Category: Business

The most important business news, explained in a young, easy to understand way. News that affects young career professionals.

World Bank lowers Pakistan’s growth forecast tighter financial conditions

Pakistan’s current-year growth forecast has been significantly reduced by the World Bank due to tighter financial conditions and limited fiscal space. The country’s economy is now expected to grow only 0.4 per cent in the current year, compared to the October 2022 forecast of 2 per cent growth.

This bleaker forecast assumes that an agreement is reached with the International Monetary Fund for bailout funds. Pakistan’s fiscal year runs from July to June, and the country expects its economy to grow 2 per cent in FY23, although the country’s central bank chief has warned that this forecast could face downward pressure.

Pakistan has been in economic turmoil for months, with an acute balance of payments crisis. Talks with the IMF to secure $1.1 billion in funding as part of a $6.5 billion bailout agreed upon in 2019 have not yet yielded fruit. Lower economic output and high prices in Pakistan have led to stampedes and looting at flour distribution centres set up across the country. The World Bank attributed the greater food insecurity for South Asia’s poor to elevated global and domestic food prices.

The World Bank also lowered its 2023 regional growth forecast to 5.6 per cent from 6.1 per cent in October, citing rising interest rates and uncertainty in financial markets as putting downward pressure on the region’s economies. Most countries have raised interest rates at a rapid pace since the war in Ukraine last year led to choking supply chains and stoked inflation globally.

Sri Lanka’s economy is forecast to contract by 4.3 per cent this year, reflecting the lasting impact of the macro debt crisis, with future growth prospects heavily dependent on debt restructuring and structural reforms. In January, President Ranil Wickremesinghe said Sri Lanka’s economy could contract by 3.5 per cent or 4.0 per cent in 2023 after shrinking by 11 per cent last year.

The World Bank also lowered its forecast for India’s economic growth in the current fiscal year to 6.3 per cent from 6.6 per cent, due to the expected negative impact of higher borrowing costs on consumption. The current fiscal year began on April 1.

April 5, 2023
Cotton production in Pakistan drops to 40-year low due to flood damage

According to data released by the Pakistan Cotton Ginners Association (PCGA), cotton production in the country has decreased by 34 per cent this year compared to the previous season. The final figures for the crop year 2022-23 show that Pakistan produced 4,912,069 bales, which is the lowest in around four decades, as opposed to 7,441,833 bales produced in the 2021-22 season, resulting in a year-on-year decline of 2,528,764 bales or a 34 per cent loss.

This drop in production means that the textile industry will have to import around 10 million bales to meet its annual demand of 15 million bales. However, mill consumption in the year 2022-23 has also been reported at 8.8 million bales, the lowest in over 20 years, primarily due to severe import financing issues.

Market sources state that textile mills have so far signed import agreements for 5.5 million bales, while they have purchased 4,605,449 bales from the local market. Last year, the mills had bought 7,332,000 bales from the domestic market. Ginners report that they are still holding 301,720 bales in their stocks, compared to last year’s inventory of 93,833 bales.

The massive drop in cotton arrival is blamed on flash floods and heavy rains during last year’s monsoon that devastated large swathes of agricultural land in the country, particularly in Sindh and Balochistan provinces.

Interestingly, despite strong demand in international markets, only 4,900 bales of white lint were exported this year, compared to the previous year’s figure of 11,000 bales, a fall of over 69 per cent. The main destinations for Pakistan’s raw cotton are the Philippines, Italy, Bangladesh, Greece, and France.

Province-wise, Punjab registered over a 32 per cent year-on-year decline in output, producing 3,033,050 bales this season against 3,928,690 bales last season. Sindh reported over a 46 per cent year-on-year loss in yield, with the lint production in the province this year standing at 1,879,019 bales against 3,513,143 bales last year.

Pakistan’s cotton output reached a high of 14.1 million bales in the year 2004-05. But it dropped to 7 million bales in 2020-21 and about 9.45 million bales in 2021-22, as the country’s per acre yield contracted to half of the crop productivity in other countries of the region.

A recent meeting of the Economic Coordination Committee (ECC) expressed concern over the continuous decline in cotton production and acreage over the years. As a result, the ECC approved Rs8,500 per 40kg as the intervention price on a summary submitted by the Ministry of National Food Security and Research to attract growers towards the crop.

