This is a review of the major news trends across the month of March. Continue reading to stay on par!
COMMODITIES - CROPS, LIVESTOCK & HORTICULTURE
- Cotton Outlook: As preparations for the Kharif season begin, cotton production is at the center of attention in Pakistan after last year’s catastrophe and the current stress on the local textile industry. Local cotton production is expected to drop by 34.39% this season. Pakistan's cotton production is expected to be under 5 million bales, less than half of the target. This decline in cotton production is due to floods and a decrease in cotton cultivation. Cotton prices in Pakistan have been declining due to a bearish trend in the international cotton market, causing concern for the textile sector's collapse. The rising dollar has helped keep cotton prices stable, however. There may however be some hope for cotton farmers as the Prime Minister has given in-principle approval to set the price of cotton at Rs 8,500 per maund (40 kg) this year. The Governor of Punjab has emphasized the need to revive and develop the valuable cotton crop to achieve more than 60% foreign exchange annually from the export of textile products.
- Wheat & Flour Outlook: The Economic Coordination Committee of the Cabinet had approved a uniform procurement price of Rs 3,900/40 kg for wheat crop 2022-23, with the provinces forcing the center to raise prices to Rs. 4000/40 kg. The wheat sowing target was 96% achieved. The ECC has also approved the procurement of 1.80 MMTs of wheat by the PASSCO with a cash credit limit of Rs 201 billion at a procurement price of Rs 3,900 per 40 kg. However, severe rains and hailstorms in late March in KPK and areas of Punjab may result in 10-15% lodging of the wheat crop affecting total production for the season. In January 2023, the import value of wheat was up by 40%. The shortage of electricity and wheat has led to protests and demonstrations in various parts of Pakistan. In Gilgit and Ghanche districts, the lack of electricity and wheat has caused unrest among the local population. Flour mills in Karachi have gone on strike due to sealing and raids by the Sindh food department. There is a flour crisis in Karachi and Sindh due to flour mills' inadequate wheat stock, leading to a conflict between the Sindh government and the flour mills association over the flour price increase. Government officers have been suspended over the theft of wheat from government warehouses, and the situation has led to public anger and frustration. The first shipment of wheat from Russia to Pakistan has arrived at Gwadar, which should help alleviate some of the shortage. However, millers in Karachi have warned of a flour shortage, and Punjab's decision to end the subsidy on the official stock of wheat and flour, and instead, provide targeted subsidies may not be enough to address the ongoing issues as the wheat crisis continues unchecked nationwide. The government has set up distribution points across the country to provide free flour to low-income families. In Punjab, the food department seized over 2,000 bags of flour during a raid. The district administration took action against flour mills for not selling Atta at the government-fixed rate, and smuggling attempts were foiled by the police. Several people have been injured and four people have died in different incidents related to free flour distribution centers set up by the government in Punjab and Khyber-Pakhtunkhwa (K-P) provinces during Ramadan. The incidents include a stampede in Chichawatni that resulted in a 65-year-old woman's death and 43 injuries, a woman's death in Jahanian, an old man's death due to a heart attack in Bhakkar, a woman's death in Muzaffargarh, and a stampede in K-P's Mardan district that injured dozens of people. In addition, one person was killed and eight others were injured during a stampede for free flour in Charsadda.
- Declining Exports: Pakistan's textile exports have decreased for the fifth consecutive month, with the latest data showing a decline of 28.1% Y-o-Y and 9.1% M-o-M, reaching $1.20 billion in February 2023. The export value of cotton cloth in Jan 2023 was Rs 37.2 billion, down 2.6% compared to Rs 38.2 billion in Jan 2022. After breaking the $13 billion barrier for the first time in FY21, textile exports rose to $18.5 billion by FY22 but are now set to recede below $17.5 billion during the current year.?Fruit exports have also decreased by 17.2% in Feb 2023 compared to Feb 2022, with an export value of Rs 6.3 billion. Falling exports and imports could have serious consequences for the economy, and the authorities need to ensure there are no shortages of essential items like petroleum products, wheat, cotton, and medicines. With unofficial banking channels thriving, Pakistan is starved for Dollars currently.
