PNB July Review
Pakistan Agriculture Research (PAR)
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This is a review of the major news for July 202 and is the seventh such release.
Commodities
Overall exports for the country also decreased by 12.73% to $27.735 billion (provisional) in 2022-23 from $31.782 billion in 2021-22. The decline in exports was also observed in cotton yarn and rice exports, which decreased by 30.04% and 14.47%, respectively, during the same period. Food group exports also dropped by 12.73%, standing at $5.022 billion in 2022-23. Pakistan achieved a historic seafood export record of $496 million in 2022-23.?
Rs 2.54 billion was the export value of tents, canvas and tarpaulin in May 2023, up 59.02% compared to Rs 1.59 billion in May 2022. Rs 2.75 billion was the export value of leather footwear in May 2023, up 50.01% compared to Rs 1.84 billion in May 2022. Rs 1.11 billion was the export value of electric fans in May 2023, up 56.2% compared to Rs 713 million in May 2022. Rs 1.27 billion was the export value of guar and guar products in May 2023, up 20.3% compared to Rs 1.05 billion in May 2022. Rs 1.51 billion was the export value of carpets, rugs and mats in June 2023, down 7.02% compared to Rs 1.62 billion in June 2022. Rs 91.6 billion was the export value of readymade garments in June 2023, up 21.54% compared to Rs 75.35 billion in June 2022. Rs 1.45 billion was the export value of gloves in June 2023, up 8.85% compared to Rs 1.33 billion in June 2022. Rs 1.67 billion was the export value of cutlery in June 2023, up 47.34% compared to Rs 1.14 billion in June 2022, according to PBS. Rs 11.4 billion was the export value of fish and fish preparations in June 2023, up 35.51% compared to Rs 8.4 billion in June 2022,
Rs 1.12 billion was the import value of wood and cork in May 2023, down 39.4% from Rs 1.85 billion in May 2022. Rs 1.11 billion was the import value of rubber tires and tubes in May 2023, down 67.14% compared to Rs 3.9 Billion in May 2022. Rs 3.7 billion was the export value of tanned leather in May 2023, up 3.8% compared to Rs 3.6 billion in May 2022. Rs 1.01 billion was the export value of jute in May 2023, up 76% compared to Rs 575 million in May 2022. Rs 40.3 billion was the import value of iron and steel in May 2023, down 12.8% from Rs 46.2 billion in May 2022. Rs 15.35 billion was the import value of synthetic and artificial silk yarn in May 2023, down 3.2% year-on-year. Rs 15.1 billion was the import value of tea in June 2023, up 63% compared to Rs 9.3 billion in June 2022. Rs 3.2 billion was the import value of spices in June 2023, up 16% compared to Rs 2.8 billion in June 2022. Rs 16.8 billion was the import value of pulses in June 2023, up 87.17% compared to Rs 8.9 billion in June 2022. Rs 1.12 billion was the import value of dry fruits and nuts in June 2023, up 63.33% compared to Rs 685 million in June 2022. Rs 86 million was the import value of sugar in June 2023, up 58.30% compared to Rs 54 million in June 2022.?
Pakistan's textile exports saw a significant drop of 15% from $19.32 billion to $16.51 billion in FY’2023, falling short of the $24 billion target. The decline is attributed to multiple factors, including an economic downturn, import restrictions on cotton and raw materials, and non-competitive energy tariffs. However, the export value of cotton yarn rose by 37.5% in May 2023, reaching Rs 28.7 billion compared to Rs 20.8 billion in May 2022. Despite the overall decline, the apparel sector showed promise, with garments production increasing by 13% in April 2023 and a remarkable 26% in the 11-month period of FY 2023. Nevertheless, the textile industry faced a concerning 26% decline in production year-on-year. The Pakistan Central Cotton Committee (PCCC) is facing a financial crisis as textile millers refused to pay the cotton cess, despite receiving subsidies. The condition linking subsidy release to the clearance of the cotton cess has been removed. In the face of challenges, the Pakistan Tanners Association struggled to meet the European Union's new protocols, with only 50 out of around 800 members expected to comply with the standards by December 2023. The value-added textile industry rejected frequent increases in electricity and gas prices, especially the substantial jump in electricity base rates to Rs 7.50 per unit.Despite these hurdles, Pakistan's cotton exports began on a positive note, with a ginner exporting 600 tonnes to Indonesia and Vietnam.
