in promoting the soft image of Pakistan in the international community.
Responding to a question, she told that awareness, vocational and technical programs for women could also be arranged in collaboration with TEVTA and NAVTIC while FWCCI is also working to establish its own training centre for the young female startups.
She also pointed out that an exhibition could also be arranged to showcase the products manufactured by female entrepreneurship. She urged upon female to get the membership of FWCCI in order to further expand their scope of work.
During this meeting Vice President Shama Ahmed and Secretary General FWCCI Miss Abeera Matloob were also present.
Copyright Business Recorder, 2020
NEWS COVERAGE PERIOD FROM DEC 30 TO 05,2020
IMF APPRECIATES IMPROVEMENTS IN ECONOMY
By RECORDER REPORT on December 30, 2019
The International Monetary Fund has acknowledged that Pakistan’s reform program is on track and already producing results. According to a press release of Finance Ministry Sunday, the IMF in its latest report conceded that the business climate has improved, and market confidence is returning.
On the completion of first review of Pakistan’s economic performance, IMF has acknowledged that Pakistan’s reform program is on track and already producing results.
Decisive policy implementation has started to address the deep-seated problems of Pakistan’s economy and to reverse its large imbalances, preserving financial stability. The report acknowledges that the business climate has improved, and market confidence is returning. IMF further adds in its assessment that the Government recognizes that structural reforms, especially in SoE sector are key to revive economic activity and growth.
IMF has released SDR 328 million (about $ 452.4 million), bringing total disbursements to SDR 1,044 million (approx $1.45 billion). The report has confirmed that End-September performance criteria (PCs) were observed with wide margins.
These include: Zero budgetary borrowing from SBP; Primary budget deficit ceiling; Ceiling on government guarantees; Zero external public payment arrears; and SBP net international reserves (NIR), net domestic assets (NDA), and swaps/forwards targets all met. In addition to above, all structural benchmarks (SBs) for end-September, except the SB on AML/CFT, were completed.
With regard to inflation outlook, IMF has lowered Inflation projection for FY20 to 11.8%, down from 13% earlier on account of this fact that the administrative and energy tariff adjustments are expected to offset the effects from weak domestic demand.
Thereafter, inflation is expected to converge to 5-7%. The report confirms that inflation has been started to stabilize, along with core inflation, and the SBP stance is appropriate (no need for further rate hikes). However, we are of the view that we will do much better than IMF projection. As inflation during Jul-Nov was 10.8% and with measures taken we target to bring inflation down to 5% over the medium term.
With regard to the external sector, significant improvement has been witnessed. Overall, Current Account Deficit (CAD) shrunk by almost two-thirds (74%) in the Q1 FY 20 compared to the same period of FY 2019. CAD is projected to decline to 2.4% of GDP in FY20 (4.9%), which is lower than earlier IMF forecasts of 2.6%.
Total imports fell by 23% y-o-y in Q1 of FY2020, but imports of machinery and equipment were more resilient, rising about 2% y-o-y. Exports are showing some sign of recovery, up 2% y-o-y for the same period with 17% volume growth, mainly driven by food and textiles.
The report states that transition to a market determined exchange rate has allowed the rupee to find its new equilibrium quickly, thereby, successfully correcting the ‘exchange rate overvaluation’ of the last 5 years.
The report has also acknowledged strong Fiscal performance in the First Quarter of FY2020 while stating Primary surplus of 0.6% of GDP and an overall deficit of 0.6% of GDP, about 1% of GDP better than programmed. In addition, Tax revenue growth was in double-digits (net of refunds) even though customs receipts and other external sector related taxes have suffered due to import compression.
Key Concessions won by Government includes: Ceiling on NDA of SBP (Performance benchmark) has been enhanced to Rs 9.1trn (8.7), an increase of Rs 339bn in FY20; This is positive for growth and will be utilized for concessional financing for the export industry; Ceiling on government guarantees has been enhanced to Rs 1.8trn (1.6), an increase of Rs 252bn in FY20; This is positive for growth and will allow government to settle the outstanding stock of circular debt; Floor on FBR tax collections for FY20 has been revised lower to Rs 5.2trn (5.5), due to strong improvement in non-tax revenue; During H1 Fy20, government non tax revenue collection has hit Rs 878bn which is 75% of full year budgeted collection of Rs 1.16trn; and This is positive for growth and will ease the burden on public and businesses.
