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IMF terms discussions with Pakistan on ninth review ‘productive’

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  • Pakistan-IMF talks are underway for ninth review.
  • Ester Perez says discussions have enabled a revision to macroeconomic outlook post floods.
  • Govt hopes staff-level agreement will be finalised soon.

ISLAMABAD: The International Monetary Fund’s (IMF) Country Representative Ester Perez has termed the discussions with the Pakistani government on the ninth review “productive”.

“Discussions have enabled a revision to the macroeconomic outlook post floods as well as an in-depth evaluation of fiscal, monetary, exchange rate, and energy policies adopted since the completion of the combined seventh and eighth reviews,” said Perez.

The IMF Pakistan chief said that the global lender is looking forward to continuing dialogue over policies that adequately address the humanitarian and rehabilitation needs from the floods while also preserving fiscal and external sustainability given available financing.

On the other hand, a top Pakistani government official told The News that the talks have been continuing positively with IMF and both sides would be able to strike a staff-level agreement soon.

Pakistan seeking budget deficit increase

On the other hand, sources told the publication that Pakistan has requested the lender to allow an adjuster of Rs320 billion in the budget deficit for the current fiscal year 2022-23 as the said amount was the expenditures on flood rescue and relief.

To boost its tax collection target, the government is considering imposing a flood levy in the ongoing fiscal year and different proposals are under consideration for finalising its exact modalities. 

Although the political leadership has agreed in principle to take additional taxation measures but they want to adopt them in such a way there is no extra burden on the common man amid higher inflation and low growth trajectory.

“We are considering imposing flood levy on those in higher income brackets who are earning lofty profits in recent years. We have not yet firmed up modalities but it’s actively under consideration at the moment within the higher functionaries of the government,” a government official confirmed to The News.

The government has informed the IMF of the flood expenditures including BISP and those utilised on relief and rehabilitation during the current fiscal year including the Public Sector Development Programme (PSDP) and Annual Development Plans (ADPs) of the provincial governments. Now the adjuster will be used to hike the budget deficit target envisaged at 4.9% of GDP on eve of the budget for 2022-23.

Differences persist

Pakistan and the global lender continued ongoing talks virtually but differences still persisted over tax collection targets, and non-starter energy reforms including hiking of gas tariff, rising circular debt, and expenditure overrun, making consensus harder to strike on a staff-level agreement for completion of the 9th review under $7 billion Extended Fund Facility (EFF).

The IMF had asked Pakistan for hiking the gas tariff because the government kept the prices unchanged which resulted in an increase in the circular debt of the gas sector.

Although the government made plans for improving the gas sector no progress was witnessed in the power sector. The monster of circular debt in the power sector went up to Rs2.4 trillion and all targets agreed with the IMF for reducing it on a monthly and quarterly basis could not be achieved. The subsidy on tube wells alone would cause an increase of Rs200 billion in the accumulated Circular Debt in the ongoing financial year.

The IMF also raised objections over Kissan Package as well as the government’s decision to grant power and gas tariff reduction for five export-oriented sectors and the agriculture sector.

The decision regarding deferred payment of electricity bills continues to be another bone of contentions among the Ministry of Finance and Ministry of Power if the move was meant for subsidy. 

The Finance Ministry argues that it was deferred payment with the understanding that the payment would be recovered during the winter. But there is a difference of opinion on interpretation between the two ministries.

The IMF has also assessed that the FBR would not be able to collect its annual envisaged tax collection target of Rs7.47 trillion so it asked for a revised projection in the wake of import compression and slowing down of the economy.

The Fund staff also inquired when the nominal growth jumped to in the range of 25% to 27% and why it did not reflect in FBR’s collection. The IMF has projected that even if the FBR achieved its annual target of Rs7.47 trillion, the tax-to-GDP ratio would decline in the current fiscal year.

But the FBR argued before the IMF that its collection was on track and they would be able to achieve the desired target.

However, the revenue collection might be staggered in the wake of litigations whereby the stuck-up revenues to the tune of Rs250 billion might be materialised in coming months because currently, the courts granted stay orders. 

The FBR has sent out written requests to the chief justice of Pakistan for early disposal of the pending cases before the courts where billions of rupees were involved.

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Bulls toss KSE-100 index above historic 60,000 mark

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  • Index has increased by 648 points today.
  • Overall trading numbers reach 60,460 points.
  • Index had gained 1.23% to close at 59,811.34 on Monday.

