Pakistan Economy

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Apr 11, 2017
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Monetary Policy Statement
Policy Rate unchanged at 13. 25%


On the external front the figures have continued to show improvement with CAD declining 74% YoY during 4MFY20 to settle at USD 1.5bn.

During the peri od, total imports have witnessed a drasticcontraction of 21% YoY while an encouraging sign was the improvement in total exports by 10% YoY (volumetric growth of rice, textile made-ups, leather products, and fish and meat). The improvementin CA continued in Oct'19, settling at a surplus of USD 99mn. Higher FDI and continuous inflows onaccount of T-Bills investment have helped the Capital and Financial Account. The improvement inthe Balance of Payments has succeeded in achieving an appreciation of the local currency by 5.6% since Jun'19. Resultantly, gross reserves have witnessed a build-up by USD 1.2bn FYTD whileforeign currency swapslforward liabilities have come down by USD 2bn.

Fiscal

Taxati Dn reforms (FBR tax revenue up 16% YoY during 4MFY20) and stringent controls over non-development expenditure have paced up fiscal consolidation efforts. PSDP releases have more thandoubled YoY during 4MFY20. Moreover, the government has strictly adhered to IMF's restriction on borrowing from the central bank which has a positive impact on the inflation outlook. SBP notes that continued fiscal prudence is imperative for sustainability of improvement in market sentiment.

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Apr 11, 2017
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Monetary Policy Statement
Policy Rate unchanged at 13. 25%


Inflation Outlook

Slow economic activity has led to a contraction in private sector credit by PKR 4.1bn during 4MFY20 (up by PKR 223bn SPLY). However SBP's LTFF has helped stimulate fixed investment loans by PKR 11.3bn during the said period.

Inflation (new index) is up 11% YoY/1.8% MoM during Oct'19. The uptick was higher than expectations on account of upwards adjustment in utility prices and rise in food inflation on account of temporary supply disruptions. If the recent trend persists, inflation expectations could be affected.However the SBP sees this recent uptick as temporary and on the back of contracting aggregate demand and appreciation of currency, expects inflationary pressure to recede during 2HFY20.Current monetary policy according to the SBP is on track to pull down inflation to 5-7% over the next 24 months.
 
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Monetary Policy Statement
Analyst Briefing Takeaways


The SBP held its analyst briefing whereby the Governor Reza Baqir discussed the background of the MPS. Key considerations behind MPS are as follows:
  • Inflation projections remain unchanged at 11-12%.
  • Projected real interest rates take account of the expected headline inflation. Pakistan's real interest rates are comparable with other countries to the likes of India, China, Egypt, Philippines, Indonesia, turkey etc.
  • Recent Inflationary outcomes have been on the higher side. Food and energy have been primary contributors. Food inflation in perishable foods is due to supply issues and temporary in nature and does not necessitate a monetary response, However, persistent food inflation might force people to demand higher wages which will augment the cost of production, if incorporated. Consequently, supply side shocks might lead to a second round of inflation,
  • YoY growth in personal time deposits has outperformed other categories showing that depositors have shifted their deposits to time deposits and started benefitting from higher returns.
  • With decline in real effective exchange rate, current account balance as well as non-oil current account balance have improved significantly.
  • Pakistan's competitiveness increased against its export competitors as the increase in REER exceeded the average of export competitors. With the recent depreciation of PKR, Pakistan is now much more competitive than other regi anal exporters. Pakistan is now exporting tractors to Africa, exporting auto parts to Germany and planning to establish tyre manufacturing facility to serve export markets·
  • Foreign exchange reserves increased by USD 1.1bn, while forward swap liabilities declined by USD 1.95bn. in addition, FE25 deposits have stopped increasing showing suspension of dollarisation. De dollarisation helps the SBP transmit monetary policy.
  • Fixed investment has been witnessed in power, textiles, chemicals showing improvement in the investment climate in these sectors.
  • PSDP releases during 4MFY20 have increased to PKR 257bn from PKR 106bn. The impact of these releases will become more visible after a certain period of time amid lagged impact.
  • On the tax front, collection from domestic sales tax has increased significantly. Underlying reasons for increase in collection are widening of tax net and improved domestic business activity.
  • IBA business confidence survey shows that business confidence has improved in Oct'19.
ARIF HABIB LIMITED
 
