Showing posts with label IMF. Show all posts
Showing posts with label IMF. Show all posts

Friday 19 April 2024

Pakistan Stock Exchange closes at highest level

At Pakistan Stock Exchange trading session during the week ended on April 19, 2024 remained erratic. However, concluded on a stronger note on the Friday with the benchmark index posted highest-ever closing at 70,909 points posting 0.85%WoW gain.

Overall, average trading volume was reported at 492.37 million shares, up 43.51%WoW, clocking in at 2.46 billion shares, as compared to 1.72 billion shares traded in the earlier week.

The volatility may be attributed to the general uncertainty surrounding over international crude prices, primarily due to the ongoing rifts in the Middle East, with the tensions largely emanating due to the scuffle between Iran and Israel. The key highlight of the week was the successful visit of the Saudi delegation to Pakistan, promising major investments in various sectors. Additionally, KSA’s acquisition of a 25% minority stake in the Reqo Diq Mining project for US$1.0 billion appears to be progressing well, with the deal anticipated to finalize soon.

With regards to FIPI flows, net foreign investments remained consistent throughout the outgoing week, culminating to US$33.86 million by Friday close.

Finally, authorities repaid the maturing US$1.0 billion Eurobond on April 12th, resulting in the SBP’s FX reserves to end the week at US$8.0 billion.

With regards to fuel price, Motor Gasoline and Diesel prices were raised, attributed to rising crude oil prices.

Other major news flows during the week included; 1) PIB sale falls short, yields dip on shorter maturities, 2) Pakistan claimed to complete gas pipeline project with Iran, 3) Wheat production target of 32.2 million tons set for the current season is at high risk due to rainfall, 4) Government does not anticipate any significant currency devaluation.

Sugar & Allied industries, Refinery, Synthetic & Rayon, Vanaspati & Allied Industries, Textile Weaving were amongst the top performing sectors, while laggards included Miscellaneous, Woolen, and Paper & Board.

Major net selling was recorded by Individuals (US$14.43 million) & Banks (US$10.97 million). Brokers absorbed most of the local selling with a net buy of US$1.23 million.

Top performing scrips of the week were: PSX, FABL, FATIMA, AKBL, NRL, while top laggards included: PTC, ISL, KTML, SEARL, and MUGHAL.

Going forward, market is expected to return its focus to negotiations with the IMF regarding The EFF program, upcoming monetary policy announcement, and the corporate results which are expected to be announced throughout the coming two weeks.

Despite the market reaching its new highest, the forward P/E continues to remain below 5.0x, which instills positivity regarding the market's fundamentals.

Monday 1 April 2024

Why Shehbaz is undermining Finance Minister?

At a time Muhammad Aurangzeb, Finance Minister needs the government’s fullest backing to conclude the crucial deal and implement tough economic reforms over the next several years, it seems that some circles are trying to undermine his role in the cabinet.

Prime Minister Shehbaz Sharif has ditched Aurangzeb twice within span of a month. His decision to name Foreign Minister Ishaq Dar to the all-important Council of Common Interests (CCI) and keep Aurangzeb out of it looks like an attempt to contain his role in decision-making.

Sadly, this was not the only occasion, earlier Aurangzeb was also sidelined. The prime minister in a break from tradition, decided to chair the Economic Coordination Committee (ECC) the top policy making forum. It was only after widespread criticism that he yielded the position to the finance minister.

Similarly, Aurangzeb’s role in the privatization process was also diminished by appointing Dar as head of the Cabinet Committee on Privatization.

In the CCI’s case, what exactly is the foreign minister expected to contribute to the council’s deliberations? As against this, the presence of the finance minister in the CCI — the top constitutional forum mandated to discuss and decide on matters and disputes related to the federation and the provinces — is of utmost importance at this moment because the implementation of several IMF program goals and policy reforms hinge on the active involvement of the federating units.

There is no better forum than the CCI to enlist the buy-in of the provinces on the IMF program and reforms. It can only be hoped that sense will prevail and the prime minister will replace Dar with Aurangzeb in the CCI in the larger interest of the country.

 

Monday 25 March 2024

Pakistan: IMF reaches staff level agreement

An International Monetary Fund (IMF) team, led by Nathan Porter, visited Islamabad from March 14-19, 2024, to hold discussions on the second review of Pakistan’s economic program supported by an IMF Stand-By Arrangement (SBA). At the conclusion of the discussions, Porter issued the following statement:

“The IMF team has reached a staff-level agreement with the Pakistani authorities on the second and final review of Pakistan’s stabilization program supported by the IMF’s US$3 billion (SDR2,250 million) SBA approved in January 2024. This agreement is subject to approval by the IMF’s Executive Board, upon which the remaining access under the SBA, US$1.1 billion (SDR 828 million), will become available.

“Pakistan’s economic and financial position has improved in the months since the first review, with growth and confidence continuing to recover on the back of prudent policy management and the resumption of inflows from multilateral and bilateral partners. However, growth is expected to be modest this year and inflation remains well above target, and ongoing policy and reform efforts are required to address Pakistan’s deep-seated economic vulnerabilities amidst the ongoing challenges posed by elevated external and domestic financing needs and an unsettled external environment.

“The new government is committed to continue the policy efforts that started under the current SBA to entrench economic and financial stability for the remainder of this year. In particular, the authorities are determined to deliver the FY24 general government primary balance target of PRs 401 billion (0.4% of GDP), with further efforts towards broadening the tax base, and continue with the timely implementation of power and gas tariff adjustments to keep average tariffs consistent with cost recovery while protecting the vulnerable through the existing progressive tariff structures, thus avoiding any net circular debt (CD) accumulation in FY24. The State Bank of Pakistan remains committed to maintaining a prudent monetary policy to lower inflation and ensure exchange rate flexibility and transparency in the operations of the FX market.

The authorities also expressed interest in a successor medium-term Fund-supported program with the aim of permanently resolving Pakistan’s fiscal and external sustainability weaknesses, strengthening its economic recovery, and laying the foundations for strong, sustainable, and inclusive growth. While these discussions are expected to start in the coming months, key objectives are expected to include: 1) strengthening public finances, including through gradual fiscal consolidation and broadening the tax base (especially in undertaxed sectors) and improving tax administration to improve debt sustainability and create space for higher priority development and social assistance spending to protect the vulnerable;

2) restoring the energy sector’s viability by accelerating cost reducing reforms including through improving electricity transmission and distribution, moving captive power demand to the electricity grid, strengthening distribution company governance and management, and undertaking effective anti-theft efforts;

3) returning inflation to target, with a deeper and more transparent flexible forex market supporting external rebalancing and the rebuilding of foreign reserves; and

4) promoting private-led activity through the above mentioned actions as well as the removal of distortionary protection, advancement of SOE reforms to improve the sector’s performance, and the scaling-up of investment in human capital, to make growth more resilient and inclusive and enable Pakistan to reach its economic potential.