The bullish trend continued at the Pakistan Stock Exchange (PSX) as traders cashed in on the index rising by 405 points which has now crossed the 60,000 mark on Tuesday.

In November alone, the KSE-100 index has hiked by more than 8,000 points.

KSE-100 index at 10:19am. — Screengrab/PSX website
KSE-100 index at 10:19am. — Screengrab/PSX website 

At 10:19am, the benchmark KSE-100 index was at 60,460 points up by 648 points compared to yesterday’s closing of 59,811.

Muhammad Saad Ali, a capital market expert, said that KSE100 has risen 48% since June.

Commenting on the recent positive rally, he said: “Recently the rally has extended after the IMF positive review, good macro data reinforcing market outlook for rate cuts in Dec MPC while global oil prices are under pressure and PKR-USD has stabilised.”

The market also rallied positively on Monday as stocks continued their record-breaking run with the benchmark index closing just shy of the 60,000-point mark.

The PSX index obtained 725 points or 1.23% to close at 59,811.34. Analysts said the equities market has been thriving since the successful first review with the International Monetary Fund (IMF), which will lead to the release of the next loan tranche.

On Monday, the index traded in a range of 896.77 points, with an intraday high of 59,896.08 (+809.73) and a low of 58,999.31 (-87.04) points. The total volume of the KSE-100 Index was 276.858 million shares.

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‘Breach of confidentiality’ lands cargo deal with Azerbaijan in red zone

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  • PLL uses SOCAR’s offered price as tool to bring down bid price. 
  • SOCAR had offered LNG price at $17.96 per MMBtu.
  • Azerbaijan-based company may take legal action against PLL. 

ISLAMABAD: The GtG deal with Azerbaijan on offering one LNG cargo a month has landed in the red zone because of the confidentiality breach allegedly done by Pakistan LNG Limited (PLL), The News reported Sunday. 

The PLL used the price offered from SOCAR, an Azeri state-owned company, as a tool to bring down the bid price from the lowest bidder OQ trading, which was at $18.46 per MMBtu, senior officials involved in the bidding process told The News.

The OQ Trading on Friday offered the lowest bid of $18.46 per MMBtu for one LNG cargo to be delivered on January 08-9, 2024, followed by Vitol Bahrain at $18.58, QatarEnergy Trading at $19.43, and Trafigura at $19.64 per MMBtu. The OQ Trading offered the lowest bid, but the price was still higher than the previous spot cargoes procured by Pakistan LNG Limited.

Earlier, SOCAR was evasive from offering the price of one cargo for the month of January on account of higher LNG prices. However, the PLL Board met after the bids were opened and decided to contact SOCAR for its offer for January LNG cargo.

In return, SOCAR offered the LNG price at $17.96 per MMBtu, but PLL management cleverly contacted OQ trading and let it know about the SOCAR offer which was under GtG, not the bidding process.

It asked the lowest bidder to match the SOCAR offer. The OQ trading revised down its offer to $17.95 per MMBtu than the SOCAR-offered price below one cent. This is how the PLL managed the LNG cargo for January at $17.95 by using SOCAR’s price as a tool to bargain with the lowest bidder. This may warrant legal action by SOCAR.

The PLL after getting the price offer from SOCAR did not contact again for further decrease but preferred to ask OQ trading to match its price. The price under the GtG contract can’t be matched with the bid price.

The sources said the price difference between the lowest bid price of $18.46 per MMBtu from OQ trading and SOCAR’s offer was $1.5 million per cargo but then the lowest bidder gave a price of $0.01 cheaper to get the order. One cent reduction means a $32,000 reduction in LNG cargo price.

“This has virtually annoyed SOCAR as it is of the view that PLL has breached the sanctity of confidentiality, which is against the spirit of GtG deal. It says PLL has no right to use the price offered under the GtG contract with the bidders’ price. SOCAR came up with the offer under its contract at $17.96 per MMBtu with the impact of a lower price of $1.5 million a cargo compared to the bid price offered by OQ trading at $18.46 per MMBtu,” officials said while quoting the SOCAR management, which got agitated after the confidential violation.

When contacted, SOCAR didn’t reply in detail but confirmed that confidentiality had been breached. However, this scribe contacted time and again PLL MD Masood Nabi who did not respond to the calls. He was also sent a question on his WhatsApp but he did not respond to the calls.

