Business

High food, petrol prices can trigger protests in Pakistan, warns IMF

Published

2 years ago

Farwa

IMF releases executive summary of seventh and eighth reviews.
“High food, fuel prices could prompt social protest, instability.”
IMF says PTI’s subsidy package led to missing end-June fiscal target.

WASHINGTON: The International Monetary Fund (IMF) has warned against protests and instability in Pakistan amid rising inflation — which just hit a 47-year-high in August.

Pakistan’s inflation measured by the consumer price index (CPI) has hit a 47-year high, accelerating to 27.3% in August 2022, the level last seen in May 1975. The full impact of massive flooding on the prices of food items and other commodities is yet to come.

“High food and fuel prices could prompt social protest and instability,” the IMF said, in an executive summary of the seventh and eighth reviews, released under the Extended Fund Facility (EFF).

The IMF Executive Board earlier this week approved the seventh and eighth review of the stalled $6 billion Pakistan programme, and two days later on Wednesday, the State Bank of Pakistan (SBP) received the much-needed $1.16 billion deposit.

The funds were received after Pakistan caved to several demands of the IMF for fiscal tightening. The Fund has also asked the country to ensure several measures after receiving the loan.

The report said that risks to the outlook and programme implementation remain high and tilted to the downside given the very complex domestic and external environment.

It said that the spillovers from the war in Ukraine through high food and fuel prices, and tighter global financial conditions will continue to weigh on Pakistan’s economy, pressuring the exchange rate and external stability.

The report further said that policy slippages remain a risk, as evident in FY22, amplified by weak capacity and powerful vested interests, with the timing of elections uncertain given the complex political setting.

Apart from the risks of protests, socio-political pressures are expected to remain high and could also weigh on policy and reform implementation, especially given the tenuous political coalition and their slim majority in Parliament, the report said.

“All this could affect policy decisions and undermine the program’s fiscal adjustment strategy, jeopardising macro-financial and external stability and debt sustainability,” it said.

Moreover, elevated near-term domestic financing needs may overstretch the financial sector’s absorption capacity and cause market disruption.

The IMF said substantial risks stem from higher interest rates, a larger-than-expected growth slowdown, pressures on the exchange rate, renewed policy reversals, weaker medium-term growth, and contingent liabilities related to state-owned enterprises (SOEs).

“Further delays on structural reforms, especially those related to the financial sector (resolving undercapitalised banks and winding down SBPs involvement in the refinancing schemes), could hamper financial sector stability and reduce the effectiveness of the monetary policy. Finally, climate change risks are mounting, including a tendency for more frequent climate-related disasters.”

‘Significant fiscal slippages’

The report also mentioned that the former government of PTI granted a four-month “relief package” in late February that reversed commitments to fiscal discipline made earlier in the year.

The largely untargeted package reduced petrol and diesel prices (through a generous general subsidy and setting fuel taxes at zero taxation); lowered electricity tariffs by Rs5/kwh for almost all households and commercial consumers; and provided tax exemptions and a tax amnesty.

“These measures were accompanied by the deferral of regular electricity tariff increases, as well as increases in the minimum wage and public wages and pensions, and additional food subsidies,” it said.

The retention of these measures, as well as additional slippages in the third and fourth quarters, widened the FY22 fiscal deficit by more than one-and-a-half percent of GDP — missing the end-June fiscal target by a wide margin, the IMF report said.

Business

Over 500 points are lost by PSX stocks during intraday trading.

Published

4 hours ago

Farwa

The market saw a bearish trend as it dropped more than 500 points, just hours after Pakistan’s Stock Exchange (PSX) reached a new milestone by reaching the 73,000 mark.

As compared to the previous close of 72,742.75 points, the KSE-100 index dropped to 72,177.22 points, or 565.52 points, or 0.78% lower.
Expectations of an interest rate drop of up to 100 basis points during today’s Monetary Policy Committee (MPC) meeting, according to Intermarket Securities director of research CFA Muhammad Saad Ali, are driving market confidence.

