Tag: foreign exchange reserves

  • SBP-held forex reserves rise by $12 million to $8.05 billion, sufficient to cover over two months’ worth of imports

    SBP-held forex reserves rise by $12 million to $8.05 billion, sufficient to cover over two months’ worth of imports

    The State Bank of Pakistan (SBP) announced a rise of $12 million in its foreign exchange reserves, reaching $8.05 billion, as detailed in a statement released on Thursday. The nation’s overall liquid foreign reserves, encompassing both SBP and commercial banks, amounted to $13.379 billion as of August 11. Among these, commercial banks held net reserves totaling $5.3237 billion, as reported by the SBP.

    While the central bank did not provide specifics on the cause behind the augmentation of foreign exchange reserves, the situation presents an upbeat stance. Nevertheless, it’s worth noting that the existing reserves would barely cover imports for a span slightly exceeding two months.

    Notably, the previous month saw a notable escalation in SBP reserves due to inflows from the United Arab Emirates, Saudi Arabia, and the International Monetary Fund (IMF), following the formalisation of a $3 billion Stand-by Arrangement (SBA) with the global financial institution.

    According to Geo, in a departure from market predictions, the SBP opted to maintain the key policy rate at 22 per cent during the preceding month. This stance diverged from expectations, particularly those guided by IMF recommendations. SBP Governor Jameel Ahmed conveyed this decision following a Monetary Policy Committee (MPC) meeting. Explaining the rationale, he stated that given the decline in inflation, there was no inclination to increase the interest rate.

    During a press conference, Governor Ahmed also shared insights into the nation’s economic trajectory. He projected a growth rate ranging from 2 per cent to 3 per cent for the upcoming year. Highlighting the government’s actions, he mentioned the complete removal of import restrictions. This move, coupled with financial inflows from the IMF and other supportive nations, led to a $4.2 billion upswing in Pakistan’s foreign exchange reserves in July.

  • 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.

  • FBR imposes 400% tax increase on payments to non-residents via debit and credit cards

    The Federal Board of Revenue (FBR) has taken a significant step to discourage the outflow of foreign exchange reserves by raising the withholding tax (WHT) on payments to non-resident individuals through debit and credit cards. The move aims to curtail the substantial impact of such payments on the country’s foreign exchange reserves.

    The FBR recently issued Circular Number 2 of 2023, which outlines the amendments to the Finance Act 2023. As per the circular, the Finance Act 2022 had introduced section 236Y, subjecting payments to non-residents through debit/credit cards to a 1 per cent withholding tax rate for Active Taxpayer List (ATL) persons and 2 per cent for Non-ATL persons.

    However, considering the considerable foreign exchange outflows resulting from these transactions, the FBR has implemented a drastic increase in withholding tax rates through the Finance Act 2023. According to The News, for ATL persons, the withholding tax rate has been elevated from 1 per cent to 5 per cent, and for Non-ATL persons, it has been raised from 2 per cent to 10 per cent. This means a fourfold increase in tax rates for both categories of taxpayers as well as non-filers.

    According to estimates shared by the State Bank of Pakistan (SBP) with parliamentarians before the 2023-24 budget, monthly payments made through credit cards or debit cards amounted to approximately $70 to $100 million, resulting in an annual outflow of around $1 billion.

    In line with the Finance Bill, the FBR has been granted powers under Section 236Y to levy advance tax on individuals remitting amounts abroad through credit, debit, or prepaid cards. As per the Finance Bill 2022, the proposed advance tax rate on such remittances was set at 1 per cent of the gross amount remitted abroad.

    The implementation of the increased withholding tax is expected to have a considerable impact on curbing unnecessary foreign exchange outflows and strengthening the country’s forex reserves. It also serves as a measure to encourage individuals to transact responsibly and ensure the stability of the country’s economic landscape.

    As the FBR takes these steps to address forex challenges, stakeholders and taxpayers await the outcomes and potential adjustments in the overall economic landscape. The move also highlights the government’s efforts to strike a balance between promoting foreign investments and managing capital outflows to ensure sustainable economic growth in the country.

