Pakistan’s central bank expected to cut rates — survey

The logo of the State Bank of Pakistan (SBP) is pictured on a reception desk at the head office in Karachi, Pakistan July 16, 2019. (REUTERS/File)
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Updated 10 September 2024
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Pakistan’s central bank expected to cut rates — survey

  • Analysts unanimously predict rate cut
  • Estimates range from 100 bps to 200 bps

KARACHI: Pakistan’s central bank is expected to cut its key interest rate further during its policy meeting on Thursday, analysts said, after inflation dropped to single digits in August for the first time in nearly three years.

That would follow two consecutive cuts — of 150 basis points in June and 100 bps in July — that have taken rates from an all-time high of 22 percent to their current standing of 19.5 percent.

All 14 analysts polled expected another cut, two of them of 100 bps, 10 of 150 bps, and another two of 200 bps.

July’s reduction came after a staff level agreement with the International Monetary Fund (IMF) and the introduction of a new state budget which set ambitiously high tax and revenue-raising targets for the government.

In August, central bank chief Jameel Ahmed told Reuters the recent interest rate cuts had had the “desired effect.”

In his first interview since assuming the role in 2022, he said inflation continued to slow and the current account remained under control, despite the cuts.

Pakistan’s annual consumer price inflation rate slowed to 9.6 percent in August, the first single-digit reading in almost three years.

Ahmed said the Monetary Policy Committee will review all these developments and that future rate decisions could not be pre-determined.

Ammar Habib, an economist who predicted a 200 bps cut in the poll, said real interest rates of 10 percent are at the highest level in the last three decades.

“Risks to inflation are also low given softening commodity prices and a fiscally prudent stance of the government for now. In view of this, it makes sense to do at least a 200-bps cut without hurting FX expectations too much,” Habib said.


Saudi Arabia’s global pension index score rises amid ongoing reforms: Mercer 

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Saudi Arabia’s global pension index score rises amid ongoing reforms: Mercer 

RIYADH: Saudi Arabia’s Global Pension Index score improved to 60.5 in 2024, up from 59.5 last year, driven by ongoing reforms, a new analysis showed. 

According to the latest Mercer CFA Institute Global Pension Index, the Kingdom’s pension system rating upgraded to C+ from C, placing it alongside the US, the UAE, and Spain. 

The index defines C+ as a system with good features but significant risks that need addressing.

Saudi Arabia’s retirement system includes an earnings-based pension and lump-sum award – while those who do not qualify for monthly payouts receive just the one-off benefit.

In July, the Kingdom raised the retirement age from 60 to 65 for both public and private sector employees, as part of a key Vision 2030 reform aimed at ensuring sustainability and improving retirees’ living conditions. 

The reform also raised the required contribution period for early retirement from 25 to 30 years, a move aimed at encouraging longer workforce participation, thereby reducing the financial strain on the pension system. 

Tarek Lofty, president of Mercer in India, the Middle East and Africa, said: “Saudi Arabia continues to make steady progress in reforming and enhancing its pension system and stands to benefit as more private pension options are provided to complement existing retirement programs.” 

He added: “As these reforms are rolled-out, they will provide an important tool to retain talent in the Kingdom’s buoyant job market and support the wider aims of the Vision 2030 strategy by contributing to the financial well-being of its citizens.” 

Saudi Arabia held its position at 28th in the index, which compares 48 pension systems globally. Its sustainability score rose to 58 from 54.9, driven by factors like increased female workforce participation, updated demographic data, and clarity on retirement arrangements. 

The Kingdom ranked 20th in the sustainability sub-index but was lower in adequacy at 32nd and integrity at 42nd. Mercer highlighted that the Kingdom could improve its score by increasing support for low-income retirees and boosting labor participation among older workers. 

Mercer’s ranking analyzes factors such as system design, government support, and home ownership to calculate scores in the adequacy sub-index, while the sustainability index considers elements like pension coverage, government debt, and economic growth. 

The integrity sub-index evaluates regulation, governance, protection, along with communication and operating costs. 

“With a youthful population and increasing labor force participation, Saudi Arabia is in an ideal position to observe the challenges that many of its global peers are facing and guide the development of its pension system accordingly,” said Claudia Maldonado, head of savings and pensions at Mercer Middle East. 

Mercer also outlined several measures the Kingdom could implement to improve its overall index score, including increasing the minimum support provided to low-income seniors and raising the labor force participation rate among older individuals as life expectancies rise. 

The report further noted that enhancing communication with members regarding private pension arrangements could also play a crucial role in boosting the Kingdom’s overall index score in the coming years. 

