PNB - Jan 2023 in Review

Edited by: Ghasharib Shoukat & Amna Haq

COMMODITIES - CROPS, LIVESTOCK & HORTICULTURE

• Textile Industry: Pakistan's textile industry is facing challenges due to unfavorable market conditions. The country's fifth-largest textile company, Nishat Chunian Limited announced a partial shutdown of its production unit, while Crescent Fibers scaled back its operations to 50%. Pakistan’s textile exports declined by 7.07% during the first half of the fiscal year 2022-23, remaining at $8.717 billion. The industry, which heavily relies on cotton imports, is facing shortages and restrictions as it requires 15 million bales of cotton but has only produced 4.5 million bales this year.?
• Inflation & Poultry Crisis: The poultry sector in Pakistan is facing a crisis due to a rise in chicken meat prices caused by a feed crisis and the non-clearance of soybean vessels. The Ministry of Food and Agriculture's demand for a license for genetically modified organism (GMO) grain imports has led to 800,000 tons of soybean and canola worth $500 million being stuck at the port. The Pakistan Poultry Association (PPA) launched a protest due to the rise in broiler chicken meat prices and the closure of farms. A survey in Peshawar, at the end of the month, eventually showed a declining trend in the prices of live chicken, flour, and vegetables, with unchanged egg prices. Maize prices have also increased with a maund of A-grade produce crossing Rs. 3000 per 40 kg.

AGRI-INPUTS, WEATHER, WATER & POWER

• Agricultural Machinery & Import Value: Millat Tractors Limited, the largest agricultural machinery manufacturer in Pakistan, announced that it shut down its production from January 6th until further notice due to reduced demand and cash flow problems. MTL is the second tractor manufacturer that has reported a decline in sales that came in at 1,103 units in November 2022, down 27% M-o-M, according to Topline Securities. In November 2022, the import value of power-generating machinery was Rs 12.8 billion, a decrease of 54.5% compared to November 2021. The State Bank of Pakistan's Deputy Governor Seema Kamil stated that commercial banks will soon start disbursing Rs 56 billion for farm mechanization, as discussed in a meeting of the committee formed by Prime Minister Shehbaz Sharif to improve agricultural production.
• Gas & Energy Crisis: The gas crisis in Karachi severely impacted daily life to the point where residents were forced to adjust their routines to the gas load-shedding schedule. Pakistan held bilateral talks with a Russian delegation to discuss a long-term oil and liquefied natural gas (LNG) trade deal and the construction of the $3 billion Pakistan Stream Gas Pipeline project, while energy consumption in the country continues to decline as major consumers like factories and businesses have shut down due to the high financial crisis and depleted forex reserves. Moreover, the government on 29 January announced an increase in petroleum products prices by around Rs. 35 per liter, with a decision to immediately implement the increase shortly after their announcement by finance minister Ishaq Dar.
• IMF Talks: The International Monetary Fund (IMF) announced sending its mission to Pakistan to discuss the critical financial situation in the country. The purpose of the mission is to find a solution to the fiscal hole of around Rs2.5 trillion through a combination of taxation, expenditure, and power tariff measures. The IMF's agreement to continue discussions under the ninth Extended Fund Facility (EFF) review has prevented Pakistan from narrowly defaulting on its international payments. The government has given up control of the rupee-dollar exchange rate and has let the market forces determine the price of the dollar leading to a significant spike.

