January 1, 2021 (MLN): 2020 is a year which will be etched into the minds of people across the world for many years to come. While most of them will remember it for the catastrophes caused by COVID-19, Pakistan shall remember it for the much-needed recovery it brought.
Following are the series of events that took place throughout the year, which had largely positive, as well as negative impact on the economy:
- The second phase of Pakistan-China Free Trade Agreement came into effect as the Federal Board of Revenue issued the Statutory Regulatory Orders (SRO) to implement the protocol agreed between the two countries.
- The Monetary Policy Committee maintained the Policy Rate at 13.25 percent. The decision reflected the MPC’s view that the outlook for inflation remained broadly unchanged. The MPC also viewed the current monetary policy stance as appropriate to bring inflation down to the medium-term target range of 5 – 7 percent over the next six to eight quarters.
- Tensions mounted between the United States and Iran, after the former assassinated a top Iranian official. The situation worsened after Iran launched missile attacks on US targets in Iraq in retaliation to the killing of its top general. While this entire political turmoil generated uncertainty for Pakistan’s stock markets, the situation quickly recuperated after the US announced that it had no plans to further escalate the tensions.
- The Crown Group organized market testing and sales display of its three and four-wheel electric vehicles and announced plans to manufacture cars at its newly built 26-acre facility at Port Qasim. The plant had an initial production capacity of 120,000 units per annum.
- The Financial Action Task Force during its plenary meeting held in Paris agreed to maintain Pakistan’s status on FATF’s Compliance Document, normally referred to as the Grey List. While acknowledging the steps taken by Pakistan towards the implementation of the Action Plan and welcoming its high-level political commitment, FATF highlighted the need for further actions for completing the Action Plan by June 2020.
- COVID-19 dispersed rapidly beyond its epicenter in China, reaching to other Asian Countries including Pakistan.
- The Pakistan Stock Exchange recorded the highest drop in history, as the KSE-100 index dropped by around 2,376 points. Most of the damage was caused by COVID-19, which prompted investors to dump their stocks amidst rising fears of lockdown.
- The Monetary Policy Committee reduced the Policy Rate by 75 Basis Points to 12.5 percent. The SBP also decided to make the interest rate corridor symmetric around the policy rate.
- The Monetary Policy Committee cut the policy rate by a further 150 basis points to 11 percent. In the statement issued following that meeting, the MPC “emphasized that it stood ready to take further actions if and when needed as more information becomes available on the outlook for inflation and growth.”
- The month marked a new history for all automobile assemblers as not a single passenger car was sold during April 2020, owing to the lockdown imposed by federal and provincial governments, which consequently resulted in several auto companies, along with others, to shut down plant operations.
- State Bank of Pakistan further reduced the policy rate by 200 basis points
- Several companies and industries across the country were given a green signal by the Provincial and Federal Government to resume their operations, given that all necessary precautions and safety measures were in place.
- The International Monetary Fund (IMF) approved $1.4 billion for Pakistan over a single year to meet urgent Balance of Payment needs through Rapid Financing Instrument to confront the COVID-19 shock.
- The price of US oil turned negative for the first time in history. This meant that buyers were being paid by the oil producers to take the commodity so that the storage capacity could be maintained for the upcoming month. Demand for oil had curtailed considerably owing to the imposition of lockdowns across the world, which consequently put a halt on transportation.
- Pakistan successfully retained its status in the MSCI EM index. From Pakistan’s perspective, all three stocks including OGDC, MCB, and HBL retained their position in MSCI standard index. With regards to the MSCI Emerging Market Small Cap Index, there were two additions and deletions from the Pakistan Small Cap index. MSCI deleted two securities i.e. SNGPL and NML and added two securities PPL and MARI in MSCI EM small-cap index.
- The Monetary Policy Committee reduced the Policy Rate by 100 Basis Points to 8 percent, owing to the expectation that the Central Bank would make interest rates more accommodative.
- The Economic Coordination Committee (ECC) of the Cabinet approved Mobile Device Manufacturing Policy to promote local manufacturing and assembly of mobile phone handsets. The policy aimed at ensuring localization and indigenization of the parts of the mobile phones. Under the Mobile Device Manufacturing Policy, parts of mobile phone handsets will be used for the entire range of mobile phone handsets produced in Pakistan instead of limited to a particular model.
- Pakistan reached 18th spot in terms of highest COVID-19 cases across the world, just behind China
- Federal Government announced the budget for the Fiscal Year 2021
- Pakistan Stock Exchange became the target of a terrorist attack as four heavily armed terrorists attempted to enter its premises. The situation was brought under control as security forces, including Police and Rangers, dealt with the situation effectively and very quickly. In the exchange of fire, all the terrorists were killed. The situation was brought under control within about 12 minutes. Throughout this turmoil, the Stock Market continued to operate normally and trading continued.
