Inflation Cools, Punjab Misses Cotton Sowing Target, Jiwani to Gwadar Circuit Dev, Govt Borrowing Surges & Credit to Private Sector Falls, Israeli Gen

TOPLINE

• In Pakistan, inflation is forecasted to range from 13.5% to 14.5% in May, with an expected easing to 12.5% to 13.5% by June, according to the finance ministry's monthly economic update. After experiencing inflation rates above 20% since May 2022, peaking at 38% in May 2023 due to IMF bailout-related reforms, inflation has gradually decreased in recent months.
• Punjab has missed the cotton sowing target for the 2024-25 season, planting around 3.4-3.5 million acres instead of the 4.15 million acres target, a 19% shortfall compared to last year. This is due to unfeasible cultivation economics and extreme weather conditions.
• The ECC has approved a Rs 2.217 billion grant for constructing the 2nd circuit stringing from Jiwani to Gwadar in 2023-24. This follows the CDWP's approval of the revised project cost of Rs 4.54 billion, with the Power Division reallocating PSDP 2023-24 funds to cover the increase.
• Pakistan’s Federal government borrowing surged by 116% to Rs 6.796 trillion this fiscal year due to slow foreign inflows and lower revenue collection. Credit to the private sector fell by 39.7% to Rs 77 billion from July 1 to May 3 of the outgoing fiscal year due to mounting mark-up payments.
• Israel sent tanks on raids into Rafah on Wednesday and predicted its war on Hamas in Gaza would continue all year. Yemen's Houthis attacked six ships across three seas, including the Marshall Islands-flagged bulk carrier Laax, which was damaged in a missile strike off Yemen's coast.
• India will resume wheat imports after 6 years to replenish depleted reserves and stabilize prices, and is likely to waive a 40% tax on wheat imports this year, Amidst increasing global wheat prices and worries about supply disruptions, Russia is ramping up its oversight of the grain industry to assert dominance in the export market.

AGRI-UPDATES - COMMODITIES, POLICY & DEVELOPMENTS

• Punjab Cotton Sowing Shortfall: Punjab has missed the cotton sowing target for the 2024-25 season, planting around 3.4-3.5 million acres instead of the 4.15 million acres target, a 19% shortfall compared to last year. This decline is attributed to unfeasible cultivation economics and extreme weather conditions, including unprecedented heat and canal water shortages. [The News]
• New Cotton Season Begins: The new cotton season has started with three ginning factories operating, one in Punjab and two in Sindh. New cotton prices range from Rs 21,000 to Rs 21,500 per maund, and new Phutti rates are between Rs 9,000 to Rs 10,800 per 40 kg. Old crop cotton prices in Sindh and Punjab vary from Rs 19,500 to Rs 21,500 per maund, with Phutti prices in Punjab ranging from Rs 9,500 to Rs 10,000 per 40 kg. [BR]
• Sugar Export Decision Stalled: The Sugar Advisory Board's third meeting, chaired by Federal Minister Rana Tanveer Hussain, failed to decide on refined sugar exports. Despite producing 6.8 million tons this year and having 0.7 million tons in carryover stock against an annual requirement of six million tons, sugar mills still hold around 4.5 million tons in stocks. [BR]
• Committee Proposal for Export Price Regulation: The Commerce Ministry may form a committee to regulate Minimum Export Prices (MEP) due to rising domestic prices and production disruptions. Governed by the Imports and Exports (Control) Act, 1950, the government can control exports under the Export Policy Order (EPO), 2022, which lists banned or restricted goods in Schedule-I and II. [BR]
• Customs Official Criticized for Exhibition Setback: Exporters blamed customs officials for the Pakistani pavilion's failure at an international exhibition. Chairman Minhajuddin Shah All of the Pakistan Commercial Exporters Association of Precious and Semi-Precious Stones complained about a customs officer's attitude preventing Pakistani gemstones from being displayed at the Hunan International Minerals & Gem Expo 2024, China. [Dawn]
• Oman Eyes Increased Rice Imports from Pakistan: Consul General of the Sultanate of Oman, Eng. Sami Abdullah Al Khanjari, highlighted Oman's reliance on Pakistan for 60% of its rice imports due to its superior quality. He expressed interest in increasing this percentage and suggested exploring the export of onions, potatoes, lentils, and mangoes from Karachi to address Oman's current onion shortage. [BR]

