SBP reserves rise $259mn to $12.33bn
The foreign exchange reserves held by the central bank increased 2.15 percent on a weekly basis, according to data released by the State Bank of Pakistan (SBP) on Thursday.
On April 30, the foreign currency reserves held by the SBP were recorded at $12,329.4 million, up $259 million compared with $12,070.3 million in the previous week.
The central bank gave no reason for the increase in reserves. Overall, liquid foreign currency reserves held by the country, including net reserves held by banks other than the SBP, stood at $18,755.1 million. Net reserves held by banks amounted to $6,425.7 million. Pakistan received the first loan tranche of $991.4 million from the IMF on July 9 last year, which helped bolster the reserves. In late December, the IMF released the second loan tranche of around $454 million.
Previously, the reserves jumped on account of $2.5 billion in inflows from China.
A couple of months ago, the SBP successfully made a foreign debt repayment of over $1 billion on the maturity of Sukuk. In December 2019, the foreign exchange reserves surpassed the $10-billion mark owing to inflows from multilateral lenders including $1.3 billion from the Asian Development Bank (ADB).
[divider style=”normal” top=”20″ bottom=”20″]
Financial assistance package for SMEs
Adviser to Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh chaired a meeting to deliberate the contours of a financial assistance package for the small and medium enterprises (SMEs) in the wake of coronavirus pandemic.
According to a statement issued on Thursday, the assistance package will explore possibilities of supporting those formal or informal SMEs, which have 5-30 employees and have suffered losses due to the lockdown.
“The main focus of the scheme is to ensure that the workers associated with these small businesses are not laid off because of unsustainability of the business,” he said.
Ways and means to support those firms to continue their production and to enable them to pay their fixed costs and support their workers were discussed in detail. During the meeting, the imparting of basic IT-related skills to smaller businesses was also discussed. It was also agreed that the cooperation of Smeda and the Punjab IT board would be sought to implement the package.
[divider style=”normal” top=”20″ bottom=”20″]
Textile sector calls for starting entire value chain
The Sindh government should permit the entire textile value chain to restart production without further delay, otherwise the industry will not be able to sustain business and close down, which will lead to massive unemployment, remarked All Pakistan Textile Mills Association (Aptma) Sindh and Balochistan Region Chairman Zahid Mazhar.
In a statement on Thursday, Mazhar said Aptma appreciated the efforts and measures taken by the government of Sindh to contain the spread of the virus and assured it of complete cooperation in the fight against Covid-19 pandemic.
“The textile industry of Sindh, which was granted permission to resume operations recently, has already adopted all precautionary measures prescribed in the standard operating procedures (SOPs) for preventing the spread of coronavirus,” he said.
“So far, the provincial government has permitted only those textile industries to restart work, which have export orders and have residential colonies in their premises.”
Mazhar held the view that the permission to only a few industries would not bring desired results for the economy until textile sub-sectors such as weaving, knitting, stitching and processing were also given permission to resume production.
He argued that the sub-sectors provided intermediary material to complete the business cycle of the textile export industry, hence, it was vital for them to resume operations.
“In the present situation, the industry is not even running at 50 percent of capacity,” he revealed.
Mazhar said in the wake of lockdown in Sindh, the industry was facing severe liquidity problem due to which it was not in a position to even pay utility bills and salaries of employees.
“The only solution to tackle this situation is to allow the entire business cycle of the textile industry to function across the entire value chain including the downstream industry,” he said. “If this is not done, then it would be too late for us to recapture export market and keep our employees.”
He reminded the provincial government that Karachi produced about 52 percent of the country
’s total exports and the lockdown was causing heavy losses to industries in the city. He recommended that in order to save Karachi, the government needed to adopt a smart lockdown policy allowing the complete textile value chain to operate while abiding with the SOPs.
[divider style=”normal” top=”20″ bottom=”20″]
[ads1]
For dairy products: government mulls zero-rated facility
The government has set up a committee to review a budget proposal seeking zero sales tax on milk products as blindsided taxation policies of the previous government have caused heavy losses to dairy companies due to increase in cost of doing business.
The increase in interest rate during the Pakistan Tehreek-e-Insaf (PTI) government also adversely affected their balance sheets.
The committee would be chaired by the finance secretary and would analyse financial statements of dairy firms aimed at evaluating claims of business losses due to the withdrawal of zero-rated sales tax facility by the previous Pakistan Muslim League-Nawaz (PML-N) government.
