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PKR finds stable ground

June 25, 2019 (MLN): Pakistani rupee (PKR) closed today's trading session relatively unchanged against the USD with the rate remaing stable at PKR 156.99

The rupee endured a relatively dull trading session with very little intraday movement, trading in a range of 8 paisa per USD showing an intraday high bid of 157.02 and an intraday Low offer of 156.98.

Meanwhile, the currency gained 2.5 rupees against the Pound Sterling as the day's closing quote stood at PKR 200.32 per GBP, while the previous session closed at PKR 200.08 per GBP.

Similarly, PKR's value strengthened by 9 paisa against EUR which closed at PKR 178.76 at the interbank today.

Within the Open Market, PKR was traded at 156/157.80 per USD.

On another note, within the money market, the overnight repo rate towards close of the session was 12.30/12.35 percent, whereas the 1 week rate was 12.50/12.60 percent.

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LSMI output shrinks by 7.7% in April

June 25, 2019 (MLN): The overall output of Large Scale Manufacturing Industries (LSMI) for July-April, 2018-19 decreased by 3.51% compared to July-April, 2017-18, as per monthly stats released by the Pakistan Bureau of Statistics (PBS).

Specifically in April 2019, the LSMI output decreased by 7.76% compared to April 2018 and 9.40% if compared to March 2019.

The monthly trend of Quantum Index of Manufacturing (QIM) shows that the output recorded this month is lowest in the last four months.

The production in Jul-April 2018-19 as compared to Jul-Apr2017-18 has increased in Fertilizers and Electronics while it has decreased in Food, Beverages & Tobacco, Coke & Petroleum Products, Pharmaceuticals, Chemicals, Non Metallic Mineral Products, Automobiles and Iron & Steel Products.

Among the sectors that showed growth during the 10 months of ongoing fiscal year, wood products account for the largest increase of 23.6%, followed closely by Electronics with a rise of 17.3%. Meanwhile, manufacturing of leather and rubber products recorded the smallest growth of 2.6% and 3.4% in July-April 2019-19.

On the other hand, output for iron and steel products contracted noticeably by nearly 11% this year while automobile output came down by 9.4% YoY.

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Investments to grow by 15.8% of GDP in FY2020

June 25, 2019: The investment to GDP ratio has been targeted by the government to grow at 15.8 percent during the upcoming fiscal year 2019-20 in order to achieve sustained and inclusive growth.

Among the total investments, the fixed investment is expected to grow to 14.2 percent of GDP during the year while the National Savings as percentage of GDP are targeted at 12.8 percent, official data revealed.

The focus is to replace consumption led growth by investment led growth, it said adding that monetary policy contraction was aimed to contain the twin deficits by curtailing the aggregate demand with smoothen consumption as the high interest rate would create incentives for savings and enhance resource availability for growth.

Numerous measures to improve ease of doing business, such as tax holiday to special economic zones, withdrawal on constricting taxes on banking transactions, are expected to boost capital formation and attract both domestic and foreign investment.

Meanwhile, the service sector is set to grow at 4.8 percent in 2019-20, whereas the wholesale and retail trade along with transport, storage and communication, two biggest sub-sectors of the services, are set to grow at 3.9 and 3.5 percent respectively.

Finance and Insurance has potential to grow in 2019-20 by 6.5 percent while the general government services, other private services, and housing services are expected to grow at 5.7 percent, 7.1 percent and 4 percent respectively.

Likewise, the industrial sector is targeted to grow by 2.3 percent during 2019-20 while manufacturing sector is targeted to grow by 2.5 percent with Large-Scale Manufacturing (LSM) growth rate of 1.3 percent, Small Scale and Household Manufacturing 8.2 percent, Construction and Electricity Generation and Gas Distribution by 1.5 percent each. Mining and Quarrying sector is projected to grow by 2.0 percent.

Industry is expected to pick up pace in 2019-20 with the implementation of envisaged policy measures.

The private sector investment in industrial sector is expected to rise in 2019-20, which would be encouraged to take lead in spurring economic activity while public sector provides the necessary policy and regulatory support.

Similarly, construction in housing sector as envisaged in the government’s housing scheme and allied infrastructure projects are expected to reinvigorate production in cement, iron and steel.

