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ECC approves Rs 50 Billion grant for USC

April 08, 2020: The Economic Coordination Committee (ECC) of the Cabinet Wednesday approved six technical supplementary grants in addition to approving Rs 50 billion technical supplementary grant for the Utility Stores Corporation (USC).

The ECC meeting which was chaired by Adviser to the Prime Minister on Finance and Revenue, Dr. Abdul Hafeez Shaikh gave approval to Rs 842 million for paying off the executing agencies of the Prime Minister's youth loan scheme during the current financial year.

It also approved Rs 90.459 million for Pakistan Nuclear Regulatory Authority, to help PNRA meet its obligations, Rs. 5.00 million in respect of Punjab Rangers to enable Ministry of Defence to purchase spare parts for the maintenance of helicopter during the current financial year and Rs 2.074 million, received as grant from the US Embassy in favor of HQ Frontier Constabulary Peshawar for the construction of Frontier Constabulary Training Center at Michni Shabqadar.

The committee also approved US $ 1.5 million for the Ministry of energy to pay the legal counsels hired on behalf of the State in the international litigation case against Ms. Karkey besides approving Rs 300 million in favor of Ministry of Information and Broadcasting to execute the communication campaign for the Ehsaas Program in the next three months.

The ECC, on the summary moved by the Economic Affairs Division for the recovery of foreign currency loans from the Private Sector borrowers, i.e Ms Gladari Cement Limited, decided that Economic Affairs Division (EAD) should resubmit the proposal after consultation with State Bank of Pakistan (SBP).

On the proposal by the Ministry of Energy for allowing foreign exchange gains/losses in excess of 7% on delayed payment for Kohala Hydro power project, the ECC directed SBP to negotiate with all relevant stakeholders and come up with a viable and practical solution of the issue.

The ECC approved Rs 50 billion (as technical supplementary grant) for the USC announced under PM relief package.

The USC was further directed by the Chairman ECC to ensure provision of essential items at reduced prices to the people in the wake of current situation prevalent in the country due to COVID-19 as well as during the approaching month of Ramazan.

As many as Rs. 21 billion have already been disbursed to the USC after December 2019 for the procurement of essential items and the MD, USC assured the ECC that the corporation was effectively utilizing its market presence for providing affordable goods to people in this hour of need.


PSX launches Surveillance System Pilot version

April 8, 2020: Pakistan Stock Exchange integrated and successfully completed the pilot run of the Surveillance system in the last week of March 2020 in close coordination with the SECP.

In this exercise the SZSE pilot version of Surveillance Software has been successfully Integrated with existing trading system of PSX to further strengthen the market surveillance capabilities of PSX.

In November 2019, Pakistan Stock Exchange signed a contract with Shenzhen Stock Exchange (SZSE) for the acquisition of a Trading & Surveillance System to bring the technological and operational systems of PSX at par with other stock exchanges around the world. The new Surveillance System Pilot project has been completed with access provided to surveillance department of PSX, who can now monitor trading on real-time basis.

Mr. Farrukh Khan, while announcing the completion of the pilot said, “This system is the elementary or pilot version of the main Surveillance Software of Shenzhen Stock Exchange (SZSE), which will be fully integrated with the New Trading System once it is implemented by PSX in the next phase, expected to be completed by January, 2021. The successful pilot of the Surveillance system is the stepping stone towards the fulfilment of our ambition of having the best in class Trading and Surveillance system for PSX. This is the lead system which sets the basis for initiation of the more complex Surveillance System at PSX in the months to come”. He further added, “The Trading and Surveillance system provides for a solid, robust and contemporary trading platform for the benefit of all stakeholders and investors of PSX”.

At present, the new surveillance system has been integrated with the existing KATS (Karachi Automated Trading System) on real time basis. The Production version of Surveillance System will be a state of the art system which will consist of features such as Real-time monitoring, Ex-post investigation, Trade replay, Data query and reporting, Case management, Surveillance task management, Security and audit, and Job Schedule system.

These are essential features of surveillance systems operational in the major stock exchanges of the world and shall be at PSX, as well, which will benefit all stakeholders of Pakistan Stock Exchange. A robust surveillance system is a prerequisite for a fair and transparent securities markets.

