Circular debt of Rs1.1trillion passed on to new Govt
Though the previous Pakistan Muslim League-Nawaz (PML-N) government claimed to have brought about improvement in power production, it still passed on a gigantic circular debt of Rs1.148 trillion to the new government of Pakistan Tehreek-e-Insaf (PTI), which faces a bumpy road ahead.
The PML-N had come up with a slogan in 2013 that it would bring load-shedding to an end during its five-year tenure. It solely focused on setting up thermal power plants to increase electricity production, but failed to streamline and upgrade the transmission and distribution network, which could not bear the load of additional power generation.
Of late, the circular debt has become a mammoth challenge for all governments, including the Pakistan Peoples Party (PPP), which ran the government from 2008-13. The situation is no different for the new government which will have to deal with a debt burden of over Rs1 trillion.
In a meeting of the Senate special committee on circular debt on Friday, officials of the Ministry of Energy (Power Division) revealed that out of the total circular debt, Power Holding Private Limited (PHPL) had borrowed Rs582.86 billion whereas Rs566 billion was borrowed to cover receivables of power distribution companies.
The meeting, chaired by Senator Shibli Faraz, was informed that PHPL was to pay Rs153 billion in annual interest on the loans.
The Power Division had also requested the power-sector regulator to include the amount in consumer tariff, but the National Electric Power Regulatory Authority (Nepra) dismissed the plea. Nepra argued that the loans were not part of the development budget and were acquired for smoothly running the distribution companies.
SPI decreases 0.41pc
The Sensitive Price Indicator (SPI) for the week ended August 16, 2018 registered a decrease of 0.41% for the combined income group, going down from 229.55 points in the previous week to 228.6 in the week under review. However, the SPI for the combined income group rose 4.18% compared to the corresponding week of previous year. The SPI for the lowest income group decreased 0.4% compared to the previous week. The index for the group stood at 216.68 points against 217.55 in the previous week, according to provisional figures released by the Pakistan Bureau of Statistics. During the week, average prices of 18 items rose in a selected basket of goods, prices of nine items fell and rates of remaining 26 goods recorded no change.
PKR weakens against $
The rupee weakened against the dollar at Rs123.4/123.6 in the inter-bank market on Friday compared with Thursday’s close of Rs123.3/123.5. Following reports that China had agreed to immediately lend $2 billion to Pakistan, the rupee had appreciated against the US dollar. Prior to this, it had lost 22% of value since December 2017 after the central bank reportedly abstained from intervening in response to the pressure due to a widening current account deficit. The State Bank of Pakistan has maintained that the slide in the rupee’s value is due to supply and demand dynamics of foreign exchange in the inter-bank market. While it has promised prompt intervention in case of speculative or momentary pressures, the central bank will sit on the fence and let “market-driven adjustment in the exchange rate to continue to contain the imbalance in the external account and sustain a higher growth trajectory”, according to a press statement.
FDI inflow slows down, prompting strategy revision calls
Foreign investment in Pakistan’s economy slowed down significantly as inflows dropped 45% to $128.1 million in July, a wake-up call for the authorities concerned to revise investment policy and make it more attractive.
Foreign direct investment (FDI) stood at $233.8 million in the same month last year, the State Bank of Pakistan (SBP) reported on Friday.
This is not for the first time foreign investment inflow has remained sluggish. The trend has persisted for the past several months, especially since political noise erupted in the country with the disqualification of former prime minister Nawaz Sharif in July last year and political parties geared up for general elections this year.
Pakistan Business Council (PBC) Chief Executive Officer Ehsan Malik suggested that recent political uncertainty may be one of the reasons behind the drop in foreign investment as investors could be observing the situation closely.
Real estate business adjusts after latest regulations
Pakistan’s real estate sector seems to be experiencing a slowdown in activity as stakeholders are now getting used to new regulations and the tax regime.
The rough patch comes after the government introduced various changes in a bid to increase its revenue and control the flow of illicit money into the sector, cornering speculators and non-filers of income tax returns.
However, in a survey conducted by source, several real estate agents say there has been a major slowdown in business for several months, and it started even before the government restricted non-filers from buying property above Rs5 million.
The PML-N government in its last budget barred non-filers from purchasing property at a declared value of over Rs5 million. The move came as a blow to speculators and even most genuine purchasers of property who happen to be non-filers.
Real estate agents say the sector was experiencing a slowdown for months and the sanction only added to the woes. They argued that registration issues with the government have halted transactions in the sector.
“Business is down and we have only been able to strike small deals mostly for renting property,” said Mohammad Qamar, an estate agent.
Another estate agent Waqas Ahmed said the slowdown was the result of issues at the government registry where the process had come to a halt.
Real estate agent Mohammad Kamran pointed out “it takes only Rs5,000 to change a non-filer’s status into a filer,” a service which his firm gives to potential buyers, who buy property through it.
However, he was also of the same view that property business had dropped significantly in recent months.
Finance minister states APG to be flexible in deadlines
The interim finance minister on Friday urged the Asia Pacific Group (APG) on Money Laundering to be flexible in its deadlines given to Pakistan to address legal and administrative deficiencies in Anti Money Laundering (AML) and Counter Terrorism Financing (CTF) frameworks.
