Tag: economic impact

  • PDM govt adds Rs18.5 trillion to Pakistan’s debt in just 15 months

    PDM govt adds Rs18.5 trillion to Pakistan’s debt in just 15 months

    In a span of just 15 months, the Pakistan Democratic Movement (PDM) government has significantly added Rs18.5 trillion to the country’s public debt, a striking amount surpassing the debt accumulation of its rival, the Pakistan Tehreek-e-Insaf (PTI), during its three-and-a-half-year tenure.

    Between March 2022 and the close of the 2022–23 fiscal year, the gross public debt surged from Rs44.4 trillion to Rs62.9 trillion. This rapid increase of 41.7 per cent in just 15 months occurred without a well-defined strategy to curb it. As a result, the federal government’s debt, for which the finance ministry bears direct responsibility, escalated to Rs60.8 trillion by June 2023. The debt bulletin, published on a recent Wednesday, indicates an addition of Rs18 trillion during the PDM government’s one year and three months in power.

    As per a report in the Express Tribune by Shehbaz Rana, this unsustainable surge in public debt is mainly ascribed to unregulated spending, insufficient revenue collection from areas such as real estate, services, and agriculture, alongside the diminishing value of the Pakistani rupee in comparison to the US dollar.

    It’s worth noting that the government under Imran Khan added Rs18.1 trillion to the public debt over a span of 44 months, a threshold that the current administration led by Shehbaz Sharif managed to surpass in just 15 months. However, it’s important to mention that the debt figure for July has yet to be compiled by the State Bank of Pakistan.

    This trend becomes even more significant when we consider that the combined debt addition by the Pakistan Peoples Party (PPP) and the Pakistan Muslim League-Nawaz (PML-N) from 2008 to 2018 was Rs18 trillion. Another Rs18 trillion was added from August 2018 to March 2022 during Imran Khan’s government, and now the PDM government has contributed an additional Rs18.5 trillion in a remarkably brief period of 15 months.

    Comparatively, from September 1, 2018, to the end of March 2022, the PTI government, on average, increased the public debt by Rs14.5 billion per day, more than double the average daily increase of Rs5.6 billion during the PML-N period. The PDM government has further escalated this daily addition to an average of Rs41 billion.

    By the time the PTI government’s term concluded, the total public debt amounted to Rs44.4 trillion, equivalent to 83.5 per cent of the gross domestic product (GDP) before the economy’s rebasing. Following the rebasing process, there was a 15 per cent reduction in public debt relative to GDP but no reduction in absolute terms.

    At present, the public debt constitutes 74.3 per cent of the GDP. Steep currency depreciation has also contributed to the federal government’s debt. Over the past 15 months, the total domestic debt of the federal government surged to Rs38.8 trillion, an addition of Rs10.8 trillion (or 38 per cent). When Imran Khan left office, the domestic debt stood at Rs28 trillion.

    Alarmingly, the external debt of the federal government surged by 48 per cent to Rs22 trillion within just 15 months, with a net increase of Rs7.1 trillion attributed largely to currency depreciation. By the end of March 2022, the external debt, excluding IMF liabilities, was Rs14.9 trillion.

    External debt constitutes roughly 36 per cent of the total debt, and fluctuations in the exchange rate have a significant impact on debt even without borrowing additional funds. In a span of 15 months, the rupee-dollar parity plummeted from Rs183.5 to Rs286.4, a decline of Rs103 or 56 per cent. This substantial and rapid depreciation has also contributed to inflation.

    On a recent Wednesday, the rupee slid further to Rs295. An immediate outcome of this mounting debt is a considerable rise in the cost of debt servicing. It is projected that debt servicing will exceed Rs5.8 trillion by the end of the last fiscal year. 

    As a result of reckless borrowing, Pakistan’s total debt and liabilities have surged to Rs77.1 trillion, equivalent to 91.1 per cent of the national economy’s size. This ratio is deemed unsustainable for a developing nation like Pakistan.

    During the past four years of the IMF programme, Pakistan struggled to enhance the Federal Board of Revenue’s (FBR) tax-to-GDP ratio, despite it being a priority for both the IMF and the World Bank.

    This raises concerns about the effectiveness of obtaining foreign loans for the sake of tax reform. Moreover, there has been a lack of serious efforts to control expenditures. The Shehbaz Sharif government, like its predecessors, continued to allocate funds to projects and initiatives that fall under provincial jurisdiction as per the constitution.

  • Petrol price likely to increase by Rs15 per litre after August 16

    Petrol price likely to increase by Rs15 per litre after August 16

    Starting August 16, petroleum products are expected to undergo a notable price hike. In particular, the price of petrol is projected to rise by Rs15 per litre, while diesel will likely see a steeper increase of Rs20 per litre.

