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January 28 2020: State Bank of Pakistan (SBP) has extended the scope of Long Term Financing Facility (LTFF) to cover all permissible export oriented sectors. This step is aimed at setting up of diverse export oriented projects in Pakistan and to boost exports in multiple sectors.

Further, to accommodate enhanced financing requirements of exporters for setting up long term export oriented projects, maximum limit of Rs. 2.5 billion has been enhanced to Rs. 5 billion per project under LTFF.

In line with the above measure, SBP has also provided additional concessional financing of Rs.200 billion to banks including Rs. 100 billion under Long Term Financing Facility (LTFF) and Rs. 100 billion under Export Refinance Scheme (EFS), to be utilized by 30th June 2020.

Going forward, to further promote SME exporters, SBP in consultation with the relevant stakeholders, is in the process of devising an elaborate mechanism for the allocation of LTFF and EFS to SME exporters.  These changes are likely to be announced in March 2020.

Furthermore, with a view to facilitate importers, SBP has allowed banks to make advance payment up to USD 10,000/-, or equivalent thereof, per invoice on behalf of commercial importers for import of raw material, spare parts and machinery. Besides, SBP has also allowed banks to make payments on behalf of commercial importers for imports of raw materials and spare parts on Open Account.

In addition, SBP has also enhanced the existing limit of 50% advance payment, allowed to manufacturing concerns, for import of plant, machinery, spare parts and raw materials etc. against letter of credit, to 100%.

In December 2019, SBP allowed advance payment of up to 50% of the value of imports against letter of credit to manufacturing concerns for import of plant, machinery, spare parts and raw material etc.
After the implementation of a market based exchange rate system, the balance of payments has witnessed significant improvement. 

In the first six months of the current fiscal year, the current account deficit has contracted by 75 percent to US$ 2.15 billion. This improvement is helping to further relax some of the restrictions on imports by SBP. 

The latest measures, taken today, are in continuation of facilitating export-oriented industries and manufacturing concerns in the backdrop of ease of doing business and promoting exports’ growth. These measures will further contribute in improving economic outlook of the country.

Press Release

January 28, 2020 (MLN): Federal Minister for Privatisation and Chairman Privatisation Commission Mohammed Mian Soomro chaired Transaction Committee Meeting followed by PC Board Meeting held in Islamabad today.

The meetings were convened to discuss and recommend prequalification of the potential investors who have submitted Statements of Qualification (SOQs)for the privatization of National Power Parks Management Company(Pvt)Ltd (NPPMCL).

Members Privatization Board, Federal Secretary, Senior officials of the Privatization, representative from NEPRA, Ministry of Finance, Ministry of Power and Financial Advisors attended the meeting.

In an unprecedented show of interest for a first round of privatization by the Government of Pakistan, twenty three investors from all around the world, including entities that have never invested in Pakistan before, submitted SoQs for the NPPMCL privatization. This shows high  confidence by a broad base international business community, including Europe, Japan, South East Asia, Middle East, in Pakistan as an investment hub.

Out of 23 parties which submitted EoIs, 12 parties submitted their Statements of Qualification (SOQs) by the deadline. Some of the parties who submitted their SOQs also expressed their interest to form consortia with some of the other parties that had submitted EOIs.

During the meetings today the technical, financial, management and  legal  capabilities of the parties that submitted their SOQs along with their organizational structure, were discussed with all the stakeholders.
Federal Minister Mohammedmian Soomro said that in order to expedite the privatization of NPPMCL we are working in collaboration with all stakeholders and are cognizant of the fact that it is important to complete the desired transaction in a well defined time.

The PC Board in  its today’s meeting approved following twelve parties  Jera (Japan), Marubeni (Japan), Mitsui & Co (Japan), Asma Capital (Bahrain), Nebras Power (Qatar), Qatar Investment Authority (Qatar), the Fauji Foundation consortium(Pakistan),Edra (Malaysia), GPSC (Thailand), Contour Global (UK) and KAPCO and Atlas Pakistan.The prequalified parties will commence due diligence of the power plants promptly with a view to achieving the earliest possible date for bidding and closing of the transaction timely.

