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IMF projects inflation rate to hit 14pc by June

The International Monetary Fund (IMF) has projected that the average inflation rate in Pakistan might hit 14% by June next year – a level that if reached could result in interest rates peaking to 15% and economy drastically slowing down, government sources say.

Such a high level inflation would also carry implications for Prime Minister Imran Khan’s most ambitious flagship programme of constructing five-million low-cost housing units. The banks lend money over and above the policy rate, which will reduce the government’s options to give subsidy on housing loans.

The sources said due to stabilisation measures, the IMF is also projecting economic growth rate of below 3% for fiscal year 2018-19. These assessments were shared with Pakistan during September 27 to October 4 staff level visit.

Although the IMF has not mentioned the inflation projections in its handout, it did internally share the assessment of average 14% inflation in fiscal year 2018-19 with the Finance Ministry, said sources who negotiated with the IMF.

The issue of inflation and the Gross Domestic Product (GDP) also came up for discussions during the closing meeting between Finance Minister Asad Umar and IMF team. The meeting was held in Q-Block on last Thursday. In its handout issued on the same day, the IMF underlined that “economic growth will likely slow significantly, and inflation will rise”.

The average inflation in the first quarter of this fiscal year was 5.86%, according to the Pakistan Bureau of Statistics (PBS). The Sensitive Price Index-based inflation has already jumped to 6.5% this week over the same time of the last year, according to the PBS. The State Bank of Pakistan (SBP) has also raised its average inflation projection to 8% but it is still far lower than the IMF’s assessment.

The sources said the IMF’s assessment of average 14% inflation was based on at least four assumptions. These were increase in prices of gas (already notified up to 143%), increase in power tariffs, devaluation of rupee against the US dollar that will affect almost every consumable item and increase in prices of petroleum products due to devaluation and global crude oil prices.

Defying expectations, rupee recovers 1.34pc

Contrary to expectations of a further drop in the rupee’s value, the Pakistani currency recovered 1.34% to the US dollar and stood at Rs131.93 in the inter-bank market on Friday.

The recovery came in the backdrop of International Monetary Fund’s (IMF) announcement that it was sending a mission to Pakistan in the wake of Islamabad’s request for financial assistance.

Apart from this, friendly countries like Saudi Arabia, China and Azerbaijan have offered Pakistan investment in China-Pakistan Economic Corridor (CPEC) projects, soft loans and credit line for oil imports.

The rupee touched an intra-day high of Rs131.50 during the day in the inter-bank market. More importantly, it never fell below the Thursday’s closing of Rs133.80.

The slight bounce back came following the rupee’s massive depreciation by 7.68% to Rs133.80 to the US dollar earlier this week, which was the fifth round of free fall since December 2017. Cumulatively, the rupee has lost around 25% of its value since December to date.

In addition to that, rumours were doing rounds in the market that China may provide another $1-2 billion for Pakistan in a bid to stabilise the dwindling foreign currency reserves, he said.

Earlier, China has formally welcomed Saudi Arabia as a new partner in the $60-billion CPEC programme. This means Riyadh will make a significant capital injection into CPEC projects.

Azerbaijan has also offered Pakistan a $100-million credit line for the import of petroleum products.

In the open market, the rupee recovered around half a percentage point to Rs132.40 to the greenback compared to Rs133 on Thursday.

A banker, who asked not to be named, described the rupee’s recovery as only temporary. In the current scenario, he said, it should settle somewhere between Rs135 and Rs140 by December-end.

“The IMF is expected to approve a loan package for Pakistan by mid-December,” he anticipated. Market talk suggests that the loan size could be anywhere between $6 and $12 billion.

Pakistan is in dire need of dollars to avoid a balance of payments crisis and make import and debt payments on time.

Pakistan’s foreign currency reserves dropped another $101 million to a critical level of $8.3 billion by October 5, 2018, the State Bank of Pakistan reported.

The IMF has urged Pakistan to let the rupee depreciate to Rs145 to the US dollar and increase the benchmark interest rate by 250 basis points from the current 8.5% to overcome the foreign payment crisis.

The central bank has already revised the benchmark interest rate up by 275 basis points to a 44-month high at 8.5% in the last nine months.

Government striving to address food insecurity

The government is striving to eliminate hunger and all forms of malnutrition in compliance with the Sustainable Development Goals (SDGs) target 2.1 and 2.2, said Planning, Development and Reform Secretary Zafar Hasan.

He said the launch of the national food security policy and multi-sector nutrition strategy showed the government’s resolve towards addressing the challenge of zero hunger in Pakistan under the SDGs.

He was addressing a roundtable conference on “The State of Food Security and Nutrition in the World”, organised by the Centre for Rural Economy Ministry of Planning, Development and Reform in collaboration with the Food and Agriculture Organisation (FAO).Speaking to the conference participants, Hasan said Pakistan recognised the importance of food security. Pakistan had produced surplus wheat and sugar, but still approximately 18% of the population was facing food insecurity.