    This surge in prices is attributed to a rise in global commodity rates. Recent reports indicate that the cost of crude oil has climbed by $5 per barrel, going from $86 to $91 per barrel. This increase is largely due to the elevated prices of petroleum products on the global market. Additionally, a separate premium charge of $2 per barrel has been applied to crude oil.

    Simultaneously, the international prices for both diesel and gasoline have also experienced a $5 surge, climbing from $97 per barrel to $102 per barrel.

    Should these prices remain unchanged, the anticipated effect on Pakistan’s fuel market would translate to a Rs15 per litre hike for petrol and a more substantial Rs20 per litre increase for diesel.

    In the context of the previous fortnightly review conducted by the outgoing government, a significant Rs19 per litre escalation in petrol and diesel prices had been announced. This decision was justified as being in alignment with the demands of the International Monetary Fund.

  • Pak Suzuki halts motorcycle production amidst ongoing inventory shortage

    The Pak Suzuki Motor Company (PSMC) is once again grappling with the repercussions of the ongoing raw material shortage, which has forced the company to halt production at its motorcycle plant for at least 15 days. The decision, announced in a statement released to the Pakistan Stock Exchange (PSX), comes as the company struggles to maintain adequate inventory levels due to the scarcity of essential components.

    The company secretary revealed that the motorcycle plant will remain non-operational from July 31, 2023, to August 15, 2023. This recent shutdown follows a previous closure earlier in July when both the motorcycle and automobile plants were shut down until July 19, which was subsequently extended. The persistent lack of raw materials has been plaguing Pak Suzuki since July of the previous year, primarily due to difficulties in importing these crucial components caused by a reduction in the nation’s foreign exchange reserves.

    Unfortunately, Pak Suzuki is not the only automaker facing such challenges. Honda Atlas Cars and Indus Motor Company, responsible for manufacturing Toyota cars in Pakistan, have also experienced several shutdowns due to the shortage of essential raw materials. Furthermore, automotive parts manufacturers have been compelled to temporarily halt their production lines, exacerbating the crisis across the entire automotive industry.

    The repercussions of these closures extend beyond the affected businesses, as the entire automotive industry faces unproductive days due to interrupted raw material imports arising from postponed credit letter openings. This situation has led to reduced operational capacities and an overall decrease in productivity across multiple sectors of the economy.

    The recent shutdown of Pak Suzuki’s motorcycle manufacturing plant has raised concerns among employees, stakeholders, and the general public alike. The motorcycle plant is a significant division within the company and serves as a major employer in the country. As a result, the closure is expected to have a considerable impact on both the company’s workforce and the overall economy.

    An analyst specialising in Pakistan’s automotive sector highlighted that the closure of the motorcycle plant serves as a stark reminder of the larger problems plaguing the industry. Addressing the underlying causes of the raw material scarcity requires a collaborative effort from stakeholders and the government to implement permanent solutions and avert further disruptions.

  • Govt hikes petrol and diesel prices by nearly Rs20 per litre

    Govt hikes petrol and diesel prices by nearly Rs20 per litre

    In a move to fulfill its commitment with the International Monetary Fund (IMF), Pakistan’s Finance Minister Ishaq Dar has announced a substantial increase in petrol and diesel prices. The revision has taken effect immediately today (August 1st), with petrol price rising by Rs19.95 per litre and diesel price climbing by Rs19.90 per litre.

    Here are the new petrol and diesel prices:

    Product Old prices New prices Increase
    Petrol Rs253 Rs272.95 Rs19.95
    Diesel Rs253.50 Rs273.40 Rs19.90

    Minister Dar stated that the price hike was necessary to comply with the IMF’s requirement to impose a petroleum development levy (PDL) on the rates. He mentioned that despite attempts to mitigate the impact on inflation-weary citizens, the government had little room to maneuver due to the binding agreement with the IMF.

    The announcement was originally scheduled for July 31, but the government delayed the decision as officials sought ways to minimise the impact on the general public. The Finance Minister, making this announcement for the last time before his government’s term ends on August 12, emphasised that the decision was taken in the “national interest.”

    Dar clarified that if it were not for the IMF agreement, the government would have attempted to reduce the PDL to provide relief to the masses. He referred to the measures taken by the previous government that decreased petrol prices but resulted in a breach of commitments with the IMF.

    Explaining the reasons behind the price hike, the finance minister highlighted the surge in international market prices of high-speed diesel, which necessitated adjustments in local rates. He stressed that it was crucial to pass on the minimum amount to the consumers, considering the nation’s interests.