The cotton market is experiencing a bullish trend, and the Trading Corporation of Pakistan (TCP) will buy cotton at government-fixed rates to maintain stability. There were challenges from farmers after the Minimum Support Price of Rs. 8500/maund was not met in the mandis. Ginners in Pakistan had decided to suspend purchasing raw cotton from farmers nationwide after being directed by district commissioners in the cotton belt to pay a minimum of Rs 8,500 per maund. Despite an early harvest in Sindh, low prices and various issues such as contaminated production, lower yields, uncertified seed, and lack of government support have left cotton farmers feeling alienated, leading them to shift their focus to other crops like sugarcane and paddy. However, delayed cotton procurement has driven prices up, reaching Rs 17,500 per maund in Punjab. The country is projected to produce over 1 crore bales of cotton, which bodes well for Pakistan's textile sector.
Over the past three months, sugar prices in Pakistan have witnessed a significant increase, with retail prices rising from Rs 100 to Rs 150 per kg and wholesale prices jumping from Rs 4,500 to Rs 6,500 per 50-kg bag. This surge in prices contradicts the recommended retail price of Rs 98.82 per kg set by the Sugar Advisory Board and the Ministry of Food Security and Research in April 2023. Despite the country having 1.9 million tonnes of sugar stock, soaring prices have raised concerns. During the February-June period of FY23, Pakistan exported 215,752 tonnes of sugar, a significant increase from zero foreign sales in the same period the previous year. This surge in exports was in response to demands from coalition partners, leading to a rise in domestic retail sugar prices to Rs 150 per kg, causing financial gains for mill owners at the expense of consumers. Additionally, sugar imports sharply decreased by 98.01% during FY23. Rs 86 million was the import value of sugar in June 2023, up 58.30% compared to Rs 54 million in June 2022. Smuggling to Afghanistan of sugar continues in large quantities as well.?
Flour and wheat prices have been on the rise during July. Floud reached Rs. 170 per kilogram during mid-July. The government decided to import wheat to lower flour prices. Allegations of an artificial shortage were widespread as hoarders have seem to taken control of the market. NAB is intensifying its investigation into the alleged corruption of Rs 20 billion in Punjab's free flour scheme. The ECC of the Cabinet approved the expenditure of Rs 985.43 million by the Utility Stores Corporation (USC) for the prime minister's free atta scheme during last Ramazan.
The Lahore High Court (LHC) has suspended its previous order that invalidated the interim Punjab government's decision to lease 45,000 acres of land in Bhakkar, Khushab, and Sahiwal districts to the Pakistan Army for corporate agriculture farming (CAF) for 20 years. On July 24, COAS General Asim inaugurated the Khanewal Model Agricultural Farm aimed at bolstering the agricultural sector. The Khanewal Model Agricultural Farm is designed to benefit small-scale farmers and promote sustainable practices. The army chief announced that similar modern farms would be established across Pakistan.
INPUTS
Power outages lasting 8 to 10 hours per day continue to afflict most areas in Pakistan, with a substantial power shortfall of 5,856 megawatts. The country's total electricity production stands at 21,144 megawatts, while the demand remains high at 27,000 megawatts. During FY23, power generation witnessed a significant 9.5% decline, reaching 129,591 GWh, down from the previous year's 143,193 GWh. The power sector circular debt in Pakistan has surged to a staggering amount of Rs 2.646 trillion by May 2023, increasing by Rs 394 billion from July 2022 to May 2023. Tariff adjustments have been made, including a recent increase of Rs 1.45 per unit for K-Electric (KE) consumers, totaling Rs 2.6 billion, and an additional burden of Rs 46.5 billion on consumers following a Rs 1.25 per unit increase for DISCOs. The federal government raised the base tariff of electricity by Rs 4.96 per unit from July 1, 2023, resulting in a new base tariff of Rs 29.78 per unit, based on a revenue requirement of Rs 3.281 trillion. In 2022, the base tariff underwent a phased increase, reaching Rs 24.82 per unit from Rs 16.91 per unit. China's Shanghai Electric Power Company (SEP) has expressed renewed interest in acquiring Pakistan's K-Electric (KE) after previous attempts faltered due to unresolved issues. Electricity theft remains a significant concern, with the Power Division estimating a financial impact of Rs 500 billion over the last 15 months. The government has not extended the peak hours for electricity consumers in the country, contrary to rumors circulating on social media. Addressing the challenges in the power sector will be vital to ensure stable electricity supply and tackle the mounting circular debt, requiring concerted efforts from both public and private stakeholders.
