SBP warns C/A gap can disrupt growth cycles
Pakistan’s economy has exhibited strong growth in the first quarter of current fiscal year with a nine-year high expansion in large-scale manufacturing, increased tax revenue collection, recovery in exports and uptrend in foreign direct investment (FDI), according to the State Bank of Pakistan (SBP).
In its first quarterly report on the state of economy, which was released on Friday, the SBP suggested that the economy was poised to attempt to achieve the ambitious 6% GDP growth target this year.
However, it warned that the widening current account deficit had the potential to disrupt the growth trajectory with the emergence of new external challenges like surging international crude oil prices. This would add to the already high import bill and would, for sure, dent the foreign exchange reserves.
“The widening of current account deficit along with an increase in economic activity is a recurring phenomenon for Pakistan and one that has the tendency of disrupting growth cycles,” the SBP said in a statement.
“There is, hence, an urgent need to find innovative policy mixes, avenues for increasing the foreign exchange earnings and realigning policies favouring the export growth,” it said.
The current account deficit widened to $3.7 billion in the first (Jul-Sep) quarter, which was more than twice the reading in the same period of FY17.
“Funding the current account deficit led to a decline in the country’s foreign exchange reserves. Specifically, the SBP’s reserves declined by $2.3 billion during Q1-FY18 with the remaining reserves capable of providing cover for nearly three months of imports,” the report said.
As per current projections, according to the report, the rising oil prices while exerting upward pressure on imports will further widen the services deficit through increased transportation cost.
Nonetheless, a significant base effect, recent imposition of regulatory duties and depreciation of the rupee against the US dollar would likely restrict the import growth during the remainder of FY18. “Therefore, the current account deficit projection range remains unchanged,” it said.
“Inflows related to recently launched Sukuk and Eurobond, sharp increases in the FDI and expected Coalition Support Fund inflows will help keep the external sector stable to some extent in FY18.”
The report pointed out that majority of the Kharif crops (like sugarcane, rice and maize) achieved or surpassed growth targets in the Jul-Sep 2017 quarter, except for the cotton crop.
“China has started exporting from its cotton reserves while subsidising local prices to make imported yarn unattractive in the domestic market. All this is resulting in an increased supply in the global market, putting downward pressure on cotton prices,” it said.
Fertiliser was highlighted as another problem area despite a notable increase in its use by the farmers which, along with sufficient availability of water and credit disbursement, helped increase the agricultural output.
“Fertiliser manufacturers are facing operational constraints in the form of gas diversion, expensive LNG and inventory build-up, forcing a few players to shut down their plants. This would have implications for the industrial as well as agriculture sector,” the SBP report said.
“Broadly, there is no major change in the macroeconomic outlook from that set out in the last Annual Report of FY17,” the report said.
The only revision is in the export growth that has been revised upwards due to three main reasons.
First, while some of the structural headwinds still persist, such as lack of product and market diversification, uninterrupted energy supplies to the manufacturing sector is going to add to the current growth momentum.
Govt hints at lowering tax for lng imports
The government has hinted at lowering tax rates on the import of Liquefied Natural Gas (LNG) and its equipment, a move aimed at addressing concerns of the private sector about inconsistencies in tax policies.
The LNG sector representatives met with Special Assistant to Prime Minister on Revenue Haroon Akhtar Khan on Friday. The industry demanded reduction in withholding tax rates and simplification of customs duties collection on imports of Floating Storage and Regasification Unit (FSRU).
LNG importers are seeking reduction of the withholding tax rates from 5.5% to 1%, bringing it at par with the rates being charged from the public sector. But the government is not likely to make any change before the next budget.
The sector’s demand about rationalisation of withholding tax rates is valid but the Federal Board of Revenue (FBR) can only take a decision on a summary moved by the Petroleum Division, said Khan. He said that these taxes and duties are levied under a policy notified by the Petroleum Division and only it can seek a revision.
He said that the government was committed to supporting early and sustainable investments in the LNG sector to meet existing demand and growing energy requirements.
The delegation requested that there should be levy of same taxation for the public as well as private LNG importers to remove cash flow strain on private supply chain. The sector representatives were of the view that high taxes were increasing operational capital requirements, leading ultimately to increased cost of fuel supply to consumers.
PM assures issues of ginners & cotton growers will be addressed
Prime Minister Shahid Khaqan Abbasi has assured that grievances of ginners and cotton growers would be addressed.
A delegation of Pakistan Cotton Ginners Association (PCGA) led by Haji Muhammad Akram Bhatti met the premier along with Federal Minister for Water Reservoir Syed Javed Ali Shah. Abbasi assured that customs duty and sales tax would be maintained on the import of cotton, till the lifting of entire stock of cotton in ginneries. He also said that their claims of withholding tax refunds would soon be cleared.
He said that cotton plays a key role in strengthening the country’s economy because all textile exports depend upon this produce.
The prime minister suggested that “we should adopt modern technology to achieve the target of 20 million bales of cotton.”
Nepra fines 3 generation firms Rs5mn each
The National Electric Power Regulatory Authority (Nepra) has imposed a fine of Rs15 million on three public-sector power generation companies (Gencos) for failure to perform satisfactorily in the 2012-14 period.
According to a statement issued on Friday, the regulator slapped Rs5-million penalty each on Jamshoro Power Company Limited (Genco-I), Central Power Generation Company Limited (Genco-II) and Northern Power Generation Company Limited (Genco-III) under the Nepra (Fines) Rules 2002 for violating prescribed limits of auxiliary power consumption in the years 2012, 2013 and 2014.