The market is also being driven, he continued, by favourable news flow on upcoming negotiations with the International Monetary Fund (IMF) for a new programme.

Last Friday, the late-session purchasing fueled a 1% advance in the stocks, which helped them close close to 73,000 points. Dealers reported this.

Closed at 72,742.75 points on Friday, the benchmark KSE-100 index saw a gain of 771.35 points, or 1.07%.

Notwithstanding the turbulent session, according to Chase Securities analyst Muhammad Rizwan, “the market rebounded with a strong start and achieved a new all-time high.”.

“This impressive performance was driven by significant contributions from various sectors: fertiliser added 386 points, commercial banks contributed 174 points, the power sector provided 112 points, and cement added 93 points, collectively reversing the previous negative close and boosting market sentiment.”

Business

Despite global tides, Pakistan’s economy is recovering, according to Governor SBP

Published

4 hours ago

Farwa

Ahmad, who was speaking at the ICMA Pakistan Members Convocation, emphasised the country’s economy’s outstanding development while also highlighting the difficult macroeconomic environment of the previous year, which was marked by rising inflation, depleting foreign exchange reserves, pressure on exchange rates, and increased uncertainty.

Nonetheless, in the present times, the PKR has stabilized and the stock market is rising to unprecedented heights, reserves have increased to around US$8 billion despite large debt repayments, and inflation is dramatically decreasing.

Ahmad gave the government and SBP credit for their unwavering commitment to addressing macroeconomic difficulties head-on for this reversal.

Ahmad emphasized that the government’s efforts to reduce spending and achieve fiscal consolidation, together with the need for unpopular but necessary actions like the SBP’s increase of the policy rate to 22%, are producing beneficial results.

As global shocks like climate change, technology improvements, and cyber threats become more complex, he emphasises the significance of new viewpoints and creative solutions in tackling long-standing economic concerns.

Congratulating the graduating accounting professionals, Ahmad emphasized the importance of having a thorough understanding of accounting, finance, and economics in order to create workable solutions. He also urged the professionals to take a proactive approach to addressing new difficulties.

Ahmad emphasized the value of leadership abilities in policymaking and urged graduates to positively impact Pakistan’s economic landscape by working hard, being devoted to excellence, and contributing their full effort.

Along with giving a hearty welcome to Governor Jameel Ahmad and other SBP dignitaries, ICMA Pakistan President Shehzad Ahmed Malik also praised the SBP team’s efforts to stabilize the currency. With that, Ahmad presented the graduating CMAs with their degrees.

Business

The IMF board is anticipated to approve Pakistan’s $1.1 billion payout today.

Published

4 hours ago

Farwa

The IMF executive board meeting is scheduled to go until May 3, according to specifics. Based on the sources, it is expected that the international lender will approve Pakistan’s $1.1 billion payout today.

The State Bank of Pakistan is anticipated to obtain the final tranche from the IMF tomorrow, following approval, they added.

On July 12, 2023, Pakistan took advantage of a $3 billion loan package offered by the International Monetary Fund (IMF).

Thus far, Pakistan has been granted two installments totaling $1.9 billion: $1.2 billion in July and $700 million in January 2024.

On the last assessment of a $3 billion loan plan, Pakistan and the International Monetary Fund (IMF) came to a staff-level agreement last month.

Following their week-long visit to Islamabad, which ended on March 19, the IMF delegation made the announcement.

Global lender expressed its optimism that the incoming caretaker administration and central bank of Pakistan would persist in their efforts to stabilize the country’s economy, complimenting them on their “strong program implementation.”

In order to further solidify economic and financial stability, the new government is dedicated to carrying out the policy initiatives that were initiated under the existing Stand-By Arrangement for the balance of this year, the IMF official stated.

In June of last year, the IMF granted Pakistan’s economic stabilization program support through a critical nine-month agreement.