IMF Agreement, Energy Prices, Eid Festivities, Cotton Prices, Flood Advisory, FDI & Tax Collection

TOPLINE

• Pakistan and the International Monetary Fund (IMF) have reached a $3 billion nine-month Stand-By Arrangement (SBA) as the country failed to complete its previous Extended Fund Facility (EFF) program.
• The price of High Speed Diesel (HSD) has been increased by Rs 7.50 per liter to Rs 260.5. The new price of an LPG cylinder is set at Rs 2,092.13, down from Rs 2,321.67 in June. Pakistan's fuel oil exports have surged to a record 278,000 tonnes in the current financial year, compared to 48,985 tonnes in the previous year.
• Pakistan is also expected to notify an increase in gas sale prices by 45-50% and electricity base tariffs by Rs 3.50 to over Rs 4 per unit for the fiscal year 2023-24 before the IMF Executive Board's meeting on July 12.
• Despite the economic crisis in Pakistan with minimal growth, high inflation, and a devalued currency, Pakistanis adjusted their budgets and opted for mainly cost-sharing measures, such as joint sacrifice of cows.
• During the two Eid Ul Azha holidays, the cotton market experienced a significant crash, with rates dropping by Rs 1,500 to Rs 1,700 per maund. It is anticipated that the prices of Banola, Khal, and Banola Oil will also decrease.
• The Pakistan Meteorological Department has issued a nationwide advisory warning of heavy rain, hailstorms, and urban flooding starting from Monday night and lasting until July 8 in the Central and Upper regions of the country.
• Foreign investment in Pakistan declined by 80.4% to $313.1 million during the first 11 months of the FY. FBR has achieved a milestone by collecting Rs 7 trillion in revenue until June 26, 2023 albeit with a Rs 540 billion shortfall.

COMMODITIES - CROPS, LIVESTOCK & HORTICULTURE

• Untreated Sewage Used in Vegetable Farming: Despite strict directives from the Sindh High Court against the cultivation of vegetables using sewage, a report from the Sindh Food Authority (SFA) has revealed that this practice is still taking place on the Malir River, outside Karachi. The use of untreated sewage in vegetable cultivation poses health risks, including the potential for diseases such as hepatitis and cancer. The SFA report aims to regulate the food business and ensure compliance with relevant laws. [Dawn]
• A Cow-Based Eid: Despite a severe economic crisis in Pakistan with minimal growth, high inflation, and a devalued currency, Pakistanis refused to let go of the festive spirit during Eid. They adjusted their budgets and opted for cost-sharing measures, such as joint qurbani of cows, to make the most of the celebrations. While there was a decrease in spending compared to previous years. [Dawn]
• Hides Quality Concerns & Support: Religious and philanthropic groups in Pakistan are struggling to collect skins and hides during Eid as tanners show little interest in low-quality hides. Strict protocols and limited door-to-door collection efforts have hindered their efforts. Inexperienced butchers have compromised the quality of hides by not properly peeling the skin and leaving behind cuts and meat pieces. The hot and humid conditions further deteriorate hide quality. As a result, traders in Rawalpindi are experiencing a decline in the number of skins and hides being brought to them. [Dawn]
• Cotton Market: During the two Eid Ul Azha holidays, the cotton market experienced a significant crash, with rates dropping by Rs 1,500 to Rs 1,700 per maund. According to Naseem Usman, Chairman of the Karachi Cotton Brokers Forum, the market witnessed an unusually bearish trend during this period. In Sindh, the price of cotton reached Rs 16,200 per maund after a decrease, while the price of Phutti per 40 kg decreased to Rs 6,700 to Rs 7,000. In Punjab, the price of cotton ranged from Rs 16,800 to Rs 17,000 per maund, and the price of Phutti ranged from Rs 7,200 to Rs 8,500 per 40 kg. It is anticipated that the prices of Banola, Khal, and oil will also decrease. [BR]
• Oilseeds, Nuts & Kernels Export: Rs 1.01 billion was the export value of oilseeds, nuts and kernels in May 2023, down 6.06% compared to Rs 1.07 billion in May 2022, according to the Pakistan Bureau of Statistics. [ET]
• Import of Worn Clothing: Rs 10.1 billion was the import value of worn clothing in May 2023, up 104.5% from Rs 4.9 billion in May 2022. [ET]
• Saudi Arabia & UAE Eye Key Sectors in Pakistan: Saudi Arabia and the United Arab Emirates have expressed interest in investing heavily in Pakistan's information technology, agriculture, and mining sectors, with planned funds of $24 billion and $22 billion respectively. [BR]