The dairy sector was one of the worst hit sectors during the PML-N tenure as the previous government thrice changed taxation policies for the sector.
Adviser to Prime Minister on Finance and Revenue Abdul Hafeez Shaikh held a meeting with members of the Pakistan Dairy Association (PDA) via video link.
The finance adviser directed that a special committee may be constituted under the chairmanship of finance secretary with representatives from the Federal Board of Revenue (FBR) and the dairy industry, according to the finance ministry.
The committee would give its report within a fortnight and would provide information about the profit and loss situation of the dairy business across the country, said the finance ministry.
PDA has claimed that its 30 percent capacity remains unutilised and restoration of the pre-2017 taxation status will help it enhance the business.
The government would consider the request of the dairy association with an open mind after reviewing all the facts and related data that could help in taking the best decision in favour of the economy and wellbeing of the people, said Shaikh.
The dairy sector has been on the decline since the abolition of the zero-rated facility. In 2006, the then government declared dairy a zero-rated sector where any sales tax paid by the sector was refundable.
Through Finance Acts of 2015 and 2016, the sales tax zero-rated status had been abolished. The last government imposed 10 percent sales tax on concentrated powder milk, cream, yogurt, cheese, butter, whey, UHT and fat-filled milk.
In 2019, three major companies registered a reduction in their profits and some had been booking losses. FrieslandCampina, which acquired a majority stake in Engro Foods, sustained a Rs955-million loss after tax.
Nestle Foods earned profit of Rs7.4 billion last year but it was 50 percent or Rs7.3 billion less than the 2017 earnings when the government abolished the zero-rated facility. Excluding revenues from sales of other products, Nestle is also booking losses in its milk operations.
Fauji Foods sustained a loss after tax of Rs5.8 billion last year. The trend continued in current fiscal year as well as FrieslandCampina and Fauji Foods booked losses in the first quarter.
Nestle Pakistan earned Rs1.93 billion but it was 53 percent less than the first quarter of fiscal year 2016-17.
PDA, the representative body of the dairy sector, has said the removal of zero-rated tax policy drastically increased the cost of milk processing industry, which eventually resulted in an increase in prices of packaged, hygienic milk and milk-based products.
PDA proposed on Thursday that a 1 percent increase in industry’s market share had significant benefits for the economy in the shape of additional 600 million litres of milk collection, pumping of Rs36 billion into the rural economy, creation of 2,500 direct jobs and Rs6 billion increase in taxes.
At present, 90 percent market is captured by loose milk and the share of packaged milk sector is only 10 percent. Despite having high milk consumption, malnutrition is a serious issue in Pakistan.
PDA claimed that in case the government decided to restore the zero-rated regime, the income tax contribution of the dairy sector would jump from Rs14.7 billion to Rs41.7 billion due to increase in sales over the next five years.
Overall, the dairy sector’s contribution will increase from Rs32.5 billion to Rs43 billion and the income tax contribution will be 96.5 percent of the total tax revenues.
Currently, half of the tax collection from the dairy sector is on account of unadjusted input tax, amounting to Rs16.9 billion. The industry claims its packaged milk sales will remain stagnant at half a billion litres per annum in case the government continues with the current taxation policies.
In case of restoration of the pre-2017 tax regime, the PDA has projected its sales will almost triple to 1.4 billion litres and government revenues will increase by an additional Rs10 billion.
[divider style=”normal” top=”20″ bottom=”20″]
Pakistan: oil, gas sector loses billions
Pakistan’s oil and gas sector suffered a heavy loss of over Rs51 billion in April following a slump in energy demand amid the coronavirus-fuelled lockdown in the country, sources say.
The number also included the revenue loss on account of petroleum levy, discount and royalty on oil and gas.
The upstream industry, which comprised oil and gas exploration, drilling and production, suffered a loss of Rs15.5 billion in April, sources told while quoting the Petroleum Division, which disclosed the sum in a meeting of the Cabinet Committee on Energy.
Sui Southern Gas Company (SSGC) booked a loss of Rs9.4 billion whereas Sui Northern Gas Pipelines (SNGPL) recorded a loss of Rs12.9 billion in the wake of reduced gas demand in the month under review.
Oil marketing companies (OMCs) incurred a loss of Rs9 billion and the liquefied petroleum gas (LPG) industry lost Rs70 million.
Officials said the government had estimated a loss of Rs7.58 billion to upstream activities, which was being looked after by the Directorate General of Petroleum Concession, on account of reduction in sales and Rs947-million loss in royalty on oil and gas.
