Day: December 14, 2021

The State Bank of Pakistan (SBP) has withdrawn facilities for exporters of Afghanistan and Central Asian Republics (CARs) in response to the growing dollar demand, a situation that has compelled foreigners to conduct business solely through more onerous traditional methods and banking channels.

As a result of this decision, Pakistan’s trade with Afghanistan, and perhaps a few of Central Asian countries, is expected to be severely impacted as inflationary pressures take their toll.

Previously, US dollars could be purchased from Pakistan through Afghan exporters and then presented at Customs counters for import and export clearances. However, after adopting new regulations in light of the ongoing inflationary burden, the Central Bank has revoked all facilities with effect from December 13, 2021.

The SBP gave instructions to the Presidents/Chief Executives of banks and all authorized foreign exchange dealers in relation to exports to Afghanistan and Central Asian Republics (CARs) via land routes, according to a circular released by the SBP on December 7, 2021.

A top Customs officer told a national daily that there are three key developments relating to the latest SBP circular. The first is that the trade of perishable commodities will be Rupee-denominated. Second, travelers now must present convertible currencies and Goods of Declarations (GDs) for import and export, but the currency must include legal declarations. Third, the practice of traders purchasing dollars on behalf of Afghan exporters from the open market has been discontinued in order to relieve pressure on the exchange rate.

Given the looming and unpleasant fiscal repercussions posed by the Bank’s decision, bilateral trade could come down to precarious levels, severely reducing trade volume and conversely piling more pressure on the Pakistani Rupee.

Notably, Pakistan’s exchange rate is currently under substantial pressure due to the growing current account deficit, a lack of dollar inflows, and increased dollar demands. The Pakistani Rupee has been steadily losing ground against the greenback and looks on course to fall below Rs. 180 in the open market.

Source: Pro Pakistani

The Privatization Commission plans to complete the privatization of at least one dozen state-own entities (SOEs) in the next few years.

Pakistan Steel Mills (PSM) is also among the list of SOEs that the government wants to privatize. The government had projected to generate over Rs. 250 billion in the current fiscal year from privatization proceeds.

According to a report by Business Recorder, the privatization of the Jinnah Convention Center, the House Building Finance Corporation Limited and the First Women Bank Limited is in advanced stages.

The incumbent government had put almost 21 SOEs on the active privatization list but could only manage to privatize a few of them during the last three years. However, the Services International Hotel was auctioned for Rs. 1.951 billion during the current fiscal year.

Now, the Privatization Commission has drawn up a list of 12 more SOEs that it intends to auction by the end of the next fiscal year. The government generated in excess of Rs. 920 million in the last year by selling off 10 properties.

The privatization of the Jinnah Convention Center in Islamabad is expected during the last quarter of the current fiscal year.

The privatization of Pakistan Re-Insurance Co Ltd (PakRe) and Heavy Electrical Complex (HEC) will also be completed by the third quarter of the current fiscal year, whereas the privatization of First Women Bank Limited (FWBL) and House Building Finance Corporation (HBFC) is set to be completed by December next year.

The commission further plans on privatizing Sindh Engineering Limited (SEL) by the end of the next fiscal year. The commission also plans to privatize two liquefied natural gas (LNG) based power plants by the end of the current fiscal year.

Source: Pro Pakistani

Sui Northern Gas Pipelines Ltd (SNGPL) lost claims of approximately Rs. 19 billion against National Power Parks Management Company Pvt. Ltd. (NPPMCL) in two arbitrations before the London Court of International Arbitration (LCIA).

According to the details, NPPMCL owns and operates two 1200 MW RLNG based power plants in Punjab, situated in Haveli Bahadur Shah, Jhang, and Balloki, Sheikhupura, and procures RLNG for power generation from SNGPL.

The disputes arose when in May 2018, SNGPL raised take or pay invoices against NPPMCL and subsequently proceeded to recover Rs. 10.37 billion from the gas supply deposit maintained by NPPMCL under its Gas Supply Agreements.

Disputing SNGPL’s claims, NPPMCL contested the assertions of SNGPL on multiple forums and ultimately submitted the disputes for final resolution to the London Court of International Arbitration (LCIA) as per the agreed mechanism under the Gas Supply Agreements.

The sole arbitrator issued its final awards related to these disputes earlier this week, holding that the documents produced by SNGPL in support of its claims “are little more than selfserving evidence.” The sole arbitrator also held that SNGPL wrongly drew down the amount of approximately Rs. 10.37 billion and directed SNGPL to pay the same to NPPMCL with interest from the date of recovery until full payment, which amounts to approximately Rs. 15.3 billion.

In addition, the sole arbitrator also dismissed the counterclaims raised by SNGPL against NPPMCL, including an additional claim of Rs. 4.38 billion, and noted that SNGPL had failed to discharge “its burden of proving their quantum.”

The final hearing for the LCIA Arbitrations initiated by NPPMCL took place from 20 September to 25 September 2021.

