Government Subsidy Reversal, Pakistan Steel Mills Gas Disconnection, Investment Boosts Pak's Energy Sector, PSX At All Time High, External Debt & Liab

TOPLINE

• APTMA urges the government to reverse the Rs 50 billion cross subsidy for the fertilizer sector through RLNG tariffs, warning it will create a Rs 27 billion differential from Nov 2023 to Mar 2024 and a Rs 3.8 billion monthly differential from Apr to Sep 2024, severely impacting exports and the economy.
• SSGC disconnected gas to Pakistan Steel Mills over an outstanding Rs 97.697 billion as of June 30, 2024, including Rs 73.4 billion in late payment surcharges.
• Local and international firms announced a $5 billion investment in Pakistan’s oil and gas exploration sector over the next three years which will fund the excavation of 240 potential petroleum and gas reserve sites.
• The Pakistan Stock Exchange experienced a bullish trend in the week ending July 5, 2024. The KSE-100 index surged by 1,767.83 points to close at an all-time high of 80,212.79, driven by strong buying from local and foreign investors as well as institutional support, crossing the 80,000 mark.
• Pakistan’s external debt and liabilities increased to $130.179 billion by May 2024 from $124.296 billion in June 2023. External debt servicing for 2024-25 is estimated at $20.833 billion. Public sector enterprises' debt reached Rs 1.7 trillion, with Rs 43 billion borrowed in FY24. The federal government’s debt rose to Rs 67.8 trillion in May.
• New UK PM Keir Starmer named Rachel Reeves as Britain’s first female finance minister. France is headed for political instability after a surprise win by a left-wing coalition as no party was able to claim a majority. Iran’s moderate president-elect Pezeshkian, addressed for the first time after winning the election run-off against Saeed Jalili.

AGRI-UPDATES - COMMODITIES, POLICY & DEVELOPMENTS

• KP Flour Millers Protest New Taxes: Flour millers in Khyber Pakhtunkhwa are protesting new taxes imposed by the government, including a 5.5% withholding tax on the flour supply chain. They've threatened to start an indefinite strike from July 11 if the taxes are not withdrawn. The Pakistan Flour Mills Association (PFMA) argues that these taxes will significantly raise flour prices, impacting the poor segment of society. [BR] [ET] [PT]
• Spot Rate for Cotton Rises: The spot rate for cotton increased by Rs 600/maund due to a rise in operational ginning factories, though textile sector issues remain unresolved. Cotton prices are Rs 18,400-18,600/maund in Sindh, Rs 19,300-19,500 in Punjab, and Rs 18,400-18,500 in Balochistan, with Phutti prices ranging from Rs 8,400 to Rs 9,700 across regions. [BR]
• APTMA Urges Reversal of Cross Subsidy: APTMA urged the government to reverse the “destructive” Rs 50 billion cross subsidy for the fertilizer sector through RLNG tariffs. Chairman Asif Inam warned that this decision, with a Rs 27 billion differential from Nov 2023 to Mar 2024 and a Rs 3.8 billion monthly differential from Apr to Sep 2024, will severely impact exports, employment, and the economy. [BR]
• Consistent Growth in Services Exports: Services exports in May increased by 7.9%, marking the fourth consecutive month of growth, primarily due to higher IT proceeds. According to the Pakistan Bureau of Statistics, exports reached $687.91 million, up from $637.54 million last year, with a month-on-month growth of 6.48% and a 5.17% increase in rupee terms to Rs 191.411 billion. [Dawn]
• Simplified Tax Scheme Consideration: Amid the poor performance of the Tajir Dost Scheme, registering only 44,830 retailers, the FBR is considering a simplified fixed scheme to bring 3.6 million retailers into the tax net. Past schemes have failed for over three decades, and another routine approach is likely to fail again. [The News]
• Interloop Limited's Export Growth: Interloop Limited (PSX: ILP) has become one of Pakistan's largest exporters, recording $530 million in exports during the financial year 2023-24. Co-founder Musadaq Zulqurnain expressed gratitude for the appreciation of Interloop's performance, noting a 25% growth in exports and emphasizing the importance of contributing higher foreign exchange for Pakistan. [ProPakistani]
• Rubber Tyre & Tube Exports Increase: Rs 2.17 billion was the export value of rubber tyres and tubes in May 2024, up 42.7% compared to Rs 1.52 billion in May 2023. [ET]
• Tobacco Exports Plummet: Rs 34 million was the export value of tobacco in May 2024, down 98.2% compared to Rs 1.9 billion in May 2023, according to the Pakistan Bureau of Statistics. [ET]
• Leather Garments Exports Decline: Rs 5.18 billion was the export value of leather garments in May 2024, down 5.52% compared to Rs 5.48 billion in May 2023, according to the Pakistan Bureau of Statistics. [ET]
• Sharif Directs Port Regulations & Upgrades: Prime Minister Shehbaz Sharif directed the creation of a plan for regulating shipping licenses and installing modern scanning machinery at ports, emphasizing 24/7 Lyari Expressway access for cargo to ensure uninterrupted goods delivery to Karachi Port Trust. [BR]