- The Monetary Policy Committee reduced the policy rate by 100 basis points to 7 percent. This decision reflected the MPC’s view that the inflation outlook had improved further, while the domestic economic slowdown continued and downside risks to growth had increased. Against this backdrop of receding demand-side inflation risks, the priority of monetary policy appropriately shifted towards supporting growth and employment during challenging times.
- Executive Committee of the National Economic Council approved the project for up-gradation of Pakistan Railways existing Mainline-1 at the cost of over 6.8 billion dollars. The project will be completed in three packages in which the existing 2,655 KM track will be upgraded.
- The Government signed a new agreement with the Independent Power Producers (IPPs) to bring down the cost of power generation and reduce circular debt. Companies like Hub Power Company, Engro Powergen, Engro Fertilizers, Dawood Lawrencepur, Saif Power Limited were among the first ones to execute their contracts.
- The Supreme Court of Pakistan gave its verdict on the long-pending issue of GIDC, thereby passing judgment in favor of the government. The apex court also ordered the companies to pay the outstanding GIDC amount of Rs. 417 billion
- The World Bank’s International Center for Settlement of Investment Disputes (ICSID) granted a stay on the enforcement of the award issued against Pakistan in the Reko Diq dispute. ICSID is still considering Pakistan’s appeal against enforcing the penalty over its cancellation of the Reko Diq mining lease for TCC, a 50-50 joint venture of Barrick Gold Corporation of Australia and Antofagasta PLC of Chile, and a final hearing will take place in May 2021.
- Prime Minister Imran Khan announced a historic Rs1,100 billion package under the Karachi Transformation Plan to resolve the lingering and chronic issues of the port city, including the provision of clean drinking water, cleaning of drains, and sewage and solid waste disposal within three years.
- The Monetary Policy Committee maintained the Policy Rate at 7 percent. The Committee noted that compared to the time of the last meeting in June 2020, business confidence and the growth outlook had improved. This reflected the decline in Covid-19 cases in Pakistan and the easing of lockdowns, as well as the timely stimulus provided by the Government and SBP.
- Financial Action Task Force decided to maintain the status quo with respect to the classification of Pakistan, for the time being. However, it acknowledged that Pakistan had made progress across all action plan items and largely addressed 21 of the 27 action items.
- The former vice president of the United States, Joe Biden and incumbent U.S. senator from California Kamala Harris defeated incumbent president Donald Trump and vice president Mike Pence in the US Elections of 2020. However, attempts to subvert the election and overturn the results by Donald Trump continue.
- The Asian Development Bank raised 1.83 billion Pakistan rupees ($11.4 million) in the first issue of local currency Karakoram bonds by a multilateral development bank of which Pakistan is a member. A Karakoram bond is an offshore bond denominated in Pakistan rupees and settled in US dollars, listed on a major stock exchange, and settled through an international central securities depository.
- ECC approved the provision of a technical supplementary grant of US $150 million for the purchase of the COVID-19 vaccine. Ministry of Health briefed the ECC that this shall be the first phase of procurement and the amount of vaccine will suffice for the most vulnerable 5% of the population i.e. the health workers and the population above the age of 65 years; around 10 million people would be provided a vaccine cover under the above arrangement
- Prime Minister Imran Khan announced a comprehensive package to provide electricity to industries at reduced rates. He said that small and medium industries will get additional electricity at 50 percent reduced rates till June 30, 2021. He also announced the provision of additional electricity at 25 percent discounted rates to all the industry, including big and small units, for the next three years. He said the electricity will be provided to the industry on an off-peak hours' basis throughout the year.
- The Monetary Policy Committee maintained the Policy Rate at 7 percent. The MPC noted that since the last meeting in September, the domestic recovery had gradually gained traction, in line with expectations for growth of slightly above 2 percent in FY21, and business sentiment had improved further.
- Rice Exporters Association of Pakistan (REAP) filed a Notice of Opposition on 07.12.2020 against India’s claim on geographical indicator (GI) of Basmati in the European Union. REAP had taken this step on behalf of rice exporters and farmers of Pakistan who were at the risk of losing a billion-dollars’ worth of income.
- The State bank of Pakistan halted the sale of Rs 25,000 denomination prize bonds with immediate effect. It further said that the National Prize Bonds will not be encashed or redeemed after 31st May 2021.
- British airline Virgin Atlantic started its air operations in Pakistan.
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