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Lobbies become active to holdup Tapi gas pipeline

Certain lobbies appear to be working to delay the Turkmenistan-Afghanistan-Pakistan-India (Tapi) gas pipeline project, sparking worries about the country’s energy security and upsetting the government of Turkmenistan, officials allege.

Officials in the Petroleum Division are trying to delay the Tapi project in a bid to create a level-playing field for liquefied natural gas (LNG) imports, they allege.

Sensing such moves, officials of the Turkmenistan government recently visited Pakistan and held meetings with high-ups of the Petroleum Division, Foreign Office and top brass of the military to convey their concern.

Pakistan’s top civil and military leadership has already given assurances to Turkmenistan that Pakistan is committed to executing the strategic Tapi pipeline project in order to ensure energy security.

However, according to officials, certain lobbies are active that want to import more LNG, though many sectors are not ready to consume the imported LNG.

Being the major consumer of LNG, the power sector has already conveyed to the government that it will not take LNG deliveries beyond 2025 when a long-term agreement for gas import from Qatar will be taken up for review.

Owing to the reluctance of power and other sectors to consume expensive LNG, Pakistan LNG Limited (PLL) was compelled to scrap a 10-year LNG supply tender a couple of months ago despite pressure from the Petroleum Division to open financial bids.

Still, officials of the Petroleum Division are allegedly insisting and urging the prime minister to import an additional 200 million cubic feet of LNG per day (mmcfd) from Qatar. “These lobbies are working to delay the Tapi pipeline project by feeding half-cooked information to the country’s economic managers,” an official remarked.

According to sources, Special Assistant to Prime Minister on Petroleum Nadeem Babar told the country’s economic managers in a recent meeting of the Economic Coordination Committee (ECC) that the Tapi pipeline gas would be 10percent expensive compared to imported LNG.

Pak gets record foreign investment in T-bills

The flow of foreign investment has accelerated in the rupee-based government debt securities after authorities simplified the tax regime for non-residents two weeks ago as investment totaled $2.23 billion in first seven months of the current fiscal year.

Pakistan received a record $536 million in foreign investment in short-term treasury bills (T-bills) in a single day on Thursday (Jan 16), the State Bank of Pakistan (SBP) reported.

The latest inflow took foreign investment to over $2 billion, mostly in three-month T-bills, which came much earlier than the expected timeline of June 2020. Earlier, experts had anticipated that foreign inflows would be above $2 billion by the end of current fiscal year 2019-20.

“The significant foreign inflows into debt instruments in the first seven months suggest the investment may surge to around $5 billion before the end of FY20,” BMA Capital Executive Director Saad Hashmi said.

A stable-to-positive rupee-dollar exchange rate and an eight-year high benchmark interest rate of 13.25percent since July 2019 prompted foreign investors to make a gradual comeback to Pakistan’s debt market after a gap of 25 months (from June 2017 to June 2019), he said.

“The foreign investment accelerated swiftly after the government simplified the tax regime for foreign firms aiming to invest in the rupee-based treasury bills of 3 to 12 months and 3 to 20-year Pakistan Investment Bonds (PIBs),” he said.

According to amendments to the Income Tax Ordinance 2001, capital gains shall be subject to withholding tax at the rate of 10percent and shall constitute final discharge of tax liability. There will be no deduction of 0.6percent banking transaction tax under Section 236P on transactions in SCRA (Special Convertible Rupee Accounts) and no advance tax payment will be required under Section 147 on capital gains, the central bank said in the first week of January.

The benchmark interest rate is expected to be kept at higher levels in a bid to put the brakes on the accelerating inflation. This will encourage more investors from across the border to pour money into Pakistan’s debt instruments.

“There is an impression in the market that the central bank will cut the benchmark interest rate to step up economic activities March onwards. In any case, however, the rate will be maintained at least at 12percent till December 2020 as inflation has continued to accelerate due to latest increase in power, gas, petrol and food prices,” Hashmi said.

On the contrary, the benchmark interest rate in developed countries stands in the range of 2-3percent.

LSM contraction slows down to below 6pc

The pace of contraction in large businesses slowed down slightly to below 6percent in first five months of the current fiscal year but fundamental conditions causing economic slowdown remained unchanged, showed an official report.

The Pakistan Bureau of Statistics (PBS) reported on Friday that large-scale manufacturing (LSM) output decreased 5.93percent in July-November of the current fiscal year compared to the same period of previous year. There was negative growth of 6.5percent in the July-October period.

However, due to less than 5percent contraction in November 2019, the cumulative LSM growth remained negative 5.93percent in five months of the current fiscal year over the same period of previous year, according to the PBS.

Large businesses have been facing the brunt of very high interest rate, documentation drive by the Federal Board of Revenue and high energy prices.

In its first quarterly report, the central bank noted that while large export-oriented and import-competing industries remained bullish on fundamentals, they refrained from taking a long-term view.

