Pakistan Economy: Situation far from satisfactory

As per The State of Economy Report 2021-22 released by State Bank of Pakistan, the country’s economic growth is expected to moderate considerably in FY23. Having delivered a headline growth approaching 6% in FY22, the country is expected to even miss the revised growth target of 3% to 4% this time round.

In addition, the government has targeted to reduce the fiscal deficit to 4.9% of GDP in FY23 from 7.9% in FY22, an outcome that would be achieved through both revenue and expenditure measures. Widening of tax base through elimination of exemptions, increase in tax rates and reinstatement of fuel taxes are expected to boost tax receipts. The non-tax revenues is also expected to improve with the re-imposition of PDL.

It must be kept in mind there can be slippages on the expenditure with respect to rehabilitation efforts. The IMF is insisting on higher collection in order to keep the fiscal and primary deficits within permissible levels. Analysts expect fiscal deficit to hover around 6.5% of GDP, despite higher tax collection.

This deviation could be due to: 1) higher debt servicing and 2) potential slippages during 2HFY23 owing to election and flood relief related spending.

Current account deficit situation is expected to improve beyond the original estimates of 3% of GDP in FY23 due to various demand suppression measures implemented by the government.

Likewise, commodity prices have also softened which will reduce the pressure on CAD even further. However, the loss to agriculture produce, induced by the recent floods, is likely to step up import of agriculture commodities, especially cotton.

Everyone must keep in mind that Pakistan’s economy is in an extremely fragile state at present with foreign exchange reserves slipping close to US$6 billion, barely enough to provide import cover of 1.16 months.

The external debt is reported at US$127 billion, equivalent to 40% of GDP. Pakistan faces significant challenges on the debt rollover. To this end, during 5MFY23, the gross inflow (including US$1.2 billion from IMF) has been only US$4.9 billion, while the amortization payments have been US$4.1 billion. The market has been jittery and analysts expect the volatility to continue throughout CY23.

As per the central bank, the recent flooding will impinge the country’s real economic activity through various channels, where the losses in agriculture sector arising from the damages to crops and livestock are likely to reverberate through the rest of the economy.

The current estimates for headline growth are 1.7% while analysts expect only a limited uptick in growth outlook during FY24, despite a low base effect, as the central bank would want to keep the indigenous demand in check to manage external account.

Fiscal side is not much better either. The GoP has targeted to reduce the fiscal deficit to 4.9% of GDP in FY23 from 7.9% in FY22, an outcome that would be achieved through a combination of both revenue and expenditure measures. FY23 has got off to a good start in term of collection with FBR exceeding its collection targets for 5MFY23.

There is currently an impasse over the IMF talks over the disbursement of the next US$1.0 billion tranche, with the fund and local authorities unable to agree on the quantitative targets. Analysts expect fiscal deficit to clock in at 6.5% of GDP, despite higher tax collection.

The GoP and the central bank are anticipated to keep the import bill under the wraps beyond FY23 in order to maneuver space on external front. This may result in interest rates remaining elevated and strict control of opening of L/Cs. The fallout, which may inevitably come as a result of adopting this strategy, will be visible in lower headline growth and tax collection. Analysts anticipate GDP growth to remain subdued beyond FY23.

 

US budget will support proxy wars in 2023

The US Senate has passed legislation for the Pentagon budget next year, whopping US$858 billion. The unprecedented package is US$45 billion more than President Joe Biden had requested and is set to have consequences for global peace and security. The bill passed so easily in both chambers tells about the priorities of Washington. 

The bill is the largest budget in the history of the world. It is about three to four times larger than the budget of China whose population last year was reported at 1.412 billion, in comparison to the 331.9 million of the United States.

It is also a conservative budget as it does not include other aspects of the US military such as America’s nuclear weapons program, which is in the region of trillions of dollars. Nor does it include the Central Intelligence Agency. Last year, Congress gave the CIA US$25 billion more than it asked for.

Experts say this huge US military budget supports a network of global occupation. An occupation that has a military presence that includes Europe, parts of East Asia, in particular Japan and South Korea, nations across West Asia, and parts of Africa.

The amount of money being spent on the military has been met with anger among Americans, especially during this period of economic hardship on the backdrop of a global pandemic and war in Ukraine.

Since 2001, conservative estimates suggest the US has spent at least US$20 trillion on war and military adventurism abroad.

This is while the latest US$858 billion bill has no purpose to protect the people of the United States. Nobody is threatening the US mainland which raises the question of why such a large amount is being spent by Washington on its military. Nearly half of the US discretionary budget is spent on the military.

The diversion of these resources could be used for feeding, clothing, educating, building, and treating Americans back home who are desperately in need of such services.

There is a lack of healthcare or enough housing, adequate food and clean water, or a clean environment inside the United States. These issues are rarely mentioned by the US media.