The ministry informed the ECC that in order to draw up a cotton intervention price proposal, consultations were held with all stakeholders, including the provincial governments, growers, and cotton associations in January and February. Stakeholders, including the All Pakistan Textile Mills Association, called for pegging the cotton intervention price with the import parity price in line with the policy adopted over the past two years.

To review market prices and propose intervention on a fortnightly basis, the ECC constituted a cotton price review committee with the mandate to review market prices and propose intervention on a fortnightly basis.

April 4, 2023
State Bank of Pakistan expected to raise key policy rate to record-high

The State Bank of Pakistan (SBP) is expected to raise its policy rate by a significant 100-200 basis points in light of the country’s economic situation and historically high inflation reading. Financial analysts anticipate the Monetary Policy Committee to increase its key policy rate to 21-22 per cent at the review today (April 4) to curb inflation. This decision is expected to discourage private-sector borrowing since an increase in currency in circulation can drive inflation up.

In March, the central bank raised its key rate by a massive 300 basis points to a record-high level of 20 per cent, surpassing market expectations to meet the International Monetary Fund’s requirements for the release of its pending bailout funds. The country recorded historic high inflation at 35.4 per cent in March on an annualized basis, with core inflation, excluding energy and food prices, increasing to 18.6 per cent in urban areas and 23.1 per cent in rural areas.

The market’s reaction to surging inflation is evident from the recent rise in bond market rates driven by investors’ bullish outlook. According to a survey conducted by Arif Habib Limited, 57.7 per cent of respondents expect the policy rate to increase. Of these respondents, 30.8 per cent are predicting a rate hike of 100bps and 26.9 per cent foreseeing a rate hike of 200 bps. Meanwhile, 42.3 per cent of respondents believe that the policy rate will remain unchanged at 20 per cent.

The expected increase in the policy rate will make bank financing even more expensive, reduce demand for foreign financing for imports, and help address the fast decline in foreign exchange reserves, which have dropped to critically low levels at $4.2 billion. The cash-strapped country is undertaking key measures to secure IMF funding, including raising taxes, removing blanket subsidies, and artificial curbs on the exchange rate. While the government expects a deal with the IMF soon, media reports suggest that the agency expects the policy rate to be increased.

Initially, the MPC meeting was scheduled for April 27, according to the six-month advance calendar issued by the central bank in December 2022. However, the SBP called an off-cycle review last month and brought forward the April meeting. The revival of the IMF loan program will help attract $3-4 billion from multilateral and bilateral creditors, including the IMF, and stabilize foreign exchange reserves over the short term.

April 4, 2023
McDonald’s temporarily closes US offices ahead of layoffs announcement

McDonald’s, the fast-food chain, will temporarily close its US offices this week to inform its corporate employees about layoffs as part of a broader company restructuring.

Last week, the company sent an internal email to its US employees and some international staff requesting that they work from home on Monday through Wednesday to communicate staffing decisions virtually. It is currently unknown how many employees will be affected by the layoffs.

The Chicago-based company stated in the message that it would communicate “key decisions related to roles and staffing levels across the organization” during the week of April 3. The report also indicated that McDonald’s asked its employees to cancel all in-person meetings with vendors and other outside parties at its headquarters.

In January, McDonald’s had previously announced that it would review corporate staffing levels as part of an updated business strategy that could result in layoffs in some areas and expansion in others.

McDonald’s is expected to start announcing key decisions this week.

April 3, 2023
Khunjerab Pass reopens to boost bilateral trade between Pakistan and China

In a press release issued by the PM Office Media Wing, Prime Minister Muhammad Shehbaz Sharif expressed his pleasure over the reopening of the Khunjerab Pass on Sunday. He stated that this development would help to increase bilateral trade between Pakistan and China, and described it as a welcome occasion for boosting trade with “Iron brother China.”

The prime minister emphasised that the reopening of the Pass had removed a hurdle that would further expedite the pace of work on the China Pakistan Economic Corridor (CPEC). He added that the restoration of the trade route between the two countries, after a span of three years, was a matter of great rejoicing.

Furthermore, the prime minister noted that the journey towards CPEC had started way back in November 2019 and recommenced in the year 2023. He expressed his resolve to move ahead on CPEC with dual speed in comparison to 2018.

He said that CPEC is a gift of progress and prosperity given by Muhammad Nawaz Sharif and the Chinese leadership for the region and the people. The prime minister also mentioned the affection and cooperation from the Chinese leadership for the people of Pakistan, which he described as unforgettable.