ENERGY - WEATHER, WATER & POWER

• PMD Warns of Torrential Rains & Floods: The Pakistan Meteorological Department forecasted that torrential rains over the next 24 hours may cause flash floods in Kashmir, northeast Balochistan, and Dera Ghazi Khan, with urban flooding likely in Potohar, Lahore, Sialkot, and Gujranwala. Landslides could disrupt roads in vulnerable hilly areas of Khyber Pakhtunkhwa, Murree, Galliyat, Kashmir, and Gilgit-Baltistan. [BR] [ET]
• Advance Tax Reform Success: The Pakistan Petroleum Dealers Association's Reforms Group successfully convinced the government that a 0.5% advance turnover tax on petroleum retailers was incorrectly applied. FBR clarified that this tax does not apply to dealers or retail outlets under the Final Tax Regime. [BR]
• Fuel Cost Adjustment Updates: On Friday, Nepra announced a Rs 3.33 per unit fuel cost adjustment (FCA) for May, enabling Discos to raise Rs 41 billion in July. Meanwhile, Nepra reduced K-Electric's FCA by Rs 1.67 per unit, resulting in a Rs 2.35 billion financial impact, despite K-Electric's proposed Rs 1.17 per unit negative FCA for a Rs 1.67 billion refund. [BR] [Dawn]
• Circular Debt Reaches Record: On Friday, the CCoE revealed that the power sector’s circular debt reached Rs 2,655 billion by May 2024. The committee approved a two-year support unit for DISCOs to improve efficiency, prevent theft, and ensure timely bill collection, starting with MEPCO. [BR]
• SSGC Cuts Gas to PSML: SSGC disconnected gas to Pakistan Steel Mills over an outstanding Rs 97.697 billion as of June 30, 2024, including Rs 73.4 billion in late payment surcharges. PSML had been defaulting on payments since 2008 and stopped paying in March 2015. [BR]
• $5 Billion Oil & Gas Investment: Local and international firms announced a $5 billion investment in Pakistan’s oil and gas exploration sector over the next three years during a meeting with Prime Minister Shehbaz Sharif on Saturday. The investment will fund the excavation of around 240 potential reserves sites to explore petroleum and gas. [Dawn] [ET]
• Deadline Extended for Refinery Upgrades: The CCoE, chaired by Prime Minister Shehbaz Sharif on Friday, extended the deadline by six months for local refineries to sign $5-6 billion upgrade agreements with OGRA to accommodate PARCO and Cnergyis, which contribute over 50% of refining output. [ET] [The News]
• Asyad's Major Shell Acquisition: Asyad Holding's Saudi group, via Wafi Energy Holding Limited in the UAE, acquired 77.42% of Shell Pakistan Limited, approved by Pakistan's Competition Commission. This aims to enhance Pakistan's retail oil sector, with Wafi Energy LLC expanding its investment in fuel station management across the country. [BR]
• WAPDA Hydel Power Generation Increases: In FY 2023-24, Pakistan’s 22 WAPDA hydel power stations generated 34.436 billion units of electricity, up 3.266 billion units from the previous year. This increase, due to improved hydrology and maintenance, saved Rs 143.7 billion in fuel costs. [ET]
• World Bank Supports Disco Privatization: The World Bank has agreed to support the government’s efforts to privatize power Distribution Companies (Discos) by facilitating private sector participation. The Bank’s Country Director confirmed ongoing engagement with the Power Division through the EDEIP, which focuses on power sector reforms. [BR]