 

Friday 22 March 2024

Pakistan Stock Exchange benchmark index closes almost flat

The week ending on March 22, 2024 started on a positive note, witnessed uncertainty over interest rate cuts erasing some gains from the initial days. Overall the benchmark index closed at 65,152 points, with a gain of 335 points or 0.5%WoW.

On Monday, State Bank of Pakistan (SBP) decided to maintain the interest rate at 22%, the decision did not impact the stock market as it was already expected and priced-in.

The talks with the IMF mission on the SBA’s second review concluded on Tuesday with staff-level agreement, resulting in infused positivity into the equity market and international investors as well with appreciation in dollar bonds and Pakistan Stock Exchange benchmark index.

As discussions progressed, prerequisites for the next medium-term programs have surfaced, primarily focusing on broadening the tax base. News has circulated about a new plan to collect taxes from retailers through electricity bills, which has been shared with the IMF.

Additionally, IMF has recommended eliminating GST exemptions on petroleum products and other taxes, whereby, despite a easing weekly inflation, an increase in gas price (as sought by Sui twins) and implementation of 18%GST on POL products pose risks to the inflation outlook.

On the economic front, current account for February 2024 turned positive, with a surplus of US$128 million, bringing 8MFY24 CAD below the US$1.0 billion mark.

With a controlled current account balance, SBP’s reserve position also improved by US$105 million WoW to reach US$8.0 billion as of March 15, 2024.

With the IMF's smooth review, market participation improved by 13%WoW, with the daily traded volume averaging at 323 million shares as compared to 287 million shares a week ago.

Other major news flows during the week included: 1) During first eight months of the current financial year the GoP borrowed US$6.678 billion from multiple sources, 2) FDI dropped over 17% to US$820.6 million during these eight months, 3) IT exports raised by 32% to US$257 million during February, and 4) the Supreme Court ordered NBP National Bank of Pakistan to pay PKR60 billion in pensions to retired employees.

The top performing sectors of the week were Transport, Inv. banks/ securities cos. and Tobacco, while Synthetic & Rayon, Cement, and Refinery were amongst the worst performers.

Major selling was recorded by companies with a net sell of US$9.0 million. Insurance absorbed most of the selling with a net buy of US$24.1 million.

Top performing scrips of the week were: Company-wise, top performers during the week were: NBP, DAWH, PTC, CEPB, and MEBL, while laggards included: NRL, PIOC, CNERGY, HCAR, FCCL.

With the aforementioned tax reforms, price increases, particularly with the imposition of GST on POL products, could pose a risk to the CPI outlook and potential delay in interest rate cuts, resulting in restrained market performance. However, successful implementation of tax reforms would have a positive impact on long-term economic stability.

Additionally, with SBP REER increasing to 102.2 in February 2024, there is a risk of PKR depreciation, especially in case of increased smuggling or imports.

Investors are advised to remain cautious and maintain positions in strong valuation main board stocks, particularly those offering attractive dividend yields.

 

 

Wednesday 13 March 2024

Pakistan: Saga of Financial Challenges

Once hailed as a financial wizard, Ishaq Dar's return to Pakistan was accompanied by grandiosity, with a Red Carpet reception. However, the same individuals who celebrated Dar's financial prowess are now touting Muhammad Aurangzeb as a savior capable of instantly resolving Pakistan's myriad issues. While Aurangzeb may possess exceptional banking skills, his comprehension of Pakistan's complex economic landscape raises doubts.

Adding to the skepticism is his hefty monthly salary of US$100,000, amounting to a staggering US$1.2 million annually. Despite decades under the IMF microscope, Pakistan struggles to generate sufficient dollars to finance its imports, with around US$150 billion from overseas Pakistanis disappearing into a financial abyss over the last five years.

The finance minister's primary task now is to persuade the lender of last resort to release more dollars, settling outstanding loans and facilitating imports, particularly for the elite. The proposed solutions involve increasing electricity and gas tariffs, raising interest rates, and imposing additional duties and taxes, collectively squeezing every Pakistani financially.

Financial wizards argue that these measures will bridge the budget deficit, but they overlook the resultant surge in government borrowing and the negative impact on local manufacturers' competitiveness. This situation brings to mind the saying, "An expert is a person who makes things complicated." Pakistanis are inundated with advice on improving taxes, but there's a glaring absence of plans to tax those enjoying exemptions since independence, and austerity measures are conspicuously lacking.

As Pakistan rushes into talks with the IMF, concerns persist about addressing GDP growth, boosting exports, and curbing extravagance. The impending debt servicing crisis looms large, and while the IMF may greenlight a larger and extended standby program, the real question lies in whether policymakers have viable strategies to maintain debt servicing at a sustainable level.

Thursday 22 February 2024

Pakistan likely to sink deeper into debt trap

Despite remaining under International Monetary Fund (IMF) surveillance for decades, the successive governments in Pakistan have failed in undertaking ‘structural adjustment programs’ that could allow the country to live without entering into one after another bailout packages.

The most regrettable point is that the lender of last resort has not come up, at its own or facilitated Pakistan, in coming up with any ‘home grown plan’. Every time the country is told to undertake a slew of measures that include revising its budget (curtailing developmental expenditures and subsidies), hike in interest rate, and increases in electricity and natural gas tariffs.

Neither the IMF nor the policy planners understand that all such measures erode competitiveness of Pakistani manufacturers and push more and more people poverty the poverty line. On top of all no quantitative restrictions are imposed on the import of unnecessary/ luxury goods.

According to Bloomberg News, Pakis­tan plans to seek a new loan of at least US$6 billion from the International Monetary Fund (IMF) to repay billions in debt due this year, which can be termed, borrowing more to pay off the outstanding liabilities.

The country will seek to negotiate an Extended Fund Facility with the IMF, the report said, adding that the talks with the global lender were expe­cted to start in March or April.

Although a default was averted last summer thanks to a short-term IMF bailout, but the program expires in April and the country will have to negotiate a long-term arrangement to keep pay off the outstanding loans.

The country’s vulnerable external position me­ans that securing fina­ncing from multilateral and bilateral partners will be one of the most urgent issues, Fitch said on Monday.

“A new deal is key to the country’s credit profile, and we assume one will be achieved within a few months, but an extended negotiation or failure to secure it would increase external liquidity stress and raise the probability of default,” it said.

 

Wednesday 14 February 2024

Pakistan: Instability coming down the road

Pakistan’s elections held on February 08, were meant to bring stability to the country after almost two years of turmoil but the outcome of the polls has deepened political divisions. It will also bring more instability to a nuclear-armed, 240-million strong country already shaky at best in a critically important geostrategic region.

In the months leading up to the long-awaited elections, the judiciary and the military pursued a dual track strategy: ensure that the highly popular former prime minister, Imran Khan, is never able to run for political office again and reinvigorate the political fortunes of Nawaz Sharif, the three-time former prime minister and leader of the Pakistan Muslim League (Nawaz).