“Pakistani authorities should be given full opportunity to provide necessary materials and reports to the APG,” the Ministry of Finance said in a statement issued after a meeting between the APG delegation and Finance Minister Dr Shamshad Akhtar.
The APG delegation came to Pakistan at a time when there is an interim political setup. The next AGP visit is scheduled for October and the new government of the Pakistan Tehreek-e-Insaf (PTI) will have hardly any time to meet the deadlines set to make new laws.
The APG delegation did not have a scheduled meeting with finance minister, which was arranged at the last leg of the visit. A team of the APG Secretariat and International Assessors visited Pakistan from Aug 13-17 2018 in connection with mutual evaluation of the country’s AML and CTF regime. The delegation hoped that all the preparatory work would be completed before the final on-site meeting in October.
The foreign experts found major deficiencies in the legal and administrative frameworks, which according to them can be exploited by the terrorist organisations. They observed that Pakistan’s financial system is not compliant with the AML and CFT regulations.
Moreover, the country needs to legislate to address weaknesses that could hamper progress on Mutual Legal Assistance (MLA) requests and extradition of criminals involved in money laundering and terrorism financing offences.
“The finance minister urged the APG delegation to be flexible and practical in their deadlines and allow full opportunity to the authorities to provide necessary materials and reports to APG,” said the Finance Ministry. It added that Dr Shamshad Akhtar gave a strong sense that the concerned Pakistani authorities would be able to complete their respective tasks as early as possible.
However, the minister particularly highlighted the transition of government in the country as a consequence of the General Election 2018 and maintained that the incoming government would need further time to gear itself with the requirements of mutual evaluation and related matters.
BOI seeks business community’s assist to attract FDI
In an effort to attract local as well as foreign direct investment (FDI), the Board of Investment (BoI) has sought the business community’s help in framing an impactful policy that enhances productivity and increases the ease of doing business.
BoI Secretary Mohammad Jehanzeb Khan met Federation of Pakistan Chambers of Commerce and Industry (FPCCI) Senior Vice President Mazhar Ali Nasir at the Federation House on Friday.
Khan said that the business community can play its role in persuading stakeholders across the country to capitalise on opportunities with focus on value addition.
He said that Pakistan’s investment policy needs to be formulated to create a friendly environment with focus on further opening up the economy and attracting FDI.
“It should provide equal treatment to foreign and local investors. This could be achieved with support and input from the FPCCI, which could serve as a bridge between the private sector and the government,” Khan said.
Pakistan attracted a paltry $2.76 billion as FDI in fiscal year 2018, an improvement of less than 1% year-on-year. FDI plays a crucial role in a country’s current account balance, which in Pakistan’s case has run into a whopping deficit of $17.99 billion in FY18.
Khan said the BoI wants to promote local entrepreneurs to set up industries in the country. He reviewed a presentation made by FPCCI comparing the incentives and opportunities Pakistan offers to foreign investors with the ones in other countries.
“Pakistan has lagged behind in providing business opportunities compared to other countries in the region. Therefore, there’s a need for regular interaction and consultation to prepare policies that are attractive for foreign investors,” he said.
Meanwhile, Nasir said that the FPCCI would prepare a draft investment plan 2019 as requested by the BoI in order to help them understand the psyche of investors.
“There’s a need to garner Pakistan missions abroad with commercial interest to promote investment opportunities,” he said.
Meanwhile, investment under CPEC was also discussed and both the parties concurred that Pakistani entrepreneurs should also be provided with a level playing field.
Ministry of industries hopeful about EDB’s revival
The Ministry of Industries and Production is set to present a case before the incoming government of Pakistan Tehreek-e-Insaf (PTI) for reversing the previous government’s decision of shutting down the Engineering Development Board (EDB).
EDB, a wing of the industries ministry, was dissolved for alleged involvement of its staff in corruption and malpractices as well as for creating hurdles in the way of investment of billions of dollars.
The shutdown decision was made in a meeting of the Cabinet Committee on Energy in 2017, which was chaired by former prime minister Nawaz Sharif.
An official revealed that a prominent businessman from Lahore, who was setting up an auto plant under the new auto policy, had complained to the then premier that the EDB was creating hurdles in the way of taking necessary approvals.
According to the official, the EDB was required to implement the new auto policy, but it created obstacles that discouraged potential new entrants, who had already done 80-90% work and imported machinery for setting up manufacturing plants in Pakistan. The EDB’s reluctance to give the go-ahead prompted the new players to lodge a complaint with the government.
The government had unveiled the new auto policy to stimulate investment in the vehicle manufacturing industry in an attempt to break the monopoly of existing three major players, which were marketing vehicles at higher prices and counting on obsolete technology.
Sharif gave approval for disbanding the EDB with immediate effect. During the energy committee meeting, he was informed that the EDB was not performing its duties and had failed to take appropriate steps to regulate and promote engineering enterprises.
It was also noted that malpractices had been widely prevalent in the engineering board and businesses were being exploited by its staff – a norm in dealing with the enterprises.