C/A DEFICIT WIDENS 178%, STANDS AT $8.93B
Pakistan’s current account deficit (CAD) widened by a massive 178% in the first 11 months (July-May) of the outgoing fiscal year, standing at $8.93 billion compared to $3.22 billion in the same period of previous year, according to data released by the State Bank of Pakistan (SBP) on Thursday. The enormous increase in the deficit suggests that the government has been unable to manage its balance of payments position over the 11-month period. With the difference between exports and imports being the biggest determinant of the current account balance, a deficit or surplus reflects whether a country is a net borrower or net lender with respect to the rest of the world. The widening of current account deficit in April and May even exceeded the estimates of experts like Dr Ashfaque Hasan Khan, an Islamabad-based economist, who earlier warned the government that the deficit could go beyond $8 billion by the end of June 2017. Analysts say the deficit is growing due to heavy debt servicing, recovering oil prices and weak exports. Pakistan’s current account deficit in fiscal year 2015-16 stood at $3.39 billion. The deficit touched $1.58 billion in May 2017, the third highest level in any month in the history of Pakistan, compared to $1.2 billion in April 2017. The highest-ever deficit was recorded in October 2008 when it touched $2.4 billion. It hit the second highest level of $1.7 billion in November 2007. Despite the wide current account gap, the SBP’s foreign currency reserves increased to $16.4 billion in May 2017 compared to $16.1 billion in April 2017 mainly due to a surge in fresh short and long-term loans amounting to $1.85 billion and some increase in foreign direct investment (FDI), according to a report of Insight Securities issued on Thursday. As a percentage of gross domestic product (GDP), the deficit rose to 3.2% in the first 11 months of 2016-17 as opposed to just 1.3% in the same period of previous year. Between July and May FY17, Pakistan exported goods worth $19.83 billion compared to exports valuing $20.11 billion in the comparable period of 2015-16, reflecting a year-on-year decrease of 1.4%. However, total imports were valued at $42.49 billion as opposed to $36.46 billion in the comparable period of 2015-16, up 16.5%. Balance of trade in both goods and services at the end of first 11 months was negative $25.44 billion compared with a deficit of $19.03 billion in the same period of previous fiscal year.
US DELEGATION SHOWS INTEREST IN POWER SECTOR
A delegation, led by former US ambassador Teresita C Schaffer, called on Punjab Chief Minister Shehbaz Sharif on Thursday. The delegation showed interest in enhancing cooperation with the Punjab government in the energy sector, especially in solar energy. Speaking on the occasion, Schaffer said Punjab had worked hard on energy projects and commended efforts for enhancing the energy resources. “I know that … due to your efforts investment has been enhanced in the energy sector,” she added, expressing interest in enhancing cooperation in the sector, particularly in the field of solar energy. Sharif said the government had worked hard in the energy sector and alternative energy resources had also been utilised along with traditional sources. He said a mega solar energy park had been established in Bahawalpur and 400 megawatts of solar energy was added to the national grid from this park. The minister said work on more projects was under way. Sharif appreciated the US cooperation in the solar energy sector. Provincial Minister for Industries Sheikh Allauddin, Punjab Power Development Company Chairman Arif Saeed and planning and development chairman were present on the occasion.
THREE FIRMS GET APPROVAL TO SET UP CAR ASSEMBLY PLANTS IN PAKISTAN
The government took a huge stride towards shaking up the Japanese-dominated automobile industry, granting permission to three new, but non-European, companies to set up their car assembly plants in Pakistan. The companies in collaboration with local partners will invest $372 million to set up the assembly/manufacturing plants. The Ministry of Industry and Production allowed United Motors Private Limited, Kia-Lucky Motors Pakistan Limited and Nishat Group to set up units for assembly and manufacturing of vehicles under the Greenfield investment category, Ministry of Industries Secretary Khizar Hayat Gondal said. He said that these companies would bring in foreign investment worth $372 million. The maximum investment of $190 million will be made by Kia-Lucky, followed by $164 million by Nishat Group and $18.1 million by United Motors, he added. As many as nine companies had sought permission to set up manufacturing plants but only three could got the approval in the first phase. The secretary said that the documents of other applicants are being scrutinised. The decision comes days after the Prime Minister’s Office decided to abolish the Engineering Development Board (EDB) on allegations of corruption and creating hurdles in the way of setting up new car manufacturing plants in Pakistan. “The government of Pakistan is pleased to award the Category-A Greenfield Investment Status to United Motors (Pvt) Limited for assembly/manufacture of vehicles covered in the exclusive contract agreement,” according to a notification issued by the Ministry of Industry. Similar notifications have also been issued to two other companies.
SBP’S RESERVES RISE 0.81PC, AMOUNT TO $15.4B
Foreign exchange reserves held by the State Bank of Pakistan (SBP) increased 0.81% on a weekly basis, according to data released on Thursday. On June 16, the foreign currency reserves held by the central bank were recorded at $15,420.8 million, up $124.5 million or 0.81%, compared to $15,296.3 million in the previous week, according to the central bank. Total liquid foreign reserves held by the country, including net reserves held by banks other than the SBP, stood at $20,361 million. Net reserves held by banks amounted to $4,940.2 million. Two weeks ago, the SBP made payments of $1,239 million on account of external debt servicing.