Under the Nepra Performance Standards (Generation) Rules 2009, Genco-I, II and III submitted their quarterly performance reports for the three years containing data particularly pertaining to the reference capacity, planned/unplanned outage hours, availability factor, net capacity factor and net output factor.
After analysing the data, a comprehensive performance evaluation report was prepared that revealed that machinery of the Gencos consumed excess auxiliary power during the operation compared to the limits allowed in their respective generation licences.
“Power plants were consuming electric power for running their machines more than the allowed limits,” Nepra said.
It expressed concern over the performance of the Gencos and decided to initiate legal proceedings against them for failure to comply with the performance standards and the generation licence.
Pakistan ‘faces $11.43bn damages claims’ in Reko Diq mining case
The Public Accounts Committee (PAC) has observed that Pakistan faces $11.43 billion damages claims in Reko Diq mining case in international courts due to corrupt practices and inefficiencies of successive governments of Balochistan.
The PAC on Thursday also raised serious questions over the manner in which the provincial governments allowed change of ownership from one Australian company to two others from 1998 to 2006 despite the fact that there was no such clause in the original Chagai Hills Joint Venture Exploration Agreement (Chejva).
The parliament’s accountability watchdog took a detailed, but in-camera, briefing from Balochistan’s Mines and Minerals Development Department and the additional attorney general.
The committee decided to hear experts like Dr Samar Mubarakmand, a scientist, and Ahmer Bilal Sufi, an expert in the international law, in its February 6 meeting, before giving a ruling on the matter.
“The Thursday’s proceedings made it clear that successive Balochistan governments mishandled the case, apparently due to corrupt practices and inefficiencies,” said a member of the PAC on condition of anonymity.
In 2012, the Tethyan Copper Company (TCC) filed claims for international arbitration before International Court for Settlement of Investment Disputes (ICSID) of the World Bank after the provincial government turned down a leasing request from the company.In the ICSID proceedings, the jurisdiction and liability have been decided against Pakistan, as the tribunal has found that Pakistan has breached the Bilateral Investment Treaty of 1998 between Pakistan and Australia, the secretary mines of the Balochistan government informed the PAC.
Despite ban, Punjab energy seeks offers for solar plants
Punjab Energy Secretary Asad Rehman Gillani has invited private sector to utilise the rooftops of public buildings across the province for renewable energy generation by installing solar panels. The offer indicates that the provincial government still backs the investors in their drive to explore avenues of investment in renewable energy, though the federal energy committee has imposed a ban on installing solar power plants. “We will try to fix things with the federal government and will give more facilities to the investors looking to explore the renewable energy potential in the province,” Gillani said while speaking to the business community at a ceremony marking the start of a 12-megawatt solar farm. “Right now, solar energy is not considered a base load and is utilised only during peak load hours. We wish to shift solar energy to the base load for future energy needs of Punjab and the country,” he said. He revealed that rooftops of around 80 to 100 public buildings had the empty space for installing solar panels. “I invite private-sector investors to utilise these public structures to tap the cheapest source of clean energy,” he said.
LHC sets aside EPA’s order halting MLCF’s expansion
The Lahore High Court (LHC) has set aside the Environmental Protection Agency’s (EPA) order in which it halted construction work at Maple Leaf Cement Factory’s new cement line, according to a company notice sent to the Pakistan Stock Exchange (PSX) on Thursday.
According to the notice, the court has approved Maple Leaf’s Environment Impact Assessment (EIA) for its 2.2-million-ton-per-annum Brownfield cement line.
However, the company has been ordered to wait until the issuance of a survey report (criteria for the delineation of negative and positive areas for the installation of new or enhanced existing cement plant), carried out by Mines & Minerals Department, Punjab.
Earlier, the EPA ordered the construction work to be stopped on the grounds that Maple Leaf had started work without obtaining a written approval from the agency. However, Maple Leaf challenged the order in the LHC.
Moreover, the EPA has been directed by the Court to issue orders in light of this survey, within 14 days of its release date (the survey report was expected by mid-January 2018 which is now expected to be issued next week), according to Topline Securities report.
Govt sets March deadline for ending outages in low-loss areas
With little time left in its five-year tenure, the federal government has directed power distribution companies to remove all constraints by the end of March in order to do away with load-shedding in areas covered by low-loss feeders across the country.
The directive came in a special meeting with chief executive officers of all distribution companies, their technical staff, officials of Pakistan Electric Power Company (Pepco) and other officials concerned at the Power Division on Thursday.
In response to the power minister’s directive, all distribution companies have established Constraint Removal War Rooms while Pepco has set up a special monitoring cell, headed by the general manager/chief engineer, to execute the plan by the end of March for ensuring zero load-shedding on feeders having 0-10% losses.
It was suggested that the distribution companies should equip the Constraint Removal War Rooms with CCTV cameras connected with the centralised monitoring system via communication link of the Power Information Technology Company for continued monitoring by the power minister.
Pepco and the distribution companies have already conducted technical surveys of the existing distribution network and have identified points of constraints on 132-kilovolt, 66kv and 11kv transformers.
In an attempt to remove these constraints before the onset of summer in 2018, all the distribution companies are dedicating their resources and energies to achieve the target by the end of March.