Tag: State Bank of Pakistan

Fiscal deficit deteriorates on slowdown in tax collection: SBP

KARACHI: State Bank of Pakistan (SBP) on Monday said that the fiscal deficit was ballooned owing to slowdown in tax revenue collection and fall in non-tax revenue.

In its third quarterly report on Pakistan Economy, the SBP said that the fiscal deficit deteriorated further, as a steep fall in non-tax revenues and a slowdown in tax revenue led the overall revenue collection to stagnate at last year’s level. On the other hand, expenditure increased sharply during July-March FY19, specifically the current expenditure that more than offset the decline in the development expenditure.

While Pakistan’s economy moved along the stabilization phase led by demand management policies, vulnerabilities in the external and fiscal sectors persisted during Jul-Mar FY19.

This implies that the current stabilization agenda needs to be reinforced with deep rooted structural reforms.

The pace of economic growth slowed down considerably during FY19, mainly in response to policy measures taken to curb the twin deficits.

These measures affected the performance of the industrial sector and dampened manufacturing activities in the country.

Meanwhile, water- and weather-related concerns, in tandem with the higher cost of major inputs, took a toll on crop production. The weak showing by the commodity-producing sectors also constrained the output of the services sector.

According to the report, inflation stubbornly kept an upward trajectory. Despite several rounds of policy rate hike since January 2018, the average CPI inflation during Jul-Mar FY19 exceeded the full year target.

Although demand-pull pressures lessened in intensity towards the end of FY19, the Non-Food Non-Energy component continued to climb due to second round impact of exchange rate deprecation and increase in energy prices.

On the external front, the current account deficit (CAD) declined on the back of lower import payments for both goods and services, and a decent growth in workers’ remittances.

However, given the elevated level of CAD and insufficient foreign investments to fill the financing gap, the country had to resort to bilateral and commercial sources for external financing.
The report features a special section on power tariffs in Pakistan. The analysis explains the process of power tariff determination in the country and assesses why tariffs have not softened despite the decline in fuel cost. It suggests that capacity payments constitute the bulk of power tariffs in Pakistan, and a sharp increase in these payments in recent years has completely offset gains from declining fuel cost.

The report also contains another special section on the outlook of food security in Pakistan. The analysis emphasizes the related challenges that the country may face going forward, such as a high population growth and unfavorable water and climatic conditions, unless remedial measures are taken urgently.

July 15, 2019
Foreign direct investment falls by 50 percent in 2018/2019

KARACHI: The inflow of foreign direct investment (FDI) to the country has declined by 50 percent to $1.73 billion during fiscal year 2018/2019 as compared with $3.47 billion in the preceding fiscal year, State Bank of Pakistan (SBP) said on Monday.

The inflows under FDI recorded growth of 24.5 percent to $3.16 billion during last fiscal year as compared with $4.185 billion in the fiscal year 2017/2018. On the other hand the outflows recorded 99 percent increase to $1.422 billion during fiscal year 2018/2019 as compared with $714.2 million in the preceding fiscal year.

The total foreign private investment into the country fell by 59.10 percent to $1.32 billion in the last fiscal year as compared with $3.23 billion in the preceding fiscal year.

The inflows of portfolio investment into the capital market were declined by 72.5 percent during the fiscal year under review. The market witnessed outflows of $415.2 million during the last fiscal year as compared with the outflows of $240.7 million in the preceding fiscal year.

The total foreign investment including foreign public investment fell by 94.2 percent to $330 million in 2018/2019 as compared with $5.68 billion in the preceding fiscal year.

July 15, 2019
Analysts forecast 100bps increase in policy rate

KARACHI: The State Bank of Pakistan (SBP) is scheduled to announce its monetary policy on July 16, 2019 (Tuesday) and analysts forecast central bank may increase key policy rate by another 100 basis points.

Analysts at Arif Habib Limited said that the central bank to increase its policy rate by 100bps to 13.25 percent.

“Primary reason for this increase in policy rate, in our view, is to keep Real Interest Rates positive in light of rising inflation during 1QFY20 on the back of increase in the prices of administered utilities (electricity and gas).”

Average inflation for 1QFY20 is expected to settle at 12.11 percent, while a policy rate of 12.25 percent would imply a real interest rate of just 14bps.

The data for the past 48 months exhibits that average real interest rates have remained approx. 2.3 percent, while under the last IMF program (September 2013 to September 2016) real interest rates hovered at an average of 3.1 percent.

Therefore, it seems unlikely that the central bank would let the real interest rates go negative or below one percent. The staff report document also states that real interest rates would be kept positive to counter inflation.

On the external front, persistent Current Account Deficit continues to weigh in on the economy despite a substantial decline in imports.

For May 2019, CAD has declined by 47 percent YoY to USD1.1 billion. However, in terms of GDP it is still high at 5 percent.

Therefore, in order to reduce this deficit to a sustainable level, the SBP is expected to increase its policy rate to compress demand further.

In addition, with the advent of market determined exchange rate, a persistent Current Account Deficit might result in further weakness in exchange rate which might induce further inflation.

July 15, 2019
SBP to announce monetary policy on July 16

KARACHI: State Bank of Pakistan (SBP) will announce key policy rate for next two months of July 16, 2019, a statement said on Friday.

The SBP said that the Monetary Policy Committee of the central bank would meet on Tuesday, July 16, 2019 at SBP Head Office Karachi to decide the policy rate.

In the previous monetary policy announced on May 20, 2019, the committee decided to increase the policy rate by 150 basis points to 12.25 percent effective from May 21,2019.

