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Pakistan In Focus

ECONOMIC TIMES OF PAKISTAN
Trade deficit contracts 36pc to $3.9bn in Jul-Aug fy20

Pakistan’s trade deficit shrank 36percent to $3.9 billion in first two months of the current fiscal year on the back of a one-fifth reduction in imports but exports marginally grew by 2.8percent despite a steep currency depreciation that added a heavy cost to the economy.

The trade figures released finally by the Pakistan Bureau of Statistics (PBS) on Friday after a delay of 10 days showed that exports contracted both on a month-on-month and year-on-year basis in August despite over one-third devaluation of the rupee against the US dollar.

Cumulatively, the exports grew 2.8percent or just $102 million to $3.75 billion in the July-August period of the current fiscal year, which suggested a serious review of the monetary policy.

Overall, the trade deficit, which stood at $6.1 billion in the same period of last fiscal year, shrank to $3.9 billion in first two months of this fiscal year, the PBS reported.

In absolute terms, there was a decrease of $2.2 billion in the trade deficit and almost the entire reduction came from the import side.

Imports dropped 21.4percent to $7.7 billion during the period under review but the improvement was mainly because of reduction in imports of the petroleum group, transport group, textile and food groups.

In absolute terms, imports contracted $2.1 billion in the first two months, which provided some relief to the government.

Petroleum group imports decreased $707 million to $1.9 billion while transport group imports dropped $180 million. Food group’s imports fell $255 million to $697 million in the first two months.

Central and West Asia to jointly tackle energy issues

Nine countries in the Central and West Asia signed a historic declaration on Friday that would accelerate cross-border cooperation on energy issues and move the region a step closer to the creation of a regional energy market.

Energy ministers and leaders from Afghanistan, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Mongolia, Pakistan, Tajikistan and Uzbekistan signed the 10-point declaration at the end of the Central Asia Regional Economic Cooperation (Carec) Energy Ministers’ Dialogue held in Tashkent, said an Asian Development Bank (ADB) press statement.

The meeting marked the first time energy ministers from the Central and West Asia came together to discuss common regional energy challenges, the statement added.

The declaration sets the region on a faster reform path towards more liberal energy markets with greater private sector participation and investment, increased power connections and exchanges between countries, and a strong commitment to tap renewable energy sources and clean technologies.

The group also endorsed a new Carec energy strategy for the next 10 years that would provide the roadmap to meet the region’s goal of a secure energy future.

The meeting of ministers has come at a critical time for the region as its energy sector faces a number of challenges. Carec countries are rich in natural resources, but uneven distribution of these resources – compounded by inadequate infrastructure and inefficient state-owned energy utilities – means some countries continue to face power shortages.

To keep pace with the region’s economic growth and with an increasing demand for power, the region will need to double its current power system capacity by 2030.

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Govt plans to grant latest petroleum exploration licences

The Petroleum Division is planning to award new petroleum exploration licences in December 2019 in order to increase investment opportunities in the sector, said Special Assistant to Prime Minister on Petroleum Nadeem Babar.

Addressing a luncheon arranged by the Canadian Global Exploration Forum (CGEF) in Calgary, he apprised Canadian companies of the investment opportunities offered by the petroleum sector in Pakistan.

A delegation, led by Babar, included officers of the Ministry of Energy and executives of Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL), stated a press release received on Friday.

The delegation made a comprehensive presentation on Pakistan’s petroleum sector and informed programme participants that new exploration blocks would be included in the next bidding round. OGDC and PPL also highlighted opportunities in existing blocks of the companies.

The Canadian firms expressed interest in participation in the bidding of new blocks in Pakistan.

Meanwhile, the delegation also took part in the GasTech Exhibition and Conference held in Houston, US the other day. On the sidelines of the conference, meetings with various petroleum sector players were arranged and investment opportunities in Pakistan were discussed.

IMF rejects to revise projections despite poor fiscal results

The International Monetary Fund (IMF) has kept the low economic growth rate outlook forecast and “ambitious” fiscal targets unchanged despite admitting “worse than expected fiscal results” at the end of the first year of the Pakistan Tehreek-e-Insaf (PTI) led government.

On the conclusion of the four-day visit of its mission chief to Pakistan, Ernesto Ramirez Rigo, the Washington-based lender officially announced on Friday to keep its projections and targets unchanged.

It also acknowledged the promising start of the $6 billion bailout programme but said that “decisive implementation” was critical for its success.

Although the IMF has given a pat on the back of the government, its decision to keep unrealistic targets unchanged would keep the economic team under stress during the course of the fiscal year.

“The near-term macroeconomic outlook is broadly unchanged from the time of the programme approval, with growth projected at 2.4 per cent in fiscal year 2019-20,” the IMF press release quoted Rigo as saying.

The 2.4percent economic growth rate is lower than the 3.5percent projection of the State Bank and is also equal to the county’s population growth.

