Pakistan central bank warns of inflationary pressures due to India tensions

A brass plaque of the State Bank of Pakistan is seen outside of its wall in Karachi, Pakistan December 5, 2018. (REUTERS//File Photo)
Updated 29 October 2019
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Pakistan central bank warns of inflationary pressures due to India tensions

  • Annual inflation expected to exceed 11-12 percent from annual projection of 8.5 percent for fiscal year 2020
  • State bank says achieving ambitious tax collection target amidst a broader economic slowdown “may present a challenge”

KARACHI: Pakistan’s central bank on Sunday warned against increased inflationary pressures due to ongoing tensions with the neighbor and arch-rival India, saying in an annual report that cross-border flare-ups represented a risk.

Tensions have been running high between the two countries since Indian Prime Minister Narendra Modi’s government withdrew Kashmir’s autonomy in August, seeking to tighten its grip on the Muslim-majority territory also claimed by Pakistan. The move was accompanied by a security crackdown on dissent, to head off protests.

In its annual report released on Sunday, the central bank warned that lower inflation prospects in the fiscal year 2021 represented an upside risk due to ongoing tensions with neighboring India.

“Cross-border tensions (which have flared up intermittently since Q3-FY19 [quarter 3 financial year 2019] and worsened during Q1-FY20) represent an upside risk to this outlook, given their tendency to drive up food inflation,” the central bank said.

The bank said annual inflation was expected to exceed 11-12 percent from an annual projection of 8.5 percent by the Planning Commission of Pakistan for the fiscal year 2020.

Demand pressures had generally subsided, the state bank said, though the cost-related impact may be more pronounced in the first half of the fiscal year due to a one-off adjustment in the prices of utilities and other FY20 budget-related measures.

By the second half, supported by the end of deficit monetization by the government, price pressures may begin to recede, the bank said, setting the tone for considerably lower inflation in FY21.

“At the same time, the global slowdown may pose a downside risk to the outlook, especially if international oil prices fall more sharply than anticipated,” the report said. “Real GDP growth is likely to remain subdued,” it added, saying “the early signs of recovery are already visible.”

Recovery could be driven by development spending, the bank said, given the observed tendency that Pakistan’s GDP growth and public sector development spending (PSDP) moved in the same direction.

Other triggers could include improvement in market sentiments vis-à-vis an IMF bailout program, a better showing by the agriculture sector compared to last year, and a further improvement in the current account balance.

The central bank painted a positive outlook of external sector outlook on the whole while citing both upside and downside risks. The bank projected $25.4 – 25.9 billion exports during FY 20 against a target of $26.2 billion and expects an export boost to China and Malaysia.

“The FTA-II (Free Trade Agreement) with China and preferential trade agreement with Indonesia may also give a boost to exports. A decline in imports would be instrumental in improving the current account as the policy-induced import compression would continue on top of subdued prices, barring any adverse shock from international oil prices,” the bank’s report said.

“The outlook for the financial sector, by contrast, is not straightforward,” it added. “The FY20 budget looks to fix the deficiencies of the tax system and represents an earnest effort to increase documentation. It envisages a sizeable reduction in the deficit, by enhancing revenues and squeezing expenditures.”

The bank said though Pakistan had set an Rs5.5 trillion tax collection target for the current fiscal year FY20, “achieving the ambitious tax collection target in the middle of a broader economic slowdown may present a challenge”.

Moreover, even if things panned out more or less according to plan, the fiscal deficit may be in the neighborhood of 7 percent nevertheless, implying that there would still be some way to go before fiscal consolidation is achieved, the bank noted.

The central bank also highlighted reasons for low foreign investment in the country, saying dispute settlement mechanisms were found lacking in terms of contract enforcement and expropriation: “This makes both the existing and potential investors wary of venturing into any capital formation activity.”

Pakistan has 48 bilateral investment treaties (BITs) with other countries but “investors often complain of not getting all the facilitations identified in the respected BITs’.

“Here, it is also worth mentioning that the recent BITs to which Pakistan is a signatory include clauses on which the country’s investment laws and policies are either less accommodating or even silent,” the central bank said. 