In a review meeting earlier today, the PSX BOD members and SECP recorded their appreciation for the teams of Information Technology (IT) department-PSX & Surveillance department-PSX as well as for the technology partners at SZSE, who despite the lock down in China and Pakistan, functioned remotely to complete the project on time. This is an example of focused and dedicated team work, without which the launch of Pilot version of Surveillance Software could not have been possible.


Press Release

Auction Result: SBP Sells T-Bills worth Rs.546.33 Billion

April 08, 2020 (MLN): The State Bank fo Pakistan(SBP) conducted an auction on Wednesday in which it sold Market Treasury Bills (MTBs) worth Rs.546.33 billion for 3, 6 and 12 months.

Auction target was Rs.500.00 billion against a maturing amount of Rs.235.30 billion.

Cut off yield for 3, 6 and 12 months were 10.8995, 10.3 and 9.649 percent.

Total amount offered was Rs.1,914.13 billion out of which the SBP accepted Rs.458.88 billion. The SBP received bids worth Rs.466.92 billion for 3 months, Rs.586.97 billion for 6 months and Rs.860.23 billion for 12 months out of which it accepted Rs.156.00 billion, Rs. 142.88 billion and Rs.160.00 billion respectively.

In addition the SBP picked up Rs.87.46 billion from the non-competitive auction, making the total amount accepted Rs.546.33 billion.


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U.S. oil output set to slump as prices plunge

April 8, 2020: U.S. oil production is set to slump from this month in response to the plunge in prices, according to the latest forecasts published by the Energy Information Administration on Tuesday.

Price-driven output cuts will be presented by the U.S. government as its contribution to the need for lower global production when pressing Saudi Arabia and Russia to lower their own output.

U.S. crude production is predicted to decline by 1.75 million barrels per day (bpd) or almost 14% over the seven months from March to October 2020 before stabilising. (https://reut.rs/2UUNPbE)

As a result, the EIA is now projecting production will decline by an average of 470,000 bpd in 2020 and a further 730,000 bpd in 2021. (“Short-Term Energy Outlook”, EIA, April 7)

The forecast declines are the largest in U.S. history in barrel terms, and the largest since the depression years of 1931/32 in percentage terms.


The EIA is predicting lower prices will filter through into reduced output much faster than normal, as the industry slashes new well drilling and completions and is forced to choke back or shut some old wells.

Prices normally affect production with a delay of 9-12 months, but the current adjustment is expected to come much quicker, as the industry is compelled to adjust to an unprecedented collapse in demand and prices.

With crude inventories rising rapidly around the world and storage tanks and space on board tankers likely to become full within a few months, cash prices in the oilfields have slumped even faster than futures contracts.

Unless production is reduced rapidly, or the world economy emerges from the coronavirus-induced shutdown quickly, oilfield prices will fall towards zero, enforcing the rebalancing of production to lower consumption.


U.S. officials are likely to insist the forecast output declines are a proportionate contribution to a global output reduction (“U.S. pushes back on call by OPEC+ to join big oil output cuts”, Reuters, April 7).

In their view, the United States is relying on price and market mechanisms to achieve the adjustment, while Saudi Arabia, Russia and other members of OPEC+ are likely to employ formal output limits.

U.S. officials will likely argue market-driven adjustments offer a different route to the same objective, respecting differences in the legal systems and organisation of the oil industry in different countries.

Some OPEC+ members are likely to be quietly sceptical, since the scale of market-driven output cuts is a function of prices, while formal output limits are independent of prices, at least in the short term.

If an agreement on global output reductions succeeds in lifting prices, price-driven U.S. output reductions could end up being smaller, while other countries would still be required to observe larger reductions.

Price-driven cuts are therefore not the same as formal output limits. But Russia and Saudi Arabia are under intense economic and diplomatic pressure to reach an agreement ending their volume war.

The projected U.S. output cuts give both Russia and Saudi Arabia a face-saving way to declare victory and move on.


ANALYSIS: Germany’s short-time work fix offers Europe a crisis...