AGRI-INPUTS, WEATHER, WATER & POWER

• Pakistan Braces for Heavy Rain & Flooding: The Pakistan Meteorological Department has issued a nationwide advisory warning of heavy rain, hailstorms, and urban flooding starting from Monday night and lasting until July 8. The advisory urges district administrations to stay alert and take necessary precautions to prevent flood-like situations. The affected areas include various regions in Islamabad, Rawalpindi, Kashmir, Gilgit-Baltistan, Khyber Pakhtunkhwa, Punjab, and Balochistan, with the possibility of hill torrents hitting Balochistan. [BR] [Dawn] [ET]
• Unprecedented Fuel Oil Exports: Pakistan's fuel oil exports have surged to a record 278,000 tonnes in the current financial year, compared to 48,985 tonnes in the previous year. The increase in exports was driven by huge stockpiles at refineries and declining local consumption due to power plants prioritizing cheaper fuels, such as gas, for electricity generation. [The News]
• LPG Prices Decreased: The Oil and Gas Regulatory Authority (Ogra) has announced a reduction in the prices of LPG, with a decrease of Rs 229.54 per 11.8kg domestic cylinder, effective from July 1, 2023. The new price of an LPG cylinder is set at Rs 2,092.13, down from Rs 2,321.67 in June. This price reduction is attributed to the decline in international prices. [BR]
• High Speed Diesel Price Increases: The federal government of Pakistan has announced that the price of petrol will remain unchanged, while the price of High Speed Diesel (HSD) has been increased by Rs 7.50 per liter to Rs 260.5, effective from July 1, 2023. [BR]
• Energy Price Hike Expected: Pakistan is expected to notify an increase in gas sale prices by 45-50% and electricity base tariffs by Rs 3.50 to over Rs 4 per unit for the fiscal year 2023-24 before the IMF Executive Board's meeting on July 12. This increase in energy prices is a requirement for the $3 billion program under the Stand-By Arrangement (SBA) agreed with the IMF. The Oil and Gas Regulatory Authority (Ogra) has already announced the increase in gas prices for consumers of Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC), but the government has yet to officially notify the price hike for the upcoming financial year. The accumulated shortfalls of SNGPL and SSGC from previous years also pose additional challenges. [The News]
• Grants Exemption for LPG Procurement: The Federal Cabinet of Pakistan has granted an exemption to Sui Southern Gas Company LPG Pvt Ltd (SLL) from the Public Procurement Rules, 2004, allowing them to procure 20,000 MT of Liquefied Petroleum Gas (LPG) cargoes on a spot basis per month from April to September 2023. The decision aims to facilitate the procurement of LPG and ensure the availability of the commodity during the specified period. [BR]
• Flood Conditions: The Federal Flood Commission (FFC) has reported that the River Kabul is experiencing low flood conditions in Nowshera, while the rivers Indus, Jhelum, Chenab, Ravi, and Sutlej are flowing at normal levels. The combined live storage of major reservoirs, including Tarbela, Chashma, and Mangla, is currently at 7.135 MAF out of a total capacity of 13.443 MAF. The Flood Forecasting Division (FFD) in Lahore has stated that a trough of Westerly Wave has moved away eastwards, while a seasonal low pressure system persists over Northwestern Balochistan. Mild moist currents from the Arabian Sea are reaching the upper parts of the country up to an altitude of 3000 feet. [BR]
• Flood Protection Project Approved: The Executive Committee of the National Economic Council (Ecnec) of Pakistan, chaired by Finance Minister Ishaq Dar, has approved infrastructure and water projects worth over Rs 280.53 billion. Among the projects approved is the "Umbrella PC-I of the Flood Protection Sector Project-III (FPSP-II)" by the Ministry of Water Resources, with an updated cost of Rs 194,625 million. [BR]
• Tractor Prices Surge: Tractor prices in Pakistan saw a significant increase in the past fiscal year, despite achieving a higher level of localization in production. Assemblers and vendors attribute the stability in prices to the use of locally made parts. For example, the prices of Al-Ghazi and Millat Tractors models have risen between July-March FY22 and the first nine months of FY23. The increase in prices has been defended by Punjab-based tractor assemblers, who point out changes in sales tax regulations as a contributing factor. [Dawn]
• IRSA Water Release: 251,600 cusecs of water was released from various rim stations on Sunday. [ET]
• Funding Commitment for Reko Diq Project: The Economic Coordination Committee (ECC) of the Cabinet has granted a Technical Supplementary Grant (TSG) of Rs 1.238 billion to fulfill the Government of Pakistan's commitment towards funding Balochistan Mineral Resources Limited's (BMRL) contribution in the Reko Diq project for the fiscal year 2022-23. [BR]