“This cautious behaviour, coupled with tapering demand and compression of unregistered businesses – which dominate the network of dealership and wholesale infrastructure of registered firms – reinforced the economic slowdown,” it added.

The central bank said a number of industries within LSM struggled with inventory build-ups amid rising input costs.

With gross margins squeezed and financing costs rising, firms scaled back their operations to save their bottom lines from dropping further. As a result, contraction was observed in a majority of LSM sub-sectors in the first quarter.

This trend continued in the second quarter of the current fiscal year as well, although the central bank has not yet officially commented on it.

PBS data showed that out of 15 major industries, eight recorded some growth while the output in seven industries contracted in the July-November period. This was for the first time in recent months that sectors reporting growth outnumbered the ones showing contraction.

 

Current account deficit contracts 75pc

The current account deficit, which means higher foreign payments by the government than inflows into the country, narrowed 75percent to $2.15 billion in first half (Jul-Dec) of the current fiscal year.

The deficit had been recorded at $8.61 billion in the corresponding period of previous fiscal year, the State Bank of Pakistan (SBP) reported on Friday.

The drop came on the back of central bank efforts aimed at discouraging imports and encouraging exports. To achieve that, it let the rupee depreciate by over 52percent against the US dollar and jacked up the benchmark interest rate by 7.5 percentage points to an eight-year high at 13.25percent in the 18 to 20-month period ended July 31, 2019.

Consequently, the import of goods dropped 20percent to $22.20 billion in the first half of FY20, workers’ remittances remained steady at $11.39 billion and exports of goods improved 4.5percent to $12.39 billion, according to the central bank.

Foreign investors express interest in LNG plants

Pakistan has managed to secure broad-based interest in the privatisation of multibillion-dollar liquefied natural gas (LNG)-fired power plants as a dozen global and local companies, including a military-backed local consortium, have shown interest by the end of the extended deadline.

As traditional aspirants, China and Saudi Arabia, have stayed away from the process, non-traditional investors from Japan, Thailand, the United Kingdom and Malaysia have come forward and submitted statements of qualification.

Pak-UK ties can advance to new level: envoy

The relationship between Pakistan and the UK can be taken to the next stage by taking advantage of the forthcoming Brexit, said British Deputy High Commissioner Mike Nithavrianakis.

During a visit to the Karachi Chamber of Commerce and Industry (KCCI) on Friday, the envoy said, “Both countries have been enjoying warm and conducive partnership and we are ambitious to take this partnership to the new level as we believe that UK’s departure from the European Union, which is going to happen on January 31, gives us the opportunity to do that.”

He stated that Pakistan was an emerging frontier market that deserved greater attention, hence, the Department for International Trade (DIT) was increasing its resources for Pakistan.

The British envoy said 5,000 British companies were operating in the UAE, very few of which were doing business in Pakistan. “If they are already in the region and so close to Pakistan, then they should be exploring Pakistan’s market more seriously,” he said.

UN forecast ‘slight recovery’ in Pak economy in 2021

Pakistan’s economy will take a turn for the better from next year on the back of the reforms introduced by the government of Prime Minister Imran Khan, according to a new report on the world economic situation issued by the United Nations on Friday.

The report, titled ‘World Economic Situation and Prospects 2020’ stressed that the PTI government’s commitment to reforms, coupled with productive investment in infrastructure and strategic capacity development, would be critical for Pakistan to find its way back to its previous growth path.

“The economy of Pakistan is expected to recover slightly from 2021 onward as increased government revenues from a tax hike allow expanded public investment and as other government reforms required by the IMF [International Monetary Fund] begin to bear fruit,” said the report.

“Continued commitment to reform, combined with productive investment in infrastructure and strategic capacity development, will be critical for the country to find its way back to its previous growth path,” it added.

China leads as FDI in Pak soars to 30-month high at $487mn

Long-term foreign investors have finally staged a much-awaited comeback in different sectors of the economy, like power and telecommunication, following clarity in the government’s economic policies.

Foreign direct investment (FDI) hit a two-and-a-half-year high at $487 million in December 2019. This comes to over one-third of the total FDI inflow of $1.34 billion in the first six months (Jul-Dec) of the current fiscal year 2019-20, the State Bank of Pakistan (SBP) reported on Thursday.

A noteworthy development is that it was not only China, which has made a multi-year high investment of $328.3 million during the month, but many other countries have also poured in comparatively and historically higher investment. These include Hong Kong, Hungary, Japan, South Korea, Malta, the Netherlands and United Kingdom.

The revival in long-term investment is seen after short-term foreign portfolio investors poured a significant $1.67 billion into debt instruments like T-bills and Pakistan Investment Bonds (PIBs) in the first seven months (Jul-Jan) of the current fiscal year 2019-20. Besides, the short-term investors have slowed down sale of shares at the Pakistan Stock Exchange (PSX) following aggressive selling of stocks in the past four years.

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