Following his loss of power in a parliamentary vote of no confidence in April 2022, Khan was relentlessly pursued by the judiciary which eventually handed him three sentences for corruption, leaking state secrets and an illegal marriage, for a total of 24 years. He was barred from politics and sent to gaol. His Pakistan Justice Movement (PTI) was disbanded, its electoral symbol (the cricket bat) outlawed, and its members banned from running as PTI members.

Nawaz Sharif—a convicted corrupt politician who’s had an ambivalent relationship with the army for 40 years, was brought back from a four-year self-exile in London as an alternative to Khan. Soon after Nawaz’s return to Pakistan the corruption charges he faced were dropped and his life ban from politics was lifted.

The path was now clear for his smooth return to power. However, what was meant to be a walk in the park for Nawaz and the PML(N) turned out very differently on election day. The millions of pro-Imran Khan supporters were not interested in singing off the score sheet handed over to them.

Even with all the measures taken to ensure there was no level playing field, and the ballot stuffing at a number of polling stations, the PML(N), was only able to win the second largest number of seats (75).

The former PTI members—running as independents—won the largest number of seats, 93 of the 266 up for grabs. The independents’ total seats could increase as they are contesting the result of over a dozen others they claim have been stolen from them. Nevertheless, Nawaz declared victory, and will try—with great difficulty, to form a coalition government with the Pakistan People’s Party (PPP) of the late Benazir Bhutto. The only bond between the PML(N) and the PPP is that their hatred of each other is slightly less than their hatred of the PTI.

International reaction to these elections, including from the US, the UK and the EU, was negative, with several countries calling for investigations into the allegations of vote-tempering and pre-poll obstructions. The Australian government also made it clear that that it was concerned that ‘the Pakistani people were restricted in their choice, since not all political parties were allowed to contest these elections’.

Notwithstanding the evidence to the contrary, much of it posted on social media platforms even though mobile internet connections were restricted, the Chief of Army Staff, General Asim Munir, commended the Electoral Commission for running such a successful election and stressed the significance of free and unhindered participation by Pakistani people in exercising their right to vote.

Similarly, the caretaker prime minister, Anwaarul Haq Kakar, believed that the ‘nation had accepted the results’ and the country needed to move on. Moreover, he brushed aside international criticism of the elections as ‘not that big a deal’.

Despite the compromised nature of these polls, a PML(N)-led coalition government is the most likely—but not certain—outcome of the elections. According to the latest reports, it would be led by Shehbaz Sharif, Nawaz’s younger brother who was prime minister after Khan was ousted in April 2022.

The real power will still be held behind the scenes by Nawaz Sharif. Given the fragility of the coalition, which will include smaller parties and non-PTI-leaning independents, this will be a weak government with little legitimacy. This is unfortunate given that whoever is prime minister will have to make some particularly difficult decisions on the economy, handle adroitly the country’s foreign relations, and manage a growing terrorist threat.

Pakistan is an economic mess, with 40% of the population living under the poverty line, an inflation rate that has hit 30%, a rupee whose value has halved in 10 years, and barely enough foreign exchange to cover the cost of imports for a month or so.

The country avoided economic meltdown in August 2023 by securing a standby arrangement of US$3 billion with the IMF. However, this bailout runs out in March and a new one—the 24th in Pakistan’s history—will need to be negotiated.

The IMF will undoubtedly demand that the government implement more austerity measures, including continuing to reduce subsidies on essential commodities. Imposing draconian economic measures on an already struggling population will not be easy, particularly given Nawaz’s lack of popular support. We can expect serious social unrest down the road.

A Shehbaz-led government will also have to deal with the growing terrorist threat, mainly but not solely from the Afghanistan-based Pakistan Taliban (TTP), which has continued to increase since the Taliban took over in neighbouring Afghanistan in August 2021. Pakistan has repeatedly demanded that the Taliban government of Afghanistan cease to support the TTP. But the Taliban isn’t about to turn on the TTP, an organisation with which it has deep ideological, operational, historical and tribal links. Kabul also knows that the Pakistani military doesn’t want to escalate this issue by pursuing the TTP unto Afghan territory. Moreover, given Pakistan’s poor fiscal position, it cannot afford another expensive military operation. Accordingly, Pakistan-Afghan relations will probably continue to be frozen, and the scourge of terrorism to fester.

This will not be well received by the leaders in Beijing who persistently press Pakistan to do more against the terrorists roaming the countryside regularly killing Chinese workers and officials working on the US$60 billion China-Pakistan Economic Corridor (CPEC).  Pakistan already has some 10,000 security personnel dedicated solely to the protection of Chinese interests in Pakistan. Still, relations with China will continue on an even keel or even deepen. It was after all under Nawaz’s third stint (2013-2018), that CPEC started.

Pakistanis can expect Indo-Pakistan relations to possibly improve. The personal dynamics between Nawaz and Indian PM Narendra Modi have been good in the past. Nawaz attended Modi’s 2014 inauguration and Modi visited Nawaz in Lahore in December 2015—the first visit by an Indian leader in more than a decade. But while Nawaz would probably be interested in improving relations with Delhi, it was the perception that he was warming up too much to the Indians when he was in power which critically contributed to the military orchestrating his downfall in 2017. Shehbaz, under the guidance of Nawaz, is unlikely to make the same mistake.

Despite Washington’s public criticism of Pakistan’s seriously flawed election, the Biden administration is committed to ‘strengthening its security cooperation’ with Islamabad regardless as to who eventually becomes prime minister. Pakistan continues to be a valuable regional partner, being in a unique position to monitor developments in Afghanistan.

Finally, whilst Washington may have had issues with the election process, it will absolutely not miss Imran Khan, who repeatedly accused the US of having been instrumental, with the help of Pakistan’s military, in his downfall in April 2022.

US Secretary of State meeting with General Asim Munir—the man who effectively runs Pakistan, in Washington only a few weeks before the elections only reinforced this common perception in Pakistan. However, given Munir’s massive miscalculation on the elections, his days may well be numbered.

How long the next prime minister will last in office is anyone’s guess, but given that no prime minister has ever completed their term in Pakistan’s 75-year history, it is suspect the odds are poor that Shehbaz Sharif will break that tradition.

Courtesy: The Strategist

 

Sunday 28 January 2024

Pakistan Elections 2024: Likely Outcomes

According to a report by Pakistan’s leading brokerage house, Topline Securities, after a lot of uncertainties, Pakistan Elections are all set for February 8, 2024, to elect representatives for the National and Provincial Assemblies for the next five years.

Many political analysts a few weeks back were not sure about timely elections due to legal, operational, and weather-related issues. Now it seems that all these issues have been settled, and the process is likely to be completed on time.