Overall, it is expected that improved business conditions and consistent policies would contribute towards achieving the target of industrial sector growth for 2019-20.

APP/AFP

Petroleum Division demands another hike in gas tariffs; who...

June 25, 2019 (MLN): The Petroleum Division has recommended an increment in gas prices by up to 200%, in order to negate the impact of Rupee devaluation against US Dollar and prevent further piling up in circular debt. Furthermore, various analysts have alleged that the purpose behind this decision is to meet another pre-condition of IMF.

The proposal which is currently awaiting approval by the Economic Coordination Committee, comprises of 25-200% hike in prices for domestic consumers and 31% for commercial consumers. An in-depth analysis suggests that 25% increase will be made over usage of 50 units, 50% against 100 units, 75% against 200 units and 100% against 300 units.

Moreover, various sources believe that 150% increase will be made over usage of 400 units while 200% will be made for using over 400 units.

Without a single ounce of doubt, the burden of the proposed hike in gas prices is going to fall on major sectors, especially Fertilizer and Chemical as their dependency on gas is relatively higher. Similarly, the impact on sectors such as Cement, Steel and Textiles will be contingent on their level of gas consumption.

FERTILIZER: A research note by Alfalah Securities suggests that an increase in gas prices would result in an instinctual reaction of increase in urea prices. Bearing in mind its strong pricing power, the fertilizer sector will pass on the impact on the consumers on the back of lower inventory levels and higher urea landed prices. However, the impact can be minimalized if government decides on enhancing inventory levels by importing additional urea.

TEXTILE: This sector is currently shielded from any imminent hike in gas prices, as government has fixed gas rates for Sindh and Punjab based textiles. This means that any curtailment in subsidizes given to zero rated sectors will result in reduction in earnings of textile industry.

CEMENT: The overall impact is expected to be neutral, as not all companies within this sector rely on gas consumption. Having said that, LUCK and DGKC are likely to suffer the maximum brunt as they a have higher reliance on usage of gas, whereas the impact on MLCF, FCCL and PIOC would be insignificant due to minimal consumption of gas by these companies.

ENERGY: This sector will clearly hit the jackpot following an increase in gas prices, with both the Sui companies making maximum gains in terms of higher cash-flows and lower finance costs.

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Govt’s stern measures to tear down textile sector’s profitability

June 25, 2019 (MLN): The textile sector is considered to be the major victim of government’s tough measures announced in the budget 2020.

Despite the sector’s demand for continuing the zero-rating regime in selected sectors, the government has ended the facility.

In addition, the government has imposed sales tax of 10% on local ginned cotton which would create liquidity constraints for export-oriented companies.

Adding to woes, local sales tax on sale of leather and finished fabrics to 15% and 17%, respectively, has also been proposed that would hurt the local demand.

For the settlement of refund claims, the government would be issuing promissory notes with a maturity of 3yrs after which the company shall return the promissory note to the Board and the Board would make the relevant payments.  

Another measure that is expected to erode the profitability of the textile companies includes increase in minimum turnover tax to 1.5% along with hike in minimum wage by 17% which would erode the profitability of companies as the sector’s majority labor force falls under the category of minimum wage, therefore, increase in the wage would resultantly increase the salary expenses resulting in earnings abrasion  for the companies.

Contrary to the path of doubling the exports, the proposed measures announced by the government will bring textile sector under the hammer, consequently hampering exports as this sector accounts for 60% of countries total merchandise exports.

BIPL Securities in its latest research report while pointing out the above negative measures proposed by the government, it adds that currency depreciation and timely issuance of refunds would be a saving grace for the sector.

From the investment perspective, the report suggested that textile sector is expected to bear the negative consequences of the budget which would increase the cost of doing business along with liquidity constraints due to higher working capital requirements.

However, the imposition of sales tax would offset the input sales tax on raw materials for the companies with a greater focus on local market such as Kohinoor Textile Mills Ltd (KTML). Additionally, it has also been suggested to withdraw the custom duty tax on machinery parts and accessories for textile sector in order to encourage the industry to upgrade their parts achieve efficienciess, says a report.

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