The decision was taken into account the considerations and the evolving macroeconomic situation, the committee noted that further policy measures are required to address underlying inflationary pressures from (i) higher recent month-on-month headline and core inflation outturns; (ii) recent exchange rate depreciation; (iii) an elevated fiscal deficit and its increased monetization, and (iv) potential adjustments in utility tariffs.

Analysts at Arif Habib Limited said that the SBP would adopt a proactive stance to increase its benchmark policy rate by 100 basis points in July 2019 to address the underlying pressure on the economy.

In its report issued on June 28, the analysts said that in addition, monetary tightening is expected on the back of i) rising inflationary pressure due to increase in prices of petroleum products, essential food items and price revision of utilities, ii) an elevated fiscal deficit and its increased monetization, and iii) recent exchange rate depreciation.

July 12, 2019
SBP issues procedure for loans under PM’s Kamyab Jawan SME Lending Program

KARACHI: The State Bank of Pakistan (SBP) on Thursday announced the official procedure for obtaining a loan under the Prime Minister’s Kamyab Jawan SME Lending Program, a flagship initiative aimed at empowering youth and small enterprises across the country.
(more…)

July 11, 2019
Foreign remittances grow by 9.68pc to $21.84bn in 2018/2019

Foreign remittances to Pakistan have surged by an impressive 9.68% during the fiscal year 2018/2019, reaching an unprecedented high of $21.84 billion.
(more…)

July 10, 2019
Government to borrow Rs6,300 billion through auction of Market Treasury Bills in first quarter

KARACHI: The government likely to borrow an amount of Rs6,300 billion from commercial banks through auction of market treasury bills (MTBs) during first quarter (July – September) of current fiscal year.

According to auction target for MTBs issued by State Bank of Pakistan (SBP), the amount would be raised through seven auctions during the period.

The government borrows from commercial banks through sale of commercial papers for budget financing.

The details of auctions showed the government would borrow primarily to repay the matured amount. The details further showed that out of Rs6,300 billion, an amount of Rs5,065 billion would be spent on repayment against matured amount.

The remaining amount of Rs1,234.55 billion would be utilized for budget financing.

Banking analysts said that the government had decided to change the borrowing pattern. During the past fiscal year most of the borrowings were made through central bank. However, the government under IMF loan program agreed not to borrow from the SBP.

The auction target showed that an amount of Rs300 billion would be raised through sale of Pakistan Investment Bonds (PIBs) of fixed rates.

While, an amount of Rs400 billion would be raised through sale of PIB (floating rates).

Analysts said that the banks were taking more interest in government maturities due to frequent increase in policy rate by the SBP. The banking sector is anticipating more hike in interest rate by the SBP during remaining months of current year.

July 10, 2019
Pakistan’s foreign exchange reserves increase to $14.443 billion

KARACHI: The total foreign exchange reserves of Pakistan increased by $92 million to $14.443 billion by week ended June 28, 2019 as compared with $14.351 billion in the previous week, the State Bank of Pakistan (SBP) said on Thursday.

The SBP said that during the week ending June 28, 2019, it received inflow of $500 million from Qatar as placement of funds. After taking into account outflows relating to external debt and other official payments, SBP reserves decreased by $9 million during the week, it added.

The reserves held by commercial banks increased by $101 million to $7.17 billion as compared with $7.069 billion.

July 4, 2019
Finance Act 2019: SBP to assist Customs against illegal fund transfers

ISLAMABAD: State Bank of Pakistan (SBP) will assist customs authorities in prevention of illegal inward or outward transfers of funds.

According to Finance Act, 2019 a new Section 32C has been inserted to Customs Act, 1969, which stated:

“32C. Mis-declaration of value for illegal transfer of funds into or out of Pakistan.- (1) Without prejudice to any action that may be taken under this Act or any other law, for the time being in force, if any person overstates the value of imported goods or understates the value of exported goods or vice versa, or using other means including short-shipment, over-shipment, with a view to illegally transferring funds into or out of Pakistan, such person shall be served with a notice to show cause within a period of two years from the date of detection of such mis-declaration as to why penal action shall not be initiated:

Provided that if goods have not been cleared from customs, such goods shall also be liable to be seized:

Provided further that a team consisting of Additional Collector, duly assisted by an expert in the relevant field and an officer of State Bank of Pakistan (SBP) as specified, shall submit a report in writing with evidence for the Chief Collector. The said report shall also be furnished to the SBP for action, if any, under the law regulated by SBP.

(2) Any proceedings under this section shall not be initiated without the explicit approval of the Board.”

The Finance Act, 2019 also mentioned penalty for such offence:

“Such person shall be liable to penalty not exceeding two hundred thousand rupees or three times the value of goods in respect of which such offence is committed whichever is greater; and such goods shall also be liable to confiscation; and upon conviction by a special judge he shall further be liable to imprisonment for a term not exceeding five years and to a fine which may extend upto one million rupees.”

July 3, 2019
Bank holiday

KARACHI: The banks will remain close for public dealing on July 01, 2019, which will be observed as bank holiday on Monday.

A notification issued on Thursday the SBP said that it will remain closed for public dealings on July 1, 2019 (Monday) which will be observed as Bank Holiday.

All banks / Development Financial Institutions/ Microfinance Banks (MFBs) shall, therefore, remain closed for public dealings on the aforesaid date.

However, all employees of the banks / DFIs / MFBs will attend the office as usual, the SBP said.

June 27, 2019