Existing investors also complain about the long duration of court proceedings for resolving standardized commercial disputes in Pakistan, the state bank said.


PM Sharif on maiden visit to Karachi since assuming Pakistan’s premiership

Updated 51 min 23 sec ago
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PM Sharif on maiden visit to Karachi since assuming Pakistan’s premiership

  • Pakistan’s prime minister discusses financial and administrative matters with Sindh governor, chief minister
  • Sharif announces additional 150 buses for Karachi, describes city’s business community as Pakistan’s “backbone“

KARACHI: Prime Minister Shehbaz Sharif arrived in Pakistan’s financial hub Karachi on Wednesday on his maiden trip to the city since assuming the top political office, where he held meetings with the provincial leadership and the business community. 

Sharif, who is in Karachi for a day-long visit, visited the mausoleum of Muhammad Ali Jinnah, Pakistan’s founder, to pay his respects after arriving in the city. 

“The prime minister will exchange views with the governor of Sindh and its chief minister on Sindh province’s overall political situation and administration matters,” a statement from Sharif’s office said. 

Sharif presided over a meeting at the Chief Minister House later in which he was informed about the financial matters between the center and the province. 

The chief minister’s spokesperson informed Sharif that the center owed Sindh a whopping Rs1,078.198 billion yet it had handed over Rs28 billion less than that.

“The prime minister instructed the federal finance minister to speak to the chief minister and resolve financial matters,” the chief minister said.

Sharif later announced the addition of 150 buses in Karachi to a fleet of 300, which the provincial government aims to deploy to alleviate the people’s transport woes.

“On the insistence of transport minister, Sharjeel Inaam Memon, prime minister announced 150 buses in the pool of 300 buses,” Abdul Rasheed Channa, the Chief Minister’s House spokesperson said, adding that the prime minister praised the provincial transport department.

Karachi, one of the largest cities in the world with a population of 20.3 million people, has 25,000 buses operating on over 700 routes covering the city. The number of private buses has decreased to 300 which operate on only 50 routes. 

The prime minister later spoke to Karachi’s prominent businesspersons, referring to them as “the backbone of Pakistan’s economy.”

“We should rise before our personal likes and dislikes to serve Pakistan,” he said, adding that he wanted to carve out the best business policies for Pakistan to improve the country’s financial health. 


Pakistan trains hundreds of volunteers ahead of annual Hajj pilgrimage

Updated 24 April 2024
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Pakistan trains hundreds of volunteers ahead of annual Hajj pilgrimage

  • Hajj is one of the five pillars of Islam and every adult Muslim is required to undertake it at least once in their lifetime
  • Islamabad is to begin its Hajj flight operation from May 9 that would conclude on June 9 and facilitate over 63,000 pilgrims

ISLAMABAD: The Pakistani government has started training hundreds of volunteers ahead of the annual Hajj pilgrimage to help thousands of pilgrims overcome language barrier and other challenges in Saudi Arabia, besides imparting training to intending pilgrims on how to perform Hajj rituals.

Pakistan has a Hajj quota of 179,210 pilgrims this year. Of them, 63,805 pilgrims will be performing the pilgrimage under the government scheme, while the rest would be accommodated by private tour operators, according to the Pakistani religious affairs ministry. The South Asian country is set to start its Hajj flight operation on May 9, which would conclude on June 9.

The ministry conducts training of Hajj assistants and pilgrims every year ahead of their departure to Saudi Arabia to make sure the whole process, including their food, transportation and accommodation, is managed efficiently. This year, Pakistan will be sending 550 Hajj assistants and 400 doctors and paramedical staff to Saudi Arabia to facilitate the pilgrims.

“The training programs are currently underway at district and tehsil level and Islamabad is one of them,” Noor Muhammad Soomro, a deputy director at the Hajj directorate in Islamabad, told Arab News.

“Ministry of Religious Affairs has made very good arrangements for the pilgrims, and this includes Pak Hajj app. If a pilgrim uses the Pak Hajj app, he gets all the details, including training, vaccination, maps.”

Volunteers participating in the Pakistani mission of this year's Hajj are seen attending a training session in Islamabad, Pakistan on April 23, 2024. (AN photo)

Soomro said each Pakistani pilgrim would be provided with a SIM card having 7GB data to connect with their families back home.