In the second half of July, MS Petrol prices were reduced by Rs 9 per litre, resulting in a new price of Rs 253 per litre, while High-Speed Diesel prices saw a Rs 7 per litre reduction, with a new price of Rs 253.50 per litre. Petroleum dealers across the country announced a strike, demanding an increase in their profit margin from the current 2.4% to 5%. After a meeting with Petroleum Minister Musadik Malik, the dealers decided to defer the strike when an agreement was reached for an upward revision of their profit margin. An astonishing disclosure revealed that the margin for petrol dealers in Lahore had increased by a staggering 189% per litre between July 2018 and October 2023. The PTI government increased the margin for dealers by 108% per litre of petrol after coming to power. Before the PTI government took office, dealers earned a margin of Rs 2.64 per litre of petrol. However, during the PTI government's tenure, this margin was further increased to Rs 2.97 per litre on April 1, 2021, and subsequently raised to Rs 3.68 per litre, totaling a 40% increase. After the PDM coalition government assumed power on December 16, 2022, the margin of dealers on petrol surged by approximately 36%, reaching Rs 5 per litre. Within 15 months, the PDM government further increased the margin by 20% to Rs 6 per litre, resulting in a staggering 63% increase. Over the past five years, from July 2018 to July 2023, the margin for petrol dealers witnessed an alarming rise of 127% per litre, soaring from Rs 2.64 to Rs 6 per litre.
July has seen multiple monsoon systems entering Pakistan, resulting in varying rainfall patterns across the country. The Rivers Ravi and Sutlej were flooded due to India releasing a substantial amount of water. Punjab experienced above-normal rainfall in 12 out of 16 major cities, with Bahawalpur receiving 157% more rain than usual. However, Bahawalnagar, Islamabad, Sargodha, and Sialkot received less rain than average. After three years of below-normal rainfall, Punjab witnessed a surge in rains this season, while Balochistan and Sindh experienced heavy rains last year. The Indus River's increased flows caused medium floods at Guddu barrage and low floods at Sukkur barrage, with normal flows at Kotri barrage. Khyber-Pakhtunkhwa suffered devastating flash floods, landslides, and roof collapses, resulting in at least 15 fatalities and 14 injuries. Several districts, including Mansehra, Upper and Lower Chitral, Upper Dir, Swat, and Shangla, were severely affected, causing extensive damage to houses and infrastructure. Heavy rainfall led to the blockage of the Karakoram Highway (KKH) in Gilgit-Baltistan at several locations. Urban flooding was also observed in major cities like Lahore and Rawalpindi. As a precautionary measure, the Pakistan Army, along with Rangers and the civil administration, established relief camps in vulnerable regions like Bahawalnagar, Chistian, and Sulemanki. More than 14,000 people and their cattle were evacuated from villages in eastern Punjab.
Pakistan's target of making Russian crude two-thirds of its oil imports faces challenges due to a shortage of foreign currency and limitations at refineries and ports. Although the country became Russia's latest customer for discounted crude amid European market bans due to Russia's actions in Ukraine, its outdated refinery technology hinders reaping the full benefits of cheap oil. With 5 refineries, some established before partition, a lack of investment in upgrades prevents consumers from enjoying lower prices. The plan to import Russian crude through a G2G mechanism faces hurdles as setting up a Special Purpose Vehicle for handling payments and shipments, necessary to bypass U.S. sanctions on Russia, has been delayed. Russia is hesitant to agree to concessions on oil supply, resulting in a standoff between the two sides, making a long-term agreement unlikely. The maximum benefit for Pakistan from Russian crude could lead to a discount of Rs 1.30/liter on petrol for consumers, potentially increasing to Rs 1.60/liter if certain refineries process URAL crude. However, reaching this potential relies on resolving the payment and shipment complexities and upgrading refinery technology to fully capitalize on the discounted oil opportunities.
Pakistan has taken a significant step towards meeting its energy requirements by signing a framework agreement with Azerbaijan to procure LNG (liquefied natural gas) on flexible terms. The agreement between Pakistan LNG Limited and the State Oil Company of the Azerbaijan Republic (SOCAR), allows for the import of one cargo of LNG per month at concessional rates with flexible terms and credit lines for 30 days after the delivery of each cargo. Under the agreement, Azerbaijan will offer 12 low-cost LNG cargoes to Pakistan on flexible terms for a period of one year. Importantly, Pakistan retains the right to decline any offered cargo without incurring any penalties. Pakistan is interested in expanding collaboration in petrochemicals, solar energy, technology, defense and IT as direct flights between the two nations will begin soon.?