- Ramadan Commodity Price Hikes & Inflation: Pakistan is currently facing a significant inflation crisis during the holy month of Ramadan, which is causing great hardship for the general public. The situation is exacerbated by short-term inflation based on the Sensitive Price Index (SPI), which saw a record increase to 46.65% for the combined income group on a Y-o-Y basis for the week ending March 22. The rising prices of almost all food items, including flour, edible oil/ghee, dates, sugar, black tea, and pulses in the local Peshawar market have added to the problem. The demand for dates, traditionally used to break the fast in Ramadan has increased, but local crops have been destroyed by floods in Sindh and Balochistan, and imports have been hampered by a decrease in foreign exchange reserves. Fresh fruit prices have also surged almost 50%, with vendors flouting an official rate list issued by Karachi Commissioner Muhammad Iqbal Memon for the holy month. Additionally, the price of ghee sold under the prime minister's package at Utility Stores has been raised by Rs 115 and is now being sold at Rs 490 per kilo, while flour miller owners in Sindh have refused to cooperate with the provincial government's intended 'Ramazan package' for free flour, calling it impractical and political gimmickry. The government has announced a Rs 5 billion package to offer discounted daily-use commodities at utility stores during Ramzan, with discounts available to both targeted and general consumers. Despite efforts to control prices, groceries have become even more unaffordable for the common man, with the price-controlling mechanism failing to rein in skyrocketing prices of consumer items in the retail market. Consumers are turning to cheaper, "smuggled" Iranian products such as oil and cheese, which are considered to be of high quality and readily available in Balochistan and now, Rawalpindi and Islamabad.
AGRI-INPUTS, WEATHER, WATER & POWER
- Earthquakes across Pakistan: On March 21, a 6.5 magnitude earthquake struck several areas across Afghanistan and Pakistan, causing at least 13 deaths and several hundred injuries. The tremors were felt as far as New Delhi. In northwest Pakistan, 9 people lost their lives, and 44 others were injured, leading to hospitals in the KP province being put into a state of emergency. The earthquake also caused significant damage, as confirmed by the National Disaster Management Authority (NDMA) report, resulting in 11 deaths, 79 injuries, and 172 damaged houses in KP, Gilgit Baltistan, Azad Jammu, and Kashmir.
- Petrol, Oil, Electricity & Gas Updates: On March 1-15, 2023, the federal government of Pakistan reduced the price of petrol by Rs 5 per liter to Rs. 267 per liter while keeping the price of high-speed diesel (HSD) unchanged. The rate of Petroleum levy (PL) on petrol is Rs 50 per liter. The Oil and Gas Regulatory Authority (OGRA) increased the rates of liquefied petroleum gas by Rs 12 per kilogram, raising the price of LPG to Rs 278 per kg. PM Shehbaz Sharif has ordered that there should be no load shedding during Sehar and Iftar in Ramadan and the summer season should have minimal load shedding. K-Electric has committed to investing Rs 484 billion in the next seven years to eliminate load shedding in 95% of Karachi. National Electric Power Regulatory Authority (NEPRA) has criticized National Transmission and Despatch Company (NTDC) for not completing transmission lines to transport electricity from Thar, which may lead to a financial loss of Rs 80 billion. The government has imposed a surcharge of up to Rs 3.23 per unit on electricity consumers across Pakistan from July 1 to finance the power sector's debt and liabilities. The Sui Southern Gas Company (SSGC) has filed a petition for a 26.9% or Rs 83.16 per MMBtu increase in the prescribed gas prices for the financial year 2023-24. NEPRA has also approved an additional surcharge of Rs 3.39 per unit from March to June 2023 and Rs 1.43 per unit from July to November 2023, with NEPRA endorsing the federal government's decision to withdraw concessional tariffs for five export-oriented sectors and agriculture tube wells from March 1, 2023. The federal government planned to provide subsidized petrol at Rs. 50 per liter subsidy for low-income people using motorcycles, rickshaws, and cars up to 800cc, but the scheme could not be implemented due to IMF concerns and other issues. Pakistan's oil industry is facing difficulties arranging crude oil and petroleum products due to foreign exchange constraints and prevailing product pricing, but the value of petroleum group and coal exports in July-Jan FY23 was Rs 37.7 billion, up 42% compared to last year. Pakistan also invited Iranian Energy Minister Ali Akbar Mehrabian for tariff talks, and the petroleum division has sought Rs 39 billion against the supply of RLNG to two fertilizer plants and the domestic sector.
