Day: December 20, 2021

The State Bank of Pakistan (SBP) has updated the regulations governing the selling of foreign exchange to individuals by exchange companies in order to curb the demand for the US Dollar in the local markets.

The central bank has added new limits for the purchase of foreign currency to limit speculative trading and ascertain currency sales without affecting the ability of the market to serve the genuine needs of the public. But how does it really work?

Economist A. A. H. Soomro explained that the Pakistani Rupee is currently under pressure from rising import bills due to global commodity inflation, elevated energy prices, the reduced inflow of remittances, and the rising domestic demand for imported goods.

Consequent to these amendments, exchange companies are required to ensure that no individual will purchase foreign exchange in excess of $10,000 a day and $100,000 per calendar year. Additionally, individuals will be able to avail of the facility of remitting educational and medical expenses abroad up to $70,000 per calendar year and $50,000 per invoice respectively from banks.

These limits have been set in consideration of an individual’s personal needs for foreign exchange. The exchange companies will obtain supporting documents against the sale of foreign exchange in excess of $1,000 (or its equivalent in other currencies) to substantiate the purpose of the transaction.

Soomro added that these limits are in addition to numerous other steps by the SBP to rein in the outflow of the dollar which is severely denting economic confidence by adding pressure to the local unit.

For context, here is what the central bank has done so far:

• A hiked interest rate of 100bps to 9.75 percent (14 December).

• A hiked interest rate of 150bps to 8.75 percent, and Monetary Policy Committee to meet eight times a year (19 November).

• An Average Cash Reserve Requirement from five percent to six percent, and a Minimum Cash Reserve Requirement from three percent to four percent on-demand/time liabilities up to one year (13 November).

• Forex limitation for Afghanistan at $1,000 per visit, $6,000 per year. Biometric verification for invoices exceeding $500, and cheques / other instruments for above $10,000 (6 October).

• 100 percent cash margins on 114 items, total 525 items (30 September).

• Curbs on Auto-financing (tenure: from seven to five years; debt to burden: from 50 percent to 40 percent; amount: Rs. 3 million, minimum down payment: from 15 percent to 30 percent. Limits are not applicable on Local EVs & up to 1000cc (23 September).

Soomro suggested that with all the measures now gearing on equal footing towards establishing forex support, it is expected and hoped that the import pressure will subside by February/March 2022. The rupee’s trend should also reflect a similar trajectory that echoes the improvements in the trade deficit, he said.

Investors have been disappointed by how the rupee has performed in the last few months because of exogenous factors. The actions of the State Bank and the expected mini-budget on 22 December are proactive measures to prevent a bust and ensure a soft landing of the growth. This time, it is different from 2017’s red flags, and across a larger timeframe, a few months of imbalances are survivable.

A lot of remedial actions have been taken in three to four months, and the next two to three months will tell whether they were enough, he said.

The economist also expects disbursements from World Bank and the Asian Development Bank to further stabilize the exchange rate, as investors appear confident that the confidence of global lenders is back.

The rupee has notably lost 13.01 percent, as of 17 December, on a fiscal-year-to-date basis after recording another all-time low, besides depreciating by 11.39 percent on a calendar-year-to-date basis. The local unit has lost 0.19 percent against the US Dollar on a week-on-week basis, and has depreciated by 1.32 percent on a month-to-date basis.

Moreover, Pakistan’s liquid foreign reserves had an outflow of $90 million on account of debt servicing in the week that ended on 10 December 2021. The data released by the State Bank of Pakistan (SBP) showed that the foreign exchange reserves decreased to $18.56 billion in the week. During it, the foreign exchange reserves of commercial banks stood at $6.4 billion.

Source: Pro Pakistani

Packages Limited will lead a consortium consisting of IGI Investment and Affiliates of Arshad Ali Gohar Group to acquire majority shares of 52.87 percent in the leading pharmaceutical company, Sanofi-Aventis Pakistan.

According to stock filing, the management of Sanofi will give an opportunity to the consortium to conduct due diligence of the company and commence negotiations on terms and conditions of the potential transactions.

The board of directors of Packages Limited (PKGS) and IGI Investment (Pvt) Limited (IGI Investments), in their recent meeting, accorded its in-principle approval to become part of the investor consortium to evaluate and conduct due diligence for the purchase of the entire 52.87 percent shareholding of Sanofi Foreign Participants B.V (Sanofi) held in Sanofi-Aventis Pakistan Limited.

There are no assurances that negotiation between the consortium and Sanofi will result in any binding agreement and the transaction will occur as a result.

Further, the operations and business of the pharmaceutical company will remain intact in the future without any disruption, the stock filing added.

Packages Limited To Empower its Subsidiary

Further, the board of Packages Limited also accorded its approval to inject share capital of Rs. 1.1 billion into its 100 percent wholly-owned subsidiary, Packages Power (Private) Limited, from time to time, subject to compliance with applicable laws and fulfillment of applicable corporate and regulatory approvals, if any.

