Category: Business

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

  • All economic indicators moving in right direction: Dar dismisses rumors of Pakistan’s default

    All economic indicators moving in right direction: Dar dismisses rumors of Pakistan’s default

    According to the announcement by Pakistan’s Federal Finance Minister Ishaq Dar, negotiations between Pakistan and the International Monetary Fund (IMF) are about to conclude, and a staff-level agreement is expected to be signed soon.

    The minister also dismissed rumours of Pakistan defaulting as completely false and stated that all economic indicators are moving in the right direction. He highlighted that the State Bank of Pakistan’s foreign exchange reserves have increased and that foreign commercial banks have started extending facilities to Pakistan.

    However, the Pakistani rupee has plunged to a new all-time low of Rs290.18 against the US dollar in the interbank market, which is causing concern among importers who are panic buying dollars while exporters are reportedly withholding selling the greenback in anticipation of a higher exchange rate.

    It is reported that the IMF wants the value of the rupee in the interbank market to match its value in the black currency market.

  • SBP set to raise interest rates in response to IMF’s call for tighter monetary policy

    SBP set to raise interest rates in response to IMF’s call for tighter monetary policy

    The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) is expected to raise interest rates during an off-cycle review scheduled for today.

    The decision to hold this meeting earlier than the previously scheduled date of March 16th was made in an effort to expedite efforts to secure the anticipated International Monetary Fund (IMF) tranche.

    SBP’s MPC, established under the SBP Amendment Act, is authorized to make decisions based on macroeconomic fundamentals. Market expectations are for a benchmark interest rate increase, given the recent rise in treasury yields and growing investor concerns about rising inflation in Pakistan and globally.

    Reports suggest that the coalition government has agreed to raise interest rates from 17 per cent to 19 per cent in response to one of the IMF’s key conditions for reviving the loan program.

    Analysts recommend advancing the MPC meeting date to avoid the failure of the next T-bill auction. Discussions with the IMF have included the possibility of further monetary policy tightening and building up foreign exchange reserves by June 2023.

    The IMF has urged the SBP to raise the policy rate by 300 to 400 basis points to achieve a positive trajectory. Pakistan is taking measures to secure IMF funding, such as raising taxes, removing blanket subsidies, and relaxing exchange rate restrictions.

    While the government is optimistic about reaching a deal with the IMF, reports indicate that the lender expects interest rates to rise. Off-cycle rate reviews are not unusual in Pakistan.

  • PSO reportedly planning to buy Telenor to expand its business beyond oil

    PSO reportedly planning to buy Telenor to expand its business beyond oil

    Pakistan State Oil (PSO) is reportedly conducting due diligence on the Pakistani operations of a Norwegian telecommunications operator, in response to Telenor’s plans to sell its Pakistani operations valued at around $1 billion. Pending regulatory approval, PSO has expressed interest in acquiring Telenor Pakistan and Easypaisa, following the completion of bidding documentation and due diligence.

    Easypaisa, a leading mobile wallet, mobile payments, and branchless banking services provider, boasts a significant customer base of nine million monthly active users. Launched in 2009 as a money transfer service through Unstructured Supplementary Service Data (USSD) channels, Easypaisa introduced a mobile app in 2016, offering a broad range of financial transactions. Telenor Microfinance Bank owns Easypaisa, and jointly, Telenor Group most recently launched a debit card on January 17, 2023.

    According to Mettis Global, Telenor Pakistan’s decision to exit the market stems from heavy taxation on the telecommunications industry and the policies of the Pakistani Telecommunication Authority (PTA), which have significantly reduced its revenues. Although Telenor Pakistan has faced operational losses for the past three years, there is no certainty that discussions regarding the sale of its Pakistani operations will result in a transaction.

    For PSO, the potential acquisition of Telenor’s operations in Pakistan aligns with its efforts to expand its business beyond traditional oil and gas. If successful, the acquisition could enable PSO to diversify its revenue streams and leverage Pakistan’s growing digital payments market.