- New Weather Patterns & Hail Storms Across Pakistan: Pakistan has been experiencing a range of weather patterns in recent days. The long-running La Nina weather phenomenon, which has caused drought and flooding, is finally coming to an end. However, there are now warnings of heat waves predicted for the coming months, while a strong westerly wave was expected to hit the country on March 21, bringing heavy rainfall and hailstorms. Karachi had braced for heavy rain and thunderstorms, with parts of the city having experienced light rain and scattered hailstorms. Parts of Punjab and KPK witnessed severe rain and hailstorm in the second half of March. Balochistan has also been hit by heavy rains, thunderstorms, and hailstorms, which disrupted traffic and daily life. The Pakistan Meteorological Department issued warnings of another countrywide rainy spell from March 22 to March 31, damaging loose structures and the standing wheat crop. In the coming Kharif season, beginning on April 1, the country is heading towards a ‘massive water shortage’, somewhere between 27% and 35%, only months after unprecedented floods submerged large swathes of land across Sindh and southern Punjab.
AGRI UPDATES & PAKISTAN POLICY
- Elections Fiasco: In the context of elections issues in Pakistan, there have been several developments recently. The Supreme Court, on 2nd of March, directed caretaker governments in KP and Punjab to hold elections within 90 days. Meanwhile, the Economic Coordination Committee is expected to approve a supplementary grant for various initiatives. However, the Sindh High Court has put a hold on the by-elections for nine National Assembly seats that were scheduled for March 16. Additionally, the Election Commission of Pakistan has suspended the election schedule for 37 National Assembly seats.?The matter regarding the elections in Punjab and KP has been taken up to the Supreme Court after the Election Commission of Pakistan intervened and delayed the polls till October, citing the heightened security situation and lack of funds as the cause of the delay. The PTI has challenged this decision. The Supreme Court created a full-strength bench which resulted in some confusion and the restrictions of the Chief Justice’s suo muto powers, resulting in a law being passed in the parliament and the senate to curb the CJP’s suo muto powers to delay elections till October. A reduced bench of the Supreme Court will now decide the fate of the election as constant politicking this week has resulted in judicial chaos. The fate of general elections to the Punjab and KP assemblies is still unclear due to the defense ministry stating that the army is not available for election duty. Moreover, Bilawal Bhutto-Zardari has rejected the ECP's decision to hold local government by-elections during Ramadan. Despite these challenges, the IMF has confirmed that Pakistan's capacity to conduct constitutional activities such as elections is not impeded under the Extended Fund Facility program.?