ENERGY - WEATHER, WATER & POWER

• Shortage of ORS Amplifies Health Concerns: Amidst a widespread shortage of oral rehydration salts (ORS) in Karachi and across Pakistan, cases of heat-related illnesses like viral infections and diarrhea are surging due to harsh weather conditions. ORS, vital for treating diarrhea and dehydration, is unavailable in city markets, leading affected patients to seek symptomatic relief from general physicians. [Dawn]
• ECC Approves Gwadar Project Grant: The ECC has approved a Rs 2.217 billion grant for constructing the 2nd circuit stringing from Jiwani to Gwadar in 2023-24. This follows the CDWP's approval of the revised project cost of Rs 4.54 billion, with the Power Division reallocating PSDP 2023-24 funds to cover the increase. [BR]
• US Interest in Reko Diq Project Financing: The United States is interested in providing debt funding for Pakistan's Reko Diq gold and mines project, potentially marking Washington's first major investment in decades. The Export-Import (Exim) Bank of the United States is keen on financing the project, estimated to cost between $6 billion and $6.5 billion. [ET] [ProPakistani]
• Pakistan Gas Stream Project Amendment: Pakistan plans to amend the Pakistan Gas Stream project by integrating gas storage due to years of commercial inactivity. Initially launched with Russia in 2015, the project faced setbacks from US sanctions on Russian entities. Pakistan has invited Chinese and UAE investors to revitalize the project. [ET]
• Government to Reduce Fuel Prices: The government is expected to reduce petrol prices by Rs 5.27 per liter and diesel by Rs 4.13 per liter from June 1, 2024, due to a decline in Brent crude prices to $81.4 per barrel despite OPEC production cuts. This price drop is driven by an oversupply in the international market and the decreased impact of the Israel-Palestine conflict on the global oil market. [The News] [ET]
• Dewan Resumes Vehicle Production: Dewan Farooque Motors Limited (DFML) announced the reopening of its vehicle production plant after a 9-year hiatus, partnering with KIA (Korea) to relaunch the special purpose commercial vehicle KIA Shehzore. In anticipation of an economic boom in Pakistan, DFML has resumed commercial production, with the rollout ceremony scheduled for June 4, 2024. [ET]
• Pakistan's Mobile Handset Production: From January to April 2024, local plants in Pakistan manufactured 10.85 million mobile handsets, while only 0.65 million were imported. This production included 4.38 million 2G handsets and 6.47 million smartphones, with 61% of devices on the network being smartphones and 39% being 2G, according to PTA data. [BR]
• Corporate Result: Rs 152.5 million was the profit reported by Pakistan International Container Terminal for the quarter ended March 31, 2024, down 85.9% compared to last year. [ET]