    The sudden increase in fuel prices is likely to have significant implications on the overall economy, including its impact on inflation rates and the cost of living for ordinary citizens. With the government’s term ending soon, the incoming administration will face the challenge of managing economic stability and addressing public concerns over rising fuel costs.

  • Here are the revised diesel and petrol prices effective July 16, 2023

    Here are the revised diesel and petrol prices effective July 16, 2023

    Finance Minister Ishaq Dar announced on Saturday that the prices of petrol and diesel will be reduced in the upcoming fortnightly review.

    During a televised address, the minister said that petrol prices will be reduced by Rs9 per litre, while diesel prices will see a decrease of Rs7 per litre. These adjustments were made due to changes in the international market over the past 15 days, with one petroleum product’s price increasing and the other decreasing.

    Following these revisions, the new price for petrol will be Rs253 per litre, and high-speed diesel (HSD) will be priced at Rs253.50 per litre. Minister Dar clarified that the petroleum development levy (PDL), which was previously raised to Rs60 per litre in response to the International Monetary Fund’s (IMF) request, will remain unchanged.

    The new prices will take effect on July 16, Sunday. Minister Dar also highlighted that the local currency has strengthened against the US dollar in the last 15 days, following Pakistan’s successful negotiation of a $3 billion Stand-By Arrangement (SBA) with the IMF.

    Here are the new diesel and petrol prices effective from tomorrow (July 16, 2023):

    Petroleum Product Previous Price Reduction Revised Price
    Petrol Rs263 per litre Rs9 per litre Rs254 per litre
    Diesel Rs260.50 per litre Rs7 per litre Rs253.50 per litre
  • UK house prices drop at fastest rate in 12 years, more decline expected: Halifax

    UK house prices drop at fastest rate in 12 years, more decline expected: Halifax

    According to mortgage lender Halifax, UK house prices witnessed a significant decline last month on an annual basis, marking the fastest rate of decrease in 12 years.

    The rising interest rates are expected to exacerbate the challenges faced by the housing market. Halifax reported a year-on-year drop of 2.6 per cent in house prices for June, following a 1.1 per cent decrease in May. This decline represents the largest fall since June 2011. On a monthly basis, prices dropped by 0.1 per cent in June, following a 0.2 per cent decrease in May.

    Kim Kinnaird, the director of Halifax Mortgages, explained that the substantial annual decline can be attributed to the comparison with the peak in house prices observed around a year ago, coupled with relatively minimal price movements in recent months.

    However, the surge in mortgage costs driven by mounting expectations for the Bank of England to combat inflation through increased interest rates suggests that the housing market will face further challenges in the coming months.

    Kinnaird stated that predicting the depth and duration of the downturn in house prices remains challenging, but the possibility of decreasing inflation may provide some support. Kinnaird also noted that the anticipation of a peak Bank Rate exceeding 6 per cent in the foreseeable future implies that mortgage rates will likely remain elevated for an extended period, contributing to ongoing financial strain for households.

    Investors have recently speculated that persistent inflation will prompt the Bank of England to raise interest rates to their highest level in 25 years, reaching 6.5 per cent by December. In response to soaring funding costs, various lenders, including Halifax, a subsidiary of Lloyds Bank, and other prominent institutions, have repeatedly adjusted their home loan offerings in a race to keep pace.

    Historical data indicates that significant increases in swap rates, which influence mortgage funding expenses, often foreshadow substantial declines in housing starts. This conclusion is supported by a Reuters analysis covering the past 35 years.

    Halifax highlighted that the largest decrease in house prices occurred in the southeast of England. London experienced a decline of 2.6 per cent in annual terms, marking the most substantial drop since October 2009.

  • Commercial importers forced to suspend food and drink imports due to dollar shortage

    Commercial importers forced to suspend food and drink imports due to dollar shortage

    In a significant development impacting the country’s economy, commercial importers in Pakistan have announced their decision to suspend the import of all eatables and beverages starting from June 25. The move comes as a result of the unavailability of dollars, with banks refusing to provide the necessary foreign currency to importers.

    The decision was taken following a comprehensive discussion among members of the Karachi Wholesale Grocers Association, represented by Secretary Farhat Siddique. In a statement issued by the association, it was revealed that all importers have been instructed to inform their indenters not to dispatch any shipments after June 25. Importers will only be responsible for the clearance of goods that have either arrived at the port or are en route. No shipments dispatched after June 25 will be cleared for entry.

    According to Geo, one of the major concerns highlighted by the association is the mounting number of containers stranded at the port due to the lack of foreign currency. Importers are currently facing fines and other charges as a result. The statement further criticised the State Bank of Pakistan (SBP) for its failure to provide the much-needed foreign exchange, citing its policies as detrimental to the country’s economy.