The hearing was attended by officials of NPPMCL and SNGPL and expert witnesses, including the renowned power sector expert heading AMA Energy Services, Mr. Abid Latif Lodhi, and gas sector expert, Mr. Mustafa Abdullah. NPPMCL was represented in the LCIA arbitrations by ‘Cornelius, Lane & Mufti, Advocates and Solicitors’ (CLM). The team from CLM comprised of Barrister Munawar-us-Salam, Barrister Waleed Khalid, Barrister Usman Akram Sahi, Barrister Faizan Daud, Amna Salam, and Asad Ullah Khan.

Update:

In a press release, the Sui Northern Gas Pipelines Limited (SNGPL) said that “misleading reports” are circulating regarding two arbitration awards involving SNGPL and NPPMCL.

“It must be noted that arbitration and awards are private and confidential. A selective and misleading disclosure has been made part of the awards. SNGPL will not violate the confidentiality commitment enshrined in the relevant rules, however, it has been constrained to respond given the ongoing speculation,” reads the statement.

It said that under the terms of the license granted to SNGPL by the Oil and Gas Regulatory Authority (OGRA) read with the decision of the Economic Coordination Committee (ECC) of the cabinet dated May 11, 2018, and in line with the tariff regime in vogue, the company after exhausting all the legal remedies available under the law, will take up the matter with the OGRA for determining the impact of the case in revenue requirement of the company.

“Since the Take or Pay revenues billed to NPPMCL were earlier offered to OGRA as an operating revenue, therefore, reversal of the same, if any, may not have any material adverse impact on the profitability of the company”, the statement added.

For the record, the arbitrations arose from a decision of an expert who was a retired Supreme Court Judge who had decided all issues in favor of SNGPL, it said.

Source: Pro Pakistani

The Pakistani Rupee (PKR) finally held out against the US Dollar (USD) after five consecutive days of losses, and appreciated by one paisa against the greenback in the interbank market today. It hit an intra-day low of Rs. 178.20 against the USD during today’s open market session.

The PKR appreciated by 0.01 percent against the USD and closed at Rs. 177.88 today after it posted losses of 18 paisas and closed at an all-time low of Rs. 177.89 in the inter-bank market on Monday, 13 December.

Today’s holdout offers a temporary breather for the exchange ledger as numerous financial indicators, including the Central Bank’s Monetary Policy Decision and related inflationary outliers that have made little room for the rupee to settle at comfortable levels.

Although today’s holdout looked brief from the outset, the local unit’s drop has halted on the back of rising uncertainty about the State Bank’s monetary policy decision for another interest rate hike.

In extension, the Asian Development Bank (ADB) has forecast a higher inflation projection for Pakistan, saying that adjustments to energy tariffs and higher global commodity prices are expected to exert upward pressure on domestic prices.

Moreover, with $2.4 billion of inflows during November, workers’ remittances have also continued their incredible streak of remaining above $2 billion since June 2020. In terms of growth, on a Year-over-Year basis, remittances increased by 0.6 percent in November 2021.

It is expected that the inflows of remittance may be volatile and will improve in the coming months due to the incentives under the newly launched Sohani Dharti Remittance program. The reopening of business in the global market and the resumption of the export of manpower to various countries might have a positive impact on the growth front.

Regarding the PKR’s interbank performance during the trading hours earlier today, the former Treasury Head of Chase Manhattan Bank, Asad Rizvi, said, “In today’s MONETARILY POLICY, SBP will increase its INFLATION TARGET from 7-9% to DOUBLE-DIGIT[s]. In November there was plenty of room for upward adjustment, but SBP knowingly did not act to calm the sentiment. However, [a] 75-100bps hike may not be enough to meet IMF demand”.

The PKR maintained its blanket performance against the other major currencies as well and posted gains in the interbank currency market today.

It gained 41 paisas against the Euro (EUR), 20 paisas against the Malaysian Ringgit (MYR), and held out against the Chinese Yuan (CNY).

It also held out against both the UAE Dirham (AED) and Saudi Riyal (SAR) in today’s interbank currency market.

Besides this, the PKR posted gains of 80 paisas against the Canadian Dollar (CAD), 56 paisas against the Pound Sterling (GBP), and 45 paisas against the Australian Dollar (AUD).

Source: Pro Pakistani

The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) on Tuesday raised the policy rate by 100 basis points to 9.75 percent from 8.75 percent, according to a statement issued by the bank.

The central bank said that monetary policy settings are likely to remain broadly unchanged in the near-term now, having already lifted the policy rate by 150 basis points at its meeting last month.

In its Monetary Policy Statement, the central bank said that the decision to raise the policy rate was taken to “counter inflationary pressures and ensure that growth remains sustainable”.

Since the last meeting on 19th November 2021, “indicators of activity have remained robust while inflation and the trade deficit have risen further due to both high global prices and domestic economic growth,” the SBP said in the statement.

In November, headline inflation increased to 11.5 percent year-on-year. Core inflation in urban and rural areas also rose to 7.6 and 8.2 percent, respectively, reflecting domestic demand growth, it said.

“On the external side, despite record exports, high global commodity prices contributed to a significant increase in the import bill. As a result, the November trade deficit rose to $5 billion based on Pakistan Bureau of Statistics (PBS) data”, the statement said.

The SBP said that recent data releases confirm that the emphasis of monetary policy on moderating inflation and the current account deficit remains appropriate.