PAKISTAN - ECONOMICS, POLITICS & SECURITY

• Financial Sector's Asset Growth: In 2023, the financial sector’s asset base grew by 27%, driven mainly by the banking sector’s investments in risk-free government securities. The State Bank of Pakistan’s Financial Stability Review noted that despite high market volatility, the sector remained resilient and grew by 29.5% during the review period. [Dawn]
• Nawaz Sharif Supports Armed Forces: PML-N president Nawaz Sharif has expressed strong support for Pakistan’s armed forces, emphasizing the need for their full backing to eradicate terrorism. Speaking from Murree, he highlighted the link between law and order and the nation’s investment, development, and prosperity. [ET]
• Pakistan’s Ongoing IMF Pursuit: Finance Minister Muhammad Aurangzeb said Pakistan will continue seeking IMF financial assistance if it fails to significantly boost tax revenues. His comments follow criticism of the federal budget for ambitious tax targets from the opposition, trade bodies, and government allies. [BR]
• Senate Passes SOE Bill: On Friday, the Senate passed the State Owned Enterprises (Governance and Operations) (Amendment) Bill 2024, allowing the federal government to remove state-run entity directors. The Senate Committee also learned that gifts over $300 cannot be taken from Toshakhana and requested details of recent gifts. [BR] [The News]
• External Debt & Liabilities Surge: Pakistan’s external debt and liabilities increased to $130.179 billion by May 2024, up from $124.296 billion by June 2023, with external debt servicing estimated at $20.833 billion for 2024-25. Despite ADB funds for reforms, public sector enterprises' debt reached Rs 1.7 trillion with an additional Rs 43 billion borrowed in FY24, and the federal government’s debt surged to Rs 67.8 trillion in May, rising by Rs 1.73 trillion in one month. [BR] [Dawn] [ET]
• Government Doubles Development Spending: Just before the end of the fiscal year, the coalition government doubled development spending to Rs 705 billion in two months, raising concerns about fiscal discipline. As the IMF programme ended in April, the government increased expenditures on parliamentarians' schemes, highway projects, and provincial initiatives. [ET]
• Retailers Criticize New Tax in Finance Bill 2024: The Finance Bill 2024 imposes a 2.5% advance income tax on retailers, making the FMCG sector responsible for its collection. The issue is compounded by the fact that 90% of retailers are unregistered and many refuse to pay the tax, arguing it is not the manufacturers' responsibility. [ET]
• SPI Inflation Up 1.28% Weekly: The weekly inflation, measured by the Sensitive Price Indicator (SPI), increased by 1.28% for the week ending July 4, 2024, due to rising food and energy prices. SPI-based inflation rose 23.59% year-over-year. The main drivers were a 70.77% increase in tomato prices, reaching Rs 203.52/kg, and a 10.57% rise in wheat flour prices, reaching Rs 1,970.43/20kg bag. [ET]
• Currency Appreciates After $494M Inflow: Pakistani currency appreciated by Rs 0.13 to Rs 278.37 against the US dollar in the inter-bank market after receiving $494 million from multilateral agencies. This ended a three-day decline, with the currency previously closing at Rs 278.50, a 10-day low. The inflows boosted foreign exchange reserves to a two-year high of $9.39 billion. [ET]
• PSX Hits New All-Time High: The Pakistan Stock Exchange saw a bullish trend during the week ending July 5, 2024, hitting a new all-time high due to strong buying from local and foreign investors and institutional support. The KSE-100 index surged by 1,767.83 points to close at 80,212.79, crossing the 80,000 mark. [BR] [ET]