Current Economic Performance: Pakistan economy has witnessed significant improvements in recent months as evidenced from the performance of key economic indicators mentioned below:
Exchange rate is stable for 5 months, Rupee appreciated by 3.2% (Rs/$ 160.1 to 154.89)(20th Dec, 2019), Stock Exchange 100-Index up 20.1 percent since 1st July, 2019 (33,996) to 40,832(20th Dec, 2019) , SBP FX Reserves increase to $ 10.8bn (13th Dec, 2019), from 7.2bn (June 2019) , Ease of Doing index up by 28 points (108/190) and World Bank rank Pakistan in Top 10 improvers.
After 4 years of outflow, total foreign portfolio investment up $ 1.2bn during Jul-Nov FY20 (-330mn last year). FDI increased to 850mn (477.3mn last year)? 78.1%. Total foreign investment reached to $2Bn (last year 147mn).
Similarly, Incorporation of Companies increased 25.8 % (7,177 from 5,707) during Jul-Nov FY2020. FBR tax collection grew by 16.8% to Rs 1615.2bn during July-November, FY2020 against Rs 1382.9bn last year. Within total FBR tax collection Domestic tax collection grew up 21.5% and Import taxes down 2.6% (import compression).
On external side, Exports increased by 4.7% to $10.31bn during July-November, FY2020 against $9.85bn in the same period last year, while Imports decreased by 21.1% to $18.31bn during July-November, FY2020 against $23.22bn in the same period last year. Consequently, Trade deficit decreased 40.1% to $8.002bn during July-November, FY2020 against $13.36bn in the comparable period of last year.
Cement dispatches increased by5.8% to 20.462 million ton (15.4million ton). Cement export increased 21.5% to 3.608 million ton (2.4 million ton). Other Developments include: PSDP releases system is accelerated. In this regard ways & means and Finance Division endorsement is eliminated.
As a major development, PSX becomes best performing market as per Bloomberg in last three months. PSX benchmark KSE 100-Index gained around 10,500 point in last three months.
Similarly, the Moody’s Investors Service upgraded Pakistan’s credit rating outlook to stable from negative. On external front, in the month of November, 2019 Exports increased 11.23% to $2.110bn against $1.897bn in the same month last year while Imports decreased 13.18% to $3.648bn as compared with $4.202bn in the comparable period last year.
In October 2019, on M-o-M, LSM registered a growth 4.01% (Sep 1.9%), indicating upward trajectory. Cement dispatches increased 10.6% in November to 4.35 million ton (3.9 million ton). Another important development is that Karkey renegotiated to save Pakistan $ 1.2bn.
Circular Debt: Monthly flow decreased from Rs 38bn in July 2019 to about Rs 10bn. Targeted to be zero next year; Strategy for dealing with the stock of debt being finalized; Protection for lower end consumers <300 from price rationalization; More effective recovery/detection of electricity theft (>50mn); and Ministry of Energy will issue an additional Rs 250bn Sukuks (with government guarantee) in FY2020 to retire the CPPA liabilities of the IPPs.
Compact for Jobs & Growth: Scale up Affordable Housing devised by Naya Pakistan Housing Authority; Additional budgetary allocation of Rs 20bn to 30bn in FY2020 to cover the 10% down payment by beneficiaries of affordable housing. The total impact of this stimulus to the economy would be equivalent to Rs 200bn to Rs 300bn; and Tax Credits equal to 10% of the amount of expense related to these projects including labor related costs will be allowed to the developer for the first two years.
Exporter’s package: Additional credit of Rs 200bn for exporters under the Export Finance Scheme (EFS) in FY2020; The interest rate differential (between Kibor and EFS markup) will be paid by additional Rs 10bn subsidy by the government in FY2020; This will boost export sector and reduce their cost of doing business; and SBP will give additional Rs 100bn worth of lending to the exporters, to be subsidized by government through SBP profits.
Copyright News Network International, 2019
FPCCI TO WORK WITH GOVT AS AN ECONOMIC PARTNER: KHATTAK
RECORDER REPORT December 30, 2019
PESHAWAR: Chairman (Capital) of the Businessmen Panel and Former Vice President FPCCI, Muhammad Riaz Khattak said Federation of Pakistan Chambers of Commerce and Industry will now restructure its role and promote business and industry specific which facilitate the country business community.