领英推荐
Pakistan Refinery Limited (PRL) plans to invest $5 billion in upgrading its refineries to establish 5 deep conversion refineries with a combined capacity of refining approximately 350,000 barrels per day of crude oil. Aramco is analyzing Pakistan's proposal for a deep conversion refinery to be built by Saudi Arabia in Hub, Balochistan, with a refining capacity of 350,000-450,000 barrels per day. The project requires both countries to sign a charter of commitments before proceeding with formal agreements, and China will also be involved to de-risk Saudi investment. Pakistan's attractive Green Refinery Policy, offering incentives like a 7.5% deemed duty for 25 years and a 20-year tax holiday, has already been approved and shared. Five state-owned entities (OGDCL, PSO, PARCO, PPL, and GHPL) will sign an MoU to finance their equity shares in Saudi Aramco's $10-11 billion greenfield refinery project at Hub. The project will have a loan-equity ratio of 70:30, with Saudi Aramco sharing 30% equity and the SOEs taking the rest. The MoU will be valid for three years and include regular meetings and a committee to assess progress.
POLICY
Pakistan secured a $3 billion Stand-By Agreement (SBA) with the IMF, leading to a $1.2 billion deposit in the SBP account. This, combined with additional funding from Saudi Arabia and the UAE, resulted in a total increase of around $4.2 billion in foreign exchange reserves. China also refinanced Pakistan's $1.3 billion external debt payment, preventing default and further boosting reserves. In a bid to stabilize the exchange rate, Pakistan signed an agreement with the IMF to limit the average premium between interbank and open market exchange rates to 1.25% during any consecutive five-day period. To meet IMF commitments, Pakistan aims to increase revenue sustainably by focusing on undertaxed sectors such as agriculture and construction, broadening the tax base, and implementing progressive taxation. These measures are part of the government's efforts to strengthen the country's economic stability.
Pakistan's debt sustainability is under serious threat, with high risks posed by elevated debt levels, significant financing needs, and low reserves. The country faces the need for debt reprofiling before seeking a fresh loan program from the IMF after March 2024. Non-Paris Club external debt obligations, particularly to China and Saudi Arabia, have reached $31 billion, further adding to the financial pressures. Due to the stalled IMF bailout package, Pakistan received approximately $12 billion less in foreign loans than budgeted estimates during the last fiscal year. Major international creditors have been hesitant to extend loans, impacting confidence and credit ratings. The IMF has projected a tax collection target of Rs 9,415 billion for the Federal Board of Revenue (FBR) in 2023-24. However, the FBR has withheld over Rs 400 billion in tax refunds, raising concerns from the IMF, which proposes a ceiling on the net accumulation of tax refund arrears. During the fiscal year 2022-23, Pakistan's government borrowed $10.844 billion from various sources, including $2.206 billion from foreign commercial banks, a 37% decline compared to the previous year. However, this borrowing fell short of the budgeted foreign assistance by $5.266 billion. With federal government debt increasing by 32% to Rs 58.962 trillion, Pakistan's central bank is making efforts to facilitate dollar imports for foreign exchange companies to alleviate the dollar shortage. The government's borrowing plans of Rs 11.1 trillion through treasury bills and bonds in the July-September quarter indicate ongoing challenges in managing the country's debt and fiscal situation.
The current government's tenure is expected to end on August 12, with the general elections set to take place before October 11 if the assemblies are not dissolved earlier. The Election Commission of Pakistan is fully prepared to conduct the elections within a 60 or 90-day timeframe based on the previous census and delimitation. Controversial amendments to the Elections (Amendment) Act, 2017, were approved in a joint session of parliament, granting powers to the caretaker government for decisions on existing bilateral agreements and ongoing projects but not for new agreements. The selection of a caretaker prime minister is still uncertain, with the PML-N reconsidering Ishaq Dar as the candidate due to opposition from PPP and PTI. The PPP and PML-N will likely decide the candidate collaboratively. The Election Commission of Pakistan has declined to use electronic voting machines for local government elections in Punjab and requested the provincial caretaker government to amend electoral rules to allow for manual voting.
The Federal Board of Revenue in Pakistan has introduced amendments to the Export Facilitation Scheme-2021, requiring exporters to provide export performance details for the past 2-3 years and foreign exchange summaries. The definition of "online marketplace" has been expanded to include platforms facilitating exports. The Ministry of Commerce received "blanket" approval from the Federal Cabinet for barter trade instruments, aiming to promote trade, reduce reliance on financial institutions, and encourage the shift to formal trade channels. The Trade Development Authority of Pakistan will engage with entrepreneurs regarding barter trade. The Pakistan Trade Facilitation Portal was launched on July 25, offering a one-stop solution for information related to importing and exporting products. Funded by the UK's FCDO, it provides customs regulations, trade procedures, and linkages with regulatory organizations. The Pakistan Mercantile Exchange plans to launch the Global Commodity Trading Platform, functioning like Amazon, allowing commodity producers to directly sell goods to global buyers and providing a complete logistics suite on the same platform.