- Imran Khan Politics: Imran Khan, chairman of Pakistan Tehreek-i-Insaf (PTI), secured bail in three cases with the support of his followers. However, non-bailable arrest warrants were issued for him in the Toshakhana case due to his absence in court. A group of supporters and armed men stormed the judicial complex, leading to the detention of 35 people and the assault of journalists covering his appearance. The Supreme Court ordered stakeholders to conduct elections within 90 days, pausing PTI's 'Jail Bharo Tehreek' movement, and the party started its election drive on March 4th. Imran Khan avoided arrest when Islamabad Police showed up at his Lahore residence with court summons on March 5. However, a local court rejected his plea to suspend an arrest warrant in the Toshakhana case, and NAB visited his residence for a money laundering case. Non-bailable arrest warrants were issued for Imran Khan due to his persistent absence in court sessions. PTI supporters blocked government teams from entering his house. Imran Khan had non-bailable arrest warrants issued against him for missing court hearings related to the Toshakhana case and for threatening a woman additional district and sessions judge. The Islamabad High Court later suspended the warrants until March 13th. The Balochistan Police went to Lahore to arrest him in a case related to an inciting speech against state institutions. Imran Khan canceled his party's election rally in Lahore due to the imposition of Section 144 in the provincial capital. The federal cabinet introduced a new policy for Toshakhana gifts, where public office-holders can only retain presents worth less than $300. Despite this, Imran Khan announced a public gathering at Minar-e-Pakistan and the Punjab government imposed Section 144 in Lahore in preparation for the event. The Rally took place on 25 March 2023 with over 100,000 people in attendance as Imran Khan spoke for nearly two hours and called for his mandate to be respected and elections to be held on time. Imran Khan called on the judiciary to safeguard the integrity of the constitutional process and the ECP delay decision is now being argued in the Supreme Court as tensions have been heightened to an all-time high.? The judgment in the Islamabad High Court case against Imran Khan for being Sadiq and Ameen has been reserved on the admissibility of a petition seekings the disqualification of PTI’s Imran Khan for concealing his alleged daughter, Tyrian White from election papers.
- Interest Rate Hike, Inflation & SBP Reserves: In July-February, the FBR recorded a shortfall of Rs 214 billion despite implementing a mini-budget and steep currency devaluation. The FBR achieved its collection target of Rs 527 billion set for February, but it was not enough to narrow down the tax shortfall that amounted to around Rs 212 billion in the first eight months of the current fiscal year. The State Bank of Pakistan (SBP) has revised its revenue collection target to Rs 7,641 billion by June and is confident that it will achieve this goal. Moody's, a prominent credit rating agency, downgraded Pakistan's local and foreign currency issuer and senior unsecured debt ratings from Caa1 to Caa3 due to the country's fiscal challenges, and the struggle to meet tax collection targets. However, inflation in Pakistan has reached an all-time high, with weekly inflation at 42.27% year-on-year. This has been driven by the rising prices of food, beverages, and transport. To control inflation, the SBP increased its policy rate by 300 basis points, on March 2, to 20% with the IMF asking the government to hike the rate further. The SBP's MPC urges energy conservation to reduce pressure on external accounts and meet import needs. Despite these efforts, the projected current account deficit is $7 billion this fiscal year, lower than the budgeted $10 billion due to import control measures. Foreign exchange reserves have increased to $4.3 billion after the SBP received $500 million from China. Pakistan's total foreign exchange reserves were $9.847 billion, and the SBP will soon receive $500 million from the Industrial Credit Bank of China, which will increase its reserves to $4.8 billion. Bank deposits, however, grew by 15% in one year to Rs 22.92 trillion in February, compared to Rs 19.91 trillion in the same month of the previous year. In addition, the FBR clarified that the payment of sales tax refunds under the FASTER system was not stopped in January and February 2023, although processing was slow. With interest repayments coming up fast and no IMF deal in sight, the SBP is in a limbo stage as it is unable to open up imports (despite its official position) due to a lack of dollar availability. On March 31, with weekly and monthly price indicators already showing record annual increases, the finance ministry on Friday forecast inflation to rise further due to a second-round effect of policy decisions made earlier to raise energy and fuel prices, the central bank’s policy rate, and the rupee’s depreciation to secure IMF funding. Pakistan’s public debt increased by over 28% or Rs11.3 trillion between June 2021 and September 2022 to Rs51.13tr mainly because of policy prescriptions like devaluations and interest rate hikes, rather than additional debt inflows for economic growth.