The prime minister expressed his disappointment over a “foreign funded person” who had created controversy over CPEC. However, he appreciated the relevant authorities of the two countries and the team members over the restoration of trade and travel facilities.

April 3, 2023
Ishaq Dar to attend IMF, World Bank meetings in US

Finance Minister of Pakistan, Ishaq Dar, will lead a delegation to the United States to attend the annual spring meeting of the Breton Wood Institutions (BWIs), comprising the International Monetary Fund (IMF) and World Bank, from April 10 to 16.

The delegation includes officials from the Finance and Economic Affairs Division and the State Bank of Pakistan (SBP) governor. The delegation is expected to present new proposals to the IMF and World Bank for the provision of dollar inflows.

IMF and Pakistan will also discuss the possibility of combining the remaining 10th and 11th reviews under the Extended Fund Facility (EFF) program, worth $6.5 billion, if the pending 9th review is completed. The EFF program, signed in 2019, is set to expire on June 30, 2023, and cannot be extended beyond the deadline.

The delay in the 9th Review’s completion, scheduled for December 2022, has resulted in the delay of the 10th Review, which was to start in February 2023. The 11th Review was scheduled to begin on May 3. The delay in the 9th Review will increase the cost of correcting the situation.

The government of Pakistan has taken difficult decisions to revive the IMF program, but there is no easy solution to the country’s ailing economy. The IMF is seeking verification from Pakistan’s bilateral friends, including Saudi Arabia, the UAE, and Qatar, to provide additional assistance of $6 billion until the end of June 2023.

SBP’s foreign exchange reserves currently stand at $4.2 billion, which is insufficient to meet obligations related to foreign debt servicing, including principal and markup. It remains to be seen how the completion of the bailout program will proceed, given the delay in the 10th Review.

April 3, 2023
Pakistan to receive first-ever shipment of low-cost oil from Russia in May

Minister of State for Petroleum, Musadik Malik, announced on Sunday that Pakistan will receive its first-ever shipment of low-cost oil from Russia next month, which is expected to benefit the general public.

In an interview with a private news channel, the minister confirmed that the government had finalised a deal with Russian authorities following successful dialogues. The shipment is expected to arrive in May via cargo. The minister also ensured that the government will pass on the cost savings to consumers.

Regarding power and gas tariffs, Malik stated that the government is planning to introduce different tariffs for the poor and elite classes. He stated that the government has already made progress in this regard and hopes to issue separate billing for the underprivileged and elite class. The new tariff structure is expected to provide relief to the poor segment of society.

Last month, officials from the Petroleum Division had disclosed that Pakistan was in talks with Russia to procure crude oil at around $50 per barrel, which is $10 per barrel lower than the price cap imposed by the G7 countries on oil imports from Russia due to its conflict with Ukraine.

The officials had shared that Moscow was keen on completing all the prerequisites, such as the mode of payment, shipping cost with premium, and insurance cost, before signing the agreement with Pakistan.

April 3, 2023
Pakistan’s inflation rate surges to an all-time high, reaching 38.9% in rural areas

According to recent reports, the finance ministry’s expectations of high inflation were met due to market frictions caused by the relative demand and supply gap of essential items, exchange rate depreciation, and recent upward adjustment of administered prices of petrol and diesel. However, there was a monthly decline in the inflation rate, which dropped to 3.7 per cent in March compared to February.

Despite this, the inflation situation has worsened significantly over the months, causing mass distress due to the high prices of almost every edible item. The core inflation rate, which excludes volatile energy and food prices, increased in March to 18.6 per cent in urban areas and 23.1 per cent in rural areas. Experts believe that Pakistan is now heading towards hyperinflation, where prices are out of control and expected to surge by 50 per cent.

The Pakistan Bureau of Statistics (PBS) reported that the inflation rate in rural areas reached 38.9 per cent, while it surged to 33 per cent in the cities. Food inflation rose sharply to 50.2 per cent in rural areas and increased to 47.1 per cent in urban areas last month. Supply chain disruptions and weak checks have led to a substantial rise in the food inflation rate.

Unfortunately, both the federal and provincial governments are unable to provide steady essential food supplies, and the prices of most consumer goods remain out of reach for the people. This surge in prices coincides with a significant economic slowdown, and poverty and unemployment levels are rising.