In a press statement issued, here on Sunday, Riaz Khattak said President (Elect) of the FPCCI, Mian Anjum Nisar have a vast experience of Industry and he can surely review the dysfunctional policies of the Federation which hammers the businessmen in past. Now under the leadership of new FPCCI President, Federation has open for all business community with the vision to safeguard the interests of the economic interests of Pakistan.
“Now we will work with the PTI government as an economic partner and take FPCCI on a new high in the capacity the country largest apex trade body”, he maintained.
He also said that credit of historic success goes to the all team members of the BMP since 2015 as they work day and night for the betterment and welfare of the business community.
BMP Secretary General (Federal), Ahmad Jawad said, under the leadership of Mian Anjum Nisar, has been struggling really hard since many years and this year they succeeded in overthrowing almost all their opponents, the business and industrial community hopes that the newly-elected leadership at FPCCI would take practical steps to improve FPCCI’s functioning and make it a vibrant platform.
ECONOMIC PICTURE FOR 2020
By RECORDER REPORT on December 31, 2019
Prime Minister Imran Khan, in his address after the ground-breaking ceremony of Jalalpur canal, an activity he denigrated as ‘cutting of a ribbon’ when he was in opposition, once again highlighted his two pet themes: the corrupt would be held accountable and the year 2020 would herald prosperity and job opportunities.
There is no doubt that the corrupt need to be held accountable for the sheer scale and extent of corruption, coupled with capital flight and subsequent income thereon that remains untaxed, is estimated at over 200 billion dollars in one country alone; however, to date, only one real estate Pakistani tycoon has reached a 190 million pound settlement, including UK property 1 Hyde Park W2 2LH valued at 50 million pounds, and that too with the National Crime Agency UK with the Prime Minister’s team focusing on the Sharif family ownership of the property earlier. Other prominent politicians (and/or business people) have yet to plea bargain or remit money or indeed clear taxes due on the capital held abroad and/or income accrued. There is therefore a need for more proactive action and the Pakistani side committed in the first review of the International Monetary Fund (IMF) programme that “we are undertaking the second review cycle under the UNCAC implementation mechanism and will identify areas for improving anti-corruption framework.” The reference here is to meeting the targets set by the Financial Action Task Force which, if remaining unmet, would further compromise the state of the economy. Needless to add, the ongoing confrontation between the government and the opposition has brought relevant legislation required by the FATF to a standstill and one would hope that the government would be able to at least forge a working relationship with the opposition in greater national interest. The IMF first quarterly review report does note the “lack of majority by the ruling party in the upper house” as a major risk to the entire programme as “it could freeze capital flows to Pakistan.”
The Prime Minister’s insistence that 2020 would be a year of prosperity and job opportunities is obviously based on briefings from his economic team leaders, notably Dr Hafeez Sheikh, Advisor to the Prime Minister on Finance and Dr Reza Baqir, Governor of State Bank of Pakistan. It is critical that the Prime Minister at least glances at the first IMF review Table 1 in which the GDP growth projection for 2019-20 remains unchanged at 2.4 percent (unchanged since the 12 May staff level agreement was reached), gross savings are projected at negative 4.2 percent (from the earlier negative 3.8 percent with savings investment imbalance now projected at negative 1.8 percent of GDP), inflation lower at 11.8 percent instead of the earlier 13 percent. The first quarter budgetary operations released by the Ministry of Finance included in the IMF review note that the government has disbursed less than one percent of what was budgeted for social sector, 8.8 percent for Public Sector Development Programme and nothing for subsidies during the first quarter of the year yet the Fund unconvincingly argues that inflation is stabilizing mitigating the impact on the most vulnerable. The government has committed to the Fund that disbursements would be according to the budgetary allocations agreed with Fund by end December; however, in that case the government would require either a forced sale of state-owned enterprises (SOEs) or else a mini-budget.
The Prime Minister’s pre-election pledge to improve health and education has also not received due funding with the IMF stating that actual outturns turned out to be significantly lower. And for those already over-burdened with rising utility costs it would be disturbing to realize that the Fund states that accumulation of power sector arrears target was also missed.