AGRI UPDATES & PAKISTAN POLICY

• Political Chessboard: Pakistan Tehreek-i-Insaf (PTI) leaders resigned from the National Assembly and there was a deadlock in a meeting between NA Speaker Pervaiz Ashraf and the PTI delegation. Pakistan Muslim League-Nawaz (PML-N) withdrew no-confidence motions submitted against Punjab Assembly Speaker and Deputy Speaker. PTI Chairman Imran Khan criticized Gen (R) Qamar Javad Bajwa and asked MPAs to persuade the Punjab CM to take a confidence vote and dissolve the assembly. However, the CM refused to take the vote of confidence. The PTI Senior Vice President announced that the CM signed the summary for the dissolution of the Punjab Assembly. PTI accepted the resignations of 34 lawmakers while Imran Khan blamed the former army chief for political and economic instability and claimed the government will be forced to hold elections in April. The KP assembly was dissolved by the governor and a new local government system was established with elections in 3 months.
• Sindh Local Government Elections: Syed Mustafa Kamal, Chairman of the Pak Sarzameen Party, and Dr. Farooq Sattar, founder of the MQM Organisation Restoration Committee, announced that they would be rejoining the MQM-Pakistan. During the Sindh Local Government Elections, MQM boycotted the elections and this led to a low turnout. The Pakistan Peoples Party (PPP) won the election with 94 seats, followed closely by Jamaat-i-Islami with 86 while there have been allegations of rigging during the election. The PML-N said they were ready to bridge the gap between PPP and JI over the election of the Karachi mayor. The Provincial Election Commission, Sindh, released the consolidated results of the local bodies polls which showed that PPP was the largest political entity with 91 Union Committees.
• Pakistan Economic Apocalypse: Pakistan is facing an economic crisis as the country's foreign reserves fall to $3 billion held by the State Bank of Pakistan (SBP). The country is facing inflation of 24.5% on a Y-o-Y basis and a 22% increase in its federal government's debt to nearly Rs 51 trillion. Interest on debt and defense consumed a large portion of Rs 2.2 trillion during the first five months of the fiscal year. The Prime Minister has called the International Monetary Fund (IMF) to relax conditions regarding energy prices and taxes. The government may impose taxes of Rs 200 billion to break the deadlock with the IMF, and the State Bank may raise its interest rate by 150-200 basis points. Pakistan is facing a shortage of dollars, which has caused export issues and a shortage of raw materials for exporters. The country's current account deficit has fallen by 78% to $400 million, but former finance minister Hafiz Pasha warned that inflation could skyrocket to 70% in case of default. The government has conveyed its willingness to accept all the conditions of the IMF, but experts warn that the government lacks the policy to steer the country out of its economic crisis.

INTERNATIONAL – OVERVIEW & MARKET OUTLOOK

• Russia-Ukraine War: The Russia-Ukraine War continues to escalate, with President Vladimir Putin taking action to respond to a Western oil price cap by banning the supply of oil and oil products to participating nations. Meanwhile, Russia is ready to resume gas supplies to Europe through the Yamal-Europe Pipeline. Russia's foreign minister has given an ultimatum to Ukraine to accept Moscow's demands or face defeat on the battlefield. On the other hand, Kyiv rejected Putin's 36-hour ceasefire as a ploy to give Russia time to redeploy troops. The US and Germany agreed to send armored vehicles and a Patriot air defense system to Ukraine. The White House also announced a new $3.75 billion military assistance package to help Ukraine and its NATO eastern flank neighbors. The toll from Russia's devastating strike on a residential block in Dnipro rose to 40, with fears of more bodies being found in the rubble. Ukraine's President Volodymyr Zelensky is putting pressure on Western allies to provide Kyiv with more heavy weapons to fight Russia. Russia and Belarus began joint military exercises, triggering fears in Kyiv and the West that Moscow could use its ally to launch a new ground offensive in Ukraine.
• Tech Sector: In January of 2023, the tech sector saw a decline in market value as shares of Apple Inc. slipped and pushed the company's market value below $2 trillion. The tech sector also saw a wave of job cuts as companies, like Amazon and Microsoft, rushed to cut costs. Meanwhile, the World Bank slashed growth forecasts for most countries and regions and warned of the possibility of a global recession. On a positive note, Microsoft announced a $10 billion investment in OpenAI, a company specializing in artificial intelligence and human-like conversational text with their chatbot, ChatGPT.

PAKISTAN - REMAINDERS

• Opinion: The Rise of the Chicken Crisis - “The rate of chicken has reached a historic high! “Are chicken prices ever going to come down?” “What is happening in this country? These are some of the many questions going over everyone’s mind. Day by day, we are witnessing a massive increase in chicken prices. In comparison to the same time last year, the price was a little over 350 Rs/kg. Now it has crossed 550 Rs/Kg (might be even more by the time you will be reading this). What may be the source of this anomaly?” - Salman Sabir [BR]
• Opinion: Debt Repayment Problem - “Pakistan owes the world about $100 billion and has to repay $21 billion to foreign lenders during the current fiscal year. And during the next three years, it will have to return similar or larger amounts each year totaling about $70 billion.” - By Miftah Ismail [Dawn]
• Opinion: The Explosion of Unemployment: “Every day thousands of Pakistanis are losing jobs as the ongoing economic crisis deepens further. Just how many millions will become jobless in 2023? Nobody can say for sure. But let’s rephrase the question: What will be the total number of unemployed people by the end of this year, including those that couldn’t find work even before 2023?” - by Mohiuddin Aazim [Dawn]
• Opinion: High Wheat Prices - “Rising prices of wheat, atta, and roti are creating chaos for consumers, especially the poorest sections of the population. The government’s view suggests that there is no real cause for concern. Wheat production in the 2021-22 rabi season, harvested in May June 2022, was 27.5 million tons. This record harvest was despite the heatwaves of April and May which should have impacted output but apparently did not.” - By Ghasharib Shoukat & Daud Khan [Dawn]