A majority of the surge in prices was seen in rural areas where income levels were already low. The food group prices rose by 47.15 per cent in March compared to the same month last year. Both perishable and non-perishable food items witnessed unprecedented increases in prices.

The Wholesale Price Index (WPI), which monitors prices in the wholesale market, also rose sharply to 37.5 per cent in March compared to 23.8 per cent in the same month last year. The inflation rate has remained above 20 per cent since June after the coalition government curtailed imports.

The overall inflation rate recorded an increase in both urban and rural areas, with urban areas surging to 33 per cent in March, while rural areas soared to 38.9 per cent over the same month last year. In March last year, the inflation rate in urban areas was 11.9 per cent, while in rural areas, it stood at 13.9 per cent.

The non-food inflation rate increased to 24.1 per cent in urban areas and 28.5 per cent in rural areas compared to 10.4 per cent and 12.5 per cent in the same month last year. Prices of non-perishable food items surged by 46.44 per cent on an annualized basis, and the prices of perishable goods surged by 51.81 per cent year-on-year.

April 1, 2023
Pakistan’s inflation expected to rise due to policy decisions and economic uncertainty, warns Finance Ministry

Finance Ministry has warned that inflation in Pakistan is set to rise further due to a second-round effect of policy decisions made earlier this year to raise energy and fuel prices, the central bank’s policy rate, and the depreciation of the rupee to secure IMF funding.

The recent political and economic uncertainties in the country are causing inflationary expectations to rise. The short-term rate of inflation measured by the Sensitive Price Indicator (SPI) hit a record 46.65 per cent last week, while monthly inflation recorded by the Consumer Price Index (CPI) reached 31.6 per cent in February – the highest in six decades.

The ministry expects inflation to stay at an elevated level due to market frictions caused by the relative demand and supply gap of essential items, exchange rate depreciation, and recent upward adjustments of administered prices of petrol and diesel. Production losses due to floods have not yet been fully recovered, especially those of major agricultural crops. The shortage of essential items has persisted due to these factors.

Moreover, the delay of stabilisation program has exacerbated economic uncertainty, due to which inflationary expectations have remained strong. The Economic Adviser’s Wing of the finance ministry has also conceded ineffective policy measures and the haplessness of the authorities in containing the inflationary spiral.

A report from ministry warns that bulk buying during Ramzan might cause the demand-supply gap and result in escalation of essential items prices, although the government is taking steps to ensure a smooth supply of essential items. The report also warned that being largely dependent on prevailing climatic conditions, as witnessed last year, the delay in rains and early heatwave forecast by the Pakistan Met Office in April and May could adversely impact wheat production.

On a positive note, the report said that despite challenges and uncertainties, the economy was showing continuous signs of resilience as depicted through contained fiscal and current account deficits during the current fiscal year.

April 1, 2023

Atlas Honda increases bike prices, Honda CG125 now priced at Rs222,900

Atlas Honda, the leading manufacturer in Pakistan’s two-wheeler industry, has recently announced a revision in the prices of its motorcycles. Effective immediately, the prices have increased up to Rs15,000, depending on the variant.

As a result, the popular Honda CD70 motorcycle now carries a price tag of Rs149,900, while the base variant of the Honda CG125 is priced at Rs222,900.

Here are the new prices of all Honda bikes:

Bike	Retail price (Excluding sales tax)	Sales tax — 18 per cent	Retail price (Including sales tax)
CD70	Rs127,033.90	Rs22,866.10	Rs149,900
CD70 DREAM	Rs136,355.93	Rs24,544.07	Rs160,900
PRIDOR	Rs167,711.86	Rs30,188.14	Rs197,900
CG125	Rs188,898.31	Rs34,001.69	Rs222,900
CG125S	Rs225,338.98	Rs40,561.02	Rs265,900
CB125F	Rs310,084.75	Rs55,815.25	Rs365,900
CB150F	Rs388,898.31	Rs70,001.69	Rs458,900
CB150F	Rs392,288.14	Rs70,611.86	Rs462,900

Unfortunately, due to the recurrent price hikes from various bike manufacturers, two-wheelers are gradually becoming a luxury item, with no bike being sold below Rs100,000, even those from Chinese brands.

Furthermore, the company has also extended the closure of its production plant for 15 days. In a similar move, Yamaha Motor Pakistan has also announced an increase in the prices of its five models, citing the rising cost of production as the primary reason.

April 1, 2023