Newsletter - Publication 144

01st Feb 2023

Pakistan-IMF talks – masses to embrace heavy taxes

IMF Mission Chief, Nathan Porter, has already reached Islamabad, in a visit that is crucial for Pakistan to avoid default. During the 10-day long talks, the government’s efforts will be focused on convincing the IMF to agree to a new plan that seeks to implement the outstanding stricter conditions over a longer period, a government functionary said. Dr.Aisha Pasha, the Minister of State for Finance, who is expected to lead the technical round of talks, starting Jan 31st said, “Pakistan is in a difficult economic situation and, by end of the IMF team’s visit, we hope that all the outstanding issues will be resolved”. According to finance ministry sources, the IMF has not yet responded to the new roadmap shared by Pakistan, showing that initial efforts have not been very successful. The Ministry of Finance will try its best to convince the IMF that all the pending actions cannot be implemented at once, they added. While the ordinary man will be protected to some extent, circumstances suggest that all classes of society may have to bear the burden this time, proportionate to their income level, a senior finance ministry official said in a background briefing. The measures that the IMF is asking in return for restoration of the programme – and to release the next loan tranche of $1.1 billion – include market-based exchange rate, lifting restrictions on imports, durable taxation measures and, above all, addressing the power sector arrears through an increase in tariffs. “Our strategy will be that the fiscal gap that has surfaced against the primary budget deficit target agreed in June last year will be filled through a combination of increase in taxes, expenditure rationalisation and adjustment in tariffs,” said the senior official. In an unprecedented move, the government let the rupee devalue by a record 17% or Rs39 per US dollar in just three days aimed at conceding to the IMF’s most hard-pressed demand. This, however, is not the end as there is more to come in the upcoming weeks. The price for petrol and high-speed diesel has been increased by Rs35 per litre, but sales tax has yet to be levied. An alternative to GST could be to increase the petroleum levy (PL) on petrol to as high as Rs80 to Rs100 per litre, said an official. The IMF has not agreed to the FBR’s proposal to impose new taxes worth Rs170 billion and is asking for measures worth more than Rs600 billion.

Cement maker plans to use Thar coal for production

A local cement making company has planned to use Thar coal for cement production in its manufacturing unit, eyeing to reduce use of imported coal and contain input cost, a statement said. The cement maker Power Cement signed a memorandum of understanding with Sindh Engro Coal Mining Company (SECMC) that will allow the earlier to conduct a trial run of Thar coal for cement production in their kilns, which may help reducing demand for imported coal. “Blending of Thar coal will help cement companies to contain rising costs of their inputs as coal is an important raw material for cement production. It will also help reduce the pressure on foreign exchange reserves for importing coal for the country at large,” SECMC CEO Amir Iqbal said. Thar coal could help turn around short and long-term economic crises gripping the country, he added. Blending of up to 20 percent of Thar coal for the cement making process has been carried out by other cement companies also with excellent results.

Exports to nine regional states shrink

Pakistan’s exports to nine regional countries shrank 11.93 per cent in the first half of FY23 mainly driven by a drop in shipments to China, data released by the State Bank of Pakistan showed. The country’s exports to Afghanistan, China, Bangladesh, Sri Lanka, India, Iran, Nepal, Bhutan and the Maldives dipped to $1.897 billion — just 13.31pc of Pakistan’s total exports of $14.25bn in July-December FY23. China tops the list of Pakistan’s regional exports leaving other populous countries India and Bangladesh behind. But Pakistan’s exports to China posted negative growth in the first half FY23 on a year-on-year basis. The bulk of the regional exports share, which accounts for 55.77pc, is with China while the remaining is for eight countries. Pakistan’s exports to China declined 20.57pc to $1.058 in July-December FY23 from $1.332bn in 6MFY22. The decrease in export proceeds was noted for the first time in the post-Covid period. However, the imports from China increased during the period under review.

SBP’s 17% policy rate hike receives mixed reactions

The Monetary Policy Committee (MPC)’s decision to increase the policy rate by 100 basis-points to 17% has sparked mixed reactions among the business community. While some have praised the move as necessary to curb inflation and stabilise the economy, others have criticised it as potentially damaging to growth and detrimental to businesses.

OGDCL finds 3.29 bcf of gas reserves in Guddu

Oil and Gas Development Company Limited (OGDCL) has discovered a hydrocarbon-rich field in Sindh having estimated reserves of 3.292 billion cubic feet (bcf) of gas. Commercial production from the new discovery is poised to start in June this year. However, the company is seeking a one-year extension in the testing phase for the Umair SE-1 Guddu discovery. OGDCL was granted an exploration licence for the Guddu block in May 1999. OGDCL, which is the block’s operator, has so far acquired 545 square kilometres of 3D and 243 line km of 2D seismic data. Based on the results of seismic data, the company has made a new gas discovery in Guddu from the Habib Rahi Limestone and Pirkoh Limestone by drilling a well namely Umair SE-1. According to the initial test results, total gas reserves are estimated at 3.29 bcf.

Textile group Export

The country’s textile group exports declined by around 7.07 percent during the first half (July-December) of the current fiscal year 2022-23 and remained at $8.717 billion as compared to $9.381 billion during the same period of last year, the Pakistan Bureau of Statistics (PBS) said. The data of exports and imports released by the PBS revealed that the country’s textile group exports witnessed a decline of 16.47 percent in December 2022 on a year-on-year basis and remained at $1.356 billion when compared to $1.623 billion during the same month of last year. On a month-on-month (MoM) basis, the textile group registered 4.56 per cent negative growth compared to $1.420 billion in November 2022. Cotton yarn exports registered 37.50 per cent negative growth in July-December and remained $381.546 million compared to $610.427 million during the same period of the last year. On a year-on-year basis, cotton yarn exports registered 49.92 percent negative growth, while on a MoM basis, it registered 24.41 percent growth. The country’s overall exports during July-December 2022-23 totaled $14.258 billion (provisional) against $15.125 billion during the corresponding period of last year showing a decrease of 5.73 percent.

