Pak Trade Deficit Widens, Drought & Heatwave, Urea Import, Budget Tax Proposals, Dewan Car Production, Israeli Genocide & China.

TOPLINE

• Pakistan's trade deficit with nine regional countries widened by 30.23% to $7.272 billion in 10MFY24 from $5.584 billion in the same period last year. Increased imports, notably from China and India, were the main contributors to the deficit, despite export growth to regional countries, particularly China.
• The Met Office warned of a looming flash drought in southern Pakistan in June, posing risks to crops, animals, and water resources. The NDMA cautioned about continued extreme heatwave conditions in Sindh and Punjab, with temperatures surpassing 48°C, while Karachi may see temperatures of 40-42°C with scattered showers in upcountry areas.
• Federal Minister Rana Tanveer Hussain stated the government plans to import 200,000 tonnes of urea to ensure continuous fertilizer supply to farmers. He emphasized strict monitoring to curb black marketing and ensure uniform urea pricing.
• A 1% increase in the GST rate for the 2024-25 budget is being considered, to generate Rs 180 billion. The SECP proposed aligning capital gains tax (CGT) rates on securities disposal with those on sale of immovable property to the FBR The SECP urged the FBR to reduce withholding taxes on dividends, eliminate them on bonus shares, lower tax rates for NBFCs, and decrease withholding tax on Modarabas from 8 to 3% for the 2024-25 budget.
• Dewan Farooque Motors Limited (DFML) announced a toll manufacturing deal with Eco-Green Motors Limited (EGML) to produce Honri-VE, an electric vehicle manufacturer with production starting in August 2024. Dewan also resumed commercial production for KIA Shehzore,' with a launch ceremony set for June 4, 2024.
• Chinese President Xi Jinping urged for a peace conference to resolve the Israel-Hamas conflict during a forum with Arab leaders of Egypt and UAE. Intense shelling and gunfire shook Rafah on Thursday as Israel announced the seizure of a strategic corridor along the Palestinian territory's border with Egypt, a 14-kilometer Philadelphi corridor.

AGRI-UPDATES - COMMODITIES, POLICY & DEVELOPMENTS

• 2024-25 Cotton Crop Commencement: The new cotton crop for 2024-25 has begun, with prices ranging from Rs 21,000-21,500/maund in Sindh and Rs 22,000/maund in Punjab. New Phutti rates are between Rs 9,000-10,800/40 kg. Notably, 400 bales of Tando Adam sold at Rs 21,000 per maund, and 200 bales of Hyderabad at Rs 21,550 per maund. [BR]
• Soybean Cultivation Expansion: UAF plans to cultivate soybeans on 100,000 acres to boost production, aiming for food self-sufficiency. Punjab Agriculture Minister Kirmani called for a stakeholder consultation to increase soybean cultivation and develop a plan of action during a review session for agriculture projects. [BR]
• Trade Deficit with Regional Countries Widens: Pakistan's trade deficit with nine regional countries widened by 30.23% to $7.272 billion in 10MFY24 from $5.584 billion in the same period last year. Increased imports, notably from China and India, were the main contributors to the deficit, despite export growth to regional countries, particularly China. [Dawn]
• Challenges in Pakistan's Gemstone Sector: The gemstone sector in Pakistan faces challenges due to a tough licensing process and technical inefficiencies, hindering growth. Despite abundant opportunities in regions like Gilgit/Skardu, miners and traders struggle to obtain licenses. Federal government policies influence the sector's trajectory but are criticized for being rigid, frustrating stakeholders and impeding progress. [ET]
• Farmers Stage Protest Over Water Shortage: Farmers in Jamwah and Jam Sahib areas staged a sit-in protest due to a three-month water shortage, setting tires on fire and chanting slogans against authorities. The lack of irrigation water has led to the destruction of crops, sparking widespread concern among farmers over significant financial losses. [ET]
• Industry Status for Warehouse & Logistics: Prime Minister Shehbaz Sharif announced granting industry status to warehouse and logistics, fulfilling a long-standing demand of the business community, during a meeting with representatives from chambers of commerce and industry. He highlighted the economy's recovery and full digitization efforts. [BR]
• Steel Industry Growth Strategy: Finance Minister Muhammad Aurangzeb affirmed the government's commitment to supporting the local industry during a meeting with representatives from steel associations, including PALSP, PSMA, PSRMA, and PSPA, alongside the Chairman of FBR. Discussions centered on the steel industry's performance and strategies for enhancing its growth. [BR]