  • International petrol, diesel prices drop, but no relief for Pakistanis

    The government has decided not to reduce the prices of diesel and petrol for local consumers, despite a significant decrease in their international prices. This decision is intended to offset previous exchange losses and raise taxation.

    On February 28, 2023, the average fortnightly prices of petrol and diesel in the global market will be used for the next price revision. According to industry sources, the average price of diesel for the next fortnightly review has dropped by $7 per barrel, which equates to a reduction of Rs30 per litre for domestic diesel prices.

    The global average price of diesel has fallen to approximately $100 per barrel compared to $107 per barrel in the previous fortnight. Similarly, the average price of petrol has dropped to $90 per barrel for the next review of prices compared to $93 per barrel in the last fortnightly review, which translates into a reduction of Rs10 per litre for consumers in the local market.

    According to Geo, the appreciation of the Pakistani rupee against the dollar in the last two weeks has also contributed to the reduction in import prices of diesel and petrol. However, industry sources do not expect any significant reduction in the prices of diesel and petrol for domestic consumers.

    The government is expected to adjust the exchange losses, which were not passed on fully to the oil sector in the last several reviews. For example, an exchange loss adjustment of Rs88 per litre was due on diesel, but the government only transferred Rs12 per litre on this head, leaving the remaining amount to be adjusted. The same is true for petrol, with an exchange loss adjustment of Rs34 per litre due, but only Rs12 per litre being given to the oil industry.

    Under the conditions set by the International Monetary Fund (IMF), the government may increase the petroleum levy (PL) on diesel to Rs50 per litre, as it now has room to do so. Currently, the PL on diesel is Rs40 per litre.

    If the government does not impose GST, sources expect a cut of Rs10 per litre in diesel prices, which would otherwise deprive local consumers of the drop in diesel prices in the global market.

    However, official industry sources do not anticipate any reduction in the price of petrol for local consumers, which would otherwise have been down by Rs10, as per the trends of its price in the global market.

  • DHL limits operations in Pakistan due to outbound remittance restrictions

    DHL limits operations in Pakistan due to outbound remittance restrictions

    International logistics company, DHL, announced that it will partially suspend some of its operations in Pakistan due to restrictions on outbound remittances by the government.

    DHL Pakistan has informed its customers that it will suspend its “Import Express Product” and restrict outbound shipments to a maximum weight of 70kg per shipment for all customers billed in Pakistan from March 15.

    According to Dawn, the company has stated that the last pick-up date will be March 14, and shipments picked up on or before this date will still be delivered.

    The decision comes as the PMLN-led coalition government and the State Bank of Pakistan have imposed restrictions on outward remittances for foreign companies operating in Pakistan amid fast-dwindling foreign exchange.

    DHL has stated that the remittances sent by DHL Pakistan cover the cost of DHL’s international aviation, hub, gateway, and last-mile delivery incurred through its global network for the shipments sent/received by valued customers. The company has added that this constraint has made it unsuitable for DHL Express to continue providing the full product offering in Pakistan.

  • Pilgrims paying in US dollars to receive special discount for upcoming Hajj

    According to recent reports, the government is planning to provide incentives to citizens who choose to pay their dues for the upcoming Hajj in US dollars.

    Additionally, the Ministry of Religious Affairs has allocated a 25 per cent special quota for pilgrims who deposit the amount in dollars, as per APP.

    This move is a response to the government’s efforts to strengthen the fast-dwindling foreign reserves. According to a report by SAMAA on Friday, pilgrims who pay their application fees and other charges in US dollars will receive a special discount.

    SAMAA also cited the draft of the Hajj Policy 2023, which states that pilgrims will be given the option to choose the currency in which they wish to pay. Those who choose to pay in dollars will be exempted from the balloting process under the new Hajj policy, as reported by APP.

  • Pakistan accepts IMF pre-condition to increase interest rate by 2%

    Pakistan accepts IMF pre-condition to increase interest rate by 2%

    Pakistan has agreed to increase its policy (interest) rate by two percent or 200 basis points, as a pre-condition for the release of $1.1 billion in critical funding from the International Monetary Fund (IMF). The funding is part of a $6.5 billion bailout package.