A report released by the World Bank in July also lauded Saudi Arabia’s pension reforms and called it a groundbreaking development for the Middle East and North Africa region. 

The international financial institution added that achieving a robust system also requires further measures including diversifying pension funds, designing adjustment mechanisms, and enhancing private savings options.

“These measures can offer greater flexibility and security, addressing the diverse needs of the population. By adopting a holistic approach that balances fiscal sustainability with social equity, countries can better protect against economic, demographic, and political risks,” said the World Bank’s blog. 

It added: “Such initiatives set a precedent for forward-thinking policies that other nations can follow to enhance their social security frameworks, and Saudi Arabia, with its most recent reform, sets a great example for the rest of the region.” 

Emerging trends 

The Mercer report revealed that most retirement systems worldwide are increasingly moving away from defined benefit plans and shifting toward defined contribution arrangements. 

“The ongoing shift to defined contribution pension plans introduces many financial planning challenges, which are falling squarely on the shoulders of tomorrow’s retirees,” said Margaret Franklin, president and CEO of CFA Institute. 

She added: “DC plans require individuals to make complex financial planning decisions that may significantly impact their financial circumstances, and yet many individuals are not well prepared to manage the required decisions.” 

Despite these challenges, the report noted that as people live longer, the increased flexibility and personalization offered by DC programs will be critical. 

Mercer also highlighted that the concept of retirement is evolving, with many individuals gradually transitioning into retirement or rejoining the workforce in different capacities after their initial retirement. 

The report pointed out that these plans also offer essential benefits to gig and contract workers, who are often excluded from traditional DB schemes. 

“Significant retirement income system reforms are needed to meet the financial needs of retirees and their evolving work expectations. There is no single solution to getting retirement systems onto more solid ground,” said David Knox, lead author of the study and senior partner at Mercer. 

He added: “Now is the time for governments, policymakers, the pension industry and employers to work together to ensure that older populations are treated with dignity and can maintain a lifestyle similar to what they experienced through their working years.” 

The analysis noted that increasing longevity, high interest rates, and rising costs of care have placed additional pressure on government budgets to support pension programs, leading to slightly lower overall scores this year. 

Global outlook 

According to Mercer, the Netherlands retained the top spot in the index with an overall score of 84.8 and a grade of A, followed by Iceland and Denmark in second and third place, with scores of 83.4 and 81.6, respectively. 

“The Netherlands’ pension system has continued to be the best system, as it moves from a DB structure to a more individual DC approach. The system also features strong regulations and offers participants guidance regarding their pensions,” said Mercer. 

Israel secured the fourth position, while Singapore, Australia, and Finland ranked fifth, sixth, and seventh, respectively. 

Norway placed eighth, followed by Chile in ninth and Sweden in tenth. 

China ranked 31st on the list, while India and Japan were positioned at 48th and 36th, respectively. 


IsDB to finance $3bn in 20 socio-economic projects across 17 countries

Updated 12 min 46 sec ago
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IsDB to finance $3bn in 20 socio-economic projects across 17 countries

  • Initiatives target key sectors such as agriculture, water resources, and energy, as well as health care and infrastructure

RIYADH: The Islamic Development Bank is set to finance over $3 billion for 20 socio-economic development projects across 17 member nations, following its 357th board meeting chaired by President Muhammad Al-Jasser.
These initiatives target key sectors such as agriculture, water resources, and energy, as well as health care and infrastructure to strengthen resilience and promote sustainable growth.
In Kazakhstan, $1.15 billion will support water resources development, improving agricultural output and ensuring food and water security.
Jordan has been allocated $200.3 million to bolster food security by expanding strategic reserves. 
Kyrgyzstan will receive $45.11 million for agricultural mechanization to aid smallholder farmers, along with an additional $58.25 million to enhance energy infrastructure in the Issyk-Kul region.
Senegal is set to receive €65.1 million ($70.96 million) to accelerate agricultural industrialization.
Togo has been granted €55.23 million to foster income-generating activities and improve the livelihoods of vulnerable populations.
Azerbaijan has been allocated $96.73 million for water resource management to support agriculture and food security, and the Maldives has been allotted $64.65 million to expand its fishing industry.
Morocco was allocated €441.82 million for a hydropower project to meet peak demand with renewable energy.
Gambia will receive $40 million to improve its transport sector, and Sierra Leone has been assigned €70.32 million to enhance infrastructure through soil stabilization technology.
Comoros will benefit from $15 million to improve maritime connectivity and safety. Uzbekistan will acquire $138.8 million to expand a key road, improving traffic flow and safety, while Cameroon has been awarded $176.3 million to upgrade its transport infrastructure.
In Turkiye, €246.4 million will support the Eastern Turkiye Middle Corridor Railway Project, with an extra $100 million allocated to post-earthquake recovery efforts to enhance productivity. 