ENERGY - WEATHER, WATER & POWER

• Looming Flash Drought & Heatwave Warning: The Met Office warned of a looming flash drought in southern Pakistan in June, posing risks to crops, animals, and water resources. The NDMA cautioned about continued extreme heatwave conditions in Sindh and Punjab, with temperatures surpassing 48°C, while Karachi may experience temperatures of 40-42°C with scattered showers providing some relief to upcountry areas. [BR] [Dawn]
• NEPRA Hearing: Fuel Charges Adjustment - NEPRA Chairman Waseem Mukhtar called for amendments to the NEPRA Act if revenue-based load-shedding is to continue, during a public hearing on Thursday regarding Fuel Charges Adjustment for April 2024. CPPA-G sought a positive adjustment of Rs 3.49 per unit to recover an extra Rs 29.21 billion, primarily due to increased RLNG generation and reduced hydel generation. [BR] [Dawn] [BR]
• Natural Gas Price Maintenance: The government will maintain natural gas prices from July 1, 2024, foregoing a recommended reduction by Ogra to gradually reduce a Rs 1,500 billion shortfall, aligning with IMF directives for a potential loan program. Prices for captive power plants will increase to Rs 2,900-3,000 per MMBTU by January 2025, partially implemented by January 2024. OGDCL's production costs decreased, leading to a base price drop from Rs 137,000 to Rs 130,000 per metric ton for its Northern region fields from May 25, 2024. Further reductions are expected with another shipment arriving at Karachi Port. [The News] [BR]
• Urea Import Plan Announced: Federal Minister Rana Tanveer Hussain stated the government plans to import 200,000 tonnes of urea to ensure continuous fertilizer supply to farmers. He emphasized strict monitoring to curb black marketing and ensure uniform urea pricing across the country during a meeting. [Dawn] [ET] [The News]
• Dewan Electric Car Manufacturing: Dewan Farooque Motors Limited (DFML) announced a toll manufacturing deal with Eco-Green Motors Limited (EGML) to produce Honri-VE, becoming Pakistan's top electric vehicle manufacturer. Production starts in August 2024. DFML also resumed commercial production for KIA 'SHEHZORE,' with a launch ceremony set for June 4, 2024. [Dawn] [The News]
• Production Optimization Initiative: Pakistan's Oil and Gas Development Co plans to boost production by optimizing existing wells, targeting 50,000 barrels of oil per day and over 900 million cubic feet per day of natural gas in the next four or five years. This aims to counter a decline in production due to aging fields and a 10% annual drop in gas production. [The News]
• Thar Coal Underutilization Burden: NEPRA reported a significant underutilization of Thar coal for power generation in April 2024, resulting in a 92% reduction in local coal usage and imposing a Rs 32 billion burden on consumers. The CPPA official attributed this to fuel prices and reduced consumer demand due to weather constraints during the monthly fuel charges adjustment case. [The News]
• Karakoram Highway Expansion Approved: Pakistan approved the construction of 241 km of the Karakoram Highway ahead of Prime Minister Shehbaz Sharif's visit to China. Estimated at Rs 567.5 billion ($2 billion), the project will be funded through a Chinese soft loan. It's part of the China-Pakistan Economic Corridor and is set for formal approval before the prime minister's departure on June 4. [Dawn]
• Debt Challenge for Diamer Bhasha Dam: Pakistan is facing challenges in securing $3.5 billion in debt for the Diamer Bhasha dam project due to its junk credit rating. To address this, the government plans to sell its stake in another power project and pitch the dam as part of the China-Pakistan Economic Corridor (CPEC) during Prime Minister Shehbaz Sharif's visit to Beijing. [ET]