    The increase is based on rates set by the government in an auction to raise domestic debt and will push the interest rate to 19 per cent. This is just below the previous record of 19.5 per cent set in October 1996.

    Sources from the Ministry of Finance stated that there had been technical-level discussions between Islamabad and the IMF review mission and that it was expected that Islamabad would increase the interest rate by two percent. Most of the pre-conditions set by the IMF had been fulfilled, according to these sources.

    Sources also indicated that discussions on some issues related to the power sector were in the final stages, after which a staff-level agreement with the IMF would be reached. Additionally, Pakistan provided a detailed briefing to IMF officials on the sources of foreign exchange until June.

  • Pakistan Tobacco Company fears surge in smuggling, fake cigarette supply after tax hike

    Pakistan Tobacco Company fears surge in smuggling, fake cigarette supply after tax hike

    Pakistan Tobacco Company (PTC) has expressed serious concern over the recent mini-budget announcement, stating that new taxes on cigarettes will result in an increase in smuggling and counterfeit products in markets. Speaking to the media on Friday, PTC’s Director Legal and External Affairs, Syed Asad Shah, explained that the increase in federal excise duty (FED) and the lower minimum price set by the Federal Board of Revenue (FBR) would lead to less revenue collection from the cigarette industry.

    Shah displayed several illicit cigarette packs available in markets across the country, including some smuggled brands without health warnings, counterfeit products of local brands, and unregistered and non-tax-paid locally produced cigarettes.

    Shah projected that the share of illicit cigarettes in Pakistan would increase from the current 35 per cent to 40-50 per cent in the current year. He added that if the government did not rationalize the policy of managing the threshold price level and did not restrict illicit trade, its revenues would also decline after two years. Illicit cigarettes are sold below the minimum price because the applicable tax per pack is not paid on these products.

    The cigarette industry paid total taxes of Rs150 billion in fiscal year 2021-22, and the expected tax receipts this year would be around Rs185 billion because of the new taxation measures. According to the industry, tax contribution by PTC and Philip Morris, two multinational companies, alone will be around Rs182 billion.

    Shah pointed out that around 35 cigarette companies were running in Pakistan, making some 200 brands, but local players paid only Rs3 billion in taxes and duties. He added that many companies were not paying due taxes, which was why some were selling cigarette packs for Rs7.

    PTC officials emphasized the need for a rational increase in the minimum legal price of cigarettes. After the recent rise in FED, taxes, and duties on tier-2 cigarette packs came in at Rs101, but the minimum sale price of the same packs was Rs108.

    According to Express, the company officials demanded that the finance ministry take stringent action against the illicit cigarette trade and ensure across-the-board implementation of the FBR’s track and trace system that monitors the production and supply of cigarettes.

  • Ministry of Finance halts clearing of bills including salaries due to deteriorating financial condition

    Ministry of Finance halts clearing of bills including salaries due to deteriorating financial condition

    The Ministry of Finance and Revenue has instructed the Accountant General Pakistan Revenues (AGPR) to stop clearing bills, including salaries, due to the current economic crisis and the deteriorating financial situation of the country. The ministry has also directed the halt of clearings of attached departments until further notice.

    According to The News, official sources have confirmed that operational cost-related releases have faced difficulties due to the economic hardships of the country. However, attempts to obtain a comment from Finance Division officials were unsuccessful, and the Minister for Finance Ishaq Dar promised to respond after confirming the report’s accuracy, which he had not done by the time of the report’s filing.

    Sources who went to the AGPR office for clearance of their outstanding bills were informed that the Ministry of Finance had directed them to stop clearing all bills, including salaries, due to the prevailing financial difficulties. The reasons for the immediate stoppage of the clearance of bills were not ascertained.

    The lingering financial difficulties are considered to be a significant reason for this move. However, salaries and pensions of defence-related institutions have already been cleared for the following month.

