IN THE NEWS
Apr 24 - 30, 2017
RUPEE GAINS AGAINST DOLLAR
The rupee strengthened against the dollar at 104.5/104.7 in the inter-bank market on Friday compared to Thursday’s close of 104.7/104.9, Kamal Hayder, Research Analyst-PAGE said. The currency market has fluctuated regularly in recent months with hefty rises and falls on some occasions. In the long run, however, the rupee has stood firm after experiencing extensive volatility, when it weakened from around Rs98 to a dollar to above Rs103 in the wake of political impasse over alleged election rigging. Earlier, the rupee remained glued to the Rs98 level for months, recovering from the historic low of Rs110. It came under pressure following heavy debt repayments to the International Monetary Fund (IMF) and other creditors, which ate into the central bank’s foreign currency reserves, he added.
THIS YEAR’S BUDGET PROBABLE TO SEE MODEST TAXATION MEASURES
While keeping impending general elections in mind, the government is planning to set a modest tax collection target of Rs3.887 trillion in the new budget, but is facing resistance from the International Monetary Fund (IMF) that has asked Pakistan to impose Rs180 billion worth of new taxes. Due to elections of the National and Provincial Assemblies in the next year, it will be difficult to set a revenue collection target that requires double-digit growth of about 18% over outgoing fiscal year’s tax collection, said PAGE-source. It is said that based on this assumption the Federal Board of Revenue (FBR) has proposed Rs3.887 trillion tax collection target for 2017-18, which is only 7.4% higher than the Rs3.621 trillion original target for the outgoing fiscal year. In absolute terms, the new proposed target is only Rs266 billion higher than the original target of fiscal year 2016-17. The government has also informed the IMF that the FBR may not collect more than Rs3.5 trillion in the outgoing fiscal year, as it has been facing Rs168 billion shortfall in the first nine months of the fiscal year.
WITH LOAD-SHEDDING ONGOING, NAWAZ ORDERS PERFORMANCE PROBE
Prime Minister Nawaz Sharif has directed the initiation of a probe into the conduct of power distribution companies that are alleged to have provided unauthenticated figures of improvement in line losses and recovery of electricity bills. The instruction came in the backdrop of swelling circular debt and prolonged power outages that called the performance of power distributors into question.
Talking to Kamal Hayder, Research Analyst-PAGE, a senior official of the Ministry of Water and Power said secretary to the prime minister cast doubt about the data of line losses and bill recoveries in a high-level meeting on April 10, chaired by the premier. The secretary suggested that a third party should be hired for verification of the claims made by the Ministry of Water and Power and distribution companies about substantial improvement in line losses and bill recoveries. In that regard, he pointed to frequent reports of accounting and billing malpractices by the distribution companies for painting a rosy picture on both accounts. Consequently, the premier directed the Ministry of Water and Power to get the figures checked by a third party. The water and power secretary told the meeting that average bill recoveries in previous years had been in the range of 88% to 90% whereas line losses stood around 19%. However, he said, the distribution companies fared better in 2015 and 2016 with higher recoveries at over 93% and lower line losses at 16.30%.
BOI TO HOLD ROAD SHOWS IN GERMANY, CHINA
The government will hold road shows in Germany, China and other major economies in coming months in an effort to stimulate foreign direct investment (FDI) flow into the country, the Board of Investment (BOI) announced on Friday. Under the new work plan, BOI will organise road shows in collaboration with different chambers of commerce and All Pakistan Textile Mills Association (Aptma) for focusing on textile and steel industries, said BOI spokesman Shah Jahan. We are mainly focused on achieving the FDI target of $15 billion by 2025, he said. He expected huge foreign investment in the automobile sector from different groups because of prudent policies, believing foreign investors were keen to invest in Pakistan. The government is committed to offering ease of doing business to foreign investors and also global competitiveness to multinational companies, Shah Jahan added.
AUTOMOBILE INDUSTRY SEEKS TAX RELIEF AT RETAIL STAGE
The Pakistan Automotive Manufacturers Association (Pama), in its budget proposals for the upcoming fiscal year, has asked the government to remove anomalies in SRO 499, which has put the documented taxpaying auto industry at a serious disadvantage, source said to Research Analyst-PAGE. According to the association, the provisions of SRO 499 only extend duty and tax relief at the import stage and not at the subsequent retail stage. This anomaly results in Original Equipment Manufacturers (OEMs) paying full 17% general sales tax at the retail stage in addition to the income tax, whereas used car importers are paying low fixed duties and taxes. The proposal suggests that SRO 499 should be restricted to new hybrid electric vehicles (HEVs) only and incentive should be extended to OEMs at the retail stage to encourage the documented OEMs. Previously, the government offered duty and tax concessions on the import of HEVs in June 2013 when global oil prices were at $100 per barrel. At that time, Pakistan’s trade deficit stood at $15.3 billion and the contribution of oil imports to the overall import bill was 35%, source added to him.
FOREIGN EXCHANGE: SBP'S RESERVES FALL 1.63PC, AMOUNT TO $16.4 BILLION
Foreign exchange reserves held by the State Bank of Pakistan (SBP) decreased 1.63% on a weekly basis, Kamal Hayder, Research Analyst-PAGE said. On April 14, the foreign currency reserves held by the central bank were recorded at $16,416.1 million, decreasing $272.1 million or 1.63%, compared to $16,688.2 million in the previous week. Total liquid foreign reserves held by the country, including net reserves held by banks other than the SBP, stood at $21,568.1 million. Net reserves held by banks amounted to $5,152 million. Last week, the SBP received multilateral inflows of $317 million and made payments of $118 million on account of external debt servicing and other official payments. Five weeks ago, the SBP received $200 million under the Coalition Support Fund (CSF) from the United States and made payments of $97 million on account of external debt servicing and other official payments. Earlier, the SBP received $350 million under the CSF and made payments of $62 million for external debt servicing, he added.