PAKISTAN - ECONOMICS, POLITICS & SECURITY

• Imran Khan Alleges Election Theft: Jailed former Prime Minister Imran Khan accused the February national election of being stolen from his party, calling it the "biggest robbery of a public mandate." Speaking from Adyala jail via video link, he claimed victimization and gross human rights violations, marking his first remarks in open court since his August incarceration. [BR]
• Supreme Court Rebukes Shehbaz Sharif: The Supreme Court rebuked Prime Minister Shehbaz Sharif for criticizing the judiciary, suggesting he file a reference if he believed there were 'black sheep' in the courts, rather than using the judiciary to settle scores. This exchange occurred during the hearing of a government appeal challenging a September 15 judgment declaring amendments to the National Accountability Ordinance illegal. [Dawn] [ET]
• Power Division Budget Allocation: The Ministry of Planning, Development, and Special Initiatives has set a provisional Indicative Budget Ceiling (IBC) of Rs 215.998 billion for the Power Division under the Public Sector Development Programme (PSDP) for FY 2024-25, including foreign aid allocation. PAOs are instructed to comply with PFM Act, prioritize projects, and allocate funds accordingly, with remaining funds for other projects if available. [BR]
• Foreign Exchange Reserves Decline: The country's total liquid foreign exchange reserves fell by $270 million in a week, mainly due to a decline in reserves held by commercial banks. As of May 24, 2024, reserves stood at $14.315 billion compared to $14.585 billion on May 17, 2024. SBP reserves dropped by $63 million to $9.094 billion due to external debt repayments. [BR] [Dawn]
• GST Rate Hike Consideration: The government is contemplating a 1% increase in the GST rate for the 2024-25 budget to meet IMF conditions, potentially generating Rs 180 billion. They are also considering standardizing GST rates across all sectors. While the IMF suggested raising the maximum Personal Income Tax rate to 40%, plans to tax pensioners drawing over Rs 100,000 have been postponed. [The News]
• Capital Gains Tax Proposal: The SECP has proposed aligning capital gains tax (CGT) rates on securities disposal with those on sale of immovable property to the FBR for the upcoming budget (2024-25). Additionally, SECP suggested reinstating tax credits for 5 years' investment in initial public offerings, equity mutual funds, and exchange-traded funds. [BR]
• Corporate Taxation Reform Proposals: The SECP has urged the FBR to reduce withholding taxes on dividends, eliminate them on bonus shares, lower tax rates for NBFCs, and decrease withholding tax on Modarabas from 8 to 3% for the 2024-25 budget. These proposals aim to enhance the corporate sector and ease of doing business, according to budget proposals received at the FBR Headquarters. [BR]
• PakSat-MM1 Satellite Launch: Pakistan launched the PakSat-MM1 communication satellite from China's XiChang Satellite Launch Centre, marking another achievement after the iCube Qamar lunar mission. Prime Minister Shehbaz Sharif and officials praised the milestone. Minister Ahsan Iqbal witnessed the launch, developed jointly by Suparco and China Great Wall Industry Corporation. [Dawn]