The IMF Mission chief also said that the inflation was expected to decline in the coming months, while the current account was adjusting more rapidly than anticipated. In its staff level report, the IMF has projected 13percent inflation rate for this fiscal year, although its press release was silent on the inflation number.

The higher than anticipated contraction in current account deficit – the sum of external receipts and payments – has adversely affected the Federal Board of Revenue’s (FBR) revenue collection at the import stage.

While discussing the possibility of resetting the over ambitious targets, the IMF once again ruled out any change in primary budget deficit and revenue collection targets.

Nepra irked through ‘Nab’s meddling’ in tariff affairs

The National Electric Power Regulatory Authority (Nepra) has expressed serious concerns over the role of the National Accountability Bureau (NAB) in questioning tariff determinations of almost all projects.

Nepra said the way the investigations were being conducted had completely stifled the morale of the regulator’s professionals, adding that the matter in essence had come to the jurisdiction of Nepra and the boundaries beyond which NAB may not intervene.

“A holistic approach is the need of the hour so that confidence of the sector in general and that of Nepra in particular is not unduly hurt,” said a Nepra statement.

Looking at the improvement in operational performance of privatised K-Electric (KE) in terms of attracting more customers, reducing Aggregate Technical and Commercial (AT&C) losses and enhancing distribution capacity during the last 10 years, Nepra in its recent State of Industry Report 2018 said the federal government was exploring the option of privatisation of ex-Wapda distribution companies (XW Discos) to encourage private investment and make them financially self-sufficient which would reduce the burden on the national exchequer.

 

Circular debt has dipped significantly, Omar tells IMF

Due to concerted efforts of the Power Division, circular debt has shown considerable reduction in its growth, said Federal Minister for Power Omar Ayub.

In a meeting with IMF delegation headed by Mission Chief Ernesto Ramirez Rigo, the minister reiterated historic achievements made by the Power Division, which resulted in record recoveries and reduction in line losses.

SBP: Inflation to remain high for two more years

The State Bank of Pakistan (SBP) said on Friday that inflation would remain at an elevated level for two more years as a special parliamentary panel questioned the official policy prescription that was fuelling inflation instead of curbing it.

Inflation would come down to the central bank targeted rate of 5-7percent after two years, said SBP Deputy Governor Jameel Ahmad during a meeting of the sub-committee of National Assembly Standing Committee on Finance.

The special panel has been set up under the chairmanship of Pakistan Muslim League-Nawaz’s (PML-N) Dr Ayesha Ghaus Pasha with the single objective of recommending measures for controlling inflation. The meeting’s proceedings suggested that the central bank’s wrong monetary and exchange rate policies and fiscal policies of the federal government were the key reasons behind the double-digit inflation. Instead of curbing inflation, these policies were further fuelling price hike in the country, said Pasha.

The policy prescription of the central bank was flawed as it believed that inflation was caused by high demand while committee members and experts were of the view that it was cost-push inflation, said Pasha.

The deputy governor said the current account deficit would remain around $7.5 billion to $8 billion at the end of current fiscal year. The deficit projection by the SBP deputy governor was nearly $1.3 billion higher than the International Monetary Fund’s (IMF) estimate of $6.7 billion for the current fiscal year.

FBR pulls plan for sales tax relief to auto assemblers

The Federal Board of Revenue (FBR) has withdrawn at the eleventh hour a summary that it earlier moved to seek the federal cabinet’s approval for reducing sales tax liabilities of the monopolistic car assemblers in what is seen as a welcome development.

The board has also decided to improve monitoring of sales tax collection as this tax has turned out to be the most effective tool to enhance revenue collection in the current fiscal year.

FBR Chairman Shabbar Zaidi has directed the departments concerned to take immediate action against non-filers of sales tax returns for the July-August period. The share of sales tax in the total collection of taxes has sharply increased to 46percent during July and August from the traditional level of around 38percent.

The FBR on Tuesday withdrew the summary titled “Amendments to the Third and Twelfth Schedules of the Sales Tax Act 1990”.

It had been forwarded to abolish 3percent value added tax on 32 imported products and charge lower taxes on sales of auto parts, tyres, tubes and batteries – used by the car assemblers. The summary was withdrawn the day the cabinet was scheduled to meet and discuss it along with other agenda items.

Shell, Exxon mobil among groups to build 5 lng terminals

Pakistan has approved the construction of five liquefied natural gas (LNG) terminals by groups that include Exxon Mobil Corp and Royal Dutch Shell, aiming to triple imports and ease the country’s chronic gas shortage, Pakistan’s oil minister said on Friday.

The five terminals could be in operation within two to three years, Minister of power and petroleum Omar Ayub Khan said in an interview.

Pakistan is chronically short of gas for power production and to supply manufacturers such as fertilizer makers, hobbling the country’s economy.

“It will make a significant dent in the gas shortage,” Khan said.

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