  • Pakistan Stock Exchange surges to 21-month high as KSE-100 index crosses 47,000 mark

    Pakistan Stock Exchange surges to 21-month high as KSE-100 index crosses 47,000 mark

    The Pakistan Stock Exchange witnessed a significant surge as the benchmark KSE-100 index surpassed the 47,000 milestone on Thursday, reaching its highest point in 21 months. This remarkable upswing was fueled by positive market sentiment following the recent International Monetary Fund (IMF) deal.

    Notably, the bullish position was further fortified by impressive corporate performance, particularly within the index-heavy sectors. At 12:10 pm, the benchmark index surged by 560 points, settling at 47,242.9 points, marking its peak since November 8, 2021, as reported by Arif Habib Limited (AHL), a prominent brokerage firm.

    AHL emphasized that the market had recorded a noteworthy gain of 5,751 points (13.9 per cent) since the staff-level agreement with the IMF for the $3 billion Standby Agreement (SBA).

    This positive momentum was attributed to increased valuations after securing the IMF SBA facility, as explained by Tahir Abbas, AHL’s Head of Research, in an interview with Geo.tv. He highlighted that the current Price-Earnings Ratio (PER) of the KSE-100 stands at 3.7x, which is relatively lower compared to the lowest recorded during the previous financial crisis in 2008 (3.9x).

    Abbas asserted that the market remains attractive, and as a result, the positive momentum is expected to continue. Analyst Saad Ali, an expert in the capital market, attributed the market’s favorable performance to the combination of IMF optimism and the outlook for enhanced macro stability, which has been complemented by strong corporate results during the present result season. Despite facing challenging macroeconomic conditions, several banks and companies have managed to surpass expectations in terms of earnings and payouts.

    Last month, Pakistan signed a short-term deal with the IMF, a crucial step that helped the country avert a potential default and bolster its foreign exchange reserves. This move has played a pivotal role in supporting the current bullish trend in the stock market.

    In conclusion, with the positive impact of the IMF deal and encouraging corporate results, the Pakistan Stock Exchange’s benchmark KSE-100 index has achieved substantial growth, positioning itself at a 21-month high. The market outlook remains promising, and experts predict further gains ahead.

  • Toyota Indus Motor Company suspends car production until August 3

    Toyota Indus Motor Company suspends car production until August 3

    Indus Motor Company Limited has recently made the difficult decision to close its production plant temporarily. The interruption is set to last for two weeks, as the company faces significant challenges in importing essential raw materials, leading to disruptions in its supply chain.

    The root of the problem lies in the difficulties the company and its vendors are encountering in importing raw materials and clearing consignments. These issues are primarily attributed to the struggles with opening letters of credit (LCs) and supply chain problems from certain foreign vendors. Unfortunately, this has left the company with insufficient inventory levels to maintain its production activities.

    The company’s secretary addressed these concerns in a statement released to the Pakistan Stock Exchange, outlining the seriousness of the situation. Indus Motor’s production plant experienced a brief shutdown the previous month due to similar issues with raw material imports. However, the current circumstances have exacerbated the problem, forcing the company to take this temporary production halt.

    Commencing from July 21, 2023, and extending until August 3, 2023, the plant’s complete shutdown is expected to have implications beyond Indus Motors itself. Other major players in the automotive sector, such as Pak Suzuki Motors and Honda Cars, have also faced similar challenges and implemented several shutdown days in recent months.

    The automotive industry, along with other sectors dependent on imported raw materials, has been struggling due to a shortage of foreign exchange reserves in Pakistan. The complications surrounding LCs have severely impacted the supply chain’s seamless functioning, leading to significant disruptions in production activities.

    Indus Motors holds a significant position in Pakistan’s automobile industry and has notably invested $100 million in local production of hybrid electric vehicles (HEVs). Furthermore, the company plays a crucial role in the local automotive ecosystem, with over 50 part manufacturers contributing to the value chain by producing parts worth over Rs250 million every working day.

    Additionally, the company has established 53 independently owned authorised dealerships that provide aftersales service, generating substantial employment opportunities for over 450,000 people directly and indirectly across the country.