Furthermore PC Board approved Financial Advisors for divestment of shares in OGDCL and PPL. It also recommended transaction structure on sale of unproductive land owned by the Federal Government entities for submission to the Cabinet Committee on Privatization on  CCOP.

Press Release

January 28, 2020 (MLN): Gold price today, decreased by Rs 150 and traded at Rs 91,400 per tola when compared to Rs 91,550 of previous trading day.

According to the Karachi Sarafa Association, the price of 10-gram gold observed a decrease of Rs 129 and was traded at Rs 78,361 against the previous closing of Rs 78,490.

The price of silver remained stable and was traded at Rs 1,000 and that of 10-gram silver was traded at Rs 857.33.

In international market, the price of per ounce gold lost $5 and was traded at $1,578 against previous closing of $1,583.

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January 28, 2020 (MLN): The KSE-100 index continued its descending path as it went on to lose a further 240 points in today’s session, and ultimately settled at 42,299-level amid mixed market expectations in monetary policy statement which is going to be announced today.

State Bank is largely expected to keep the policy rate unchanged at 13.25% as the inflationary pressure continues to rise.

The Index remained negative throughout the session touching an intraday low of 42,152.43

Of the 95 traded companies in the KSE100 Index 31 closed up 62 closed down, while 2 remained unchanged. Total volume traded for the index was 137.16 million shares.

Sector wise, the index was let down by Commercial Banks with 103 points, Oil & Gas Exploration Companies with 51 points, Fertilizer with 42 points, Inv. Banks / Inv. Cos. / Securities Cos. with 20 points and Textile Composite with 11 points.

The most points taken off the index was by HBL which stripped the index of 34 points followed by MCB with 26 points, PPL with 22 points, DAWH with 19 points and ENGRO with 18 points.

Sectors propping up the index were Chemical with 23 points, Automobile Assembler with 16 points, Engineering with 3 points, Sugar & Allied Industries with 2 points and Miscellaneous with 2 points.

The most points added to the index was by ICI which contributed 11 points followed by EPCL with 9 points, INDU with 8 points, ATLH with 5 points and HCAR with 5 points.

All Share Volume decreased by 9.48 Million to 189.00 Million Shares. Market Cap decreased by Rs.31.53 Billion.

Total companies traded were 356 compared to 350 from the previous session. Of the scrips traded 130 closed up, 206 closed down while 20 remained unchanged.

Total trades decreased by 1,613 to 70,222.

Value Traded increased by 0.15 Billion to Rs.6.72 Billion

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January 28, 2020( MLN): The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) in its meeting held on January 28, 2020 in Karachi, has decided to maintain the Policy Rate at 13.25 percent.

The decision reflected the MPC’s view that the outlook for inflation has remained broadly unchanged. On the one hand, recent inflation outturns have been on the high side and there remain near term risks to inflation primarily from food price shocks and potential increases in utility prices. On the other hand, several factors are expected to gradually moderate the pressure on inflation. These include the recent appreciation of the exchange rate after the introduction of the market-based exchange rate and ongoing fiscal consolidation. On balance, the SBP’s projection for average inflation remained broadly unchanged at 11 – 12 percent for FY20. 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.

In reaching this decision, the MPC considered key developments in the real, external and fiscal sectors along with their projections, and the resulting outlook for monetary conditions and inflation.

Key developments since the last MPC meeting

The MPC noted three key developments since the last meeting on 22nd November 2019. First, the ongoing and substantial reduction in the current account deficit and the orderly conditions in the foreign exchange market after the transition to a market-based exchange rate system continued to strengthen the country’s external accounts. Second, the IBA-SBP survey of business confidence showed an improvement in the business community’s outlook for economic activity for a third successive wave. Third, fiscal developments remained on track and in line with commitments made under the IMF-supported program, buoying the overall economic reform sentiment.