FBR IMPOSES DUTY ON 508 COMMODITIES
The Federal Board of Revenue (FBR) has notified the regulatory duty imposed on about 508 products including kitchen items, beverages, fruits, vegetables, fabrics, electronics and automobiles. The new rate of regulatory duty has been fixed at 10% on live poultry, 25% each on frozen and fillet fish, milk and cream. The duty on yogurt has been fixed at 20%, whey powder at 25% and butter, cheese and curd at 20% each. The duty on guavas, mangoes, frozen mangoes and mango pulp has been fixed at 15% while on figs, pineapples, oranges, kinnow (fresh), lemon, melon, apricots, peaches, plums, strawberries, raspberries and kiwifruit is 20%. A 20% duty has been imposed on all electronic products including air conditioners and fans. A 50-60% ad valorem duty has been imposed on import of different vehicles falling in the sports utility or luxury vehicle category with engine capacity of greater than 1,800cc.
CHINA DOMINATES AS FDI RAISES 154PC IN MAY
Foreign Direct Investment (FDI) in Pakistan rose to $295 million in May, up by 154% from $116 million in to the same month of the previous year. Cumulatively, FDI increased by 23% to $2.03 billion in the first 11 months (Jul-May) of the ongoing fiscal year compared to $1.65 billion in the same period of the previous year, according to data released by the State Bank of Pakistan (SBP) on Wednesday. Pakistan received $5.4 billion in fiscal year 2007-08, which is the highest amount in the country’s history, according to the Board of Investment (BoI). However, the country has been recording low levels of foreign investment ever since 2008. Many foreign investors, especially from western countries, have pulled out due to the persistent energy crisis, poor governance and security challenges. At a time when western investors are withdrawing their investments from Pakistan, Chinese investors are pouring cash mainly due to the China-Pakistan Economic Corridor (CPEC) projects. China leads the list of individual countries pouring investment in Pakistan in the first 11 months (Jul-May) of the current fiscal year with $879 million, up by 34% from $657 million in the same period last year. In May alone, the country received net FDI of $161 million from China. China is followed by the Netherlands with FDI of $466 million in the first 11 months of the current fiscal year, compared to just $29.3 million in the same period of last year. This comes on the back of a $448 million acquisition of Engro Foods by FrieslandCampina – a Dutch food company. France came at number three with $181 million compared to $84.2 million in the same period of last year, while Turkey brought in investments of $135 million compared with just $17 million in the corresponding period. Food was leading all sectors up until the first 11 months (Jul-May) of the current year, but the trend was changed in May 2017 due to the inflows of $125 million in power sector from China. The biggest jump in FDI was recorded in the power sector that attracted $548 million as opposed to inflows of $703 million in the corresponding period of previous year.
TEXTILE PLAYERS STAGE PROTEST
Textile industrialists and labourers staged a demonstration against anti-industry and anti-export attitude of the government in front of Pakistan Textile Exporters Association (PTEA) offices. Demanding release of refunds and supply of energy at competitive prices, the demonstrators chanted slogans and held placards in favour of their demands. Textile workers also staged demonstrations at their factories in different areas of the city and placed protest banners. The non-serious attitude of the government institutions is the root of the problems affecting the country’s textile industry, which has an annual export turnover of $14 billion, said PTEA Chairman Ajmal Farooq. Policymakers are not serious about resolving issues of the textile industry and the situation is worsening day by day pushing the biggest job-providing industry towards disaster, he added. Elaborating on the consequences of the crisis, he said that industrial wheels have come to a halt as a result of extreme cash flow crunch. Billions of rupees of exporters are stuck in refund regime and they are badly deprived of liquidity. Despite several promises for repayment of outstanding refunds, the government has still not fulfilled its commitment. He termed Prime Minister’s Export-led Growth Package a positive one but non-allocation of funds for the incentives of this package has shattered all hopes. Only Rs1 billion have been released in six months under this package out of Rs180 billion, said Farooq. Furthermore, no effective measures have been proposed in budget 2017-18 for industrial progress, increase in exports, reduction in production cost and enhancing the competitive edge of Pakistani goods in international market, the chairman deplored.
GOVT TO FRAME POLICY TO RESTRICT SPREAD OF SUGAR UNITS IN COTTON ZONE
Economic managers of the country have decided to frame a national sugar policy to secure the cotton belt, which is under threat from the growing number of sugar mills and cultivation of sugarcane in such zones. Commerce Minister Khurram Dastgir Khan and Planning and Development Minister Ahsan Iqbal have also fiercely opposed the setting up of sugar mills in the cotton zone. Almost 70% of sugar mills are located in the core cotton zone of the country, especially in Punjab. The presence of mills in top cotton growing areas and their increasing crushing capacity have caused a 26% decline in cotton sowing areas, especially in south Punjab including Rahim Yar Khan and Muzaffargarh.
The ruling Sharif family had also shifted their sugar mills in south Punjab that led to filing of a case in the apex court, which ordered the mill-owners to stop sugarcane crushing.
A senior official of the Ministry of National Food Security and Research that the issue was taken up in a meeting of the Economic Coordination Committee (ECC) held on June 7. During the discussion, the commerce minister pointed out that sugarcane plantation in the areas meant for cotton sowing had badly hurt the production of cotton. He expressed fear that the trend may eventually bring down exports of cotton products from the country. He insisted that a study should be undertaken to secure a balance between sowing of the two key crops and ensure that one crop was not cultivated at the cost of other. Endorsing his views, the planning, development and reform minister emphasised the need for a review of the national sugar policy in consultation with all stakeholders.