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“Damned if you do, damned if you don't," someone who should be credited for having current account surplus rightly said on the so-called media bashing upon having one-month current account surplus after four years. A few months back everyone was saying that there is no significant reduction in current account deficit despite currency depreciation and interest rate hike, and now when the proof is in the pudding, everyone is an economist to differentiate between good and bad current account deficit or surplus. Just a few days ago, everyone was a chef recommending recipes of chicken karahi without tomatoes.

There are two lessons to learn. First, not everyone is expert on everything, and people should refrain from commenting on what they don't know. The other lesson is to do away from the mindset of criticizing your opposition, even when the ground realities are stark opposite to what you say- one may lose credibility in the process. PM IK used to do this when he was in opposition, and now all the other stakeholders have joined against him, and are doing it in an ugly form.

For those who are actually confused on what kind of current account position is good for us. It is worth mentioning that economies like Germany, China and Singapore are running current account surpluses, and even Pakistan's new aspiration Vietnam is running current account surplus. But that does not mean current account deficit is always bad.

https://www.brecorder.com/2019/11/24/547202/ca-myths-and-realities/
 
Apr 11, 2017
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Economy: SBP keeps Policy Rate intact at 13.25% - in line with our expectations

§ The State Bank of Pakistan (SBP) announced the last monetary policy of 2019, where the Central Bank kept the Policy Rate intact at 13.25% - in line with our expectations.

§ While acknowledging the recent positive developments of a Current Account surplus in Oct-2019 (first in four years) and an estimated primary fiscal surplus in 1QFY20, the Central Bank took into special consideration recent and upcoming higher inflation readings (especially MoM) - albeit temporary because of higher food inflation (we expect Nov-2019 NCPI at 12.6% YoY). The bank reiterated that it expects inflation to drop in 2HFY20. The governor also highlighted in his briefing that Pakistan real interest rates remain in line with other countries.

§ That all said, SBP kept its inflation target for FY20 intact at 11-12%, while the bank targets inflation to drop to 5-7% over the next 24 months.

§ SBP remains confident in sustainability of recent improvements in external account given (1) better competitiveness of Pakistan exports due to recent devaluation/adjustment of PKR, (2) continuous foreign flows into Pakistan fixed income instruments - reaching US$1,075mn (1,072mn in T-bills and 3mn in PIBs) in FY20 YTD and (3) reduction of dollarization in the economy as locals are converting USD into PKRs (driven by higher term deposit rates).

§ SBP still expects GDP growth to clock in at 3.5% in FY20, which is number they are willing to revisit given lower-than-targeted cotton production and dismal Large-Scale Manufacturing (LSM) numbers so far.

§ Other key points from the SBP governor’s briefing were:

§ SBP has launched a survey of Other Forecasters, of which the findings for GDP growth expectations for FY20 is 2.7% and for FY21 is 3.3%. The survey expects inflation to average at 11.1% in FY20 and 8.5% in FY21.

§ The survey conducted by IBA shows improvement in overall business environment.

§ Fixed investment is picking up mainly in the textile, power and chemical sectors due the availability of cheaper long term financing facility of SBP.

§ There are signs the real sector is bottoming out (though too early to make a definitive statement) as Large Scale Manufacturing (LSM) is down 6% YoY in 1QFY20.

§ In spite of fiscal consolidation, federal release of PSDP has doubled YoY to PKR257bn in 4MFY20.