According to detailed strategy note titled 'Stock Market Recovery Has Just Begun; Index Likely to Reach 75,000 in 2024,' dated November 18, 2023, mentioned that things are now looking stable, and elections are likely to happen on February 8, 2024, contrary to earlier fears that elections may be delayed for a few years.

A smooth transfer of power to an elected government will help overcome concerns of bilateral and multilateral lenders, including the IMF, at a time when Pakistan is facing a severe external debt repayment challenge.

IMF in its country report in July 2023, stated that the new Stand By Agreement (SBA), can play a crucial role in anchoring policies ahead of the national elections due in the fall and until a new government is formed. IMF team also met with leaders of major political parties in Pakistan to get assurances of support for key objectives ahead of final approval of US$3 billion SBA in July 2023 crucial to save the country from default.

With only two weeks left for the Elections, political activities and election campaign is not what it used to be. This could be due to lack of interest by political parties or may be due to lesser competition in most of the constituencies after PTI did not get the “Bat” symbol.

Looking at the manifestos and promises of major parties, it seems no one is addressing the key economic challenges faced by Pakistan. Most of the parties are focusing more on the popular measures to gain public confidence amid record high inflation.

Comparing the performance of three large political parties in their last tenure, PML-N and PTI have performed relatively well on key economic indicators as against PPP. This has also being endorsed by a recent news analysis by Bloomberg whereas per Misery Index, PML-N (score 14.5%) has better record on managing the economy followed by PTI (score 16.1%) and then PPP (score 17.2%).

Considering the recent developments, the question investors are interested in is not who will win the elections but whether the new government will get a majority or if it will be a weak coalition government. As reported by leading political experts, it looks like PML-N will form a new coalition government. This is also supported by few recent surveys.

The brokerage house believes that in case one party gets 50% plus seats, that will definitely boost investors' confidence and markets will react positively. This will also give a positive signal to the IMF and other lenders. On the contrary, a coalition government with support of smaller parties will remain fragile and may struggle to implement the much-needed economic reforms.

Another key area to look for is how the new government will manage economic challenges, especially to deal with the IMF for a long-term program. Considering the not-so-pleasant experience with the PML-N nominated Finance Minister in the last opposition-led government of PDM, investors are eager to see the finance team of the new government.

The new government and its Finance Minister can play a significant role in negotiating with friendly countries for debt rollover/debt re profiling and finalizing a new IMF program that requires a lot of painful reforms.

Furthermore, it will be interesting to evaluate the new government's relationship with the establishment. Pakistan has a poor history of worsening civil-military relationships that have badly affected the political continuity, with negative implications for the economy and the markets.

Pakistan Stock market recovery is likely to continue in the year 2024. The brokerage house expects benchmark KSE-100 total return index to reach 75,000 by December 2024. However this is based on current low PE multiples without assuming any re rating amid high risk of debt sustainability. Investors may also see a post election rally in line with historical trend.

Smooth transfer of power to new government after elections, new long term funding program from IMF and expected fall in Interest rate will be the key drivers of equity market in 2024.

In spite of recent rally, Pakistan market is currently trading at PE of 3.7x based on 2024 estimated earnings. This is far lower than last 5 year and 10 year average PE of 6x and 8x respectively. This is even lower than countries that have defaulted on external debt. 

The brokerage house prefers high quality private sector companies with strong cash flows. In cyclical sectors it prefers Cement and Steel due to expected decline in policy rate and better volumetric sales. It also likes Banks due to unmatched valuation.

Its 2024 top picks include Meezan Bank (MEBL), United Bank (UBL), MCB Bank (MCB), Mari Petroleum (MARI), Lucky Cement (LUCK), Maple Leaf Cement (MLCF), Fauji Cement (FCCL), Engro Corporation (ENGRO), Pak Elektron (PAEL), Indus Motors (INDU) and Interloop (ILP).

On the other hand some mid and small caps have the potential to provide above average gains that includes Pakistan Aluminium Beverage Cans (PABC), Mughal Iron & Steel (MUGHAL), Image Pakistan (IMAGE), Tariq Glass (TGL), Century Paper & Board (CEPB), Panther Tyre (PTL), and Murree Brewery (MUREB).

 

Monday 15 January 2024

IMF Executive Board Completes First Review of Stand-By Arrangement for Pakistan

The Executive Board of the International Monetary Fund (IMF) has completed the first review of Pakistan’s economic reform program supported by the IMF’s Stand-By Arrangement (SBA). The Board’s decision allows for an immediate disbursement of SDR 528 million (around US$700 million), bringing total disbursements under the arrangement to SDR 1.422 billion (about US$1.9 billion).

Pakistan’s 9-month SBA was approved by the Executive Board on July 12, 2023, for the amount of SDR 2.250 billion (about US$3 billion at the time of approval), aims to provide a policy anchor for addressing domestic and external balances and a framework for financial support from multilateral and bilateral partners.

The program is focused on: 1) implementation of the FY24 budget to facilitate Pakistan’s needed fiscal adjustment and ensure debt sustainability, while protecting critical social spending; 2) a return to a market-determined exchange rate and proper FX market functioning to absorb external shocks and eliminate FX shortages; 3) an appropriately tight monetary policy aimed at disinflation; and 4) further progress on structural reforms, particularly with regard to energy sector viability, SOE governance, and climate resilience.

Macroeconomic conditions have generally improved, with growth of 2% expected in FY24 as the nascent recovery expands in the second half of the year.

The fiscal position also strengthened in Q1FY24 achieving a primary surplus of 0.4% of GDP driven by overall strong revenues. Inflation remained elevated, although with appropriately tight policy, anticipated to decline to 18.5% by end-June 2024. Gross reserves increased to US$8.2 billion in December, up from US$4.5 billion in June 2023. The exchange rate remained broadly stable.

The current account deficit is expected to rise to around 1.5% of GDP in FY24 as the recovery takes hold. Assuming sustained sound macroeconomic policy and structural reform implementation, inflation should return to the SBP target and growth continue to strengthen over the medium term.

Following the Executive Board discussion, Antoinette Sayeh, Deputy Managing Director and Chair, made the following statement:

“Pakistan’s program performance under the Stand-By Arrangement has supported significant progress in stabilizing the economy following significant shocks in 2022-23. There are now tentative signs of activity picking-up and external pressures easing. Continued strong ownership remains critical to ensure the current momentum continues and stabilization of Pakistan’s economy becomes entrenched.

“The authorities’ strong revenue performance in Q1FY24 as well as federal spending restraint have helped to achieve a primary surplus in line with quarterly program targets. However, in the context of pressures, including from provincial spending, efforts at mobilizing revenues and ongoing non-priority spending discipline need to continue to ensure that the budgeted primary surplus and debt goals remain achievable. Going forward, broad-based reforms to improve the fiscal framework—mobilizing additional revenues particularly from non-filers and under-taxed sectors and improving public financial management—are required to create fiscal space for further social and development spending.