AGRI UPDATES & PAKISTAN POLICY

• Pakistan & IMF Reach $3 Billion Stand-By Arrangement: Pakistan and the International Monetary Fund (IMF) have reached a $3 billion nine-month Stand-By Arrangement (SBA) as the country failed to complete its previous Extended Fund Facility (EFF) program. The new agreement is subject to approval by the IMF Executive Board, with a decision expected on July 12, 2023. The SBA aims to stabilize Pakistan's economy, address external shocks, maintain macroeconomic stability, and provide a framework for financing from bilateral and multilateral partners. The news of the agreement has received a positive response from foreign investors, with Pakistan's dollar bonds rallying. The stock market rose by over 2,000 points as well. The agreement is a separate program from the previous one that ended on June 30 and will assist during the transition to a new government. [BR] [The News]
• Political Alliances & Power-sharing: Leaders from Pakistan Muslim League-Nawaz (PML-N) and Pakistan People's Party (PPP) held meetings in the United Arab Emirates, where they reached a consensus on various issues, including the selection of caretaker officials and a power-sharing arrangement if both parties win the upcoming election. The discussions also involved the potential return of Nawaz Sharif to Pakistan, with speculations suggesting a possible return on August 14 if matters regarding his legal cases are resolved. [Dawn]
• Historic Revenue Collection: Finance Minister Ishaq Dar announced that the Federal Board of Revenue (FBR) has achieved a historic milestone by collecting Rs 7 trillion in revenue until June 26, 2023. However, there is a projected shortfall of at least Rs 540 billion against the revised target of Rs 7,640 billion for the current fiscal year. [BR]
• Foreign Investment Profits Repatriation Plummets: According to the State Bank of Pakistan (SBP), repatriation of profits and dividends on foreign investment in Pakistan has declined by 80.4% to $313.1 million during the first 11 months of the current fiscal year. The decrease is evident in both foreign direct investment and portfolio investment, with multinational companies and foreign investors repatriating $59.7 million in May, a higher amount compared to the previous month but significantly lower than the previous year. [The News]

INTERNATIONAL – OVERVIEW & MARKET OUTLOOK

• Treasury Secretary Yellen's Diplomatic Trip to Beijing: Treasury Secretary Janet L. Yellen is traveling to Beijing this week in an important diplomatic test for the Biden administration. The trip aims to improve relations with China while pursuing an economic strategy to reduce US companies' dependence on Chinese factories. Yellen's visit comes as China's economic recovery shows signs of slowing, and the US administration prepares to announce new restrictions on American investment in Chinese technology industries. During her four-day visit, Yellen is expected to engage in multiple meetings with China's new leadership team, focusing on topics such as the global economy, debt relief for developing countries, and potential collaboration on climate change. [WP]
• Leviathan Gas Field to Receive Third Undersea Pipeline: A consortium consisting of NewMed Energy, Chevron Mediterranean Limited, and Ratio Energies will construct a third undersea pipeline to increase output from the Leviathan natural gas field off the Israeli coast. The $568 million project aims to enhance production capacity from 12 billion cubic meters to nearly 14 billion cubic meters per year, with the pipeline expected to become operational in the second half of 2025. The Leviathan field, discovered in 2010, is a major source of natural gas for Israel, Jordan, Egypt, and potentially global markets. [BR] [TOI] [Barron’s]
• IMO Meeting to Tackle Shipping's Environmental Impact: Global shipping networks and their significant carbon footprint will be the focus of discussions at the upcoming International Maritime Organization (IMO) meeting. Pressure is mounting for nations to set ambitious emission reduction targets and consider implementing a pollution tax on the shipping sector. Climate-vulnerable nations, particularly Pacific islands, are expected to advocate for urgent action, while some richer countries and major exporters like China may present challenges to reaching a consensus. [Dawn]
• Intensifying Violence in Sudan: Clashes between Sudan's army and the paramilitary Rapid Support Forces (RSF) have escalated, marking the 12th week of the ongoing conflict in the capital and western regions. The violence, characterized by air and artillery strikes, as well as small arms fire, has intensified in cities like Omdurman and Khartoum. The prolonged conflict not only exacerbates the existing humanitarian crisis but also raises concerns about the involvement of regional actors. [BR] [Dawn] [Al Jazeera] [France 24] [AN]
• Russian Troops Advance in Eastern Ukraine: Ukraine has reported that Russian troops are advancing in four areas in the eastern part of the country amid intense fighting. Deputy Defence Minister Ganna Maliar stated that the Russian troops were moving forward near Avdiivka, Mariinka, Lyman, and Svatove, and described the situation as "quite complicated." Ukrainian forces have been making gradual progress in their counteroffensive and have called for increased military support from Western allies. Additionally, Ukrainian officials revealed that Russia conducted its first drone attack on the capital city of Kyiv in 12 days. [BR] [Al Jazeera] [Al Arabiya]
• Saudi Aramco CEO Optimistic about Oil Market: Saudi Aramco's CEO, Amin Nasser, expressed confidence that market fundamentals for the second half of the year remain strong, citing robust demand from emerging markets such as China and India. However, other executives at the Energy Asia conference had differing views, with Malaysia's state oil firm Petronas reporting a slowdown in demand and increased refinery capacity putting pressure on the market. Despite varying opinions, Nasser believes that overall, the oil market fundamentals are generally favorable for the remainder of the year. [BR]
• Oil Prices: According to a Reuters poll, oil prices are expected to face challenges this year due to global economic headwinds, despite potential gains from a rebound in China and OPEC+ production cuts. The survey of economists and analysts predicts that Brent crude will average $83.03 per barrel in 2023, slightly lower than the consensus of $84.73 in May. The forecast suggests that Brent crude will reach $83.28 in the third quarter before surpassing $86 in the following two quarters. Similarly, projections for US crude have been revised downward to $78.38 per barrel from last month's estimate of $79.20. [BR] [Reuters]
• Indian Export Rates Hit Five-Year High: India experienced a surge in rice prices this week due to limited supplies and the government's decision to increase the minimum paddy buying price. The 5% broken parboiled rice variety reached a five-year peak, trading at a range of $409-$416 per tonne. This increase marks the highest level since May 2018 and represents a rise from the previous week's range of $397 to $405 per tonne. The limited availability of paddy for processing has contributed to the upward movement in prices. Additionally, demand from African buyers has moderated at these higher price levels. Earlier this month, India raised the price at which it purchases new-season common rice paddy from farmers by 7%. [BR]
• Inflation in Sri Lanka Hits Lowest Level: Sri Lanka's inflation rate in June dropped to 12%, after the government secured a $2.9 billion bailout from the IMF in March, which ease the crisis. Inflation has been decreasing, reaching its lowest level since November 2021. The government unveiled a debt restructuring plan offering a 30% reduction for international bondholders. [BR]