Regards,
Syed Atif Zafar
 
Apr 11, 2017
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*MORNING NEWS*
*Monday, November 25, 2019*

*Lack of NOCs stops exploration work on 24 blocks* | The auction of 24 oil and gas exploration blocks has been delayed for more than six months https://bit.ly/2D98Aqc

*CPEC to push Pakistan deeper into debt burden, cautions US* | The United States has warned Pakistan that the China-Pakistan Economic Corridor (CPEC) https://bit.ly/2sfqy8n

*'Pakistan's relations with China will never fray': Asad Umar responds to US concerns over CPEC* | Newly appointed Minister for Planning Asad Umar on Saturday set the record straight https://bit.ly/34s4i9e

*Trade ties to set record this year: US* | Trade ties between Pakistan and the United States are set to witness a new record this year as President Donald Trump … https://bit.ly/2QMl3Z6

*Water diversion by India delays 1,124MW Kohala project* | The Kishanganga Hydroelectric Plant has started to have an adverse effect on Pakistan https://bit.ly/2OcVyOJ

*Dasu project: deadline extension sought* | The government has requested the World Bank to extend deadline for utilisation of funds for land acquisition and resettlement https://bit.ly/34h5vjJ

*Hutchison Ports invests despite Pakistan's slowing economy* | The government’s focus on accelerating economic growth and providing an enabling environment for investment https://bit.ly/34kfJjq

*FBR to go after 17,000 big retailers in latest documentation drive* | In a major tax documentation drive, the Federal Board of Revenue (FBR) has decided… https://bit.ly/37qWl6e

*Chinese SMEs eager to relocate to Pakistan* | Chinese small and medium enterprises (SMEs) are willing to relocate to Pakistan, which will support the government’s programme https://bit.ly/2QK5SiY

*Government urged to shun practice of depending on foreign loans* | The Businessmen Panel (BMP) of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has asked…. https://bit.ly/2QSfEzL (BR)

*Govt implements Authorised Economic Operator programme to facilitate trade* | The government launched first-of-its-kind trade facilitation https://bit.ly/2D98sXK

*Centre releases Rs 160.59 billion under PSDP* | The federal government has released Rs 289.16 billion (41.25 percent) https://bit.ly/34hAFYm

*Oil Resumes Gain as Investors Monitor Back-and-Forth Trade Talks* | Oil resumed gains as investors monitored developments in the back-and-forth trade talks https://bloom.bg/33mSCne

_Regards_
_IsmailIqbal Securities_
 
Apr 11, 2017
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*Monday, November 25, 2019*
*Pakistan Headlines – AKD Securities Ltd.*

*Informal economy to be regulated for meeting FATF concern*
https://www.dawn.com/news/1518686/informal-economy-to-be-regulated-for-meeting-fatf-concern

*Dasu project: deadline extension sought*
https://www.dawn.com/news/1518520/dasu-project-deadline-extension-sought

*Trade ties to set record this year: US*
https://www.dawn.com/news/1518331/trade-ties-to-set-record-this-year-us

*Centre releases Rs 160.59 billion under PSDP*
https://www.brecorder.com/2019/11/24/547189/centre-releases-rs-16059-billion-under-psdp/

*CPEC to push Pakistan deeper into debt burden, cautions US*
https://www.dawn.com/news/1518319/cpec-to-push-pakistan-deeper-into-debt-burden-cautions-us

*'Pakistan's relations with China will never fray': Asad Umar responds to US concerns over CPEC*
https://www.dawn.com/news/1518417/p...y-asad-umar-responds-to-us-concerns-over-cpec

*Chinese SMEs eager to relocate to Pakistan*
https://tribune.com.pk/story/2104881/chinese-smes-eager-relocate-pakistan/

*Govt implements Authorised Economic Operator programme to facilitate trade*
https://www.dawn.com/news/1518348/g...onomic-operator-programme-to-facilitate-trade