Russia vows to cooperate with Pakistan on energy

A week after Pakistan and Russia signed an agreement for supply of Russian crude and oil products, Russian Foreign Minister Sergey Lavrov Monday said his country would “cooperate fully” to meet the energy needs of Pakistan. Speaking at a joint press conference with his Pakistani counterpart, Lavrov commended Pakistan for maintaining a neutral position in the Russian-Ukraine war and said the two countries would continue to cooperate in various fields. He said progress was expected soon regarding the talks on construction of Pakistan Stream pipeline. “The issue is already at an advanced stage of consideration. I am confident that there will be progress in the near future,” the minister said. Special attention was paid to this issue during the meeting of the intergovernmental commission on trade and economic cooperation of the two countries staged in Islamabad in January 2023, Lavrov noted. “Russia is ready to sign the necessary corporate documents for construction of Pakistan Stream gas pipeline,” Energy Minister Nikolay Shulginov said earlier. On January 28, the Foreign Office announced that Minister of Foreign Affairs Bilawal Bhutto-Zardari had been invited to Moscow by his Russian counterpart to “hold official talks with his Russian counterpart where the two sides would deliberate upon the entire spectrum of bilateral relations and exchange views on regional and international issues of mutual interest.” During the joint press conference after the talks on Monday, the two ministers said that the countries would continue to cooperate and work together. On January 20, Islamabad and Moscow — after the conclusion of the annual inter-governmental commission — agreed on late March as the timeline for crude oil export. This is a major development for Pakistan as the country is facing a severe economic crisis. State Minister for Petroleum Musadik Malik revealed that “Pakistan wants to import 35 percent of its total crude oil” requirement from Russia. Meanwhile, Russia’s Energy Minister Nikolay Shulginov also said that Pakistan would pay for energy purchases from Russia, when they start in late March, in currencies of friendly countries.

Pharmaceutical goods’ export increases by 26.85% to US$175.025 mln

The export of pharmaceuticals goods from the country has witnessed an increase of 26.85 percent during the first half of the fiscal year (2022-23) as compared to the corresponding period last year. Pakistan exported pharmaceutical products worth US$ 175.025 million during the period from July-December (2022-23) as compared to the export of US$ 137.978 million during July-December (2021-22), showing a growth of 26.85 percent, according to the Pakistan Bureau of Statistics (PBS). In terms of quantity, the export of pharmaceutical goods also rose by 88.21 percent from 15,197 metric tons to 28,603 metric tons, the data revealed. Meanwhile, on a year-on-year basis, the pharmaceutical goods’ export increased by 26.83 percent during the month of December 2022 as compared to the same month of last year. The pharmaceutical exports in December 2022 were recorded at US $31.176 million against the export of US$ 24.581 million in December 2021, the PBS data revealed. On a month-on-month basis, the exports of pharmaceutical goods however decreased by 2.43 percent in December 2022 as compared to US$ 31.953 million in November 2022.

Pak-China crossing at Khunjrab Pass to be open from Jan 30 to Feb 10

The Pak-China border crossing at Khunjrab Pass will be temporarily open for trade from January 30 to February 10 to facilitate crossing of important Pakistani supplies stuck on the Chinese side. In the first phase, the Khunjrab Pass was temporarily opened on Tuesday and Wednesday to facilitate local trade and key hydropower projects. During the said two days, heavy machinery required for development work on Diamar Bhasha Dam was passed through Khunjrab border to Sost. It included 40 truckloads, including 11 of hydropower plant equipment and 29 of livelihood supplies, according to official sources. In the next phase, important supplies stuck in China will be allowed to cross into Pakistan from January 30 to February 10. A senior Pakistani official has appreciated the special efforts of border officials on both sides to ensure smooth operation despite challenging conditions. It may be noted that due to the closure of the Pakistan-China border, important Pakistani supplies were stuck on the Chinese side.

SBP advises banks to ‘provide one-time facilitation’ to importers

In an attempt to ease the ongoing import crisis, the State Bank of Pakistan (SBP) on Monday removed the requirement of obtaining prior approval for imports falling under HS code chapters 84 and 85 and certain items falling under HS code chapter 87 — that deal with machinery and electrical equipment — of the Pakistan Customs Tariff. Instead, the SBP issued a general guidance to the banks to prioritise the import of certain categories such as food, pharmaceuticals, and energy. The central bank’s decision comes days after businessmen flayed SBP Governor Jameel Ahmad in a town-hall meeting for letting 5,700 containers laden with food, medicine and industrial raw materials waste away at port for months on end. Banks have been refusing to open letters of credit (LCs) for a majority of imports under explicit directives from the SBP as the country fights a serious shortage of dollars. Minimising dollar outflows has brought a wide section of import-dependent industrial activity to a standstill across the country. However, it had directed banks to prioritise imports in the following order: food and pharmaceuticals; petroleum and coal; raw material and spare parts for export-oriented industries; seed, fertilisers and pesticides; deferred payment and self-funded imports; and plant and machinery for the export-oriented projects near completion. “Accordingly, till March 31, 2023, banks have been advised to process and release documents of shipments/goods that have already arrived at a port in Pakistan or have been shipped on or before January 18, 2023,” it stated.

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