July 17, 2019 (MLN): Recently the State Bank of Pakistan (SBP) released its third quarterly report on State of Pakistan’s economy for the Fiscal year 2019-20, as per which the overall macroeconomic situation remained challenging during the said period, as suggested by preliminary data.
However, the report also highlighted that the improvement in Pakistan’s current account balance during the aforesaid period gained further momentum as a significant decline in imports more than offset the stagnancy in exports and resulted in the shrinking of merchandize trade deficit.
The macroeconomic stabilization measures undertaken earlier resulted in a slowdown in economic activity in the country. The sizable decline in machinery imports following the conclusion of early phase of CPEC, lower quantum energy imports (excluding LNG) amid lower power generation in Q2 and Q3, and a temporary softening in global oil prices, all contributed significantly to improvement in the Current Account deficit (CAD) by reduction of import payments.
Thus, a slowdown in economic activity and government’s efforts to curb non-essential imports by imposing duties, seem to be just fine to reduce trade deficit, but the qualms haven’t yet disappeared as the other side of the equation i.e. the exports have shown no retrieval as yet, remained unanswered.
Exports in FY19 remained flattish. In the 1QFY19, they were down by nearly 12.66% QoQ, which went up to 4.73% growth by the end of 2QFY19. This is the time around which rupee depreciation started and the currency shed considerable value which reflected in exports numbers. However, in 3QFY19, the growth in exports started to slowdown, crushing to 0.03% QoQ by the end of 4QFY19.
Although trade deficit improved YoY in Q4, it would be worthwhile to note that the reduction in trade deficit by about 13.7% QoQ in 3QFY19 has been offset with rise in trade deficit by about 19% during 4QFY19, as the last quarter of FY19 witnessed 10.3% rise in imports along with a negligible (0.03%) growth in exports compared to previous quarter of FY19.
The SBP report further highlights that import payments dropped in Q3-FY19 was the largest drop in almost 10 years, and was more than sufficient to offset a marginal contraction in exports in the quarter, specifically due to declines in both energy and non-energy import payments.
Moreover, despite the contraction, the current account deficit (CAD) still remained at a higher level from the external account’s stability perspective. The average CAD between FY11-15 was US$ 2.6 billion only, while this number is US$ 10.3 billion in Jul-Mar. In addition, total foreign investment continued to decline since last three quarters of FY19 due to the looming uncertainty regarding the exchange rate adjustment and the finalization of the IMF program, which may have dented the investors’ confidence.
Besides, as per the SBP document, the lowering of Pakistan’s credit rating by Fitch in December 2018, due to the country’s external financing risk and deteriorating fiscal position, further exacerbated the situation.
By examining the above-mentioned scenario, it is sensible to say that despite the improvement in the CAD and trade balance, its management will remain challenging, especially when exports and foreign investments will not show corresponding increases.
Copyright Mettis Link News
July 17, 2019: Fresh trade worries and uncertainty about the Federal Reserve's plans for cutting interest rates weighed on Asian markets Wednesday while fears of a hard Brexit kept the pound wallowing at more than two-year lows.
Oil prices were also struggling owing to questions about the outlook for the global economy, the China-US tariffs stand-off and a stronger dollar.
After last week's optimism sparked by Fed boss Jerome Powell's nod to a cut in rates, investors were taking a more sober view after a number of positive readings on the US economy including on retail sales.
The readings -- while coming alongside figures showing a drop in the manufacturing sector -- revived worries that the Fed will only make one small reduction in borrowing costs this month, and possibly not make any more this year.
The possibility of rates staying slightly elevated boosted the dollar against the yen, euro and pound on Tuesday and held up in early trade Wednesday.
The pound was taking another hiding with the possibility of a no-deal Brexit growing ever more likely as the two contenders to become prime minister slug it out by trying to take increasingly tough lines with the EU. Sterling is now at its lowest level since April 2017.
The dollar also climbed against most higher-yielding, riskier currencies, jumping 0.8 percent against the Mexican peso, 0.3 percent on the Australian dollar and 0.2 percent versus South Korea's won.
Regional equity markets were also in the red, with confidence jolted by comments from Donald Trump that revived trade tensions with China.
July 17, 2019 (MLN): A meeting of the Economic Coordination Committee (ECC) with Advisor to Prime Minister on Finance and Revenue in chair, is currently underway.
Under the chairmanship of Mr. Hafeez Shaikh, the agenda for today’s meeting includes:
- Fixation of imported urea prices
- Notification of minimum indicative prices of tobacco for FY-2020
- Change of base price statistics to 2015-16
- Import of non-hazardous aluminum waste/scrap
Copyright Mettis Link News
July 17, 2019: Prime Minister's Special Assistant on Information and Broadcasting Firdous Ashiq Awan says a committee has been constituted to submit its recommendations to the cabinet on the verdict of World Bank's Arbitration Court on Riko Diq case.
Briefing media about cabinet meeting along with Federal Minister for Communications Murad Saeed and Advisor to Prime Minister on Climate Change Malik Amin Aslam in Islamabad on Tuesday, she said the committee will submit its recommendations, point out those responsible and devise future strategy in this regard.
She said the committee headed by Law Minister Farough Naseem will include Hammad Azhar, Dr Isharat Hussain, Prime Minister's Special Assistant on Accountability Shahzad Akbar and Syed Qasim.
Firdous Ashiq Awan said the cabinet issued directives for appointing permanent heads in all the departments which are being run without permanent heads.
The Special Assistant said it has been decided that a mechanism will be devised to keep an eye on the prices of items of daily use like pulses and wheat flour.
She said it has been decided that the tax on import of edible oil will be reduced from seven percent to two percent, which will break the back bone of the hoarders.
She said the cabinet discussed about the possible measures needed for improvement in the management of land record by the revenue department. She said that the matter will be taken up in the next cabinet meeting.
Firdous Awan said that the Prime Minister is of the view that the government is ready to listen to the problems of the traders but there will be no compromise on the registration process of the traders to include them in the tax net.
Talking about the austerity measures of the incumbent government, Minister for Communications said that there is a reduction of 85.6 percent in security expenditure of Chief Minister Punjab Usman Buzdar and 60 percent reduction in expenditure on his movement.
He said no camp offices are being used by the incumbent Chief Minister.
He said the money saved in this way will be spent on the welfare of under privileged segments of the society.
Briefing about the important decisions taken by the Federal Cabinet regarding Clean and Green Pakistan, Prime Minister's Advisor on Climate Change Malik Amin Aslam said that the cabinet has decided to ban manufacturing, selling, buying and use of polythene bags.
He said initially the ban will be imposed in the Federal Capital from the 14th of next month. He said fine ranging from 5000 rupees to 500, 000 rupees will be imposed on violation.
July 17, 2019: Adviser to the Prime Minister on Commerce, Textile, Industries and Investment Abdul Razak Dawood has said it is top priority of the government to enhance exports.
Talking to a private news channel, he said the national economy would be strengthened by decreasing imports and increasing exports.
Abdul Razak Dawood said efforts are being made to increase export of rice from 2.8 billion rupees to 5 billion rupees.
He said the Industry being an important sector would play a pivotal role in boosting the country’s economy.
Earlier, Abdul Razak Dawood chaired a meeting of the Fertilizers Review Committee to deliberate on the current state of demand and supply of fertilizers in the market to avoid any increase in prices by the fertilizers industry.
He reiterated that the government is cognizant to the issues being faced by the farmers and committed to address the same on priority basis.
He assured to provide relief to farmers by ensuring availability of agriculture inputs including fertilizers on affordable prices to boost production of the agri crops.