April, 8, 2020: A tried-and-tested German model of sending workers home in exchange for job guarantees during downturns could help the European Union limit the damage from the coronavirus pandemic.

EU ministers voiced support in principle on Tuesday for a plan to raise 100 billion euros ($109 billion), against 25 billion euros of government guarantees, to subsidise wages so that firms can cut working hours rather than sack people.

Critics warn that adopting the German practice of short-time work or Kurzarbeit, which helped Europe's largest economy emerge faster than others from the 2009 recession, may hamper and delay much-needed EU restructuring.

Nevertheless, it is being emulated by other countries to combat the downturn as the coronavirus crisis hits Europe.

Germany's IG Metall union has already lowered wage demands for 3.8 million metalworkers and company labour representatives began pushing for Kurzarbeit to help slash wage costs.

"The corona pandemic caused us to abandon normal collective wage bargaining and we struck a deal with employers aimed at securing work and income," said Rudolf Luz, head of operations policy at IG Metall, which has now agreed to forego a pay rise.

All the large carmakers in Germany, including VW, Audi, BMW, Mercedes, have applied for short-working in recent weeks.

"Thanks to Kurzarbeit we can cut back production without destroying structures. Employees cannot be dismissed, they stay in the organisation and companies immediately have qualified staff once the crisis is over," IG Metall's Luz said.

Instead of drawing a full salary, employees will tap a 26 billion euro insurance fund overseen by Germany's Federal Employment Office, which guarantees workers at least 60% of their basic pay or more if companies add their own stipend.

"The more generous the terms, the more likely aggregate demand and consumption can be maintained during the crisis and the faster the recovery once the confinement measures are lifted," Deutsche Bank Economist Marc de-Muizon said in a note.


Although France has extended its own partial unemployment scheme, a lack of clarity on eligibility criteria may weaken its efficiency, Deutsche Bank analysts said.

Spanish measures look less generous, which may leave demand more exposed to downside risks, and there is uncertainty over the implementation of Britain's Coronavirus Job Retention Scheme and Self-employed Income Support Scheme, Deutsche Bank added.

Germany's neighbour, Poland, has a short-work scheme, but critics say it has not been administered efficiently.

A survey by the Lewiatan Confederation business association in Poland showed that job cuts might be necessary in 69% of the country's businesses because of the coronavirus pandemic.

Sonia Buchholtz, an economist at Lewiatan estimates that less than a quarter of Poland's coronavirus economic plan, which represents over 9% of gross domestic product (GDP), is fiscal stimulus that can be channelled to companies promptly.

"We have many good practices from Europe like the Kurzarbeit from Germany, tools that we could introduce and learn from," Buchholtz said.


In the longer run, Kurzarbeit subsidies could discourage restructuring of underperforming companies, said Jacob Kirkegaard, Senior Fellow at the Peterson Institute for International Economics.

"You don't want Kurzarbeit to delay the inevitable and allow a zombie company to survive. It is a fine balance," he said.

Deutsche Bank estimates the number of short-time workers in Germany is likely to peak at 3.5-5.0 million, surpassing the 2009 record of just under 1.5 million.

Kurzarbeit helped Germany emerge faster from recession than the United States and other European economies, Alexander Hijzen, a labour market economist at the Organisation for Economic Cooperation and Development, told Reuters.

Although others operated similar schemes, the take-up and hence the potential impact tended to be much smaller, he said.

"We estimated that Kurzarbeit had a significant impact on preserving jobs during the global financial crisis, with employment in the second half of 2009 estimated to have been 580, 000 higher than what it would have been in its absence."

Kirkegaard said countries that introduce a wage-subsidy model are in a better position for a relatively rapid recovery after a short-term deep shock than those where people are sent into unemployment.

For Florian Hirsch, a 37-year-old assembly worker at Volkswagen's plant in Wolfsburg, Germany, the unemployment insurance combined with a company stipend get him to 90% of his basic salary, he no longer gets overtime pay.

This makes him cautious about spending.

"The big question is, how will the overall economy recover from this?" he said. "What if we have no customers because they themselves have been put on short-term work, or lost their job? Then we lose the basis for earning our bread." ($1 = 0.9200 euros)


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