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Pakistan striving to rebound strongly from current economic challenges: SBP chief

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  • SBP chief briefs investors, fund managers on current challenges, way forward.
  • Says challenges largely driven by “adverse global shocks, domestic developments”.
  • Inflation expected to ease in coming months; financing uncertainty to end after IMF deal.

State Bank of Pakistan (SBP) Governor Jameel Ahmad has said that the country was striving to rebound strongly from the current economic challenges, including external financing woes and record inflation.

He stressed that Pakistan’s economy had “always rebounded strongly after undergoing severe shocks”.

“No doubt, this time, we have faced not one but a series of domestic and global shocks. But we strive to rebound strongly from the current challenges as well.”

He made the remarks while addressing international investors and fund managers at an event organised by Barclays in Washington, United States on Pakistan’s economic challenges and the way forward.

A statement issued by the central bank said Ahmad briefed the attendees about the challenges Pakistan is facing, the policy responses and the way forward.

The SBP chief noted that the economic challenges, including high inflation and balance of payments pressures, were largely driven by “adverse global shocks and domestic developments”.

Even though global commodity prices had fallen from the peak reached in 2022, they were still “significantly high” and thus, were taking a toll on domestic inflation and the current account, he elaborated. The rupee has depreciated sharply over the last few months, which has increased the cost of living for consumers in the heavily import-dependent country.

At the same time, the SBP chief said, tightening global financial conditions have made it harder for emerging markets such as Pakistan to access international financial markets. Consequently, this put stress on the country’s foreign exchange reserves, which have fallen to critically low levels in recent months, and the exchange rate. The devastating floods of 2022, which caused damages of $30 billion, had worsened the country’s economic distress, he pointed out.

Ahmad also spoke about the country’s external balance of payments situation, noting that Pakistan had met all its obligations in a timely manner contrary to earlier market expectations. 

“The country’s debt repayments have been rather front-loaded, whereas inflows have been gradual,” he explained.

He said the country was receiving fresh financing in addition to loan rollovers ahead of the expected revival of a loan programme with the International Monetary Fund (IMF).

Policy response

Elaborating on the central bank’s policy measures, the SBP chief said it had raised the benchmark interest rate by 1,400 points to 21% in the last 18 months and tightened regulations to rein in inflation and reduce the current account deficit.

In addition, the exchange rate had adjusted over the last few months, which he termed the “first line of defence against emerging external imbalances”.

The fiscal deficit had reduced due to the government’s contractionary fiscal policy, despite flood rehabilitation-related expenditure. The primary balance was also in surplus so far compared to a deficit last year, he noted.

“The country is on its way to achieving macroeconomic stability, as the impact of policy measures is already playing out in the economy. The current account deficit has narrowed and foreign exchange reserves, albeit low, are increasing,” he remarked.

Inflation was expected to decrease in the coming months while the revival of the IMF programme would remove uncertainties regarding external financing, Ahmad added. 

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Bulls Reenter PSX: The KSE-100 Rises More Than 886 Points

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As the market surged more than 800 points in the early morning trade, bulls grabbed control at the Pakistan Stock Exchange.

During the first trading session, the benchmark KSE-100 index increased by 886 points to 61,350.48 points.

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Pakistan’s steel prices are rising; get the latest figures here

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Another increase in steel prices has resulted in higher construction expenses in Pakistan. The economic downturn and continuous shipping delays have resulted in sharp price increases for building supplies, which has an effect on those who are planning to construct homes.

Due to increased manufacturing costs and supply chain interruptions brought on by the Middle East crisis, the price of iron, commonly known as steel rebar, has increased by Rs5,000 per ton. Local and imported steel rebar now costs between Rs240,000 and Rs260,000 per ton as a result of this most recent rise.

The cost of branded iron went from Rs255,000 to Rs260,000 per ton, while the cost of local iron climbed from Rs236,000 to Rs240,000. Furthermore, the cost of scrap or unprocessed iron has increased to Rs160,000 per ton inin the iron and steel markets.

The impact of the skyrocketing steel prices will be exacerbated by any more interruptions in the raw material supply chain. The cost of cement, on the other hand, has somewhat decreased and is at Rs 1,246 per bag.

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Up 30% to Rs 5.1 trillion by mid-February, FBR collected

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The total increase in domestic taxes has been around 40%, whilst import duties and associated levies increased by 16% between July 2023 and January 2024.

With the recovery of the GDP and increased inspection of FBR collection, the growth in revenues accelerated.

Up to mid-February, FBR receipts increased by 30% to Rs. 5.1 trillion. Nevertheless, decreases in import tariffs over time and, more recently, import license limits implemented by the State Bank of Pakistan (SBP) to manage the country’s balance of payments in the aftermath of foreign exchange shortages, were mostly responsible for the decline in the rise of import taxes.

However, the impact of improvements in import valuation, which resulted in collections of Rs 151 billion, as well as the anti-smuggling campaign, which saw a surge of about 69% in the current fiscal year over the previous one, are also included in the income collected from imports.

The statement said that there was room to improve anti-smuggling operations by considering expanding Baluchistan’s customs force, which now only has 378 anti-smuggling employees out of 20,000 total.

The mobilization of domestic tax income, which accounted for more than 64% of all revenues received in the current fiscal year, was hailed in the statement as a welcome change.

In parallel, the percentage of import duties has decreased to 36% from over 50% just three years prior. The main drivers of this increase in revenue were the several taxes sources. From Rs. 1,751 billion to Rs. 2,447 billion, income tax receipts increased significantly—by 40%.

Banks, the petroleum and oil lubricants (POL) business, the textile industry, the electricity sector, the food industry, and a number of service industries were among the major income tax payers. Up to mid-February, FBR receipts increased by 30% to Rs. 5.1 trillion. Notable rise was also seen in sales tax receipts, which increased by 19% from Rs. 1,480 billion to Rs. 1,766 billion.

POL, the electricity sector, the food sector, the automobile sector, the iron and steel sector, and the chemical sector were important growth drivers.

The amount collected in federal excise taxes increased significantly by 61%, from Rs. 190 billion to Rs. 307 billion.

Taxes on tobacco goods, the cement industry, drinks, airlines, fertilizers, and the automobile sector were the main causes of this increase. The amount collected in customs duties increased by 14%, from Rs. 552 billion to Rs. 629 billion.

The POL, automobile, iron and steel, electronics, and food industries were among the main donors to customs duties.

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