The transaction will be financed with a mix of debt and equity. The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the company have been jointly and/or singly authorized to take such necessary steps as are applicable in accordance with applicable laws.

Packages Power was incorporated on October 20, 2016, and has not yet commenced its commercial operations. Packages Power will establish, operate and manage electric power generating projects and transmission systems for the generation and supply of electric power to the affiliates of the company.

Source: Pro Pakistani

The Pakistani Rupee (PKR) finally held out against the US Dollar (USD) and reported no change against the greenback in the interbank market today. Withal, it hit an intra-day low of Rs. 178.30 against the USD during today’s open market session.

The local unit managed to hold its own against the USD and closed at Rs. 178.04 today after it posted losses of six paisas and closed at the same 178.04 level in the interbank market on Friday, 17 December.

So far, it has lost 13.01 percent on a fiscal-year-to-date basis after dropping to another record low on Friday, besides depreciating by 11.39 percent on a calendar-year-to-date basis.

Several financial factors and accompanying inflationary pressures have limited the rupee’s ability to settle at comfortable levels. Resultantly, today’s holdout gives the exchange ledger some respite as the focus progressively switches to the resolution of the mini-budget scheduled for 22 December. This instrument, which is valued over Rs. 550 billion, is likely to help the local currency weather the storm of inflationary pressures and may offer clarity on how the local currency will fare in the face of near-term economic uncertainties.

Moreover, the State Bank of Pakistan (SBP) has updated the regulations governing how exchange companies sell foreign exchange to individuals in order to reinforce the local unit and curb the rising import bills.

This step, which is in continuation of the other measures being taken by SBP, is aimed primarily at discouraging the speculative buying and selling of foreign exchange from the exchange companies without affecting the market’s ability to serve the genuine needs of the public.

In light of the PKR’s interbank performance during the trading hours earlier today, the former Treasury Head of Chase Manhattan Bank, Asad Rizvi, tweeted:

The PKR reversed its declining trend against other major currencies in an impressive highlight of encouraging gains. It posted big gains of Rs. 1.80 against the Pound Sterling (GBP), Rs. 1.45 against the Canadian Dollar (CAD), and Rs. 1.09 against the Euro (EUR).

It also posted a blanket gain of one paisa against the Saudi Riyal (SAR) and held out against the UAE Dirham (AED) in today’s interbank currency market.

Moreover, the rupee appreciated against the Australian Dollar (AUD) and posted gains of Rs. 1.26 in today’s interbank currency market.

Source: Pro Pakistani

Governor State Bank of Pakistan (SBP) Dr. Reza Baqir announced on Monday the agriculture credit target of Rs. 1.7 trillion for the current fiscal year, which will be made possible by reaching five million borrowers across the country.

The governor, who was chairing the annual meeting of the Agricultural Credit Advisory Committee (ACAC) in Multan, lauded the performance of banks in achieving the agriculture credit disbursement of Rs. 1.4 trillion in the fiscal year 2020-21. He remarked that the collective efforts of 50 financial institutions under ACAC helped achieve 91 percent of the assigned target despite the COVID-19 pandemic.

Dr. Baqir stressed the need for addressing the quality of credit, its geographical imbalances, and uneven distribution among different categories of borrowers.

He also announced two new measures to help boost agriculture financing. First, he said, a comprehensive scoring model would rank banks according to key agriculture credit indicators and targets. He added that in order to foster a competitive environment, the banks performing well would duly be recognized, whereas the underperforming banks would be strongly encouraged to focus on metrics where improvement was needed.

He maintained that the second measure designated a bank volunteering to serve as a lead bank in an underserved province or area. He held that further steps in this regard included establishing helpdesks in underserved areas to facilitate farmers in addition to launching targeted and collaborative awareness drives for an extensive outreach.

The governor said that SBP’s vision would serve a twofold purpose of enhancing farmers’ financial inclusion while providing more lending opportunities to the banks.

The meeting participants also deliberated on the new directions in agricultural financing, particularly the climate-smart agriculture practices and the role that financial institutions could play. The committee also discussed avenues to enhance the efficiency of existing agriculture credit infrastructure across the country.

A session was also held wherein selected banks and other stakeholders presented innovative ideas related to value supply chain solutions, electronic warehouse receipt financing, digital loan origination system, and horticulture value chain financing. The committee approved the new ideas and set targets for scaling up pilot projects.

The meeting was attended by senior officials of federal and provincial governments, Presidents/CEOs of banks, members of provincial chambers of agriculture, progressive farmers, representatives of regional farming communities, and senior officials of the central bank.

Source: Pro Pakistani

Pakistan’s current account recorded the highest deficit of $1.91 billion during the current financial year 2021-22 in November 2021 according to the statistics released by the State Bank of Pakistan (SBP) on Monday due to the soaring import bill.