DESPITE SWELLING DEBT, MINISTRY OF FINANCE HOLDS BACK SUBSIDY
The Ministry of Finance has been accused of blocking subsidy payment to energy producers, which is one of the major factors behind the aggravating circular debt and prolonged load-shedding. The Ministry of Water and Power has taken up the matter with Prime Minister Nawaz Sharif and sought his intervention as fiscal year 2016-17 is approaching its end. The finance ministry has so far released Rs104 billion, which is Rs14 billion less than the total subsidy allocation of Rs118 billion for power consumers in the current fiscal year. Facing a cash crunch, state-run oil marketing giant Pakistan State Oil (PSO) is persistently arguing that the company is heading towards financial collapse in the face of delay in payments by clients, mainly power producers. The company has also warned of a possible breakdown of the oil supply chain. In a high-level meeting chaired by the prime minister on energy challenges, Water and Power Secretary Naseem Khokhar said total subsidy allocation stood at Rs118 billion, or 0.3% of gross domestic product (GDP), in the budget for 2016-17 compared to Rs676 billion, or 2.4% of GDP, in financial year 2012-13. As a result, subsidy payments could not be made to Azad Jammu and Kashmir, K-Electric, industries and FATA. He asked the prime minister to direct the finance ministry to release the subsidy immediately keeping in view the liquidity crunch. Instead of responding to the issue, the Finance Division secretary supported a plan for putting additional burden of Rs82 billion on the honest power consumers, who paid their bills regularly, to cover the cost of electricity theft.
GOVERNMENT MAY NOT PURSUE NEW NFC AWARD: PASHA
The current government may not pursue a new National Finance Commission Award, said former finance minister Dr Hafiz Pasha, while speaking at the 2nd Consultative Session of the National Finance Commission (NFC) Award organised by PRIME Institute. Calling for full implementation of the 18th Constitutional Amendment, he said double taxation by different levels of government on the same tax base should be avoided and instead there should be harmonisation of tax rates among provinces to avoid competition for the same tax base. It is imperative that the horizontal sharing formula of the NFC Award be updated after the census, Pasha said. He called for creating incentives not only for resource generation, but also for their allocation. The former finance minister also proposed that conditional grants should be provided to those working on priority areas of the federation such as education and health. Speaking on the occasion, tax expert and lawyer of Supreme Court, Dr Ikramul Haq, said taxation rights were not distributed fairly between provinces and the centre. He noted that disputes between the provinces and the centre arose because the provinces were not allowed autonomy to determine the tax policy.
DASU ENERGY PROJECT: CHINESE FIRM WINS RS2.2 BILLION CONTRACTS FOR RESETTLEMENT
Pakistan Water and Power Development Authority (Wapda) has awarded two contracts for the resettlement work pertaining to the Dasu hydroelectric power project. Both contracts were awarded to the Zhongmei Engineering Group of China after international competitive bidding, Wapda said in a statement on Friday. A contract namely Dasu-LBRV-11 worth Rs1.2 billion is for the resettlement of people living in Khoshe, Logro and Uchar villages. Likewise, another contract Dasu-LBRV-12 worth Rs1.016 billion is for the resettlement of people of three other villages namely Barseen, Nasirabad and Kaigah/Dhaar. The resettlement work includes land development, terracing and electrification, road networks, water supply and sewerage system and local amenities like schools, playgrounds, cattle sheds, etc. A deadline of one year has been set for the completion of work under both contracts. Wapda has been implementing the 4,320-megawatt Dasu hydroelectric power project on Indus River near Dasu town of Kohistan district, Khyber-Pakhtunkhwa.
WATER CRISIS MAY HIT SUGARCANE CROP
The country is bracing for a substantial water shortage during the current Kharif sowing season, signalling production of some key crops such as sugarcane may be at risk, source said to Research Analyst-PAGE. Pakistan will face water shortage during the Kharif season due to limited rainfall, which may benefit some crops including cotton, but it could negatively affect other crops like sugarcane, said Federal Minister for National Food Security and Research Sikandar Hayat Khan Bosan. He was speaking on Friday after presiding over a meeting of the Federal Committee on Agriculture (FCA). According to the Pakistan Meteorological Department, the country will receive below-average rains in the first quarter (April to June) of the Kharif season, which may cause a further drop in air and soil moisture in major agricultural plains. However, Bosan insisted that the country had recorded 17% above-average snowfall this year and the melting of snow would help maintain canal water supply. Owing to increase in temperature, snow melting in northern areas will improve the river flow, he said, adding at present all provinces were getting required water supplies. About wheat production, Bosan said his ministry had not yet received final estimates, but according to surveys and field visits, Pakistan would achieve the target of 26 million tons. Coupled with last year’s leftover stock of 4.3 million tons, the total wheat supply will be about 30.3 million tons, which is well over national requirement. He said the gram production target for 2017-18 was set at 357.7 thousand tons from an area of 935.5 thousand hectares, which reflected a decrease of 42.2%. The main reason behind the decrease is irregular rains, he said. The committee fixed sugarcane production target for 2017-18 at 68.2 million tons from an area of 1,164.2 thousand hectares, source added to him.