INTERNATIONAL - MARKET, POLITICS, SECURITY & DEVELOPMENT

• Hamas Open to Hostage Deal Without Full Ceasefire: A top Hamas official told AFP on Sunday that the militants are ready to discuss a hostage deal and ending the Gaza war without a full ceasefire. This development comes as the US, Qatar, and Egypt renew efforts to mediate talks for ending the conflict and negotiating a prisoner exchange. [ET]
• Nepal Rains Cause Floods and Landslides: Lashing rains in Nepal have caused flash floods and landslides, killing at least 14 people and leaving nine missing. Disaster teams are searching for the missing, while flooding in India and Bangladesh has also caused widespread damage and affected millions. [Dawn] [ET]
• Texas Ports Brace for Beryl: The US Coast Guard warned of potential Texas port closures from Corpus Christi to Houston due to Tropical Storm Beryl, which is expected to become a hurricane by Monday. Port condition “Yankee” was set, restricting vessel movement, and Citgo Petroleum cut production at its Corpus Christi refinery in preparation for Beryl’s approach. [BR]
• Pezeshkian Promises New Chapter for Iran: Iran’s president-elect Masoud Pezeshkian, in his first public address after winning the election run-off against Saeed Jalili, promised to serve all Iranians and usher in a new chapter for the country. Speaking from Tehran, Pezeshkian said his victory marks the beginning of a period of hardships and challenges aimed at providing a prosperous life for the people. [ET] [Al Jazeera]
• Keir Starmer Appoints First Female Finance Minister: New Prime Minister Keir Starmer named Rachel Reeves as Britain’s first female finance minister and Angela Rayner as his deputy. Reeves, a former Bank of England economist, focused on repairing relations with the business community and earning voter trust during her time in opposition. [BR]
• France Faces Political Instability After Election Surprise: France looks headed for political instability after a surprise win by a left-wing coalition in Sunday’s legislative election left no party able to claim the majority needed to govern. The New Popular Front — which includes the Socialists and far-left France Unbowed — is poised to gain more seats in the National Assembly than Marine Le Pen’s National Rally or President Emmanuel Macron’s centrist alliance. With no group anticipated to gain an absolute majority in the lower house, it’s unclear how the country, which doesn’t have a tradition of coalitions, will form a government that is able to pass laws. [BBG]
• Democrats Urge Biden to Step Aside as Nominee: Several influential congressional Democrats said privately on Sunday they want Joe Biden to step aside as the party’s White House nominee, as the US president enters a pivotal week for his teetering reelection campaign. The latest defections include several Democratic leaders of House committees, a signal that even some party stalwarts in Congress want a new person at the top of the ticket following Biden’s stumbling debate against Donald Trump last month. [BBG]
• Algorithmic Trading Dominates FX Markets: The rise of algorithmic trading, with systems like Viper, is replacing traditional FX traders. Machines now dominate over 75% of some FX markets, prompting Wall Street giants to rapidly upgrade their systems to stay competitive. [BBG]

OPINION(S) & REMAINDERS

• Gilgit-Baltistan Funds Plastic Reduction Initiative: The Gilgit-Baltistan government disbursed Rs 24.5 million in interest-free loans to support businesses that reduce plastic bag usage and promote green alternatives. This initiative is part of a Rs 150 million microcredit programme aimed at a “plastic-free Gilgit” and funded by GB-EPA and GBRSP. [ET]
• Expert Urges Aquaculture Investment: Omar Hayat Khan, an aquaculture and environment expert, emphasized that the aquaculture sector can generate billions in exports, create rural employment, and provide income for investors. He urged federal and provincial governments to focus on aquaculture and fisheries to attract investment by creating a supportive environment for investors. [BR]
• Tharparkar Improves with Resource Development: Tharparkar residents are seeing improvements after decades of deprivation due to the exploration of coal and minerals. This desert area in Sindh, once lacking in basic necessities, is now experiencing positive changes in socio-economic conditions thanks to new resource developments. [ET] [DT]