There has been a very extensive propaganda campaign inside the US in support of the US proxy war in Ukraine, which seems to have won. This campaign is being launched by bipartisan parties in Congress.

This is a war that could have easily been avoided and prevented the suffering of the Ukrainian people as well as citizens across Europe.

The huge amount of money in the military is being used to support the declining US worldwide empire. Washington has to resort to keeping this sinking empire in power and in place through militarism expenditure.

The US is slipping in many ways, as far as being the dominant world power when it comes to economics and finance, and diplomacy. But it does claim to be the world’s leading military power, which other countries can depend on.

History has proven that to be false and such a claim by Washington of being the world’s number one military power is not something to be proud of considering its multiple military defeats.

The budget also allocates funds to send more military aid to Ukraine which raises the question if Washington is seeking to prolong the war.

Experts say the aim is to seek regime change in Russia, in particular, after Moscow sent its forces to Syria to help Damascus fight terrorism.

The idea of dismantling the Russian Federation has been openly talked about at the US state department. It is actively holding public forums in various places with groups that the US claims are repressed nationalities in Russia under the context of liberation movements.

Critics say Washington is doing or trying to do what was done to the Soviet Union in 1991.

But critics also say some policymakers at the US State Department are under the illusion or delusional enough to believe that Washington can re-enact the events of 1991 (when the Soviet Union was dissolved) and have the Russian Federation collapse by expanding NATO.

Washington is playing with fire in Ukraine as Russia says if it sends Patriot missile batteries to Kyiv that means American military personnel would be operating the missile systems.

This could pit Russian forces in direct combat with American forces and could potentially expand the war. Should the US military sustain casualties by Russian retaliatory attacks, this would lead to nowhere but a third world war.

It highlights the instability of America’s delusional policy-making. The US invaded Afghanistan but never succeeded in occupying the country in 20 years with no plans on how to withdraw until it fled in a very chaotic nature in similar scenes to Afghanistan.

The massive military policy bill also includes the authorization of up to US$10 billion in military assistance and fast-tracked weapons procurement for Taiwan.

One think tank says it will allow a regional contingency stockpile that will allow the Pentagon to place weapons in Taiwan (which is part of China) for use if a military conflict with Beijing arises.

The US Indo-Pacific Command’s outgoing Admiral Phil Davidson, before leaving office, said the island chain countries have to be prepared for war. In other words, places like Japan, Taiwan, the Philippines, and others have to prepare for war triggered by the US.

Analysts have interpreted this until today, as meaning that countries surrounding China have to be built up militarily so that if a war occurs with China these countries and regions get hit and suffer casualties as well as destruction.

But Washington needs the same countries and regions to have so much weaponry so they can continue fighting or serve as the basis for the US to continue a war against China until victory.

It highlights how little concern the US has towards those countries and how cold-blooded the US approach to war is.

It also means the United States is disregarding the Shanghai Communique which recognizes on both sides of the strait, everyone recognizes only one China. Now Washington is not treating Taiwan as part of China which is very dangerous.

There has been an ongoing drive to militarize some nations surrounding China, in a similar fashion to Russia.

In Africa, the US is fighting in five or six places in addition to the Ukraine war, the Yemen war, and other civil wars that Washington is waging through various proxies.

The timing of the budget comes at a time when the US national debt stands at around US$31 trillion, which puts into question the thought process of those making decisions in America.

US senators backed the bill overwhelmingly which means there is always consensus on the war in a congress that the US arms companies have the lawmakers their pockets. The military-industrial complex, along with the banks and the oil companies are the only beneficiaries of war.

Unlike healthcare, abortion, gun control, and so many other issues that take so long to pass Congress amid deep divisions between the Republicans and the Democrats, when it comes to militarism, there is no bickering at all.

 

Governor State Bank of Pakistan urges banks to support agriculture sector

Governor State Bank of Pakistan (SBP), Jameel Ahmad, while chairing the annual meeting of Agricultural Credit Advisory Committee (ACAC) in Hyderabad referred to the devastation caused by recent floods and observed that climate change is the biggest long-term threat to the country due to its unforeseen impacts.

He added that while the government, businesses and societies are recognizing such threats, we need to take timely actions and allocate required resources for research and development of relevant products and services and capacity building of stakeholders to address these preemptively.

Governor, appreciated efforts of banks in achieving unprecedented agriculture credit disbursement of Rs1.419 trillion in FY22. He noted that for FY23, the target has been fixed at Rs1.819 trillion, in line with

Government’s priority and added that during first five months of FY23, Rs664 billion have already been disbursed.

He added that Prime Minister of Pakistan has announced the Kissan Package, comprising of restructuring and rescheduling of agriculture loans, mark-up waiver for outstanding small loans in flood affected areas, interest-free loans for subsistence and landless farmers and subsidized loans and risk sharing scheme for farm mechanization, besides other support measures.