PAKISTAN - REMAINDERS

• Karachi, FATA among nine new provinces proposed. [Dawn]
• PKR Depreciation: 27.8% is the depreciation of Pakistani rupee recorded from June 2022 till April 2023. [ET]
• Opinion: What Would Default Look Like? - “A number of voices have been claiming that Pakistan defaulting would not be as bad as is being made out by the doom-and-gloom brigade and have even advocated it as a panacea, somehow, to the country’s mounting economic woes. What does default really mean? And what would it actually look like? Recent scenarios in Lebanon, Sri Lanka and Zambia give us a glimpse of what we could expect” - By Khurram Husain [Dawn]
• Opinion: Effects of currency devaluation on agri - “The Pakistani rupee has lost over 125 percent of its value against the US dollar, sliding from Rs 125 per dollar in June 2018 to Rs 285 per dollar in June 2023. Several key factors have contributed to this situation, including a substantial trade deficit, diminished foreign exchange reserves, reduced foreign investment and the heavy burden of foreign debt servicing. These factors have had a detrimental impact on Pakistan’s fragile economy, adversely affecting the overall economic landscape.” - By Khalid Saeed Wattoo & Rahema Hasan [Dawn]
• Opinion: Focus on Food - “COP27 saw a step change in the focus on food systems as a vital sector for climate action, but investment and policies continue to fall far short. In the lead-up to COP28, the June discussions in Bonn made significant progress in the first week but encountered a breakdown regarding the establishment of a coordination group for collaborative efforts on agriculture and food security. The negotiations concluded with a procedural outcome that is expected to be followed with a draft text in Dubai for delivery of a food system transformation that ensures sustainable food security.” - By Aisha Khan [Dawn]

Opinion: Criticality of foreign investment - “Pakistan needs FDI (foreign direct investment) for one reason: FDI companies are directly involved with day-to-day tasks in the country, resulting in a systematic transfer of foreign exchange, knowledge, skills, and technology transfer into the country. Their models of business governance, best international practices of systems and procedures, quality and standards, set the benchmark for the local investors to compete in the market. Foreign companies’ branding in Pakistan is indeed the branding of Pakistan that provides motivation and comfort to prospective or potential investors to invest in Pakistan. When a foreign company exits the market or down-sizes its operations in the country, it takes all of it with it.” - By Farhat Ali [BR]