Real sector

The latest production estimates of major crops indicate that all Kharif crops, except cotton, grew in line with expectations. Cotton production has been revised downward due to adverse supply side shocks. Large scale manufacturing (LSM) indicates that economic activity is strengthening in export-oriented and import-competing industries, while inward-oriented industries continue to slow down. Specifically, LSM showed gains in textiles, leather products, engineering goods, rubber products, cement and fertilizer, and declines in auto, electronics, food, chemicals, and petroleum products. Primarily on account of adverse supply side shocks to cotton production as well as the contraction in LSM to date, SBP’s projection for real GDP growth for FY20 is likely to be revised downward. Nevertheless, available monthly indicators of activity show that the slowdown in most economic sectors appears to have bottomed-out, and a gradual recovery is expected in the coming months.

External sector

The current account deficit contracted by 75 percent to US$ 2.15 billion during the first half of FY20 due to a notable reduction in imports and modest growth in both exports and workers’ remittances. Importantly, export volumes of major items including rice, value-added textiles, leather products, and fish and meat, exhibited a notable increase during Jul-Dec FY20. This reflects the benefits of a more competitive exchange rate and take-up of incentive credit schemes for export-oriented sectors. The capital account also continued to strengthen, with continued inflows of foreign portfolio investment and foreign direct investment.

These favorable developments facilitated the SBP to build up its foreign exchange reserves despite making a repayment of US$ 1.0 billion international Sukuk in early December 2019. SBP’s foreign reserves increased from US$ 7.28 billion at end-June 2019 to US$ 11.73 billion as of 17th January 2020, an increase of US$ 4.45 billion, and SBP’s short liabilities fell by US$ 3.82 billion in the first six months of FY20. These developments have significantly improved the SBP’s net international reserves (NIR) position.

The MPC noted that recent foreign portfolio inflows reflect international investors’ improved perceptions of Pakistan’s credit worthiness. Such inflows reduce the interest rate on government debt due to the greater demand for government securities, deepen capital markets, and free up domestic banks’ resources for lending to the private sector. The MPC noted the bulk of the improvement in the SBP’s reserve adequacy stemmed from the improvement in the current account—not portfolio inflows—and current inflows comprised only 3.8 percent of total marketable government debt. As such, inflows at current levels represented limited risks. The MPC noted that the SBP continues to monitor developments carefully and has more than adequate buffers to manage any outflows in an orderly manner. The MPC noted that monetary policy would continue to be based on the medium-term outlook for inflation.

Fiscal Sector

Fiscal consolidation has remained on track during the year to date and has supported a qualitative improvement in the inflation outlook. During the first half of FY20, tax revenue collections showed a healthy increase of 16 percent over the same period last year. On the expenditure side, while non-interest current expenditures have been strictly controlled, the federal releases for public sector development programs (PSDP) stood at Rs 300 billion in H1-FY20 as compared to Rs 187 billion in the same period last year. This increased public spending is expected to support business activity, especially in construction-allied industries. From the monetary policy perspective, the MPC emphasized that the continuation of fiscal prudence would remain critical for effective anchoring of market sentiment and improving the inflation outlook.

Monetary and inflation outlook

Private sector credit (PSC) grew by 2.2 percent during 1st Jul – 17th Jan FY20 as compared to 8.5 percent in the same period last year. This deceleration broadly reflects soft economic activity. However, loans under SBP’s export finance scheme and long-term financing facility for exporters increased by 20.6 percent and 13.2 percent during the same period, supporting the recent growth in exports.

The MPC noted that recent inflation outturns have been on the higher side. National CPI inflation rose to 12.7 and 12.6 percent (on y/y basis) in November and December 2019, largely reflecting sharp increases in selected food items on account of temporary supply disruptions and upward adjustments in administered prices. If sustained, high food price inflation could lead to demands for faster wage growth and to possible risks of a wage-price inflation spiral. However, available evidence suggests that such second-round effects on inflation from supply side shocks have not materialized and inflation expectations remain broadly anchored. Consequently, the MPC viewed the latest increases in CPI as primarily transitory in nature. The MPC noted that real interest rates on a forward-looking basis were not high compared to other emerging markets and from the perspective of Pakistan’s own experience.

The outcome of the meeting was in line with market expectations, wherein various analysts anticipated the policy rate to remain unchanged.

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