    The temporary closure of the production plant presents various challenges for Indus Motors, its employees, and the overall automobile industry. The company’s management is likely to be exploring potential solutions to address the scarcity of raw materials and resume operations as soon as the situation allows.

    As analysts point out, finding lasting solutions may require collaboration between the government and relevant stakeholders to ensure a stable supply of raw materials for the automotive industry and other affected sectors. Swift action and strategic measures will be vital to mitigate the economic impact of these closures and preserve the growth trajectory of Pakistan’s automotive sector.

  • Pakistan’s foreign exchange reserves rise to $8.4 billion

    Pakistan’s foreign exchange reserves rise to $8.4 billion

    Foreign exchange reserves held by the State Bank of Pakistan (SBP) have surged by over $4 billion following a deposit of $1.2 billion from the International Monetary Fund (IMF).

    As per data shared by the central bank, Pakistan has also received $1 billion from the UAE and $2 billion from Saudi Arabia, resulting in a significant increase in the SBP’s foreign exchange reserves, which now stand at $8.4 billion.

    During a televised address earlier today, Finance Minister Ishaq Dar stated that Pakistan’s foreign exchange reserves are projected to reach approximately $13-$14 billion by July 14.

    He emphasised that Pakistan is experiencing a resurgence in development and prosperity. Minister Dar acknowledged the instrumental role played by Prime Minister Shehbaz Sharif in reaching an agreement with the IMF, highlighting the unwavering support provided by the economic team throughout the intricate process.

    It is noteworthy that the International Monetary Fund granted approval for a $3 billion loan to Pakistan, subsequent to the signing of a staff-level agreement last month.

  • Pakistan’s foreign exchange reserves boosted by $2 billion deposit from Saudi Arabia

    Pakistan’s foreign exchange reserves boosted by $2 billion deposit from Saudi Arabia

    Pakistan’s central bank has received a significant financial boost of $2 billion from Saudi Arabia, as announced by Federal Minister Ishaq Dar. This infusion of funds will greatly bolster the country’s low foreign exchange reserves.

    During a media briefing on Tuesday, Dar expressed gratitude, stating, “Our brother nation, Saudi Arabia, has deposited $2 billion into the account of the State Bank of Pakistan (SBP).” He further emphasised that this contribution will directly enhance Pakistan’s foreign exchange reserves.

    At the close of last week, the SBP’s forex reserves grew by $393 million to reach $4.463 billion, primarily due to official government inflows. Over the past two weeks, the SBP’s reserves have surged by $937 million. However, it is important to note that these reserves still only cover approximately a month’s worth of imports.

    Dar stated, “These $2 billion will be reflected in the SBP’s reserves by the week ending 14th July.” The finance minister also commended the Saudi government, specifically King Salman and Crown Prince Mohammad bin Salman, for their instrumental role in this gesture of support. Dar extended heartfelt appreciation to the leadership of the Kingdom of Saudi Arabia for depositing $2 billion with the SBP and expressed optimism about future positive economic developments. He declared that Pakistan’s economic situation has nearly stabilised and is poised for growth.

    This development follows the recent announcement by the International Monetary Fund (IMF) that its staff and Pakistani authorities have reached an agreement on policies backed by a $3 billion, nine-month Stand-By Arrangement (SBA). The staff-level agreement is pending approval by the IMF Executive Board, with a decision expected on 12th July.

    Read more: Pakistan commits to 4% annual profit on $2 billion deposit from Saudi Arabia

    Nathan Porter, IMF Mission Chief to Pakistan, stated, “The new SBA builds upon the authorities’ efforts under Pakistan’s 2019 EFF-supported program, which expires at the end of June.” The new IMF arrangement, viewed as highly favorable for the government and economy amidst the ongoing crisis, extends Pakistan’s commitment to the lender well into the second half of fiscal year 2023-24. Moreover, it represents an upgrade from earlier expectations of receiving $1.1 billion following the ninth review.

    Experts have consistently emphasised the critical nature of resuming the IMF bailout package for Pakistan, a cash-strapped South Asian economy grappling with a balance of payments crisis. In addition to mitigating risks of potential default, the funding from the international lender is expected to pave the way for additional inflows from Pakistan’s multilateral and bilateral partners.