PAKISTAN - ECONOMICS, POLITICS & SECURITY

• Pakistan's Inflation Outlook: In Pakistan, inflation is forecasted to range from 13.5% to 14.5% in May, with an expected easing to 12.5% to 13.5% by June, according to the finance ministry's monthly economic update. After experiencing inflation rates above 20% since May 2022, peaking at 38% in May 2023 due to IMF bailout-related reforms, inflation has gradually decreased in recent months. [BR]
• PML-N Plans Budget Amid IMF Demands: The ruling PML-N met at the Sharifs' estate to discuss budget preparations, aiming to align with IMF demands and consider significant cuts in government spending. However, the presentation of the "people-friendly" budget may be delayed to the second week of June due to Prime Minister Shehbaz Sharif's visit to China from June 4-8. [Dawn]
• Sindh Coastal Restoration Project: The Asian Development Bank (ADB) announced a $180 million project to restore forests, drains, and roads in Sindh's coastal areas. It aims to protect the coastal regions, generate local employment, and promote sustainable economic development, according to the Sindh Ministry of Irrigation and Food. [The News] [ET]
• Government's Bank Borrowing Surges: Federal government borrowing surged by 116% to Rs 6.796 trillion this fiscal year due to slow foreign inflows and lower revenue collection. At the treasury bill auction, the government borrowed more than planned and lowered rates. The State Bank of Pakistan exceeded its Rs 360 billion target, raising Rs 500.5 billion, while investors offered Rs 1,184.8 billion in bids. [BR] [Dawn]
• Private Sector Credit Plummets: Credit to the private sector fell by 39.7% to Rs 77 billion from July 1 to May 3 of the outgoing fiscal year due to mounting mark-up payments, as reported by the Finance Ministry. This compared to Rs 127.6 billion in the same period last fiscal year, according to the Economic Adviser Wing's Monthly Economic Update for May 2024. [BR]
• IHC Bans Telecom Call Recording: The Islamabad High Court (IHC) prohibited telecom companies from recording phone calls and data for surveillance, highlighting the need for clarity on PTA's authority. The decision came during a hearing involving petitions from Mian Najamus Saqib and Bushra Bibi regarding leaked audio conversations. [BR]
• Stock Market Falls on Budget Concerns: The stock market declined as investors sold off shares ahead of anticipated tough budgetary measures. The KSE 100 share index closed below 75,000. Ashan Mehanti of Arif Habib Corporation noted selling pressure due to fears of stringent taxation proposals in the upcoming federal budget, set to be unveiled on June 7. Compliance with IMF directives for a new bailout package is expected. [Dawn] [ET]
• Poet Ahmed Farhad Shah's Arrest Sparks Controversy: The government revealed poet Ahmed Farhad Shah's whereabouts, stating he was arrested by Azad Jammu and Kashmir police and detained at Dhirkot Police Station after an FIR was filed. His family met him at a Muzaffarabad police station around 9pm. The disclosure raised questions about spy agencies' functions, leaving the matter in a grey area before the court. [Dawn] [ET]