- IMF Talks: Pakistan's debt burden exceeds the legally allowed limit at Rs10.4 trillion, and risks have increased despite fiscal tightening measures, with borrowing for budgetary support at Rs1.8 trillion in the first eight months of FY23 compared to Rs 245.8 billion in the same period last year. Pakistan has managed to reduce its trade deficit by one-third to $21.3 billion in the first eight months of the current fiscal year by significantly slowing imports. This strategy has temporarily delayed the possibility of default, as foreign inflows remain low. The Pakistani rupee has weakened against the US dollar, trading at Rs 278.46 per dollar in the interbank market, March 3 onwards. As March ended, it closed at around 283. During the first seven months of the current fiscal year, Pakistan has borrowed $6.134 billion from multiple financing sources, including $1.166 billion from the IMF, compared to $12.022 billion borrowed during the same period in the previous fiscal year. Pakistan completed all the prior actions necessary for a staff-level agreement with the IMF, averting a sovereign default and securing a $1.2 billion disbursement, which was an unprecedented policy dose. Pakistan will resume virtual talks with the IMF to finalize figures for the next four months, but financing for the BoP deficit is necessary to unlock the next tranche. Total debt stocks rose to Rs 55 trillion due to massive borrowing and the rupee's depreciation. Diplomatic circles suggest that a deal with the IMF is near, but political turmoil in Pakistan is delaying the agreement, raising concerns about the country's debt burden and the need for a sustainable solution to stabilize the economy. The IMF talks are unlikely to succeed as the IMF has raised their concerns around the petrol subsidy, and the wheat, sugar, and fertilizer subsidy as the government now hangs in limbo.
- CPEC Projects & Loan Rollover: China has approved a rollover of a $1.3 billion loan for Pakistan, which will help shore up its depleting foreign exchange reserves. However, Chinese companies working on power projects initiated under the China-Pakistan Economic Corridor (CPEC) are still facing financial woes despite the Prime Minister’s repeated assurances. China has also expressed serious reservations about overdue payments of $1.5 billion to Chinese independent power plants installed under the CPEC.?Furthermore, the State Bank of Pakistan's currency exchange restrictions has hampered coal imports. Pakistan and China have agreed to engage with third parties to include them in the CPEC to enhance regional connectivity. China has also granted a rollover of $2 billion SAFE deposits for one year, which the government is eagerly waiting for confirmation of. The documentation for the second disbursement of $500 million from the Industrial and Commercial Bank of China (ICBC) has been completed, out of ICBC’s approved rollover facility of $1.3 billion.
INTERNATIONAL – OVERVIEW & MARKET OUTLOOK
- KSA-Iran China Deal & Xi-Putin meeting: US Secretary of State, Antony Blinken, stated that he had no plans to meet with his Russian or Chinese counterparts during the G20 foreign ministers' meeting in India due to tensions between Ukraine and China. Meanwhile, China brokered a diplomatic deal between Iran and Saudi Arabia on March 10, positioning itself as the leading conciliator on the global stage resulting in a thaw in the tensions between the two middle east rivals.?On March 20th, Russian President Vladimir Putin and Chinese President Xi Jinping held talks in the Kremlin. Putin expressed openness to discussing China's proposals to end the fighting in Ukraine, and the two leaders discussed the proposed Power of Siberia 2 pipeline, among other issues. Dr. Moonis Ahmar highlighted China's surging soft power, citing its diplomatic initiatives on the Ukrainian peace plan and mediation between Saudi Arabia and Iran. Saudi Arabia and Iran spoke by phone to mark the beginning of Ramadan and pledged to implement their reconciliation deal, reopening diplomatic ties as Saudi Aramco expanded its investment in China. At the China Development Forum, Chinese Premier Li Qiang vowed to open China wider to foreign companies, regardless of changes to the global environment.