Governor SBP elaborated that the package will facilitate recovery of farmers from the impact of recent floods and urged banks to implement the package in letter and spirit. He also assured SBP’s full support to the banks wherever needed.

The Governor also underlined that banks have a huge opportunity to exploit the untapped potential of Islamic agriculture financing with respect to SBP’s recent commitment towards transformation of conventional banking to Islamic banking in the next five years. He noted that the share of Islamic financing in agriculture financing is still quite low and urged the industry to work on developing demand driven Islamic financing products, specifically tailored to the requirements of the farming community.

Governor’s inaugural address was followed by a presentation on the performance of banks in agricultural financing. The ACAC deliberated on the new directions in agricultural financing particularly regarding climate smart agriculture practices and the role that financial institutions can play.

Moreover, the champion banks, nominated by the ACAC to spearhead the efforts in underserved areas, presented the progress in their respective assigned underserved provinces or regions.

The ACAC meeting was attended by senior officials of federal and provincial governments, Presidents/CEOs of banks, members of provincial chambers of agriculture, progressive farmers, representatives of regional farming communities and SBP senior officials.

Pakistan: Agriculture Victim of Catastrophes

Agriculture sector growth of 4.4% in FY22 was not only more than 3.5% seen in FY21, it also surpassed the targeted growth of 3.5%. This was largely due to a considerable increase in the output of important crops and the growth in livestock sector.

Within the crop sector, production of important crops increased by 7.2%. Sugarcane, rice and maize exceeded their targets; whereas, wheat fell short of meeting its target by 2.6 million tons. Cotton, despite higher production than FY21, missed its target by 2.2 million bales.

Fertilizer offtake also remained lower than last year, especially in the Rabi season, when the global prices surged significantly and domestic gas shortages emerged in the winter season.

 Despite this performance, the country had to import food products worth US$9.0 billion, while exports amounted to US$5.4 billion during FY22 – causing a deficit of US$3.6 billion in net food exports.

As the world grapples with rising global temperature, changing rainfall patterns and extreme weather events, the spillover of climate change to food security in regions such as Pakistan is becoming a source of concern for various reasons. The challenges to food security will intensify under climate change from floods, low productivity, poor infrastructure, among other factors.

Pakistan is the 8th most affected country by climate change due to rising global temperatures – losing around 0.5% of GDP in 173 climate-related catastrophes from 2000-2019.

In the worst-case scenario, United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) estimates average annual losses in Pakistan can be more than 9% of GDP, which would be the highest in South-Asia.

Increasing temperatures will significantly increase the risks to Pakistan’s food security since 77.5% of the agricultural production takes place in arid regions where temperatures are likely to increase more than in other climatic zones.

There are multiple channels through which food security will come under stress in Pakistan: 1) little room to expand area under cultivation (in particular for wheat) in the short to medium term under the prevailing technological constraints, 2) availability of water in the Rabi season acting as a constraint in the canal-irrigated areas of Pakistan, 3) land degradation due to imbalanced used of fertilizer and also waterlogging, 4) despite improving wheat yield in Pakistan over the years, climate change is likely to slow down the progress in the future – for instance global wheat yields are likely to drop by 17% globally due to changing weather patterns, 5) incessant population growth rate is posing resource availability challenges and 6 Increased threat of locusts, especially in the rice-wheat farm systems.

India revises gas procurement rules for fertilizer firms

India has revised the gas procurement policy for fertilizer companies, allowing them to buy about a fifth of their monthly needs through the domestic spot market to help the government cut its subsidy bill, reports Reuters.

The federal government provides financial support for domestic fertilizer sales at rates below the market to insulate farmers from high prices and to contain inflation.

The government expects to cut its fertilizer subsidy bill by up to 240 billion rupees if the fifth of companies' supplies is bought through bilateral contracts or gas exchange, said one of the government officials, who declined to be identified.

India, which imports up to 40% of the 50 million tons of fertilizer annually, has been hit hard by rising prices after Russia's invasion of Ukraine disrupted supplies. Russia is a major fertilizer producer.

Early last month, Fertilizers Minister Mansukh Mandaviya said that due to higher global prices, India's fertilizer subsidy bill for the fiscal year would rise to a record 2.25 trillion rupees from about 1.5 trillion rupees the previous year.

"To help rein in the fertilizer subsidy bill for next fiscal, the fertilizer ministry is trying to rework the mechanism of how gas is procured by fertilizer plants," said a second government official, who also declined to be identified.

Both of the officials are directly involved in the issue but are not authorized to speak to media.

The government has amended 2015 gas procurement guidelines under which fertilizer plants had to procure 80% of their gas through long-term contracts, and the balance through three-month tenders, they said.

"Three-month prices are high as there is lot of padding and hedging by suppliers, more so since there is so much volatility in global gas prices," the first official said.

