Day: June 8, 2022

The net foreign exchange reserves with the State Bank of Pakistan have now tumbled to below $10 billion, which is not enough to pay for even two months’ imports, and the best way to improve the foreign reserves is to promote foreign direct investment and boost exports.

This was stated by the Acting President of the Islamabad Chamber of Commerce & Industry (ICCI), Jamshaid Akhtar Sheikh, during a meeting with a delegation of the business community. He suggested that the government should offer some special incentives in the upcoming budget to the exporters and foreign investors to boost exports and attract maximum FDI to the country.

Sheikh said that Bangladesh’s exports crossed $43 billion in July-April 2021-22, showing an increase of over 35 percent as compared to the same period last year. However, Pakistan’s overall exports during July-March 2021-22 were just over $28 billion while its total imports during the same period shot up to over $62 billion.

This indicates that imports have increased by $34 billion as compared to exports and this huge gap between exports and imports is the main cause of Pakistan’s dwindling foreign reserves.

The ICCI Acting President said that Pakistan’s overall exports as a percentage of the GDP have also been showing a falling trend for the last many years as they have dipped from over 13 percent of the GDP in 2013 to around 10 percent of it in 2020 while the global average was over 30 percent of GDP in 2013 and over 26 percent in 2020. This means that no serious efforts have been made to boost Pakistan’s exports for the last many years, due to which the economy is now facing multiple challenges.

Sheikh said that the Minister for Finance, Miftah Ismail, has stated that 80 percent of the country’s manufacturing is meant for local consumption and only 20 percent is for exports, which showed that Pakistan’s export volume is much lower than that of other countries. He stressed that the government should fully cooperate with the private sector in the value addition of products and provide maximum support to the exporters in identifying new markets in order to boost exports.

Sheikh mentioned that the total FDI in Pakistan had also fallen by over 57 percent during the first 10 months of the current financial year (July-April) as it came down from $3.6 billion to $1.5 billion during this period, which is not a good sign.

He emphasized that the government should offer some good incentives in the coming budget to the foreign investors so that they could come to invest in Pakistan and produce value-added goods for exports.

This would help to achieve much better results for the country as it is mostly exporting raw materials while other countries are taking advantage by using Pakistani raw materials to produce finished goods that are exported at much higher prices in the international market.

Source: Pro Pakistani

The government is expected to allocate an amount of Rs. 578 billion for subsidies in the upcoming fiscal year, with the bulk of it going to the energy sector. The amount allocated for subsidies for FY23 is 15 percent lower than last year’s allocation of Rs. 682 billion.

According to documents exclusively available with ProPakistani, the government will allocate an amount of Rs. 500 billion for the energy sector subsidies.

Independent power producers (IPPs) are likely to get subsidies of Rs. 190 billion, and Rs. 20 billion will be set aside to provide a subsidy on Regasified Liquefied Natural Gas (RLNG) for the zero-rated industries.

Moreover, the allocation of subsidies for industries will be Rs. 52 billion for the upcoming fiscal year.

Source: Pro Pakistani

Moody’s Investors Service (“Moody’s”) has affirmed the B3 long-term deposit ratings of Pakistani banks and changed the outlook to negative from stable.

The rating agency has affirmed the B3 long-term deposit ratings of five Pakistani banks: Allied Bank Limited (ABL), Habib Bank Ltd. (HBL), MCB Bank Limited (MCB), National Bank of Pakistan (NBP) and United Bank Ltd. (UBL).

As part of the same rating action, Moody’s has changed the outlook on the bank’s long-term deposit ratings to negative from stable.

The rating agency has also downgraded the long-term foreign currency Counterparty Risk Ratings of ABL, MCB and UBL to B3 from B2; these ratings are now constrained by the Government of Pakistan’s foreign currency country ceiling, which was lowered to B3 from B2.

The latest rating actions follow Moody’s decision to change the Government of Pakistan’s B3 ratings to negative from stable on 2 June 2022, and also lower the country’s local and foreign currency country ceilings to B1 and B3, from Ba3 and B2, respectively.

The negative outlook on the sovereign is driven by Pakistan’s heightened external vulnerability risk and uncertainty around the sovereign’s ability to secure additional external financing to meet its needs.

According to the rating agency, the affirmation of the five Pakistani banks’ ratings reflects their stable, deposit-based, funding profiles and adequate liquidity. Around 12 percent of assets are held as cash and interbank placements and an additional 45 percent are invested in government securities, a large proportion of which can be repo’ed with the central bank in case of need.