INTERNATIONAL - MARKET, POLITICS, SECURITY & DEVELOPMENT

• Israel Genocide: Israel sent tanks on raids into Rafah on Wednesday and predicted its war on Hamas in Gaza would continue all year, after Washington said the Rafah assault did not amount to a major ground operation that would trigger a change in US policy.? Israeli tanks moved into the heart of Rafah for the first time on Tuesday, despite an order from the International Court of Justice to end its attacks on the city, where many Palestinians had taken refuge from bombardment elsewhere. [BR] [Dawn] [Dawn] [Dawn]
• Houthi Attacks on Ships: Yemen's Houthis attacked six ships across three seas, including the Marshall Islands-flagged bulk carrier Laax, which was damaged in a missile strike off Yemen's coast. Military spokesperson Yahya Saree reported attacks on other vessels like Morea, Sealady, Alba, Maersk Hartford, and Minvera Antonia in the Red Sea, Arabian Sea, and Mediterranean. [BR]
• Climate Aid Target Met: Wealthy nations finally met their $100 billion annual climate aid target in 2022, albeit two years behind schedule, according to the OECD. This achievement, after over a decade, with $115.9 billion raised, comes as trust in climate negotiations wanes, prompting efforts for more ambitious goals by November. [BR]
• IMF Raises China Growth Forecast: The IMF raised China's yearly growth forecast but cautioned against Beijing's industrial policy, warning of potential trade harm and resource misallocation. China's economy faces challenges from a debt crisis in the property market, weak consumer spending, and persistent deflation. [BR]
• India Set to Resume Wheat Imports: India is set to resume wheat imports after six years to replenish depleted reserves and stabilize prices, following disappointing crops in recent years. New Delhi is likely to waive a 40% tax on wheat imports this year, facilitating purchases from countries like top exporter Russia, as the end of general elections removes a key hurdle. [Reuters]
• Russian Wheat Control: Amidst increasing global wheat prices and worries about supply disruptions, Russia is ramping up its oversight of the grain industry, aiming to assert dominance in the export market. After experiencing the departure of major Western players such as Cargill Inc. and Viterra due to government pressures, Russia's leading private grain trader, Rodnie Polya LLC, is now encountering challenges from the state. The market has become more concentrated, with only four firms now accounting for 75 percent of grain exports from Russia's Black Sea terminals, a significant increase from 45 percent six years ago. Consolidation has accelerated following President Vladimir Putin's invasion of Ukraine, enabling Moscow to wield greater influence over global wheat supplies. This control assumes importance as adverse weather conditions threaten Russia’s wheat crop, exacerbating market concerns. [BBG] [MyInd]
• Delhi Records Record Heat: India's capital hit a record-high of 50.5 degrees Celsius (122.9 Fahrenheit) on Wednesday, reported by the India Meteorological Department (IMD). The extreme heat has led to warnings of water shortages in Delhi, with severe heat-wave conditions noted in the suburb of Mungeshpur, marking the first instance of temperatures surpassing 50 degrees Celsius. [BR] [Dawn]
• Kyrgyz Ambassador Addresses Bishkek Clashes: Ambassador Ulanbek Totuiaev of Kyrgyzstan in Islamabad attributed violent clashes in Bishkek to a small group of criminal elements and stated that action had been taken against officials involved. He reassured safety in Kyrgyzstan, emphasizing that the incident doesn't reflect the country's overall safety or the warmth of its people, encouraging visitors not to be discouraged. [Dawn]
• South Africa's Political Crossroads: In South Africa's watershed election, the ruling ANC faces challenges to its three-decade dominance, with opposition from both left and right. High unemployment and crime levels, coupled with a new generation unfamiliar with apartheid, could lead to power-sharing scenarios. [BR]
• Oil Prices Dip Amid Economic Concerns: Oil prices dropped about 1% due to weak US gasoline demand and concerns over the US Federal Reserve maintaining higher interest rates, potentially impacting economic growth and oil demand. Brent futures fell to $83.57 a barrel, while US West Texas Intermediate (WTI) crude dropped to $79.28. The Bursa Malaysia Derivatives Exchange closed 73 ringgit higher at 4,033 ringgit per metric ton. [BR] [BR]

OPINION(S) & REMAINDERS

• Border Tragedy: Pakistani Citizens Killed by Iranian Forces - In a tragic incident on the border, four Pakistani citizens lost their lives and two others sustained injuries when Iranian forces opened fire on a vehicle in the border town of Mashkil Bacha Rai in Balochistan on Tuesday. [ET]
• Tax Exemptions for Humanitarian Donations: The Federal Cabinet instructed tax exemptions for humanitarian donations without its approval. The NHSR&C Division highlighted severe maternal health issues, revealing high rates of anemia and nutrient deficiencies among pregnant women in Pakistan. [BR]
• Opinion: The Heat is On - “Thirty years have passed. According to Nepra’s State of Energy Report 2023, Pakistan’s installed capacity in June 2023, stood at 45,885 MW, well below the 1994 projections of 54,000 MW. The installed capacity for imported coal-based power projects is 3,960 MW, while local coal, sourced from Block-I and Block-II of the Thar coal mines, contributes 2,640 MW (2.6pc of 1994’s ambitions). Feedstock of coal-based plants is imported, like the expensive ore used to bankrupt Pakistan Steel Mills.” - By F.S. Aijazuddin [Dawn]