“The authorities took challenging steps to bring both electricity and natural gas prices closer to costs in 2023. Continuing with regularly-scheduled adjustments and pushing cost-side power sector reforms are vital to improving the sector’s viability and protecting fiscal sustainability.

“Inflation remaied high, affecting particularly the more vulnerable, and it was appropriate that the SBP maintains a tight stance to ensure that inflation returns to more moderate levels. Pakistan also needs a market-determined exchange rate to buffer external shocks, continue rebuilding foreign reserves, and support competitiveness and growth. In parallel, further action to address undercapitalized financial institutions and, more broadly, vigilance over the financial sector is necessary to support financial stability.

“Boosting jobs and inclusive growth in Pakistan requires continuing protection of the vulnerable through BISP and accelerating structural reforms, most notably around improving the business environment and leveling the playing field for investors, advancing the SOE reform agenda and safeguards related to the Sovereign Wealth Fund; strengthening governance and anti-corruption institutions; and building climate resilience.”

 

Sunday 19 November 2023

Pakistan: IMF Reaches Staff Level Agreement

International Monetary Fund (IMF) staff and the Pakistani authorities reached a staff-level agreement on the first review under Pakistan’s Stand-By Arrangement (SBA), subject to approval by the IMF’s Executive Board. Upon approval, Pakistan will have access to SDR 528 million (around US$700 million).

The agreement supports the authorities’ commitment to advance the planned fiscal consolidation, accelerate cost-reducing reforms in the energy sector, complete the return to a market-determined exchange rate, and pursue state-owned enterprise and governance reforms to attract investment and support job creation, while continuing to strengthen social assistance.

An IMF team, led by Nathan Porter, visited Islamabad from November 2-15, 2023, to hold discussions on the first review of Pakistan’s economic program supported by an IMF Stand-By Arrangement (SBA). At the conclusion of the discussions, Porter issued the following statement:

“The IMF team has reached a staff-level agreement (SLA) with the Pakistani authorities on the first review of their stabilization program supported by the IMF’s US$3 billion (SDR2,250 million) SBA. The agreement is subject to approval of the IMF’s Executive Board. Upon approval around US$700 million (SDR 528 million) will become available bringing total disbursements under the program to almost US$1.9 billion.

“Anchored by the stabilization policies under the SBA, a nascent recovery is underway, buoyed by international partners’ support and signs of improved confidence. The steadfast execution of the FY24 budget, continued adjustment of energy prices, and renewed flows into the foreign exchange (FX) market have lessened fiscal and external pressures. Inflation is expected to decline over the coming months amid receding supply constraints and modest demand. However, Pakistan remains susceptible to significant external risks, including the intensification of geopolitical tensions, resurgent commodity prices, and the further tightening in global financial conditions. Efforts to build resilience need to continue.

“In this regard, strengthening macroeconomic sustainability and laying the conditions for balanced growth are key priorities under the SBA. The authorities’ policy priorities include:

Continued fiscal consolidation to reduce public debt, while protecting development needs. The authorities are determined to achieve a primary surplus of at least 0.4 percent of GDP in FY24, underpinned by federal and provincial government spending restraint and improved revenue performance supported, if necessary, by contingent measures. The authorities are building capacity to expand the tax base and raise revenue mobilization and are committed to improving the quality of public investment and spending.

Strengthening the social safety net to better protect the vulnerable. The authorities will continue the timely disbursements for social protection under BISP’s budget allocation—which are about a third higher than in FY23. This will allow for the expansion of the Unconditional Cash Transfers (UCT) Kafaalat program to 9.3 million families this fiscal year, with an annual inflation adjustment of the stipend. Looking forward, the authorities are seeking to improve the UCT Kafaalat generosity level and to increase enrollment into the Conditional Cash Transfers programs supporting children’s education and health.

Further reforms to reduce costs in the energy sector and restore its viability. With the combined circular debt (CD) across power and gas sectors exceeding 4% of GDP, immediate action was critical. While protecting vulnerable consumers, the authorities implemented power tariff adjustments that were pending since July 2023 and increased gas prices after a long time, effective November 01, 2023. While these increases were substantial, they were necessary to avoid further arrears that threatened the viability of these sectors and the provision of critical energy supplies. The authorities are also moving to tackle cost-side pressures, including bringing private sector participation to DISCOs, institutionalizing recovery and anti-theft actions, improving PPA terms, and reducing the incentives for captive power.

Returning to a market-determined exchange rate and rebuilding FX reserves. While inflows following increased regulatory and law enforcement helped normalize import and FX payments and rebuild reserves, the authorities recognize that the rupee must remain market-determined to sustainably alleviate external pressures and rebuild reserves. To support this, they plan to strengthen the transparency and efficiency of the FX market and to refrain from administrative actions to influence the rupee.

Proactive monetary policy to lower inflation toward its target. With appropriately tight monetary policy, inflation should steadily decline and the authorities stand ready to respond resolutely if near-term price pressures reemerge, including due to second-round effects on core inflation or renewed exchange rate depreciation.

Building financial sector resilience. Continued vigilance is warranted to safeguard the soundness of the banking system. Priorities include addressing undercapitalized financial institutions, ensuring foreign exchange exposures within regulatory limits, and aligning bank resolution and crisis management frameworks with best practice.

Continuing state-owned enterprise and governance reforms to improve the business environment, investment, and job creation. Following passage of the State-Owned Enterprises (SoE) law, the authorities are moving forward with their SoE policy and implementation of their triage plan, including the privatization of select SoEs. High governance and transparency standards will apply to the management of assets under the ownership of the newly created Sovereign Wealth Fund (SWF) and the operations of the SIFC. To further strengthen governance, the authorities will ensure public access to asset declarations from Cabinet members and a task force, with participation from independent experts, will complete a comprehensive review of the anticorruption framework.

Deepening cooperation with international partners. The authorities have accelerated the engagement with multilateral and official bilateral partners. Timely disbursement of committed external support remains critical to support the authorities’ policy and reform efforts.

“The IMF team thanks the Pakistani authorities, private sector, and development partners for fruitful discussions and cooperation throughout this mission.”

 

Wednesday 16 August 2023

Dr Shamshad Akhtar Prudent Choice as Caretaker Finance Minister

In the current economic landscape, it is evident that the role of the Caretaker Finance Minister is strategically important in the team of the Caretaker Prime Minister. While following the prudent decision making process, the appointment of Dr Shamshad Akhtar as the Caretaker Finance Minister is commendable.

Dr Akhtar's track record showcases her adroitness in handling intricate economic scenarios, demonstrated notably during the 2008 global financial crisis when she served as Governor State Bank of Pakistan (SBP) Governor, and again in 2018 during her tenure as the Caretaker Finance Minister.