According to the State Bank of Pakistan (SBP), the current account deficit further widened to $1.91 billion in November as compared to the deficit of $1.76 billion reported in October 2021.

It is pertinent to mention here that the central bank had reported a current account deficit of $1.66 billion in October 2021. However, it seems the figure was later revised.

The central bank said that imports were mainly lifted by high international commodity prices in addition to strong domestic economic recovery.

Commenting on the central bank’s figures, economist A. A. H. Soomro said that the current account deficit was reportedly less than the astronomical expectations. He said the difference was due to the recording methodology of the import data reported by SBP and the Pakistan Bureau of Statistics (PBS). The trend is not good but lesser than worst-case expectations and should be taken positively, commented Soomro.

The staggering current account deficit had posed a persistent worrisome situation for the economic managers and the banking regulator which introduced various strict measures to curb non-essential imports in the country. However, the results are yet to be seen as the import bill has remained out of control since the beginning of the current financial year.

The trade deficit of the goods and services increased by 100 percent during the period of five months, from July to November of the current fiscal year as compared to the same period in the last year. The huge deficit stood at $18.8 billion during July-November this year as compared to $9.42 billion reported in the same period of last financial year.

Meanwhile, the exports receipts of $12.3 billion stood 28 percent or $2.7 billion higher year-on-year during the period of July to November 2021.

Inflows of remittances showed a growth of over nine percent or $1.1 billion in the said period to stand at $12.9 billion this year.

Source: Pro Pakistani

The Islamic Development Bank (IsDB) has approved $252.5 million of funding for two vital projects in Pakistan aimed to support the country’s green agenda in the energy sector and its ongoing efforts to counter the adverse impacts of COVID-19.

President IsDB Dr. Muhammad Al-Jasser, who is in Islamabad on a four-day visit to attend the 17th Extraordinary Session of the OIC on Afghanistan, called on Federal Minister for Economic Affairs, Omar Ayub Khan, and Governor IsDB at the Ministry of Economic Affairs in Islamabad.

Chaired by President IsDB and Chairman Board, Dr. Muhammad Al Jasser, the 343rd meeting of the IsDB Board of Executive Directors, on 18 December 2021, gave the green light to the allocation of $$180 million to contribute to the financing of the strategic “Mohmand Dam and Hydropower Project’’ in Pakistan’s Khyber-Pakhtunkhwa (KP) province.

Once completed, Mohmand Dam will be the 5th highest Concrete-Face-Rock-Filled Dam (CFRFD) in the world and will add 800MW to the country’s installed hydropower capacity.

The two sides discussed the ongoing economic cooperation between Pakistan and IsDB.

Dr. Muhammad Al-Jasser underlined that IsDB was one of the leading development partners of Pakistan and it fully supported the Government of Pakistan’s development vision and priorities. He assured the Minister that IsDB would continue to mobilize more financial resources for developing infrastructure, uplifting the social sector, and achieving sustainable economic growth. It was also assured that IsDB would continue to leverage private financing to support trade needs including the import of petroleum products.

During the meeting, IsDB and the Economic Affairs Division signed a financing agreement of $72.5 million for the procurement of COVID-19 vaccines. The Bank’s financing for the procurement of the vaccine will help to contain the spread of the pandemic. The President, IsDB further updated that the Bank has also approved $180 million financing for Mohmand Dam Hydropower Project.

Omar Ayub Khan thanked President IsDB for visiting Islamabad and his continued support to Pakistan. He applauded IsDB’s role to support the member countries in COVID-19 response, recovery, and procurement of vaccines and saving lives & livelihood amid the pandemic.

The Minister also thanked President IsDB for his resolve to support the financing needs of the country in the future. He appreciated IsDBs support in green and clean energy development projects, like the Mohmand Dam Hydropower Project, which will not only generate 800MW electricity but also enhance Pakistan’s Water Storage Capacity by 1,293 million acre-feet (MAF), create a food security buffer, provide 13.32 cumec of clean drinking water to the residents of Peshawar and will create more than 6,000 direct new employment opportunities for the local people.

The Minister for Economic Affairs appreciated the role and endeavors of President IsDB and his team for arranging this financing at a very challenging time.

The President IsDB assured to further strengthen its partnership with Pakistan.

It was also highlighted that IsDB did not have a regional office in Pakistan like in Turkey and some other member countries.

During the discussions, the Minister underlined the need to have a regional office in Islamabad for improved collaboration and engagement.

Pakistan is the founding member of the Bank. IsDB is an important multilateral development bank with 57-members. Pakistan is the 2nd largest beneficiary of the IsDB financing. Since its inception, IsDB has approved $13.6 billion in financing for Pakistan. The IsDB financing for Pakistan is covering all the major sectors of the economy such as energy, industry, agriculture, transport, health, and financial services.

Source: Pro Pakistani