  • State Bank of Pakistan’s foreign exchange reserves surge to $4.46 billion with $393 million increase

    State Bank of Pakistan’s foreign exchange reserves surge to $4.46 billion with $393 million increase

    The State Bank of Pakistan (SBP) has announced an increase of $393 million in its foreign exchange reserves, bringing the total to $4.46 billion. In an official statement, the central bank stated that this rise occurred on June 30, 2023. The boost in reserves is seen as a positive development for the country’s economy.

    At the same time, the overall liquid foreign reserves held by Pakistan now stand at $9.74 billion, with commercial banks accounting for $5.28 billion of that amount. These figures reflect the country’s efforts to stabilise its foreign reserves and strengthen its financial position.

    This increase in foreign exchange reserves is largely attributed to Pakistan’s recent agreement with the International Monetary Fund (IMF). The country signed a staff-level agreement with the IMF, amounting to $3 billion, for a duration of 9 months. The IMF’s “Stand-By Arrangement” with Pakistan has been successfully concluded, signaling a positive outlook for the nation’s economic stability.

    Nathan Porter, the IMF Mission Chief, commended Pakistan for its commitment to achieving its economic goals and acknowledged the parliament’s crucial role in this accomplishment. He emphasised that the staff-level agreement under the Stand-By Arrangement is a significant milestone.

    The agreement is now awaiting final approval from the IMF’s executive board, which is anticipated to occur in mid-July. Once approved, Pakistan will be eligible to receive the $3 billion loan from the IMF.

    In his remarks, Porter highlighted the parliament’s efforts to enhance tax revenues, an essential component of Pakistan’s economic growth. The parliament has taken noteworthy steps to increase funds allocated to the Benazir Income Support Programme and has also limited tax exemptions.

    These measures are expected to lead to an increase in tax revenues, which, in turn, could result in a primary surplus of 0.4 per cent for Pakistan’s economy. The additional funds generated through these increased tax revenues can then be directed towards crucial social sectors.

    Overall, the increase in foreign exchange reserves for the State Bank of Pakistan is an encouraging sign for the country’s economic stability. With the IMF agreement on the horizon and the parliament’s dedication to boosting tax revenues, Pakistan is poised to make significant strides in its economic development.

    The final approval of the agreement by the IMF’s executive board will mark a crucial milestone in Pakistan’s journey towards a more prosperous future.

  • Pakistan commits to boost foreign exchange reserves to $11.7 billion by 2024

    Pakistan commits to boost foreign exchange reserves to $11.7 billion by 2024

    Pakistan has made a commitment to the International Monetary Fund (IMF) to significantly increase its gross foreign exchange reserves by $7.65 billion. The goal is to raise the reserves to $11.7 billion by the end of the financial year 2024, up from the current level of $4.056 billion in the financial year 2023. This move is aimed at building a buffer of foreign exchange reserves to protect the national economy from external shocks.

    The assurance was given through a Letter of Intent (LoI) signed by Finance Minister Ishaq Dar and State Bank of Pakistan (SBP) Governor Jameel Ahmed. Under a $3 billion stand-by arrangement (SBA) for nine months, Pakistan assured the IMF and its executive board of its commitment to bolster its foreign exchange reserves.

    If the gross foreign exchange reserves reach $11.7 billion by the end of June 2024, they will be sufficient to meet the country’s import requirements for goods and services for approximately 1.8 months.

    The balance of payment (BoP) chart, agreed upon by the IMF and Pakistan, indicates that projected disbursements of foreign loans during the current financial year 2023-24 are expected to amount to $15.01 billion from multilateral and bilateral creditors. This financial year started on July 1, 2023, and will end on June 30, 2024.

    The analysis of the BoP data suggests that Pakistan needs to secure external financing from multilateral and bilateral creditors during the current fiscal year. Additionally, Pakistan is seeking an additional deposit of $2 billion from the Kingdom of Saudi Arabia and $1 billion from the United Arab Emirates (UAE). The Islamic Development Bank (IsDB) has agreed to provide a $1 billion loan program.