The government plans to establish the Pakistan Sovereign Wealth Fund by transferring at least 7 state assets worth Rs 2.3 trillion into it. The fund aims to raise funds through share sales and utilize the earnings for capital investments. The government may seek exemption from certain laws to facilitate the quick sale of assets or use them to raise loans. This fund aims to harness the potential of mining, agriculture, and information technology, which are believed to be the future growth engines for the country.
International
July 6 marked the world's hottest day ever recorded, with a global average temperature of 17.23 degrees Celsius. This extreme heat follows intense heatwaves in the United States, China, and Mexico, and coincides with June being declared the hottest month ever recorded by the European Union's Copernicus Climate Change Service. Scientists attribute these records to a combination of the El Ni?o weather pattern and the long-term impact of global warming caused by greenhouse gas emissions. The European Space Agency warns that some regions may experience temperatures of up to 48 degrees Celsius in the coming month, potentially breaking records for the hottest temperatures ever recorded in Europe. Unforgiving heat waves have affected parts of the Northern Hemisphere, leading to health warnings and exacerbating wildfires, underscoring the consequences of global warming. Greece, in particular, issued evacuation orders for areas near two central cities as new fires erupted during the intense heatwave, while other parts of the Mediterranean also faced deadly fires, resulting in thousands of evacuations.
In July, Russia canceled the Black Sea Grain Deal, leading Turkey's President Erdogan to call for an extension. Russia warned that ships going to Ukraine's Black Sea ports would be potential military targets. African leaders urged Putin to implement a peace plan and renew the terminated grain export deal during a summit. Putin declared Russia's possession of cluster bombs and the right to use them if employed against Russian forces in Ukraine. Ukraine responded by stating it received cluster bombs from the US for counteroffensive purposes. Drone attacks continue amidst the ongoing war. Putin met with Wagner leader Yevgeny Prigozhin after a failed mutiny. Charges against Prigozhin were dropped, and he was offered relocation to Belarus. Russian lawmakers backed legislation raising the maximum age limit for compulsory military service to 30.
Torrential rains in northern India and China have led to devastating floods and landslides. In India, at least 22 people have died, with 26 reported dead in Maharashtra due to a landslide. In Gujarat, 102 deaths have occurred since June 1. Northern China experienced relentless rain after storm Doksuri, resulting in 11 deaths and 27 people missing. Rivers have swollen dangerously, prompting flood storage reservoir usage in Beijing for the first time in 25 years.
India has imposed an immediate ban on the export of non-basmati white rice due to concerns over crop damage caused by late monsoon rains. The ban aims to ensure sufficient rice availability in the domestic market and prevent price hikes. This restriction could exacerbate global food price inflation, as India is responsible for 40% of global rice exports. IMF Chief Economist Gourinchas warns that it could have a similar effect as the suspension of the Ukraine Black Sea grain export deal, potentially raising global grain prices by 10-15% this year. The export ban has already led to surging rice prices in Vietnam and Thailand, reaching their highest levels in over a decade. In June, India's merchandise trade deficit reached $20.13 billion, with exports at $32.97 billion and imports at $53.10 billion.
US Secretary of State Antony Blinken warned China about holding hackers accountable for alleged breaches of US government agencies. The US and China held bilateral talks to address global warming and enhance climate change efforts, seen as an opportunity to improve their strained relationship ahead of the UN Climate Talks. Former top diplomat Henry Kissinger's visit to China signaled the US's pursuit of closer ties with China, though he was visiting as a private citizen. The dominance of the US dollar as the global currency is weakening as countries explore alternative currencies for trade, partly in response to aggressive US sanctions. Chinese President Xi Jinping emphasized the need for greater openness in China's economy and foreign cooperation in trade and investment during a national meeting on deepening reform.
The US dollar reached a 14-month low, impacting global currency markets as traders considered the effects of cooling US inflation on the Federal Reserve's aggressive tightening cycle. The US inflation rate declined to a more than two-year low of 3%, potentially influencing the Federal Reserve's monetary tightening approach. The Federal Reserve raised its benchmark lending rate by a quarter percentage point to a range between 5.25% and 5.5%, the highest level since 2001, in response to above-target inflation. The central bank indicated the possibility of further rate increases in the future but mentioned that data-driven decisions would be made on a "meeting-by-meeting" basis. While two rate hikes were previously expected this year, markets are now pricing in a better-than-even chance that there won't be any more moves in 2023.
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