    During a meeting with a delegation of M/s Rothschild & Co on February 22, Finance Minister Ishaq Dar said that the government is committed to steering the economy towards stability and growth, and completing the International Monetary Fund (IMF) programme, and fulfilling all international obligations.

    To this end, on February 20, the National Assembly unanimously approved the Finance (Supplementary) Bill 2023, or ‘mini-budget’, which is mandatory for seeking the $1.1 billion tranche of the IMF. The bill increases sales tax from 17 to 25 per cent on imports ranging from cars and household appliances to chocolates and cosmetics, while a general sales tax was raised from 17 per cent to 18 per cent.

    As the bill was passed, the minister told the lower house of parliament that the prime minister would unveil austerity measures in the next few days, adding, “we will have to take difficult decisions.”

    UPDATE:

    The Finance Ministry has rejected the rumours that the government has instructed to stop payment of pay and pension.

    The ministry stated in a press release, “There are rumours floating around that Government has instructed to stop payment of pay, pension, etc. This is completely false as no such instructions have been given by Finance Division, which is the concerned federal ministry. AGPR has confirmed that pay and pension have already been processed and will be paid on time. Further, other payments are being processed as per routine.”

  • Gas and cigarette prices push Pakistan’s weekly inflation to 41%

    Gas and cigarette prices push Pakistan’s weekly inflation to 41%

    According to official data released by the Pakistan Bureau of Statistics (PBS), Pakistan’s weekly inflation has remained high, with an increase of 2.78 per cent week-on-week and 41.54 per cent year-on-year for the seven-day period that ended on February 23.

    The latest figures of the Sensitive Price Index (SPI) reveal that the rise is due to an increase in gas prices for Q1 (108.38 per cent), cigarettes (76.45 per cent), bananas (6.67 per cent), chicken (5.27 per cent), sugar (3.37 per cent), cooking oil 5 litre (3.07 per cent), vegetable ghee 2.5kg (2.79 per cent), vegetable ghee 1kg (2.20 per cent) and prepared tea (1.09 per cent).

    The government of Pakistan almost doubled the gas charges for up to 3.3719 mmBtu to secure the International Monetary Fund’s (IMF) approval for the $1.1 billion tranche out of the $6.5 billion bailout package under the Extended Fund Facility. Previously, the rate was Rs147.57, which now stands at Rs295.

    The PBS attributes the YoY increase in SPI to the rise in prices of onions (372.03 per cent), cigarettes (164.71 per cent), gas charges for Q1 (108.38 per cent), chicken (85.65 per cent), diesel (81.36 per cent), eggs (75.81 per cent), rice irri-6/9 (75.41 per cent), rice basmati broken (74.16 per cent), bananas (72.22 per cent), pulse moong (70.39 per cent), petrol (69.87 per cent), tea (62.76 per cent), pulse gram (57.02 per cent), bread (55.36 per cent), pulse mash (53.90 per cent) and LPG (52.59 per cent). However, there was a decrease in the prices of tomatoes (67.93 per cent), chilli powder (7.42 per cent) and electricity charges for Q1 (6.64 per cent).

    Analysts had predicted that inflationary pressures would intensify due to tax measures and adjustments in electricity, petroleum and gas prices made by the government to unlock the IMF programme.

    Consumers have been facing the burden of rising prices of essential kitchen items, particularly edibles. The average price of 1kg broiler chicken was Rs469.81 during the week under review compared to Rs446.29 last week. For the groups spending up to Rs17,732; Rs17,733-22,888; Rs22,889-29,517; Rs29,518-44,175; and above Rs44,175; WoW SPI increased 2.42, 2.86, 2.32, 2.18, and 3.10 per cent respectively.

    The YoY SPI for the expenditure groups went up 37.81, 39.80, 40.95, 41.94, and 42.98 per cent respectively. For the week under review, SPI was recorded at 241.29 points against 234.77 points registered last week and 170.47 points recorded during the week ended February 24, 2022.