Pakistan Daily Economy Update - 14 July

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1. Jul . 14, 2017 KCCI - eBulletin Fund for stepped-up fiscal consolidation efforts The IMF has stated that fiscal consolidation efforts of Pakistan should be stepped up as budget deficit for the current FY18 is subject to significant risks and would exert additional pressures on the current account and forex reserves. The IMF, in its staff level report on Article-IV Consultation with Pakistan, has stated that remedial measures can include further reducing tax expenditures, gradually raising petroleum taxes, further strengthening the system of withholding taxes for non-filers, and improving provincial tax collection in agriculture, property and services sectors. BR. IMF talks about repayment obligations IMF, in its staff level report on the Article IV Consultation with Pakistan, has said that macroeconomic risks have begun to reemerge in Pakistan since the end of the Extended Fund Facility (EFF) program and long-standing challenges remain, as the pace of fiscal consolidation has slowed, public debt remains high and mobilization of tax revenue needs to be further strengthened. The report further pinpoints that Pakistan will face increasing govt. and CPEC-related external repayment obligations, and external financing needs are projected to increase to nearly 7.5% of GDP over the medium-term, highlighting the need for macroeconomic and structural policies supporting competitiveness. BR. KE consumers demand efficient power plants, revision in slabs Amid noisy scenes and chanting of slogans, the first day of Nepra hearing on a review petition for K-Electric’s Multi Year Tariff kicked off on 13th Jul‘17. KCCI’s representative Dr. Qazi Ahmed said that KE should install time-of-use or TOU meters at all factories and commercial premises as was decided in 2011. The Abraaj Group’s Partner and Head of Asia said that the performance-based tariff structure enabled KE to invest over PKR 130Bn in the power infrastructure of Karachi since 2009. However, the determined tariff 2017 does not cover the costs and ignores genuine recovery issues, lead KE into serious cash flow shortfalls, putting the sustainability of the company at risk and would result in serious implications for KE and its consumers. Dawn. Work on Red Line BRT project to begin by Nov‘17 Work on the Red Line Bus Rapid Transport project covering areas from Model Colony to Numaish (Gurumandir) via University Road will begin by Nov‘17 after the ADB agreed to finance the corridor. Besides assisting the provincial government to modernise the city’s transport system and build Southern Bypass project at Hyderabad, the ADB is also providing PKR 15.6Bn for the construction of 328Km road network linking different towns of Sindh. Dawn. SEZs: China seeks extra incentives At the concluding session of Pakistan-China Industrial Cooperation Dialogue, the head of a delegation from China, suggested Pakistan to give extra incentives to Chinese companies to set up industries in the Special Economic Zones (SEZs). He suggested that the leasing period of 99 years is quite attractive; however, the tax policy needs a review and that these SEZs may also use Chinese approach to attract investment. During the delegation’s visit, China and Pakistan reached an agreement that a team of experts would be constituted to determine the number of SEZs in the first phase. BR. Delay in PSM rehabilitation: NA body decides to file reference National Assembly Standing Committee on Industries and Production has decided to file a reference in National Accountability Bureau (NAB) on deliberate delay in rehabilitation of Pakistan Steel Mills for the last two years. The committee has also sought details of cases of the Ministry's officials and its attached departments/organizations pending in the NAB. BR. Islamic banks hitting plateau Despite recording a double-digit growth in its assets under strong government encouragement, Islamic Banking Institutions (IBIs) reached 11.7% of total asset of the banking industry by end of CY16, far below the target of 15% by 2018 set by the State Bank. IBIs’ assets reached PKR 1,852.9Bn registering a slight increase from 11.38% in the previous year. The central bank appreciated the performance of the Islamic banks, but said that given the current gap and moderate pace of growth in share of Islamic banking industry, achievement of the 15% target by 2018 seems challenging. Dawn. \ NA body takes notice of ‘on’ money on cars The National Assembly’s Standing Committee on Industries and Production has decried the automakers and the Ministry of Industries and Production (MoIP) for failing to protect the consumers from dealers’ exploitation. They claim that the issue of ‘premium (on-money)’ was limited to Karachi until recently, but now it is a countrywide nuisance and the dealers have started to operate like a mafia. Dawn. LTU collection up 5% The Large Taxpayers Unit (LTU) of FBR in Karachi collected PKR 1.11Tn in FY17, up 5% from the preceding year. Collection under all categories of income tax recorded a growth of 14.4% to PKR 253.88Bn. Revenue on account of additional withholding tax surged 23% to PKR 70.27Bn. Sales tax collection declined 16% to PKR 192.51Bn. After the deduction of PKR 1.13Bn for refunds, net sales tax collection stood at PKR 192.5Bn for FY17. Dawn. Pakistan to turn electricity surplus by 2020: reports Pakistan will become an electricity surplus country in the next 3 years as significant power is likely to be injected into the grid, however, the importance of reliable network to hold additional power supply cannot be over emphasized. NTDC and KElectric Limited (KEL) data showed that the country’s current electricity generation stands at 23,234MW, leaving a power shortfall of around 4,000MW. Yet, given a number of power production units coming up online, generation capability is expected to reach 34,785MW by 2020, around 3,000MW more than the projected demand. The News. SSGC asked to build LNG pipeline from Karachi to Nawabshah Sui Southern Gas Company (SSGC) has been assigned the task of completing the Karachi-Nawabshah portion of the NorthSouth LNG pipeline project as RT Global Resources, the original Russian company tasked with the project, is facing US sanctions. RT Global will complete the rest of the project from Nawabshah to Lahore once sanctions are removed. Tribune. Forex reserves fall by $ 1.7Bn in FY17 Pakistan's foreign exchange reserves fell 7% during last FY17 where total liquid forex reserves stood at $ 21.37Bn as on Jun. 30, 2017 compared to $ 23.08Bn in FY16. The entire downfall has been witnessed in the reserves held by the SBP which stood at $ 16.14Bn at the end of FY17 from $ 18.13Bn at the end of FY16. However, the reserves held by banks registered some improvement as they rose by $ 268Mn to $ 5.23Bn at the end of FY17. The country’s forex reserves are likely to further decline in future as more debt payments to the IMF are scheduled for current FY18. BR. Economic Indicators List of Indicators Date / Period Unit Value Change Daily Crude (AU'17) Gold (JY'17) Gold (10g) Local Silver (JY'17) Cotton(KHI)-40 kg Kibor-6M 13-Jul 13-Jul 13-Jul 13-Jul 13-Jul 13-Jul 13-Jul 13-Jul 13-Jul 13-Jul PKR PKR Pts. $ Mn $/bbl $/oz PKR $/oz PKR % 105.33 106.65 43,784 1.68 46.23 1,217.2 43,200 15.65 6,645 6.15% Forex Reserves 30-Jun $ Bn 21.37 0.01% -0.09% -0.02% NM** 1.40% -0.18% 0.00% -1.35% 0.00% 0.01% WoW 0.04% YoY -3.08% -1.63% 18.67% -36.32% -132.03% USD-Interbank USD-Open MKT KSE-100 index FIPI Jul-Jun 17 Remittances $ Bn 19.30 Jul-Jun 17 Exports* $ Bn 20.45 Jul-Jun 17 Imports* $ Bn 53.03 Jul-Jun 17 Trade Balance* $ Bn -32.58 Jul-May 17 Current Account $ Mn -10,641 % 4.16 Avg. CPI-FY17* Jul-Jun 17 May-17 Discount Rate % 5.75 Sources: KCCI Research, PMEX , NCCPL, KSE, SBP, PBS* ** Not Meaningful WoW= week on week; YoY=Year on Year Major Currencies 175 165 155 145 135 125 115 105 95 85 75 Jul-16 GBP, 13-Jul-17, 136.2 EUR, 13-Jul-17, 120.2 USD, 13-Jul-17, 105.4 Oct-16 USD Jan-17 GBP Apr-17 Jul-17 Source: KCCI Research ; Oanda.com EUR Quote of the Day "Change is the end result of all true learning." Leo Buscaglia Chart of the Day Pakistan's Foreign Exchange Reserves (FY05-FY17) 16.14 18.14 13.53 FY17 FY16 FY15 9.10 FY14 4.96 5.17 5.04 6.01 FY13 5.22 5.01 10.80 FY12 4.49 14.78 12.96 FY11 FY10 3.46 3.79 9.12 8.58 FY09 FY08 3.31 2.82 13.35 10.77 9.80 FY07 FY06 FY05 0 2 3 5 6 8 2.30 2.36 2.79 9 11 12 SBP Reserves ($ Bn) 14 15 17 18 20 21 23 24 Banks Reserves ($ Bn) Source: KCCI Research, SBP Disclaimer This report has been prepared by KCCI Research & Development Cell. The information contained herein have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. Such information has not been independently verified. icon represents the sole viewpoint of the KCCI R&D Cell, and is stated to enrich the readers' understanding of the news item. The R&D Dept. bears no responsibility for its correctness or accuracy. Contact: res@kcci.com.pk