Under the revision, fertilizer companies will have to buy 40% of their supplies under a "take or pay" rule, in contrast to no minimum purchase required under the guidelines previously, the official added.

The "take and pay" rule led to shares of state-run fertilizer companies, National Fertilizers Ltd, Rashtriya Chemicals and Fertilizers Ltd, falling by 4% to 5% after the news, under performing the broader index.

Fertilizer plants can source gas through the Indian Gas Exchange and inter-company contracts. The new rule also allows fertilizer companies to withdraw tenders if they feel the bidding has led to higher-than-expected prices.

Fertilizer plants bought gas at US$38 per million British thermal units (mmBtu) for supply in the October-December quarter through a tender. The maximum price quoted in the tender was US$55 while gas was available at the Indian Gas Exchange and bilateral markets for US$15 to US$20 per mmBtu.

Asia's third-largest economy needs crop nutrients to feed its huge agriculture sector, which employs about 60% of the workforce and accounts for 15% of nearly US$3 trillion economy.

OGDCL makes oil and gas discovery in Sindh

Barely three days after it conveyed the discovery of oil and gas reserves from its exploratory well in Sindh, has Oil and Gas Development Company Limited (OGDCL) announced similar development from its exploratory well located in Sindh also.

In a notice sent to the Pakistan Stock Exchange (PSX) on Thursday, the company, one of the largest oil and gas exploration companies in Pakistan, announced, “The Joint Venture of Sinjhoro Block comprising OGDCL as operator (76%), Orient Petroleum (19%) and Government Holdings (GHPL) (5%) has discovered oil and gas from an exploratory well namely Kot Nawab-1 which is located in District Sanghar, Sindh Province”.

The oil and gas exploration company said Kot Nawab-1 was spudded-in on June 03, 2022 as an exploratory well by using OGDCL's in-house expertise.

“The well was drilled down to 3,000 meters. Based on the results of wireline logs interpretation, Drill Stem Test-1 in the Basal Sand has tested 125 barrels of oil per day (bopd) and 0.483 million standard cubic feet per day (mmscfd) gas and 400 barrels of water per day (bwpd) through choke size 28/64 at well head flowing pressure (whfp) of 150 pounds per square inch (psi),” read the notice.

The said development is the eleventh discovery in Sinjhoro Block, said OGDCL, which shows the commitment of Sinjhoro JV to exploit the hydrocarbon (HC) potential of the block and aggressive exploration strategy.

“It has opened a new avenue and will positively contribute to mitigating energy demand and supply gap from indigenous resources and will add to the hydrocarbon reserves base of OGDCL and the country,” said the Company announcement.

The discovery comes as Pakistan faces an energy crunch, as its reserves continue to deplete, while the country struggles to obtain fuel cargoes.

Just days ago, OGDCL had announced the discovery of oil and gas from its development cum exploratory well namely Chak-5 Dim South-3, which is also located in District Sanghar, Sindh.

 

Hybrid wheat hitting United States

Global seed maker Syngenta will release a new type of wheat developed with complex cross-breeding techniques in the United States next year, beating out rival companies that are also trying to develop higher yielding wheat at a time of diminishing global grain supplies, reports Reuters.

The hybrid wheat, which combines positive traits from two parent plants, arrives after severe weather slashed grain harvests and the Ukraine war disrupted shipments to hungry importers, sending prices to record highs this spring.

Syngenta, which began working on hybrid wheat in 2010, told Reuters enough seeds will be on the market next year for US farmers to plant about 5,000 to 7,000 acres.

Though a tiny fraction of the nation's plantings, the previously unreported total represents the company's biggest ever release of hybrid wheat. It could open the door for larger seedings in 2024 and beyond, as war and climate change make the world's food supplies increasingly vulnerable.

Growers of corn and other crops like barley have long benefited from hybrid seeds boosting yields. The road to market has been extra slow for wheat because the development process is more costly and difficult, and companies saw lower potential for returns, researchers said.

Benefits of the new crop are still not certain. Three independent seed companies that produced hybrid wheat this year under agreements with Syngenta told Reuters they were unsure the crop will deliver game-changing results for growers. They added that it will take longer to determine how to cost effectively produce the best seeds.

Syngenta's French unit told Reuters the company postponed the launch of a similar type of wheat tested in France following disappointing results. The United States and French hybrids were tailored for local growing conditions, which can include threats from plant diseases and the need to meet quality standards for milling and baking, the company said.

Chinese-owned Syngenta said its US wheat, to be sold under the AgriPro brand, could increase yields by as much as 12% to 15% and make crops more stable, adding that it is attracting strong interest from farmers.

Wheat "is the only major food crop that has not yet benefited from significant technification. Hybrids will change this," said Jon Rich, Syngenta Seeds' head of North America cereals operations.