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Trade deficit shrinks over 28pc to $13.8bn

Pakistan’s trade deficit shrank over 28 percent to $13.8 billion in first seven months of the current fiscal year due to import compression, as exports showed negative growth for the third consecutive month, which by now should have been a main concern for Prime Minister Imran Khan.

Trade figures, released by the Pakistan Bureau of Statistics (PBS) on Friday, showed that exports again posted negative growth both on a year-on-year and month-on-month basis in January, pulling cumulative export growth in Jul-Jan down to just 2.1 percent.

It was the third successive month when exports went down. In October 2019, export receipts amounted to $2.024 billion, which fell to $2.011 billion in November, $1.993 billion in December and $1.97 billion in January, showed the PBS statistics.

Pakistan cannot get rid of the International Monetary Fund (IMF) permanently until it ensures non-debt creating inflows on a sustainable basis. Exports are the most important source of non-debt creating foreign exchange earnings.

Total exports stood at $13.5 billion in Jul-Jan of the current fiscal year, reported the PBS. In absolute terms, Pakistan managed to increase exports by only $282 million from July through January despite devaluing its currency by 33 percent in the previous year.

This should be a matter of concern for the prime minister. It seems the economic managers are not showing the full economic picture to the premier who, in recent months, has been boasting of external sector improvement despite no major contribution by exports to the improvement.

Imports dropped 16 percent to $27.2 billion during the period under review, according to the PBS. In absolute terms, imports contracted $5.2 billion, which provided some relief to the government that was struggling to enhance exports.

Government again relaxes policy for new airline

The government has given second-time relaxation in its policy by not seizing the security deposit of AirSial, which is expected to receive aircraft this year for launching flight operations.

The airline was awarded a licence for flight operations during the tenure of the previous Pakistan Muslim League-Nawaz (PML-N) government but it failed to comply with the conditions for obtaining the Air Operator Certificate before launching flights.

Officials of the Aviation Division revealed that the Civil Aviation Authority (CAA) had forwarded AirSial’s request for the renewal of its Regular Public Transport (RPT) licence with effect from September 5, 2019.

According to the officials, AirSial was issued the RPT licence in 2017, however, the company could not obtain the Air Operator Certificate for the commencement of flight operations within the stipulated time period of two years.

Under paragraph 4.3.1 of the National Aviation Policy (NAP) 2019, “if an operator including the Regular Public Transport or non-Regular Public Transport fails to obtain Air Operator Certificate within a maximum of two years’ time frame from the date of issuance of respective licence, then 10 percent of the total security deposit will be levied as non-conformance charge. Subsequently, a fresh licence has to be applied while its remaining security deposit shall be refunded.”

Officials said the CAA had provided the cabinet with the details of efforts made by the airline to meet regulatory requirements and acquire aircraft by finalising a Letter of Intent (LOI) with AerCap.

Development spending remains at 27pc of allocation

The public development spending remained at Rs188 billion in seven months – which was equal to 27 percent of the annual allocation – amid the government’s resolve to fully utilise the remaining funds before June to propel economic growth.

The government has shown the commitment to fully spend Rs701 billion on development amid the International Monetary Fund’s (IMF) emphasis on ensuring that the development spending remains on track.

Unlike past programmes, this time the IMF is keen that Pakistan fully utilises the development budget and also honours its debt servicing commitments.

Public Sector Development Programme (PSDP) expenditures from July through January of the current fiscal year were in line with the historical trends, said Federal Minister for Planning and Development Asad Umar on Friday while addressing his first press conference as the planning minister.

The minister also hinted at some positive development on the $9.2-billion Mainline-I project of the China-Pakistan Economic Corridor (CPEC), hoping that a major breakthrough might be achieved in April.

The chairman of China’s National Development and Reforms Commission is expected to visit Pakistan in April.

The minister said the Pakistan Tehreek-e-Insaf (PTI) government spent Rs188 billion on development work in seven months, which was equal to 27 percent of the annual budget of Rs701 billion.

He said it was the second highest spending trend in the past five years, which affirmed the government’s commitment to fully utilise the budget.

The Rs188-billion spending was also higher by 35 percent or Rs49 billion as compared to the same period of last fiscal year.

Are import-curtailing strategies encouraging smuggling?

The Pakistan Tehreek-e-Insaf (PTI) government’s policies aimed at curtailing imports have started yielding desired results. The trade deficit has contracted considerably but whether the current path is the right one or will it give rise to smuggling remains to be seen.

According to data compiled by the Pakistan Bureau of Statistics, imports into the country decreased 16 percent to $27.2 billion in first seven months (Jul-Jan) of the current fiscal year 2019-20 compared to $32.4 billion in the same period of the previous fiscal year.

In its efforts to contain the import bill, the government hiked customs duty and regulatory duty on imported products to discourage imports and encourage their substitution with locally produced goods.

The efforts bore fruit as reflected in the trade figures, which displayed a 28 percent contraction in the trade deficit in the first seven months of the current fiscal year. The deficit shrank from $19.2 billion in Jul-Jan FY19 to $13.8 billion in Jul-Jan FY20.

However, prices of imported products have nearly doubled in the wake of import substitution policies and consumers are facing trouble finding certain products like milk flavouring, chocolate spread and cheese in the market.

According to a study conducted by the research department of the Karachi Chamber of Commerce and Industry (KCCI), high tax rates have triggered smuggling of many goods into the country.

Given the exorbitant taxes coupled with other import duties, which add up to 85.5 percent in a few cases, smuggling, under-invoicing, misdeclaration of goods and corruption have increased.