“This time, we will provide the train facility to all those pilgrims who travel to Saudi Arabia on the government scheme in Mina, Arafat and Muzdalifah,” he said.

Hajj is an annual Islamic pilgrimage that has been in practice for over 1,400 years. It is one of the five pillars of Islam and requires every adult Muslim to undertake the journey to the holy Islamic sites in Makkah at least once in their lifetime if they are financially and physically able. This year’s pilgrimage is expected to run from June 14 till June 19.

Instructors have been training Hajj assistants and intending pilgrims at a sprawling auditorium at the Islamabad Hajji Camp, where they can also visit different stalls to purchase Hajj items like Ihram, umbrella and towels.

“This training is basically the introduction of the duties of Hajj,” Sanober Khaliq Baloch, a Hajj assistant, told Arab News. “Hajj assistants would be performing those duties for example the induction [of the pilgrims], the transport, the food and obviously about Mina map, a little about the roads and traveling, all these things.”

Speaking about the potential challenges, she said the temperature difference and up to 14 hours of duty could be “daunting,” but she was determined to facilitate the pilgrims in all possible way.

Faisal Hafeez, another Hajj assistant, said he was committed to serve the pilgrims well by taking care of their food, accommodation and transportation.

“Different problems that confront the pilgrims have been discussed here [during the training] and how we are supposed to deal with them and solve the problems,” he told Arab News.

Syeda Munir, who is going to perform Hajj for the first time, praised the training sessions, saying this would help them smoothly perform all rituals.

“This is my third [training] session,” she told Arab News. “They guide us well about how to perform Umrah and Hajj.”


Pakistan and Iran call on UN Security Council to curb Israel’s hostile behavior in Middle East

Updated 28 min 7 sec ago
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Pakistan and Iran call on UN Security Council to curb Israel’s hostile behavior in Middle East

  • The two countries issued a joint statement after Iranian President Ebrahim Raisi wrapped up three-day visit to Pakistan
  • Pakistan and Iran agree to adopt a collaborative approach to confront militant violence through institutional mechanism

ISLAMABAD: Pakistan and Iran urged the United Nations Security Council in a joint statement issued on Wednesday to prevent Israel’s hostile acts toward regional countries, noting that the behavior of Prime Minister Benjamin Netanyahu’s administration was further escalating tensions in the Middle East.

The joint statement was circulated by Pakistan’s foreign ministry after Iranian President Ebrahim Raisi concluded his three-day visit to the South Asian state in which he held several high-level meetings in Islamabad, Lahore and Karachi.

The Iranian president arrived in Pakistan on Monday as the two Muslim neighbors sought to mend ties after unprecedented tit-for-tat military strikes earlier this year. The visit also took place at a time when tensions remain high in the Middle East after Iran launched airstrikes on Israel a week ago and Israel retaliated with its own attack on Friday.

The joint Pakistan-Iran statement condemned Israel’s attack on the Iranian Embassy in Damascus on April 2, calling it an unacceptable violation of the sovereignty of Syria that undermined its stability and security. It also pointed out the attack was a violation of international law and the UN Charter, constituting an illegal act under the Vienna Convention on Diplomatic Relations of 1961.

“Recognizing that the irresponsible act of the Israeli regime forces was a major escalation in an already volatile region, both sides called on the UN Security Council to prevent Israel regime from its adventurism in the region and its illegal acts attacking its neighbours and targeting foreign diplomatic facilities,” the statement noted.

It added the two sides condemned Israel’s aggression against the Palestinian people, along with the inhumane blockade of Gaza, while seeking a just, comprehensive and durable solution to the issue based on the aspirations of the people of Palestine.

Pakistan and Iran agreed to adopt a collaborative approach to confront militant violence and to leverage the existing bilateral institutional mechanisms to effectively combat and counter the threat, while fully upholding the principles of the UN Charter, particularly the principles of sovereignty and territorial integrity of member states.

“Both sides also acknowledged the key role of enhanced economic and commercial opportunities in improving the security environment in the border areas,” the joint statement added.