- Increase in US Interest Rates, SVB & Credit Suisse Banks Collapse: The US stock markets have been experiencing a downward trend lately, with the benchmark S&P 500 slipping and major US indexes set for monthly losses. This decline has been prompted by Silicon Valley Bank's announcement that it would take measures to shore up its capital position, which has sparked fears that soaring interest rates are eroding balance sheets across the financial industry. As a result, Treasury yields rose as investors braced for the possibility of interest rates remaining high for a prolonged period. The Federal Reserve and the Treasury Department are now preparing emergency measures to shore up banks and ensure they can meet potential demands by their customers to withdraw money in the wake of SVB's failure. Moody's Investors Service has revised its outlook on the US banking system to "negative" from "stable," citing heightened risks for the sector after the rapid unraveling of SVB Financial Group fuelled fears of contagion. First Citizens Bank will acquire substantial holdings of Silicon Valley Bank. President Joe Biden has declared the US banking system "safe," but vowed stiffer bank regulation to prevent future crises. Nevertheless, geopolitical tensions are rising with Russia planning to station tactical nuclear weapons in Belarus, causing further concern in the financial markets. Despite fears that the move could add to financial turmoil after a string of bank failures, the US central bank has raised interest rates again. There are concerns about the value of bonds held by banks as rising interest rates may make those bonds less valuable. The Fed has been raising borrowing costs in a bid to stabilize prices. Economic forecasts show officials expect the economy to grow just 0.4% this year and 1.2% in 2024. Wednesday's rate rise is the ninth in a row by the Fed, lifting its key interest rate to 4.75%-5%, up from near zero a year ago - the highest level since 2007.
- Russia-Ukraine War: The ongoing war between Russia and Ukraine continues to escalate with Ukraine troops facing mounting pressure in the frontline city of Bakhmut in the industrial east. Bakhmut is a key target for the Kremlin, and Russian artillery has been pounding the last routes out of the city, aiming to complete its encirclement. In response, Ukraine's military is preparing for an upcoming counteroffensive to regain control of the city. The battle for Bakhmut is the longest-running and bloodiest battle of the invasion, with fierce fighting raging for control of the center.?The conflict has also spread beyond Bakhmut, with Russian missiles hitting cities across Ukraine, including the capital Kyiv and the Black Sea port of Odesa. The Zaporizhzhia nuclear power plant, occupied by Russian forces, lost power due to the missile attacks. Meanwhile, President Putin has accused Ukraine of carrying out a terrorist attack in the southern Bryansk region and vowed to crush what he claims is a Ukrainian sabotage group. The International Monetary Fund has approved a $15.6 billion loan to Ukraine, the first time the organization has assisted in a country at war. As the war continues, Ukraine's troops face mounting pressure, and their defense of Bakhmut is crucial to buy time for the upcoming counteroffensive. Russia and NATO (led by the US) are weighing on the cost-balance to outsmart the other in the long-run while fighting this war.?
- Protests in Europe: France has been in turmoil over the government's proposed pensions reform, with protests and strikes continuing to disrupt transportation and refineries. The opposition to the unpopular reform has led to potential fuel shortages at Paris airports, accumulation of rubbish, and uncertainties over the upcoming state visit by King Charles III, as thousands of French citizens took to the streets to voice their opposition. The protests in France are part of a larger wave of strikes and demonstrations across Europe, driven by high energy prices, rising living costs, and in France, an increase in the retirement age. In Germany, a walkout for higher wages caused widespread disruptions, including airports and bus and train stations coming to a standstill. Meanwhile, protests in France have become increasingly violent, with some petrol stations experiencing fuel shortages. Pay disputes in several sectors are ongoing in Britain, with strikes in schools, railways, and hospitals. The protests and strikes across Europe reflect the growing frustration among citizens over economic policies that they perceive as unjust. The governments of these countries face a significant challenge in addressing these issues and finding solutions that satisfy their citizens. The war in Ukraine has driven up energy costs which have resulted in a significant increase in the cost of living across the continent.?
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