Transit trade with neighbouring landlocked Afghanistan has encouraged illegal trade with Pakistan, according to the study.

For instance, 47 percent of tea coming into the country is smuggled because the government has imposed 11 percent customs duty and 2 percent additional customs duty on the commodity.

 

Government wants IMF to relax power tariff hike situation

Pakistan has requested the International Monetary Fund to relax the condition of immediate increase in electricity tariffs due to an already double-digit inflation and unfavourable political conditions.

The government has assured the IMF that it would adhere to the overall circular debt reduction plan and annual revenue requirements goal despite delaying the notification, sources in the Ministry of Finance and the Ministry of Energy told.

After a steep shortfall in tax revenues, an ever-expanding circular debt remains another sensitive area during the ongoing second review talks between Pakistan and the IMF.

The government on Thursday reviewed its energy sector-related options during a meeting at the finance ministry that was also attended by Jahangir Tareen, the former secretary general of the Pakistan Tehreek-e-Insaf.

Adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh chaired the meeting to discuss different issues related to the power sector, according to an official handout.

The Central Power Purchase Agency-Guaranteed (CPPA-G) gave a presentation about the IMF’s demand to increase the tariff and the government’s alternative option, said the sources.

According to the IMF deal, the government will continue to notify tariffs for capacity payments on a quarterly basis shortly after the end of preceding quarter, and the next adjustment will take place by end-January 2020 – a deadline that has already lapsed.

The tariff update of January 2020 will incorporate the recovery from consumers of half the outstanding stock of the remaining Net Hydel Profits arrears, equivalent to Rs73 billion, according to the IMF’s first review report.

The sources said the authorities concerned asked the IMF to delay the new notification due to its overall negative implications for annual revenue requirements.

The proposed tariffs indicate increase in prices for domestic consumers but suggest some relief to those industrial consumers that are not taking any subsidy from the government.

The sources said any further increase for domestic consumers would create image problem for the government, which was already struggling to defend its policies in the wake of nine-year high inflation of 11.6 percent.

So far, the IMF visiting delegation was of the view that the government should stick to its targets and implement the power sector plan as per the programme design.

But the Power Division was betting that it can still achieve all the targets by delaying the new notification for a few months.

Danish company keen to set up wind turbine factory

Denmark-based Vestas, a leading manufacturer of wind turbines, has expressed profound interest in establishing a wind turbine factory in Pakistan and has also started the groundwork for exploring the feasibility of the project.

It was revealed in a meeting between a delegation of Vestas, led by Danish Ambassador Rolf Holmboe, and Federal Minister for Power and Petroleum Omar Ayub Khan. Special Assistant to Prime Minister on Petroleum Nadeem Babar and Power Division Secretary Irfan Ali were also present in the meeting.

The delegation was briefed about the targets set in the new renewable energy policy in order to boost the share of renewable resources from 4 percent to 30 percent and it also ensured transparency by introducing a competitive bidding regime.

The minister was told that the Danish company had decided to explore the possibility of establishing a manufacturing facility in Pakistan along with transfer of technology.

The minister outlined the broad parameters of the new renewable energy policy and said by 2030 the country would have around 20,000 megawatts from the renewable resources.

Khan emphasised that not only local utilisation of the renewable energy-related machinery – like wind turbines – would be a profitable investment for global companies, but Pakistan could also serve as a base for exporting the machinery to different countries of Central Asia and Africa, where a huge untapped potential existed for renewable resources.

He highlighted that Pakistan offered special incentives for setting up renewable energy equipment manufacturing units. At the same time, Special Economic Zones also provide investor-friendly packages, which can be explored by the Danish company.

The minister lauded Danish envoy Holmboe for showing keen interest in boosting clean and green energy production in Pakistan.

Nearly 75pc foreign investors willing to raise FDI

Although foreign investors in Pakistan are concerned over the sluggish business activity, still a vast majority is optimistic over the growth potential of the country. This optimism means they are likely to recommend parent companies to enhance foreign direct investment (FDI) in Pakistan.

This was the conclusion of the Perception and Investment Survey 2019 conducted by the Overseas Investors Chamber of Commerce and Industry (OICCI). The survey results shed light on both the concerns of the business community on the current business environment as well as the confidence of OICCI members on the growth potential of the country.

OICCI President Shazad Dada pointed out that the survey showed that foreign investors remained positive on a number of business climate parameters of Pakistan and were upbeat on the performance of their respective business entities in the country.

In fact, 75 percent of the respondents were willing to recommend their parent companies to enhance foreign direct investment in Pakistan.

“While foreign investors, participating in the survey, have displayed concerns over some areas relating to the ease of doing business in Pakistan, the case for business growth potential and opportunities in the country is supported by over 70 percent survey respondents,” he said. “This indicates their plans to enhance investment over the next five years.”

He pointed out that in the past two years OICCI members had reinvested $2.5-3 billion in Pakistan annually as new capital expenditure.

OICCI members indicated that compared to the previous 2017 survey, the federal government is better engaged with stakeholders on policy issues and its senior functionaries appear to have a better understanding, and commitment to resolve investors’ issues. A number of economic disciplinary measures, announced by the government last year, such as the partial withdrawal of incentives on new investments affected the business operations of OICCI members.

Delayed action on some other key concerns like inter-provincial coordination issues, matters pertaining to the renewal of cellular mobile operators’ licenses and delay in processing corporate remittances have been flagged as concerns for many businesses.

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