Several factors like lack of awareness of healthy food and poor access due to low income and geographical barriers are the main reasons that upset the dietary system of households. As a result, stunting is 42%, which is one of the highest in the world, and this phenomenon is not only in the rural areas of Pakistan but even the urban sectors are suffering from this.

The secretary remarked that despite being the least contributor to climate change and global warming, Pakistan was amongst the worst sufferers. “Availability and storage of water has now become one of the most critical issues.”

He shared that the country’s agriculture sector had already witnessed floods in 2010 and 2011, which caused losses of $7.6 billion, a hefty amount for an economy like Pakistan.

Therefore, realising the threat of climate change, Pakistan is one of the first signatories to the United Nations Framework Convention on Climate Change (UNFCC) and is now going to actively participate in COP-24 Katowice 2018.

He said, “We are formulating the 12th Five Year Plan to reduce hunger which includes the establishment of a food security information system, improving food accessibility and creating awareness of food consumption.”


Government seeks Azerbaijan investment in oil, gas

Pakistan has invited Azerbaijan to invest in the country’s oil, gas, mineral and petrochemical sectors as it wants to develop these areas and curtail imports, which are a very burden on the foreign currency reserves.

The investment was sought in the second session of the Joint Working Group on trade cooperation between Azerbaijan and Pakistan held on Thursday in Islamabad.

The Azerbaijan delegation was headed by Deputy Minister of Economy Rufat Mammadov whereas the Pakistani side was led by Commerce Secretary Mohammad Younus Dagha.

The two countries agreed to ink a mutual recognition agreement to enhance bilateral trade in agricultural commodities, prepare trade promotion plans, enhance customs cooperation, facilitate business visas and make efforts for running direct flights between the two destinations.

They exchanged views on current cooperation in different fields and underlined the potential for enhancing bilateral trade and economic relations.

Remittances rise 13pc in first quarter

Overseas Pakistani workers sent home 13% higher remittances in the first three months (July to September) of the current fiscal year 2018-19 following a significant recovery in international crude oil prices.

Around 10 million Pakistanis are working overseas while a majority of them are based in oil producing and exporting countries in the Gulf. Besides, a massive depreciation of the rupee and crackdown against hundi/hawala operators also encouraged expatriate workers to send remittances through proper banking channels.

The State Bank of Pakistan (SBP) reported that overseas Pakistani workers remitted $5.42 billion in the first three months of the current fiscal year 2018-19, a growth of 13.14% compared with $4.79 billion in the same period of preceding year.

During September 2018, the inflow of workers’ remittances amounted to $1.45 billion, which was 12.25% higher than the same month last year, but 28.7% less than the previous month, the SBP said.

Country-wise details for September show that inflows from Saudi Arabia, the UAE, USA, the UK, GCC countries (including Bahrain, Kuwait, Qatar and Oman) and EU countries amounted to $360.16 million, $301.15 million, $231.21 million, $203.08 million, $133.95 million and $41.1 millionrespectively compared with inflows of $308.05 million, $302.77 million, $171.9 million, $194.76 million, $141.02 million and $45.07 million respectively in September 2017.

Remittances received from Malaysia, Norway, Switzerland, Australia, Canada, Japan and other countries during September 2018 amounted to $181.78 million as against $130.31 million received in September 2017.

PM vows to correct economy in 6 months

Rejecting criticism over seeking the International Monetary Fund (IMF) bailout package, Prime Minister Imran Khan on Wednesday said it will take at least six months before the corrective economic measures taken by his government start showing results.

The prime minister said a whopping current account deficit, unprecedented loans and dwindling exports forced the government to obtain the fresh loan to bridge current account gap of $10-12 billion.

However, he said the prevailing economic meltdown would not last long while assuring the countrymen he would steer the country out of the economic crisis.

“Have courage and faith in your government. Just relax. It’s a short but tough financial span and we will successfully go through it,” Imran advised the countrymen, saying good days were not far for Pakistanis and soon he would give a complete roadmap to get out of the prevailing tough times.

He said his government’s critics had tried to create chaos in the country during the last two days over the government’s decision to approach the IMF. “An impression has been created as if the sky is going to fall.”

The prime minister said the PTI government inherited $18 billion current account deficit, which was $3 billion when the PML-N government came to power in 2013.

Similarly, he said during the last 10 years, the country’s debt surged from Rs6 trillion to Rs30 trillion, while the exports also shrank by $5 billion.

“Right now, we do not have enough money to pay installments of the loans obtained by the previous government and pay for the imports.

The government is facing a shortfall of $10-12 billion right now,” Imran observed, adding it was time to pay for the corruption of the past government.

“In simple words, the government urgently needs $10-12 billion – it is the same amount laundered annually from Pakistan. Provided we stop money laundering we will not be requiring to go for the loan,” he said, adding nearly $20 billion foreign remittances were annually sent to Pakistan though informal channels.

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