*Lack of NOCs stops exploration work on 24 blocks*
https://www.dawn.com/news/1518327/lack-of-nocs-stops-exploration-work-on-24-blocks

*TAPI pipeline: government likely to renegotiate gas price*
https://www.brecorder.com/2019/11/2...e-government-likely-to-renegotiate-gas-price/

*Modaraba sector: SECP to introduce new regulatory framework*
https://www.brecorder.com/2019/11/2...r-secp-to-introduce-new-regulatory-framework/

*Ready-made garments’ export rises by 12 percent in current FY’s four months*
https://www.brecorder.com/2019/11/2...ses-by-12-percent-in-current-fys-four-months/

* ‘Higher’ urea prices: another ‘match’ likely between Razak, fertilizer industry tomorrow*
https://www.brecorder.com/2019/11/2...y-between-razak-fertilizer-industry-tomorrow/

*Water diversion by India delays 1,124MW Kohala project*
https://tribune.com.pk/story/2105163/2-water-diversion-india-delays-1124mw-kohala-project/

*FBR to go after 17,000 big retailers in latest documentation drive*
https://www.dawn.com/news/1518523/fbr-to-go-after-17000-big-retailers-in-latest-documentation-drive
 
Apr 11, 2017
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No change, as expected. Certainly the monetary policy committee has moved from tightening to holding mode. The question is when will it change gears to easing mode – for that SBP has to be certain on dividends of tightening – it is reflecting in terms of reducing current account deficit to one fourth and having a fiscal primary surplus.

The most important indicator for SBP is inflation – the expectation has remained unchanged at 11-12 percent, but recent resurgence of food inflation has kept SBP in a holding mode. Nov and Dec month on month inflation numbers are key for the decision in Jan.

The SBP fears that if food inflation trend persists, it may lead to demand and wage inflation – since food is big part of consumption basket for low income groups. If wages rise, that will pose risks to inflation expectations, and if that is internalized into cost of production, then inflation expectations will change, and policy lever may shift accordingly.

https://www.brecorder.com/2019/11/25/547440/road-to-easing-no-hurry/
 
Apr 11, 2017
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*MORNING Bulletin 26th November 2019*

Opposition trying to mask disappointment with APC: PM Imran Khan
https://www.thenews.com.pk/print/574406-opposition-trying-to-mask-disappointment-with-apc-pm

NAB freezes industries owned by Shahbaz family
https://www.thenews.com.pk/print/574407-nab-freezes-industries-owned-by-shahbaz-family

FBR tax revenue can go up to Rs12,788 bn in nine years
https://www.thenews.com.pk/print/574408-fbr-tax-revenue-can-go-up-to-rs12-788-bn-in-nine-years

Liquidity crisis continues to haunt textile industry
https://www.thenews.com.pk/print/574415-liquidity-crisis-continues-to-haunt-textile-industry

SECP cracks down on companies involved in shady trade
https://www.thenews.com.pk/print/574278-secp-cracks-down-on-companies-involved-in-shady-trade

SC seeks details of collection, utilization of GIDC
https://epaper.brecorder.com/2019/11/26/3-page/812013-news.html

Dasu Hydropower Project: Wapda signs Rs52.5 bn contract with China for electro-mechanical work
https://www.thenews.com.pk/print/57...ntract-with-china-for-electro-mechanical-work

Local POL production dips by 14.4pc in 1st quarter of FY19
https://nation.com.pk/26-Nov-2019/local-pol-production-dips-by-14-4pc-in-1st-quarter-of-fy19

Textile firms mull moving abroad to escape high cost
https://www.thenews.com.pk/print/574271-textile-firms-mull-moving-abroad-to-escape-high-cost

OGDCL plans to drill first shale gas pilot well in Sindh next month
https://www.thenews.com.pk/print/57...irst-shale-gas-pilot-well-in-sindh-next-month

*Best Regards,*
*Insight Securities (Pvt) Limited