Pakistan will receive $118.4 million to reduce poverty and improve food security in vulnerable communities.

Mozambique has been allocated $19.8 million to strengthen health care access, while Cote d’Ivoire has been granted €260 million ($278.2 million) to support highway construction for regional integration and agriculture. 

Al-Jasser said that these initiatives align with the IsDB’s goal of fostering sustainable economic growth, enhancing infrastructure, and integrating regional economies.

The bank also approved a $10 million grant in collaboration with the World Health Organization to support global health care initiatives. 

The projects reflect IsDB’s commitment to inclusive development, aimed at strengthening resource management and promoting shared prosperity across member countries.


Global public debt expected to exceed $100 tn this year: IMF

Updated 15 October 2024
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Global public debt expected to exceed $100 tn this year: IMF

  • Global public debt to hit 93% of global GDP this year, and to approach 100% of GDP by 2030

WASHINGTON: Global public debt is expected to reach a record $100 trillion this year, the IMF said Tuesday, warning that the fiscal outlook for many countries may be even “worse than expected.”
In its latest report on fiscal policy, the International Monetary Fund said it expects global public debt to hit 93 percent of global gross domestic product (GDP) this year, and to approach 100 percent of GDP by 2030 — 10 percentage points higher than in 2019, before the Covid-19 pandemic hit.
“Global public debt is very high,” Era Dabla-Norris, the deputy director of the IMF’s Fiscal Affairs Department, told reporters ahead of the report’s publication.
“There are very good reasons to believe that the debt burden — or the debt outlook — could be worse than expected,” she said, pointing to current spending pressures to address issues like climate change, overly-optimistic debt projections, and the possibility of large amounts of unidentified debt.
“So the bottom line is that it’s time for countries to get their fiscal house in order,” she said.
The IMF report introduced a new “debt-at-risk” approach to assessing the risks to debt projections.
It estimated that, in a worst-case scenario, global public debt could hit 115 percent of GDP by 2026 — almost 20 percentage points higher than the Fund’s baseline estimate.
The report found that “global factors increasingly drive the fluctuations in government borrowing costs across countries,” suggesting that elevated levels of debt in key countries could “increase the volatility of sovereign yields and debt risks” for others.
Moderating inflation and interest rate cuts in many economies meant now was an “opportune” time for countries to rebuild their fiscal buffers, the IMF said, adding that they were “better placed” than before to absorb the effect of fiscal tightening.
The size of the fiscal adjustment needed to bring global public debt back under control was between 3.0 and 4.5 percent of GDP, on average, the IMF said — almost twice the size of past adjustments.


Oil Updates – prices fall as demand outlook weakens, Iran supply disruption concerns ease

Updated 15 October 2024
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Oil Updates – prices fall as demand outlook weakens, Iran supply disruption concerns ease

  • Brent, WTI down nearly 4 percent
  • Israeli PM Netanyahu says willing not to strike Iran oil targets

SINGAPORE: Oil prices slid as much as $3 to a near two-week low during Asian trade on Tuesday on the back of a weaker demand outlook and after a media report said Israel is willing not to strike Iranian oil targets, which eased fears of a supply disruption.

Brent crude futures were down $2.81, or 3.6 percent, to $74.65 per barrel at 9:40 a.m. Saudi time, having dropped earlier to $74.26, its lowest since Oct. 2.

US West Texas Intermediate futures fell $2.72, or 3.7 percent, to $71.11 per barrel. The contract fell as low as $70.75, its weakest since Oct. 3.

Both benchmarks had settled about 2 percent lower on Monday. They are down almost $5 so far this week, nearly wiping out cumulative gains made in the seven sessions up to last Friday when investors were concerned about supply risks as Israel planned to retaliate against a missile attack from Iran.

Israeli Prime Minister Benjamin Netanyahu told the US that Israel is willing to strike Iranian military targets and not nuclear or oil ones, the Washington Post reported late on Monday.

“Weakening demand has led to traders withdrawing the ‘war premium’ from prices,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.

“However, geopolitics still continues to support oil at this level. Without geopolitics in the equation, oil would have tumbled even more, maybe even below $70 per barrel mark amid the current weakening demand narrative.”

OPEC on Monday cut its forecast for global oil demand growth in 2024, with China accounting for the bulk of the downgrade. China’s demand is now seen growing by 580,000 barrels per day this year, down from 650,000 bpd.

OPEC also lowered its global oil demand growth projection for next year to 1.64 million bpd from 1.74 million bpd.