Midstream activities, which included refineries and liquefied natural gas (LNG) terminals, also encountered losses due to slowdown in activities amid the Covid-19 lockdown.
Refineries experienced inventory losses of around Rs1 billion in April due to reduction in demand for petrol and diesel in the country, officials quoted the Petroleum Division as saying.
OMCs booked inventory losses to the tune of Rs9 billion per month, which resulted in a reduction in government revenue by around Rs4 billion per month on account of petroleum levy.
They also impacted government revenues on account of windfall and discount on crude to the extent of Rs6 billion per month.
Moreover, due to reduced offtake of re-gasified LNG, demurrages on LNG imports were calculated at $650,000 in March 2020 and such charges were also faced in April due to the lockdown.
Downstream activities include transmission and distribution of natural gas and liquefied petroleum gas (LPG) by SNGPL and SSGC, and operations of OMCs.
SSGC’s revenue loss stood at Rs215 million per day in March 2020 that jumped to Rs314 million per day in April. SNGPL’s revenue took a hit of Rs324 million per day in March and it escalated to Rs430 million per day in April due to lower demand for natural gas and re-gasified LNG.
The decrease in supplies and marketing of LPG caused a multimillion-rupee loss in April, calculated at around Rs70 million.
The Covid-19 pandemic had slowed down economic activities across the world and it also impacted Pakistan due to lockdown. It not only hit hard the business but also disrupted the oil and gas supply chain that resulted in thin demand and consumption.
Owing to the economic slowdown, refineries like National Refinery Limited (NRL) and Byco shut down their plants. Production activities at other refineries were also affected. They offered discounts to encourage OMCs to lift their petroleum products.
Natural gas and crude oil production by exploration companies also slowed down due to low purchases by the refineries. However, operations of refineries and OMCs have started normalising following the beginning of harvesting season in the country’s farms.
Pakistan also reduced LNG imports due to meagre demand. It had been importing five LNG cargoes a month from Qatar, however, Pakistan State Oil (PSO) cut LNG supplies to three cargoes in April.
[divider style=”normal” top=”20″ bottom=”20″]
Ogra cuts rlng prices for May
The Oil and Gas Regulatory Authority (Ogra) on Thursday slashed prices of re-gasified liquefied natural gas (RLNG) by up to $1.84 per mmbtu for May.
Owing to a reduction in global crude oil prices, LNG prices have come down to $7.7 per mmbtu.
The regulator has notified the cut in RLNG price by $1.84 per mmbtu for Sui Northern Gas Pipelines Limited (SNGPL) and $1.806 per mmbtu for end-consumers of Sui Southern Gas Company (SSGC) over the previous month. Due to the lockdown in the country and a significant reduction in international prices of Brent crude, the RLNG prices have also declined sharply.
Per-kg price of CNG will also be reduced in Punjab, where RLNG is used in filling stations, in the same proportion. Ogra notified the new RLNG monthly prices based on eight LNG cargoes imported by Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL). Ogra has set the new price at $7.7105 per mmbtu for the SNGPL consumers and $7.7521 per mmbtu for the SSGC consumers.
[divider style=”normal” top=”20″ bottom=”20″]
Government launches secured transactions registry
The government formally launched the Secured Transactions Registry (STR) on Thursday for registration of security interests/charges created by entities other than companies on their movable assets.
The STR has been established under the Financial Institutions (Secured Transactions) Act, 2016, and operationalised by the Securities and Exchange Commission of Pakistan (SECP). The STR is an electronic register that can be accessed through a dedicated website 24/7. Financial institutions can now file security interests online. Registration process is fully automated and the registry is searchable by general public, free of charge.
Department Head of International Development (DFID) Pakistan Annabel Gerry lauded the efforts of the financial sector regulators. While discussing the importance of this initiative, Shaikh highlighted that micro, small and medium enterprises (MSMEs) play a vital role in the economic development of the country due to their significant contribution in terms of output, exports and employment.
The adviser was optimistic that this initiative would prove to be a game changer by improving access to finance for the MSMEs, agri-borrowers and rural enterprises.
The commencement of the registry will broaden the scope of assets that these underserved segments can offer as a security for availing the finance. On the other hand, this reform will also help banks to expand their lending portfolios. It will contribute towards improving Pakistan’s score on ‘getting credit indicator’, and in particular raise its global ranking on the World Bank’s Doing Business’ index.