    Furthermore, Pakistan is actively working on program loans and project financing from the World Bank, Asian Development Bank, and Asian Infrastructure Investment Bank (AIIB) to secure a total disbursement of $15 billion from all multilateral and bilateral sources.

    To further strengthen its reserves, Pakistan intends to engage with bilateral partners, especially China, Saudi Arabia, and the UAE, to extend the maturity of their existing deposits, which amount to $2 billion, $3 billion, and approximately $2 billion, respectively, in the current financial year.

    The IMF executive board is scheduled to convene on July 12, 2023, in Washington DC, to review and consider Pakistan’s request for approval of a $3 billion short-term bailout package, including a $1 billion tranche release. Upon approval by the executive board, the $1 billion tranche will be disbursed within a few days.

    The IMF staff has already circulated copies of the Letter of Intent among the executive board members. In this document, Finance Minister Ishaq Dar and the SBP governor have provided assurances regarding the implementation of crucial fiscal and energy reforms to address fiscal challenges. Islamabad has also committed to tackling issues in the energy sector, including measures to control the circular debt problem.

    To address energy sector concerns, the government plans to raise power and gas tariffs in line with the determinations made by the regulators. The National Electric Power Regulatory Authority (NEPRA) will finalise the power tariff, while the facts regarding gas tariffs are being ascertained by relevant officials.

    The Oil and Gas Regulatory Authority (OGRA) has already recommended increasing gas tariffs by 45 per cent and 50 per cent for two major gas utilities. The government has a 40-day timeframe to make a decision on this matter, after which the recommendations will be notified in the second week of July 2023.

    Under the nine-month SBA program, it is anticipated that there will be two reviews conducted by the IMF mission in September and December 2023. Each review is expected to lead to the disbursement of a $1 billion installment.

    Overall, Pakistan is taking significant measures to strengthen its foreign exchange reserves, seek external financing, and implement necessary reforms in order to address its economic challenges and ensure stability.

  • Pakistan’s foreign exchange reserves get a boost as China rolls over $1 billion loan

    Pakistan’s foreign exchange reserves get a boost as China rolls over $1 billion loan

    In a significant development, China has rolled over a $1 billion loan to Pakistan, bolstering the country’s foreign exchange reserves held by the State Bank of Pakistan (SBP). This move comes as a much-needed relief for cash-strapped Pakistan, which has been grappling with a severe liquidity crunch and the looming expiration of its International Monetary Fund (IMF) programme.

    Pakistan’s Finance Minister Ishaq Dar said that the $1 billion loan from China would be received on Monday. Additionally, negotiations are underway with the Bank of China for a loan amounting to $300 million. Pakistan is also set to benefit from the dollars obtained through its swap agreement with China.

    Prior to this infusion of funds, the SBP and commercial banks jointly held foreign exchange reserves amounting to $9.4 billion as of June 9. With the $1 billion loan, the reserves will rise to $10.4 billion, providing some stability to Pakistan’s economic situation.

    The IMF has made external financing a prerequisite for Pakistan, emphasising the importance of securing additional funds. In an effort to address its financial challenges, Pakistan had approached China to refinance commercial loans worth $1.3 billion. However, without the revival of the IMF programme, the SBP’s foreign exchange reserves were at risk of plummeting to less than $3 billion.

    Despite these positive developments with China, Pakistan is still struggling to secure external financing in a timely manner, primarily due to ongoing political instability. The country’s fragile economy, valued at $350 billion, continues to be in turmoil, with financial woes exacerbating the situation. The delayed agreement with the IMF has further compounded the need for crucial funding to avoid the risk of default.

    Negotiations between the Pakistani government and the IMF have been ongoing since the end of January to resume the $1.1 billion loan tranche that has been on hold since November. This loan is part of a larger $6.5 billion Extended Fund Facility agreed upon in 2019. The impending challenge lies in repaying $900 million to multilateral creditors, which includes both principal and mark-up repayments, by the end of June 2023.

    Pakistan remains hopeful that these recent developments with China will provide some respite in the face of its economic challenges. However, the government must continue its efforts to secure external financing and navigate through the political instability to ensure long-term stability and growth for the country’s economy.