The central bank said that high-frequency indicators of domestic demand released since the last meeting, including electricity generation, cement dispatches, and sales of fast-moving consumer goods and petroleum products, and continued strength in imports and tax revenues suggest that economic growth remains robust.

The outlook for agriculture continues to be strong, supported by better seed availability and an expected increase in the area under wheat cultivation, it noted.

The SBP said robust growth in sales tax on services also suggests that the tertiary sector is recovering well.

“While some activity indicators are moderating on a sequential basis, partly as a result of recent policy actions to restrain domestic demand, growth this fiscal year is expected to be close to the upper end of the forecast range of 4-5 percent,” the statement said.

The SBP said that the emergence of Omicron poses some concerns but at this stage, there is limited information about its severity. Pakistan had successfully coped with multiple waves of the coronavirus, which supported a positive outlook for the economy, it noted.

It said that despite strong exports and remittances, the current account deficit has increased sharply this year due to a rise in imports, and recent outturns have been higher than earlier expected.

“Around 70 percent of this increase in imports stems from the sharp rise in global commodity prices, while the rest is attributable to stronger domestic demand. Due to the higher recent outturns, the current account deficit is projected at around 4 percent of GDP, somewhat higher than earlier projected,” the statement said.

SBP said that in the near term it expects the monthly current account and trade deficit figures to remain high, however, they are expected to gradually moderate in the second half of fiscal year 2022 (FY22) as global prices normalize with the easing of supply disruptions and tightening of monetary policy by major central banks.

Calling the monetary policy response timely, it said that recent policy actions to moderate domestic demand-including policy rate hikes and curbs on consumer finance-and proposed fiscal measures, will help moderate growth in import volumes through the rest of the year.

The central bank said that the current account deficit is expected to be fully financed from external inflows. As a result, foreign exchange reserves will remain at adequate levels through the rest of the fiscal year and resume their growth trajectory as global commodity prices ease and import demand moderates.

The SBP noted that July-November FY22, fiscal revenue growth has been strong, driven by a broad-based and above-target increase in Federal Board of Revenue (FBR) tax collections. However, lower petroleum development levy (PDL) collection led to a decline in non-tax revenues, it added.

It said that development spending and subsidies and grants have increased significantly during this period.

“The government intends to introduce legislation to increase revenues through elimination of certain tax exemptions and reduce current and development expenditures. These measures would help moderate domestic demand, improve the current account outlook, and complement recent monetary policy actions,” the statement said.

It said that despite moderation in consumer loans, overall credit growth has remained supportive of growth. The statement called the significant increase in secondary market yields, benchmark rates and cut-off rates in the government’s auctions “unwarranted”.

The SBP said that it expects inflation to average 9–11 percent in the current fiscal year.

“As global commodity prices retrench, administered price increases dissipate, and the impact of demand-moderating policies materializes, inflation is expected to decline toward the medium-term target range of 5-7 percent during FY23,” it added.

Source: Pro Pakistani

The government has been given a suggestion to impose a sales tax on the actual sales price of sugar to deal with possible tax evasion.

According to details, a report containing various suggestions about the sugar sector was presented to the federal cabinet in its meeting held with Prime Minister Imran Khan in the chair on Tuesday.

The report suggested imposing sales tax on actual sales prices of sugar through an SRO by the Federal Board of Revenue (FBR).

The report highlighted the possible cartelization in the sugar sector, wherein the association of sugar mills owners were generally frontrunners of cartels. The report read, “Section 38 of Competition Act 2010 may be amended suitably, adding a minimum penalty of Rs. 75 million for violations by the associations. The penalty may be enhanced as a certain percentage of the combined turnover of the member undertakings.”

“The Competition Appellate Tribunal needs to be revised and made fully functional with regular members. This will end delays in decisions under the competition law,” added the report.

The Securities & Exchange Commission of Pakistan (SECP) has also been given a suggestion to amend the law for allowing an audit of cost accounts of the company. The report said that administrative ministries should have the power to request to SECP for cost audit for required commodities.

To deal with possible Satta [gambling/betting] in sugar, the report said, “the inspection regime should be strengthened to ensure that no sugar remains unlifted after the expiry of the forward contract.” It added that FBR should implement an IT-based track and trace system and there should be mandatory registration of brokers, sugar dealers, wholesalers with NTN and STRN linked to their bank accounts with mandatory registration of godown and automated online inventory management system. FBR should also develop a digital dashboard of stocks of sugar, according to the report.

The provincial governments, proposed the report, should ensure that no hoarding is possible. It maintained that the State Bank of Pakistan should issue advisory to commercial banks to inspect their pledged sugar stocks and to verify their presence with the collaborations with FBR and Cane Commissioners. Joint inspection teams of concerned banks, SBP, FBR, and provincial governments should be formed to verify the pledged stock after every three months, the report further said and added that the matter might be referred to Federal Investigation Agency in case of any misappropriation.

The report also suggested that the government should enhance financial penalties for late sugar crushing, and a fine of Rs. 5 million along with 12-month imprisonment should be imposed in this connection.

Source: Pro Pakistani