As the Under-Secretary General of the Economic and Social Commission of the Asia and Pacific (UNESCAP) and the United Nations Secretary General’s Senior Special Advisor on Economics and Finance, Dr Akhtar oversaw the implementation of the sustainable development agenda including economic, social, and environmental and finance work of the UN Department of the Economic and Social Affairs.

During her term at UN, she was UN Secretary General’s Sherpa for Development and the Finance and Central Bank tracks. Among others, she was closely involved in the development and implementation of the 2030 Sustainable Development Agenda (SDG), the Addis Ababa Financing frameworks and work on the Paris Climate Accord and ensured closer alignment of G20 development agenda with the 2030 SDG agenda.

Dr Akhtar served as the Vice President, Middle East and North Africa at the World Bank, the Director General of Asian Development Bank (ADB) and served as the Special Senior Advisor to the President of ADB.

Dr Akhtar is recipient of Asia’s Best Central Bank Governor from Emerging Markets and the Banker’s Trust awards. In 2008, The Wall Street Journal Asia recognized her as one of Asia’s top ten professional women. Recently in 2020, she has been awarded the HUM Women’s Leadership Global Award.

Dr Akhtar in now serving as the Chairperson of few Boards in Pakistan: Chairperson of the Pakistan of Stock Exchange, Chairperson on the Board of Sui Sothern Gas Transmission and Distribution company, Chairperson of the Karandaaz – an innovative nonprofit company—grant funded by DFID/Bill Melinda to promote financial and digital inclusion, Chairperson, Pakistan Institute of Corporate Governance and as Independent Director, Engro Fertilizer Company and Advisor on Pakistan Environment Trust Fund.

Dr Akhtar is Member of the Advisory Council of the Sustainable Finance Centre at the SOAS at London University, Member of UN Global Women Leaders Group, served on G20 Task Force member of the Think Tank on Infrastructure during the Presidency of Japan, Saudi and Italian Government.

She served as an Advisor of SG Food Security and Financing for Development Group, one of the 12 Global Advisors to the Ministry of Foreign Affairs on China on Belt and Road, Council of Advisor and Policy Sherpa for the Boao Forum for Asia and Advisor to the Shanghai Forum.

She has conducted analytical work as Chair of the Pakistan Reform Insurance Committee, Capital Markets reforms and the Special Economic Zones etc. She serve as speaker on diverse set of international and national panel.

 

Sunday 6 August 2023

Pakistan: Growing uncertainty about election

The developments on the weekend have introduced an element of uncertainty by bringing up the prospects of a delay in national elections.

It is believed that Pakistan may find it easier to comply with the ongoing IMF program under a caretaker setup, which is a plus. However, inordinate delays in holding elections may risk timely entry into a successor program which would be a key dampener.

Prime Minister Shehbaz Sharif has proposed to dissolve the National Assembly on August 9, 2023 three days before the government’s term will end. The timing is important as early dissolution allows for elections to be held within ninety days, instead of sixty days if assemblies complete their tenure. The members of the coming caretaker government have yet to be announced.

It has also been decided that elections will be held as per the new census which concluded earlier in the year (Pakistan’s population is now 241.49 million).

The initial reaction by the law minister as well as the Election Commission points towards a potential delay in elections, perhaps by a few months, subject to how quickly new constituency boundaries can be drawn up under the 2023 census. This brings up the prospects of an extended caretaker setup, as continues to be the case in Punjab and Khyber Pakhtunkhwa provinces.

The weekend developments include Imran Khan’s arrest following a lower court ruling in a graft case. Unlike in May, when Khan’s arrest was followed by public uproar, there has barely been any protest this time around.

Although, the ruling is likely to be challenged in higher courts, and may well be overturned, the writing is on the wall - Imran Khan is unlikely to be allowed to participate in elections whenever they do take place, with the next government likely to be led by either the PML-N or the PPP. 

The developments on the weekend have introduced an element of uncertainty by bringing up the prospects of a delay in national elections.

It is believed that Pakistan may find it easier to comply with the ongoing IMF program under a caretaker setup, which is a plus. However, inordinate delays in holding elections may risk timely entry into a successor program which would be a key dampener.

Prime Minister Shehbaz Sharif has proposed to dissolve the National Assembly on August 9, 2023 three days before the government’s term will end. The timing is important as early dissolution allows for elections to be held within ninety days, instead of sixty days if assemblies complete their tenure. The members of the coming caretaker government have yet to be announced.

It has also been decided that elections will be held as per the new census which concluded earlier in the year (Pakistan’s population is now 241.49 million).

The initial reaction by the law minister as well as the Election Commission points towards a potential delay in elections, perhaps by a few months, subject to how quickly new constituency boundaries can be drawn up under the 2023 census. This brings up the prospects of an extended caretaker setup, as continues to be the case in Punjab and Khyber Pakhtunkhwa provinces.

The weekend developments include Imran Khan’s arrest following a lower court ruling in a graft case. Unlike in May, when Khan’s arrest was followed by public uproar, there has barely been any protest this time around.

Although, the ruling is likely to be challenged in higher courts, and may well be overturned, the writing is on the wall - Imran Khan is unlikely to be allowed to participate in elections whenever they do take place, with the next government likely to be led by either the PML-N or the PPP. 


Thursday 20 July 2023

IMF report on Pakistan: Indictment of Sharif government

The IMF staff level report on its new, short-term bailout loan of US$3 billion for Pakistan is a damning indictment of the Shehbaz Sharif government’s economic and financial policies that deepened the trust gap between Islamabad and the lender, and pushed the country towards the precipice in the last nine months, is the opening paragraph of DAWN editorial.

Policy missteps and breach of the previous Extended Fund Facility program had compelled the lender to halt the disbursement of funds, closing the door on other multilateral and bilateral financing.

The IMF document, released on Tuesday, also spells out the program’s goals, many of which, such as increased energy prices, will directly burden the people. It blames the Finance Ministry and State Bank for their frequent tinkering with the market-based exchange rate mechanism, leading to the growth of a large foreign exchange black market. It is also critical of the central bank for resisting a timely increase in interest rates.

That is not all. The report points out that the government balked at maintaining fiscal discipline, cutting non-essential spending, broadening the tax net, controlling the drivers of the power sector’s circular debt, and improving SOE governance.

In view of its experience with Pakistani authorities, the IMF has warned that continuation of the new program will depend on the implementation of fiscal discipline, a return to a market-determined exchange rate and proper functioning of the foreign exchange market, a tight monetary policy aimed at disinflation, and progress on structural reforms, particularly with regard to the energy sector, SOEs and climate resilience.

The report also cautions against the exceptionally high downside risks to the Stand-by Arrangement goals emanating from a tense political environment and potential deviation from agreed policies. Such risks could undermine the program’s implementation, and jeopardize macro-financial and external stability and debt sustainability, leading Pakistan to seek foreign debt restructuring.