    This recent development comes at a time when the coalition government is grappling with a balance of payments crisis and striving to combat soaring inflation, which reached a record high of nearly 38 per cent last month. With foreign exchange reserves barely enough to cover a month’s worth of imports, the situation has prompted restrictions on imports and delays in opening letters of credit, severely impacting various sectors across the country. As a result, none of these sectors have been able to meet the growth targets set for the fiscal year 2022-23.

    The implications of the shortage of dollars and the subsequent halt in food and beverage imports are far-reaching, potentially affecting the availability and affordability of essential commodities for consumers. The government and relevant authorities will need to address the foreign currency shortage promptly and implement measures to stabilise the economy, restore confidence, and mitigate the impact on businesses and consumers alike.

    As the situation unfolds, stakeholders and policymakers will be closely monitoring the developments and seeking viable solutions to tackle the ongoing challenges faced by the country’s economy.

  • Currency crisis alert: Pakistani rupee could drop to Rs350 against dollar without IMF assistance

    Currency crisis alert: Pakistani rupee could drop to Rs350 against dollar without IMF assistance

    The Pakistani rupee is poised to face a significant downfall, with expectations that it may plummet to as low as Rs350 against the US dollar. This alarming projection has raised concerns among stakeholders, as the weakening currency is anticipated to have far-reaching implications, particularly in terms of inflationary pressures that will disproportionately affect the lower and middle classes.

    According to Geo, the steep devaluation of the rupee, which has already lost approximately 20 per cent of its value this year, positions it among the worst-performing currencies worldwide.

    Experts, including economists Ankur Shukla and Abhishek Gupta, attribute this weakness to a range of factors. Capital flight from Pakistan is intensifying due to the growing apprehension that the International Monetary Fund (IMF) may not provide the much-needed bailout required to prevent a fiscal default in the upcoming fiscal year commencing in July.

    The delay in receiving aid, which has been stalled since November, is suspected to be linked to political unrest, further exacerbating the rupee’s decline. The country’s leadership has been plagued by instability since the removal of Imran Khan, Chairman of Pakistan Tehreek-e-Insaf (PTI), through a no-confidence motion vote in April last year.

    Khan’s recent arrest has heightened tensions between him, the government, and the military. Following his imprisonment, the rupee experienced a sharp drop to a record low of 299 per dollar, only to partially recover and stabilize at 285 after his release.

    Multiple experts are warning of an imminent massive drop in the rupee, with some analysts even foreseeing a further 20 per cent depreciation. The currency’s future trajectory heavily depends on the ongoing clashes between Khan and the government, as well as the IMF’s decision regarding financial assistance.

    Adil Ghaffar, CEO at Premier Financial Services Pvt in Karachi, concurs, stating that failure to secure the loan could lead to a slump in the rupee’s value to Rs350 per dollar in June. Market sentiment remains precarious, and economists such as Farooq Pasha highlight the persistent uncertainty surrounding the rupee’s path.

    In the near term, politics will continue to pose a key risk until the elections. The bond market has also been adversely affected, with bond investors growing increasingly nervous as the spread between Pakistan’s dollar bonds and US Treasuries reached a record high of over 35 per cent this month.

    With the looming prospect of the rupee’s significant decline, the economic landscape of Pakistan hangs in a precarious balance.

  • Rupee depreciation may lead to an increase in petroleum prices, says Musadik Malik

    Rupee depreciation may lead to an increase in petroleum prices, says Musadik Malik

    Dr Musadik Malik, the State Minister for Petroleum, issued a warning on the potential increase of petroleum product prices due to the significant decline in the value of the Pakistani rupee against the US dollar.

    During an appearance on the Geo News program “Capital Talk” on Thursday, Dr Malik stated that the depreciation of the rupee could lead to an upsurge in the prices of petroleum products in the upcoming days. He also shared that the negotiations between Pakistan and Russia on oil imports were progressing well.

    According to Dr Malik, the sudden increase in the US dollar’s price was due to political instability, making it difficult to govern the country in such an uncertain environment. Notably, during the last fortnight’s review, Finance Minister Ishaq Dar announced a reduction in petroleum prices.

    As a result, the government cut the price of petrol by Rs5 per litre, setting it at Rs267 per litre, while the price of diesel remained steady at Rs280 per litre.

    In addition, the price of light diesel oil decreased by Rs12 per litre, bringing it down to Rs184.68 per litre. Furthermore, the cost of kerosene oil was reduced by Rs15 per litre, bringing its price to Rs187.73.