China’s customs data showed that September oil imports fell from a year earlier, as plants curbed purchases because of weak domestic fuel demand and narrowing export margins.

Independent market analyst Tina Teng said that while the demand outlook remains weak due to record high US production and soft Chinese demand, “oil retreated from the Middle East-tension-led surge as the market reaction may have been overdone.”

In the Middle East, Israel expanded its targets in its war against Hezbollah militants in Lebanon on Monday, killing at least 21 people in an airstrike in the north.


Saudi inflation steady at 1.7% in September amid rising housing costs: GASTAT

Updated 15 October 2024
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Saudi inflation steady at 1.7% in September amid rising housing costs: GASTAT

RIYADH: Saudi Arabia’s annual inflation rate hit 1.7 percent in September, compared to the same period last year, driven by rising housing costs, official data showed. 

The report from the General Authority for Statistics highlighted a 9.3 percent increase in housing, water, electricity, gas, and other fuel prices, which significantly contributed to the inflation rise.  

Housing rents saw an 11.2 percent jump, with apartment rental prices up 10 percent. This category’s weight in the overall index had a considerable impact on the inflation rate. 

This comes as rising housing prices in Saudi Arabia are being fueled by a limited supply of properties, alongside a growing population and an influx of expatriates seeking accommodation in the Kingdom. 

Food and beverage prices rose by 0.8 percent, driven by a 5.2 percent increase in vegetable prices. Restaurant and hotel prices climbed 1.7 percent, influenced by a 1.5 percent rise in catering services. 

The education sector experienced a 1.6 percent rise, mainly due to a 3.8 percent increase in fees for intermediate and secondary education.    

Conversely, furnishings and home equipment prices dropped by 3.7 percent, due to a 7 percent decrease in furniture, carpets, and flooring prices.  

Clothing and footwear prices dropped by 3.2 percent, with ready-made clothing prices falling by 5.5 percent.  

Transportation costs also decreased by 3.3 percent, primarily due to a 4.5 percent reduction in vehicle purchase prices. Communication services saw a slight decrease of 1.6 percent. 

Monthly inflation 

On a monthly basis, the consumer price index inched up 0.1 percent in September compared to August, largely driven by a 0.6 percent rise in housing-related expenses, including a 0.8 percent increase in actual housing rents. 

The report also noted minor increases in food and beverages with 0.3 percent, restaurants and hotels, and personal goods and services with 0.1 percent each, compared to the previous month.  

Meanwhile, there were decreases in the prices of clothing and footwear by 0.2 percent, furnishings, household equipment and maintenance by 0.3 percent, recreation and culture by 0.3 percent, communications by 0.1 percent, and tobacco by 0.1 percent.  

The prices of education and transportation products remained stable. 

Wholesale price index 

In a separate report, GASTAT revealed the Wholesale Price Index rose 3.1 percent in September compared to the same month last year, driven by an 8 percent increase in transportable goods, including a 12 percent rise in basic chemical prices and refined petroleum products.

Food products, beverages, tobacco, and textiles dropped 0.3 percent, while ores and minerals fell 3.6 percent, influenced by a decline in stone and sand prices.  

On a monthly basis, the WPI edged up 0.3 percent in September, with transportable goods rising 0.9 percent due to a 9.6 percent increase in basic chemical prices. 

The prices of ores and minerals decreased by 0.2 percent, due to a 0.2 percent drop in the prices of stone and sand. 

Metal products, machinery and equipment decreased by 0.1 percent, while fish and other fishing products decreased by 2.7 percent, driven by a 0.1 percent dip in the agriculture and fishing products. 

Goods and services 

Another GASTAT bulletin showed notable shifts in the average prices of goods and services across Saudi Arabia in September.  

The data, which tracks price movements on a monthly basis, highlighted both increases and decreases in various categories, reflecting dynamic market conditions. 

Philippines Banana, Alsharbatli saw the highest increase at 15.8 percent, followed by local lettuce at 9.5 percent, local zucchini at 9.5 percent, Abu Sorra Egyptian orange at 8.6 percent, and Pakistani mandarin at 8.4 percent. Prices of coal and African teak wood increased by 1.7 percent each. 

Conversely, several items experienced significant price drops during the same period. Lebanese peach saw the highest drop at 7.4 percent, followed by Indian pomegranates at 6 percent, hotel accommodation at 5.3 percent, local glass cheese at 5 percent, and dates at 4.8 percent.  

Chinese iron-binding cables decreased by 3.1 percent, black national cement by 2.4 percent, 15 cm black block and Romanian wood by 1.2 percent each.