Additionally, it says that external financing risks remain high, and delays in disbursement of external financing from IFIs and bilateral creditors would endanger the fragile external balance given limited buffers. Spillovers from Russia’s invasion of Ukraine through high food and fuel prices, and tighter global financial conditions continue to put pressure on the budget.

Highlighting Pakistan’s large gross financing needs of US$28.3 billion, including the US$6.4 billion current account deficit, during this fiscal year, it stresses that multilateral and bilateral support will remain critical for Pakistan beyond the upcoming elections and the SBA.

It is a foregone conclusion that the next government will need another, longer-term IMF program to resolve structural challenges and meet high external debt obligations over the next few years. For that to happen, the country has to achieve the SBA goals, come what may.

 

Saturday 15 July 2023

Pakistan Stock Exchange benchmark index posts 1.9%WoW gain

Pakistan Stock Exchange witnessed bullish sentiments during the first three trading sessions. However, profit-taking by investors resulted in market closing in red during the last two sessions. Still the benchmark index managed to gain 861 points during the week ended on July 15, 2023 and close at 45,068 points, up 1.9%WoW.

Market participation remained healthy with daily traded volume averaging at 352 million shares as compared to an average of 265 million shares during the earlier week up 33%WoW.

The market performance was characterized by the IMF’s executive board’s approval of the SBA (Stand-By Arrangement) and the inflow of US$1.2 billion. Additional support was provided by influx of US$2.0 billion from Saudi Arabia and US$1.0 billion from United Arab Emirates. The inflows would reflect in the next week's reserve numbers held by State Bank of Pakistan (SBP) which are anticipated to cross US$8 billion mark after 9 months. As of July 07, SBP held reserves were reported at US$4.5 billion.  As a result PKR gained 0.11%WoW to close at PKR277.6/ US$ parity.

Other major news flows during the week included: 1) steps taken to broaden tax base, 2) July-May LSMI output declined 9.87%YoY, 3) FY23 remittances fall 13.6%YoY to US$27 billion, 4) car sales plunged 82% in June and 59% in the last financial year, 5) GoP announced to mobilize additional PKR3.2 trillion from power consumers and 6) during Jan-May period 4.88 million mobile phones manufactured in country.

Chemical, Automobile Parts & Accessories, and Leather & Tanneries emerged the top performers. Close-End Mutual Fund, Technology & Communication, and Textile Spinning were amongst the worst performers.

Flow-wise, major net selling was recorded by Mutual Funds with a net sell of US$5.97 million. Individual absorbed most of the selling with a net buy of US$3.93mn.

Top performing scrips were: during the week were: UNITY, HCAR, COLG, PSMC, and AIRLINK, while laggards included: GADT, UPFL, SHEL, PGLC, and TRG.

Stock market is expected to remain positive, owing to growing foreign exchange reserves and consequent improvements in the PKR/ US$ parity.

At present market offers attractive valuation. However, upcoming results may exert pressure on bullish sentiment due to the retrospective imposition of the super tax.

Investors are advised to follow a cautious approach in the selection of scrips and focus on stocks with dollar-denominated revenue streams (Tech and E&Ps) and companies with healthy dividend-yields.

 

 

Tuesday 11 July 2023

Pakistan: Excessive reliance on IMF may prove disastrous

Reading today’s’ headlines about approval of IMF package for Pakistan leaves a strange feeling. I am inclined to draw an inference, “Pakistan is not on the priority list of lender of last resort ‑ International Monetary Fund (IMF)”. Please keep in mind that a paltry amount of US$3 billion is to be disbursed to Pakistan over the next nine months.

To begin with, these nine months are very critical for Pakistan because: assemblies will complete their term, interim government has to be put in place and general elections have to be held. Allow me to say that during these months Pakistanis should not expected any improvement in the economic conditions, on the contrary, the economy could go from bad to worse.

Many analysts say, “The incumbent government has wasted time in debating ‘non-issues’ and refrained from taking some important decisions to put the economy on track”. The GDP growth rate is likely to remain below one percent, exporters are fast losing their competitiveness, hike in interest rate leaves no amount to undertake developmental work and efforts to contain import of raw materials are proving counterproductive.

It is feared that the interim government may defer elections on some flimsy grounds which could further deteriorate the economic landscape. Seeking new foreign exchange deposits from friendly countries and rolling over existing debts is plunging Pakistan deeper into debt trap.

Friday 30 June 2023

IMF standby arrangement for Pakistan: Too little too late

Pakistan has finally entered into a new US$3 billion short term Standby Arrangement (SBA) spread over 9 months. The country has entered into such SBA in the past in 2000 and 2008.

The deal — subject to approval by the IMF Board in July — comes after an eight-month delay and offers some respite to Pakistan, which is battling an acute balance of payments crisis and falling foreign exchange reserves.

The positive point is that the US$3 billion funding, spread over nine months, is higher than expected for Pakistan. The country was awaiting the release of the remaining US$2.5 billion from a US$6.5 billion bailout package agreed in 2019, which expires on June 30, 2023.

The new stand-by arrangement is built on the 2019 program, IMF official Nathan Porter said in a statement on Thursday, adding that Pakistan’s economy had faced several challenges in recent times, including devastating floods last year and commodity price hikes following the war in Ukraine.

“As a result of these shocks as well as some policy missteps — including shortages from constraints on the functioning of the FX market — economic growth has stalled. Inflation, including for essential items, is very high,” he added.

“Despite the authorities’ efforts to reduce imports and the trade deficit, reserves have declined to very low levels. Liquidity conditions in the power sector also remain acute,” Porter said in a statement.

“Given these challenges, the new arrangement would provide a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead,” he said.

The IMF’s press release states, “The IMF staff and the Pakistani authorities have reached a staff-level agreement on policies to be supported by a Stand-By Arrangement (SBA).”

It added that the new SBA will “support the authorities’ immediate efforts to stabilize the economy from recent external shocks, preserve macroeconomic stability and provide a framework for financing from multilateral and bilateral partners”.

“The new SBA will also create space for social and development spending through improved domestic revenue mobilization and careful spending execution to help address the needs of the Pakistani people,” the IMF said.

It further said, “Steadfast policy implementation is key for Pakistan to overcome its current challenges, including through greater fiscal discipline, a market-determined exchange rate to absorb external pressures, and further progress on reforms, particularly in the energy sector, to promote climate resilience, and to help improve the business climate.”

It added that the budget advances a primary surplus of around 0.4% of GDP by taking some steps to broaden the tax base and increase tax collection from under taxed sectors, as well as improving progressivity, while ensuring space to strengthen support for the vulnerable through the BISP (Benazir Income Support Program)”.

“It will be important that the budget is executed as planned, and the authorities resist pressures for unbudgeted spending or tax exemptions in the period ahead,” the lender emphasized.

It went on to note that the State Bank of Pakistan (SBP) has “withdrawn the guidance on import prioritization and is committed to ensuring the full market determination of the exchange rate”.

