Friday, July 26 2024

The billionaires bash
THERE is nothing quite like a punch-up among the billionaires. That is exactly what we have going on these days with the whole ‘capacity payments to Independent Power Producers’ (IPPs) issue. If you’re confused about what exactly is going on and trying to figure out who is right in all of this, let me help you with one simple line: this has nothing to do with you. Relax. Here is what’s happening: a fight has broken out between the textile lobby and the power generation companies of this country. Both sides are large controllers of capital. Both have access to organised lobbying bodies. Both command clout with the government. But one can influence the narrative as it plays out on TV much better than the other because people are already crushed under electricity bills and are preparing to experience another hike when bills for July are delivered in a couple of weeks.
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Mini budget on the horizon?
The prospects of success for Pakistan’s economic reforms under the International Monetary Fund (IMF) programme remain tenuous, with significant challenges ahead for the government and economy, opine business leaders. Earlier this month, Pakistan and the IMF reached a Staff-Level Agreement (SLA) for a $7 billion Extended Fund Facility. The IMF-mandated reforms included increases in tax revenues to 1.5 per cent of GDP in FY25 and 3pc over the 37-month programme. “Revenue collections will be supported by simpler and fairer direct and indirect taxation, including by bringing net income from the retail, export, and agriculture sectors properly into the tax system,” IMF’s statement said.
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SBP reserves plunge $397m
Foreign exchange reserves of the State Bank fell drastically by $397 million during the week that ended on July 19, making it difficult for the government to keep the reserves around $9 billion before another loan agreement with the IMF. According to the State Bank, the decline was due to external debt repayments which brought the reserves down to $9.027.2bn. The country is struggling amid huge debt servicing on both domestic and external fronts. The need to raise $24bn for external debt servicing in FY25 has created problems for economic managers as they have already used most of the sources for inflows.
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Imports of completely knocked down kits flourish in FY24
Unrestricted imports from February onwards increased the arrival of completely knocked down (CKD) kits to $779 million in FY24 from $750m in FY23 amid sales fluctuations and plant shutdowns. CKD imports fell drastically to $37m in January from $104m in December 2023 after the State Bank of Pakistan imposed curbs on opening fresh letters of credit (LCs) to discourage auto demand and control the current account deficit. After the central bank relaxed import restrictions, CKD imports flourished to $50m in February, $60m in March, $72m in April, $78m in May, and $104m in June. Some market experts believe that thriving CKD imports by the local assemblers were also due to the low localisation of parts in locally assembled vehicles, especially being rolled out by the new entrants under incentive packages offered in the 2026-2021 Auto Policy.
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Trade gap with Middle East narrows
Pakis­tan’s trade imbalance with the Middle East has significantly improved, narrowing by 20.47 per cent to $13.014 billion in 2023-24 from $16.365bn the preceding year, owing primarily to lower petroleum imports from the region. The trade imbalance with the region has seen a decrease since the beginning of the current fiscal year. This can be attributed to a decline in the consumption of petroleum products, which is a result of the continuous rise in prices during the months under review. In absolute terms, Pakistan’s exports to the Middle East rose 35.23pc to $3.155bn between July-June FY24 compared to $2.33bn in the corresponding period last year. At the same time, imports dipped 13.53pc to $16.16bn in FY24, compared to $18.69bn in the same period last year, according to data compiled by the State Bank of Pakistan.
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