The question from The News correspondent reads, ”I have learnt that PLL has awarded the contract to OQ trading at $17.95 per MMBtu against its lowest bid of $18.46. Also came to know that PLL asked SOCAR to give its offer soon after the bids were opened for January. SOCAR offered the price under its GtG contract at $17.96 per MMBtu, but PLL by breaching confidentiality asked OQ trading to match and it offered a lower price by one cent at $ 17.95 per MMBtu. Don’t you think PLL played foul with SOCAR and it may go for legal action? Plz reply in detail.” 

The same question was sent to the PLL board chairman and the spokesman for the Petroleum Division as well, but the scribe did not get a reply.

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Rupee likely to trade around 285-286 against dollar next week

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  • Rupee faces pressure from inflation, decline in reserves this week.
  • Local currency closes at Rs285.37 against greenback on Friday.
  • Rupee’s outlook to depend on dollar buying, selling next week. 

KARACHI: The rupee is expected to hold a narrow range and hover around 285-286 against the dollar in the upcoming week as importers and exporters weigh the impact of mixed economic signals on the country’s currency, The News reported Sunday. 

In the outgoing week, the local currency gained some ground against the greenback in the first three sessions as optimism surrounded the economy over the completion of the first International Monetary Fund (IMF) review and the decline in the current account deficit.

However, the rupee lost some of its gains in the last two sessions, as demand for dollars from importers increased and exporters remained reluctant to sell their foreign exchange holdings. 

The rupee also faced pressure from rising inflation, falling foreign exchange reserves and uncertainty over the interest rate outlook.

The rupee closed at 285.37 against the dollar on Friday, compared with 285.97 on Monday, gaining 0.20% for the week.

“The rupee’s outlook for the coming week will depend on whether importers and businesses step in to buy dollars to meet their end-of-month demand as well as whether exporters, who are still hesitant, come to the market to sell their dollar holdings,” said a foreign exchange trader.

“We expect the rupee to trade in a range of 285-286 against the dollar next week unless there is any major positive or negative news flow.”

Tresmark, a financial data provider, said the rupee had not lost much ground over the previous two trading sessions. The real effective exchange rate (REER), which increased from 91.7 to 98.6, and the diminishing foreign exchange reserves, which decreased by $232 million, were the main causes.

“However, most analysts think the lion’s share of rupee weakness came as SBP did Sell Buy swaps to prop forward premiums and subsequently started buying dollars from the market to boost reserves. Despite lucrative premiums, exporters were not active in selling forwards,” it said in a weekly report.

“In the coming week, we see the rupee to be range-bound and vulnerable to news flows. Importers and exporters should just wait and see which comes earlier — positive or negative news flows.”

Pakistan’s forex reserves fell by $233 million to $12.302 billion in the week that ended on November 17. The reserves held by the State Bank of Pakistan (SBP) dropped by $217 million to $7.180 billion. Analysts said that was enough to cover less than two months of imports.

Even if recent statements from government officials have calmed market sentiment, Tresmark believes that they are still creating uncertainty.

“One of the biggest uncertain segments is interest rate. When CPI [consumer price index] inflation clocked in around 26% for October, the market went on a bond-buying spree predicting rates to come down,” it said.

“Subsequently, the increase in gas prices and the two consecutive SPI [sensitive price indicator] numbers of over 40% has cast solid doubts. Yields have consequently ticked up last week, and everyone is now looking for another round of data to project future inflation rates.”.

While most analysts don’t think of an increase in interest rates, they insist a no change will be akin to a hike, because the market has strongly factored in a cut. But a cut looks tricky if CPI comes above 30% (as is the market consensus), especially amidst a hawkish Fed and a unique interest rate trajectory in Turkey — in which they increased rates by another 5% on Friday to take it to 40%, it noted.

Pakistan expects to secure a tranche of $700 million from the IMF’s existing loan programme after completing a first review. The IMF executive board is expected to approve the staff-level agreement with Pakistan for the first review of the $3 billion stand-by arrangement early next month.

It is projected that Pakistan will get approximately $1.2 billion in financing from the multilateral partners. October saw a 91% reduction in the current account deficit (CAD) to $74 million compared to the same month last year, thanks to a rise in exports and remittances and a decrease in imports.

Despite a 61% month-on-month increase in the current account deficit in October, primarily as a result of a higher trade gap brought on by an increase in imports, analysts believe that the deficit for this fiscal year will be manageable because anticipated foreign inflows are likely to materialise. The CAD declined by 66% to $1.1 billion in the first four months (July-October) of the current fiscal year.

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