INTERNATIONAL - MARKET, POLITICS, SECURITY & DEVELOPMENT

• Xi Jinping's Call for Israel-Hamas Peace Conference: Chinese President Xi Jinping urged for a peace conference to resolve the Israel-Hamas conflict during a forum with Arab leaders. Xi is hosting leaders like Egyptian President Abdel Fattah al-Sisi and UAE President Sheikh Mohamed bin Zayed Al Nahyan. China, an oil importer from the Middle East, aims to enhance its influence in the region. [BR]
• Israel Seizes Philadelphi Corridor: Intense shelling and gunfire shook Rafah on Thursday as Israel announced the seizure of a strategic corridor along the Palestinian territory's border with Egypt. Israel claimed control over the 14-kilometer Philadelphi corridor, alleging it was used for weapons smuggling via tunnels. Egypt, a mediator in the conflict, refuted claims of smuggling tunnels beneath the buffer zone. [Dawn]
• Manual Border Cargo Transfer at Afghan-Uzbek Railway: At the Afghan border with Uzbekistan, where the railway ends, young men manually transfer sacks of wheat or flour from freight trains to trucks. In the border town of Hairatan in northern Afghanistan, approximately 3,500 tons of flour and 1,500 tons of wheat are unloaded daily, with trucks navigating mountain passes and war-damaged roads to distribute goods across the country. [ET] [TH]
• India Super-App: Mukesh Ambani’s Jio Financial Services has introduced a new super-app for digital banking and payment services that will take on competitors like Google and Amazon in a crowded Indian market. The firm announced the test version of its platform, JioFinance, for UPI transactions, bill settlements and insurance-related services. The financial arm of the oil-to-telecom conglomerate plans to expand into mutual fund loans and mortgage lending. Asia’s richest man’s latest initiative comes as rival Adani Group is also reportedly in talks to expand into e-commerce and payments. [BBG]
• Saudi Aramco Sale: Saudi Arabia plans to sell shares in Saudi Aramco, aiming to raise $12 billion for economic transformation. The sale, starting June 2, will offer 1.545 billion shares, representing 0.64% of the company, at a price range of 26.70 to 29 Saudi riyals per share, potentially at a 7.9% discount from Thursday's closing price. [BBG]
• Xi Jinping Advocates China-Arab Collaboration: President Xi Jinping expressed China's commitment to collaborating with Arab nations to resolve hotspot issues and achieve long-term peace and stability, emphasizing fairness and justice. Speaking at the China-Arab States Cooperation Forum, Xi highlighted the Gaza crisis and sought to strengthen relations with Arab states as a model for global peace, as reported by state media. [Dawn]
• Rice Price Drop in Southeast Asia: Rice prices from Thailand and Vietnam dropped due to reduced demand and higher supplies. Vietnam's 5% broken rice was offered at $580-$585 per metric ton, down from $585-$590 last week. May rice exports surged by 35.5% to 980,000 tons, with shipments in the first five months rising by 14.7% to 4.15 million tons, government data showed. [BR]
• Wheat Futures Drop on Rain Forecast: Chicago wheat futures dropped from 10-month highs on Thursday as traders monitored forecasted rain in Russia, assessing its potential impact on harvest estimates. Soybean and corn futures remained relatively stable after a slight dip on Wednesday following a USDA report indicating swift planting progress in the US Midwest. [BR]

OPINION(S) & REMAINDERS

• Sindh Cabinet Meeting Decisions: Sindh Chief Minister Syed Murad Ali Shah chaired a cabinet meeting, approving initiatives like the Hub Canal project and allocating land for an Inclusive City. They also discussed property tax, acquiring electric buses, launching S-BOSS for a business registry, and forming a home workers council. [BR]
• World Bank Warns of Natural Capital Depletion: Pakistan's renewable natural capital, worth $474 billion (13.6% of the nation's total wealth), faces imminent depletion, warned the World Bank. The country's critical environmental issues include overused resources, pollution, energy scarcity, and deforestation, driven by population growth and urbanization, as per the bank's working paper. [BR]
• Cantonment Boards Property Tax: The Sindh cabinet permitted cantonment boards to collect property tax within their limits, transferring revenue to the provincial government after deducting a two per cent service charge, following a Supreme Court directive to resolve the controversy over tax collection jurisdiction in Karachi. [Dawn]
• Investment Opportunities Presentation: Pakistan is set to present 13 investment areas, notably oil refining, to Chinese investors during PM Shehbaz Sharif's visit to China in June 2024. The delegation aims to attract investment from five major Chinese companies in each sector during the Pakistan-China Business Conference. [The News]