It mentioned the consensus to fully operationalize barter trade mechanisms between the two countries to facilitate bilateral economic and commercial activities.

Both countries reiterated the importance of cooperation in the energy domain, including trade in electricity, power transmission lines and Iran-Pakistan (IP) gas pipeline project.

“The two leaders agreed to boost their bilateral trade to USD10 billion over the next five years,” the statement said.


Global airline body calls for release of $720 million in held revenues by Pakistan, Bangladesh

Updated 24 April 2024
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Global airline body calls for release of $720 million in held revenues by Pakistan, Bangladesh

  • IATA asks Pakistan in a statement to simplify the ‘onerous’ repatriation process causing ‘unnecessary delays’
  • The international organization says airlines are unable to repatriate $399 million from the Pakistani market alone

KARACHI: The International Air Transport Association (IATA) on Wednesday asked Pakistan and Bangladesh to release airline revenues amounting to $720 million, saying the two countries were holding it in contravention of international agreements.

IATA, an international organization representing the global airline industry, asked Pakistan to simplify the “onerous” repatriation process involving audit and tax exemption certificates in a statement, pointing out such procedures caused “unnecessary delays.”

Bangladesh, it said, had a more standardized system, though aviation needed to be a higher central bank priority to facilitate access to foreign exchange.

“The situation has become severe with airlines unable to repatriate over $720 million ($399 million in Pakistan and $323 million in Bangladesh) of revenues earned in these markets,” the statement informed.

IATA’s regional vice president for Asia-Pacific Philip Goh emphasized that the timely repatriation of revenues to different countries was critical for payment of dollar denominated expenses such as lease agreements, spare parts, overflight fees and fuel.

“Delaying repatriation contravenes international obligations written into bilateral agreements and increases exchange rate risks for airlines,” he said. “Pakistan and Bangladesh must release the more than $720 million that they are blocking with immediate effect so that airlines can continue to efficiently provide the air connectivity on which both these economies rely.”

Goh maintained that his organization recognized the two governments were facing difficult challenges, making it necessary for them to determine how to utilize foreign currencies strategically.

“Airlines operate on razor-thin margins,” he continued. “They need to prioritize the markets they serve based on the confidence they have in being able to pay their expenses with revenues that are remitted in a timely and efficient fashion.”

He pointed out reduced air connectivity limited the potential for economic growth, foreign investment and exports, adding such large sums of money involved in the Pakistani and Bangladeshi markets necessitated urgent solutions.


Pakistan Stock Exchange hits record high, breaks 72,000 points in intraday trade

Updated 24 April 2024
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Pakistan Stock Exchange hits record high, breaks 72,000 points in intraday trade

  • Analysts say investors expect a significant decline in April inflation data that may lead to a cut in interest rates
  • The Pakistani bourse has recently been trading at record highs due to hopes of positive loan talks with the IMF

ISLAMABAD: Pakistan’s benchmark share index breached the key level of 72,000 to trade at a record high of 72,414 points during intraday trade earlier on Wednesday, according to data from the Pakistan Stock Exchange website.

The Pakistani bourse has recently been trading at record highs amid positive sentiment prevailing among investors due to hopes of the country’s successful talks with the International Monetary Fund (IMF) for a new loan program.

The country’s finance minister, Muhammad Aurangzeb, recently visited Washington to hold talks with IMF officials for a long-term bailout facility as Pakistan’s current $3 billion program is due to expire this month.

The finance minister expressed hopes the outline of the new program would soon become visible, adding that the loan would help Pakistan continue with structural economic reforms.

“After a record current account surplus, investors are now expecting a big fall in April inflation data that may result in a cut in interest rates in the coming months,” Sohail Mohammed, CEO of Karachi-based brokerage company Topline Securities, told Reuters.

Pakistan’s benchmark KSE100 index has surged 75.5 percent over the past year and is up 11.5 percent year-to-date.

The equity market is expected to surge further as an IMF delegation arrives in Pakistan next month to determine the contours of the new loan facility.

“We are still hoping that we can get into a staff-level agreement [with the IMF] by the time June is done or early July so that we can move on,” the finance minister said on Tuesday while addressing a news conference in Islamabad.

With input from Reuters