“Going forward, the SBP should remain proactive to reduce inflation, which particularly affects the most vulnerable, and maintain a foreign exchange framework free of restrictions on payments and transfers for current international transactions and multiple currency practices,” the IMF highlighted.

 

Wednesday 17 May 2023

Pakistan: Ruling junta seems least concerned about FY24 Federal Budget

Today is May 17, 2023 and the Federal Budget for next Financial Year (FY24) is scheduled to be announced on June 02, 2023. I hardly see any debate in the print or electronic media on the likely facets of the Budget.

The growing concern among the analysts is that the incumbent government will accept all the conceivable conditions of the International Monetary Fund (IMF) to get the withheld tranche released, amounting to roughly one billion US dollar.

The analysts have this perception based on the fact that meeting the IMF conditions will be the headache of next elected government.

They also have the consensus that in the next budget the existing tax rates will be increased and new taxes will be introduced. On top of that super tax will also be introduced.

Along with this, subsidies will be withdrawn, levies applicable on energy products will be increased.

The government will not be able to boost exports or contain imports.

The quantum of informal import ill increase.

The quantum of PSDP will also be reduced.

The bottom line is, GDP growth will remain below one percent or negative.

The most alarming point is that the government will not be able to offer any income support program, poor will get poorer and rich will get richer.

 

 

 

 

 

 

 

 

 

Friday 12 May 2023

New expressions being used to describe Pakistan-IMF relations

Some scary words were heard about Pakistan politics and economy on Thursday about. Historically, politics has always remained volatile in Pakistan. However, the current status of economy needs utmost as well as immediate and focused attention of all the stakeholders.

A statement came out from IMF yesterday morning saying that the Fund remains engaged with Pakistan on the program, despite the recent happenings in politics which give some confidence to market participants.

However, the same statement says that the country will ‘durably allow, market-based exchange rate and will scrap the fuel subsidy program. PKR depreciated and was very close to crossing the PKR300 mark.  

Another IMF statement on Pakistan yesterday said that the country requires ‘significant’ more financing in order for IMF SLA to go through.

The explicit meaning of ‘durably allow’ and ‘significant’ is very unclear right now as it is difficult to understand what exactly more is required from the IMF side.

Finance Minister also spoke in an event yesterday saying we will not accept IMF demands any more as a lot has already been done and Pakistan will not default, without the IMF.

It appears he meant to say Pakistan will not default without IMF under his remaining tenure which is of less than 3 months now before the term of current government ends.

 

Friday 28 April 2023

Pakistan Stock Exchange benchmark index posts 1.4%WoW gain

The week ended on April 28, 2023 was marred with political uncertainty. The United States asked Pakistan to move ahead on stalled reforms by the IMF, while promising technical help in worst economic times. The IMF awaits clarity on the cross fuel subsidy scheme. In addition to this, foreign exchange reserves inched by US$30 million to US$4.5 billion as on April 20, 2023, culminating to an import cover of less than a month.

The KSE-100 index closed the week at 41,581 points, posting 1.40%WoW gain. Participation in the market was a pleasant surprise, daily trading volumes averaging a little above 208 million shares during the week as compared to around 105 million shares in the prior week depicting 98%WoW gain.

Other major news flows during the week included: 1) Saudi Arabia expected to sign deal for US$2 billion deposits after Eid, 2) GoP cuts growth rate to 0.8 percent, 3) profit repatriation during first 9 months of the current financial year plunges by 82% to US$233 million, 4) CPPA-G seeks positive adjustment of PKR1.17/unit, 5) regulator asks DISCOS to freeze capacity payments and 6) GoP bank borrowings surge 182% to PKR3 trillion.

Top performing sectors were: Vanaspati & Allied Industries, Tobacco, and Investment Banks, while the least favorite sectors included: Close End Mutual Funds, Leasing Companies, and Glass & Ceramics.

Top performing scrips were: POML, SRVI, DAWH, UBL, and MUREB, while laggards included: PGLC, HGFA, KAPCO, BOP, and PIBTL.

Flow wise, Companies were the major buyers with net buy of US$15.9 million, followed by individuals with net buy of US$14.17 million, while Mutual Funds were major sellers during the week, with a net sell of US$1.63 million.

According to media reports, Saudi Arabia and UAE have intimated IMF on financing support giving a relief on external financing shortfall of US$6 billion will dictate the market performance in near term. Moreover, political situation will be in limelight till general elections are held. Keeping that in view, analysts continue to advise scrips that have dollar-denominated revenue streams which hedges the investor against the currency risk, that include the Technology and E&P sectors.

Wednesday 5 April 2023

Business community slams hike in interest rate

While slamming another 100 basis points (bps) hike in the benchmark interest rate to a record 21%, the business community on Tuesday questioned the government’s approach of fighting inflation by jacking up lending rates saying the strategy has failed to produce desired results but slowed down economic activities.

“The entire business community has refused to accept the 100 bps hike in the policy rate to an all-time high at 21%,” announced Federation of Pakistan Chambers of Commerce and Industry President Irfan Iqbal Sheikh.

In a statement, he said the benchmark interest rate has risen by a whopping 1125 bps in the last 14 months but failed to check inflation. “If that is not the governance and regulatory failure, then what would the failure look like to move the government for a course correction? he asked.

The trimming of growth projections by both the World Bank and the Asian Development Bank to less than half a percent for FY23 is the direct outcome of the regressive, IMF-dictated and recessionary monetary policy which has dried out the access to finance for businesses, the FPCCI chief lamented.

The country’s exports have posted negative growth for the seventh month in a row and the two major industries like textile and IT have persistently been facing a decline.

He said the 21% interest rate is far higher compared to what is prevailing in China, India and Bangladesh at 2.75%, 6.5% and 6% respectively.

Inflation in Pakistan, however, appears to be deep-rooted and it mainly stems from substantial exchange rate depreciation, unprecedented hike in international commodity prices, multiple rounds of hikes in energy tariffs and other prescribed measures under the IMF program, he noted.

Despite raising the SBP policy rate to 21% in the current month, inflation remained stubbornly high and a further surge is a manifestation of an utter failure of the monetary policy, the FPCCI president observed.

Pakistan Business Council chief executive Ehsan Malik said the latest hike in the policy rate, much like other recent rises, would do nothing to control cost-push and devaluation-led inflation.

“Nor in this politically turbulent time will it buffer the value of the rupee,” he added. On the other hand, he said it would raise the cost of borrowing for the formal sector already suffering from low capacity utilization due to an import crunch.

“It is time that the State Bank of Pakistan (SBP) adopts a more differentiated stance on the use of monetary policy,” Ehsan said.

SITE Association of Industry President Riaz Uddin said the hike in the interest rate would further increase the cost of doing business which is already hit by rupee devaluation against the dollar, rising gas and power bills, dollar crisis, shutdowns of various industries due to raw material shortage, etc.

Courtesy: Dawn