The economic team has claimed considerable success in bringing the current account deficit down, a claim that has been echoed by the Prime Minister. However the current account as a percentage of GDP has not significantly improved – an area of serious concern as stated by the IMF mission leader for Pakistan. It is pertinent to mention that there is a perception amongst the rank and file of Pakistan Tehrik-i-Insaaf supporters that the general discontent is due to the high expectations from the Khan administration for which the Prime Minister himself is mainly responsible. Former New York Governor Mario Cuomo stated that ‘you campaign in poetry and govern in prose’ so Prime Minister Khan would be well advised to abandon poetry and begin to govern in prose; however, the prose must be his own writing after carefully determining the facts on the ground by taking multiple views into account. Surely he must be aware of the basic fact of Pakistani politics: the cost of the prose, if any, will be paid by him alone as a change in government would see a significant number of his own cabinet members, the evergreen rolling stones labeled as electables, abandoning his ship.
Copyright Business Recorder, 2019
GOVT MULLS EITHER 5-YEAR OR 3-YEAR ECONOMIC PLAN
By Shahbaz Rana Published: January 4, 2020
ISLAMABAD: Despite a lapse of almost one and a half year, Pakistan Tehreek-e-Insaf (PTI) government remains unable to launch the country’s 12th five-year macroeconomic plan amid confusion in its ranks whether to give a five-year plan or a three-year economic growth strategy.
Planning Commission Deputy Chairman Jehanzeb Khan on Friday chaired yet another meeting to review preparations for Pakistan’s 12th Five-Year Plan (2018-23). The meeting discussed the issue of whether the government should come up with a five-year plan as one and a half year had already passed.
The PTI government has failed to finalise the plan in the past 16 months despite the fact that the spadework had been done by the previous Pakistan Muslim League-Nawaz (PML-N) government. The 11th five-year plan ended in 2018 and since then the government has not been implementing an integrated economic plan.
The only guiding document is the 39-month Extended Fund Facility (EFF) of the International Monetary Fund (IMF) that largely revolves around quarterly fiscal and monetary targets.
“The government is exploring the possibility whether it should give a three-year economic growth framework or a five-year macroeconomic plan,” said Zafarul Hasan Almas, spokesman for the Ministry of Planning and Development.
The spokesman said there were different possibilities of whether to announce the 2018-23 plan, if the government decided to launch the plan, or it should give a future five-year plan.
Responding to a question on the delay in launching the macroeconomic framework, Almas said the Planning Commission had already completed consultations with the provinces and now only approval of the Prime Minister’s Office was needed.
The handling of the five-year plan is the manifestation of how things are running in the Ministry of Planning. There is no chief economist in the Planning Commission and the post has remained vacant for over one year.
The status of Planning Commission Member Private Sector Dr Shabnum Sarfraz remains in limbo as she proceeded to a foreign visit without approval of the competent authority. She went abroad on scholarship and the matter is being investigated, however, she attended Friday’s meeting on the five-year economic plan.
In the absence of the five-year plan, the Ministry of Finance, Ministry of Planning and Development and State Bank of Pakistan are giving three different sets of economic projections.
The Ministry of Planning is still projecting 4% economic growth for the current fiscal year while the SBP and the Ministry of Finance are anticipating around 3.5% economic growth.
On the other hand, the IMF and other international creditors expect around 2.4% growth in the current fiscal year.
After initially estimating economic growth at an annual average of 5.8% in the five-year tenure of the current PTI government, the planning ministry lately revised downward the estimate to 5%, which is almost equal the pace the PML-N achieved during its five-year term.
However, the average 5% growth appears unrealistic as it is based on achieving 4% growth in the current fiscal year and 5.2% in the next fiscal year. The IMF has projected 3% economic growth for the next fiscal year.
Even at 5% projection, the increase in employment associated with the average economic growth is 8 million, which is 2 million less than what Prime Minister Imran Khan had promised in its election campaign.
In the last year of the PTI administration, the projected growth rate is 6.5%, which would not be an easy task given the tight fiscal and monetary policies that the PTI government has adopted to stabilise the economy.
The finance ministry is projecting low economic growth as it sees the economy recovering fully in a three-year period.
The main challenges to the PTI government remain deepening the macroeconomic stability, sustainable fiscal consolidation, external sector stability, steering economy to a higher and sustainable growth path and enhancing job-creating ability.
Published in The Express Tribune, January 4th, 2020.