 “Pakistani banks also display resilient profitability, with the 2021 system-wide return on assets at 1.0 percent, while growing financial inclusion and other government initiatives are boosting lending opportunities. These strengths are balanced against the still high asset risks given the vulnerable operating and macro conditions, with the 2021 system-wide non-performing loans (NPLs) at 7.9 percent of gross loans; and modest capital buffers, with the 2021 system wide equity-to-assets ratio at 6.3 percent,” said Moody’s.

According to the rating agency, the negative outlook on the bank ratings reflects,

• The rated banks’ sizable holding of securities holdings, predominantly sovereign debt securities, at between 5-8 times their shareholders’ equity, which links their creditworthiness to that of the government;
• The risk of a further weakening in the government’s capacity to support the banks in case of need.

The latter is particularly relevant for the National Bank of Pakistan and Habib Bank Ltd., whose ratings incorporate one notch of government support uplift. More broadly, all five banks’ deposit ratings of B3 are at the same rating level of the government, and a potential weakening in the government’s credit profile will therefore translate to a weaker credit profile for the banks.

Any upward rating pressure on the Pakistani banks’ ratings is limited given the negative outlook. The banks’ outlook could change back to stable if the sovereign rating outlook is stabilized and if the banks maintain their resilient financial performance, it added.

The credit rating agency further stated that the downward pressure on banks’ ratings would develop following a downgrade of the sovereign rating, reflecting the high interlinkages between the banks’ credit profile and that of the government, and also signaling a reduction in the government’s capacity to extend financial support to banks in case of need.

Downward pressure on the BCAs of individual banks could also develop from a deterioration in their financial metrics – and specifically their asset quality, profitability, and capital adequacy – but Moody’s consider this a low probability event at this stage.

Source: Pro Pakistani

The coalition government led by Prime Minister Shehbaz Sharif will unveil a Rs. 9.6 trillion budget including Rs. 800 billion for development projects in the parliament for the next fiscal year 2022-23.

Sources said that the overall outlay of the budget is expected at Rs. 9.59 trillion including Rs. 8.79 trillion current expenditures and Rs. 800 billion for Public Sector Development Plan (PSDP).

The proposed Rs. 800 for PSDP will include Rs. 739 billion from local resources and Rs. 61 billion from foreign aid. The government plans to allocate Rs. 346 billion for development schemes of federal ministries, Rs. 164 billion for corporations including WAPDA, NHA, and NTC, Rs. 52 billion for Special Areas including Azad Jammu and Kashmir and Gilgit-Balstistan, Rs. 31 billion for provincial projects, Rs. 50 billion for the districts of ex-FATA and Rs. 70 billion for SDGs for the next fiscal year.

Sources said that the government has plan to propose Rs. 4 trillion for debt servicing including Rs. 3.5 trillion for interest payments on local loans and Rs. 500 billion for interest payments on external loans. The government is estimating the highest debt servicing on basis of an average 14 percent interest rate for the next fiscal year.

After the payment of debt servicing, the big chunk will go for defense expenditures as the government is going to propose Rs. 1.6 trillion for the defense budget for the next fiscal year, sources said.

The payment of pension of retired government servants from the national exchequer is emerging as a big issue for the government as pensions are almost touching the total cost of running the government affairs. According to the sources, the government is considering Rs. 530 billion for payment of pension to retired government servants. The government will allocate Rs. 550 billion for running the civil government for the next fiscal year.

The government is allocating Rs. 1232 billion for grants and transfers, Rs. 578 billion for subsidies and Rs. 398 billion for other expenditures for the next fiscal year.

On the revenue side, the government wants to set an ambitious target due to the pressure of the International Monetary Fund (IMF). It is considering setting a target Rs. 7.2 trillion for tax collection by the Federal Board of Revenue (FBR) and Rs. 1.5 trillion for non-tax revenue for the next fiscal year.

The government is also projecting a budget deficit of 4.8 percent of GDP (Rs. 3.8 trillion) which will be bridged through borrowing from external and internal sources.

Source: Pro Pakistani

Punjab Governor Muhammad Baligh-ur-Rehman says the PML-N government has always taken steps for welfare of the business community.

He expressed these views while talking to a delegation of business and social personalities, who called on him in Lahore on Wednesday.

He said the government is committed to resolve the issues being faced by the business community.

The Punjab Governor said business community has served the country and people in every difficult juncture.

He said abolition of taxes on solar panels by the government is an encouraging step for the business community.

He said entrepreneurs are playing an important role in socio-economic development of the country.

Source: Radio Pakistan