Pak Borders Rules, KE Tariff & Petroleum Div. Ask, New Cotton Season, Pak Debt & Borrowing, CPEC & IMF SLA, BD & PNG Natural Disasters.

TOPLINE

• Pakistan and Iran will now keep the Taftan and Gabd borders open 24/7. The government will strictly enforce the Afghan Transit Trade (ATT) rules, requiring cargo to use only agreed routes and mandating transport operators to register for Temporary Entry Documents (TED).
• K-Electric has proposed a 76% increase in its base tariff, aiming to raise it to Rs 44.69 per unit under the Multi-Year Tariff (MYT) mechanism for the period from FY 2023-24 to 2029-30. The Petroleum Division seeks Rs 260 billion in the next budget to clear circular debt from RLNG diversion to the domestic sector, as urged by the IMF to ensure ample gas availability.
• The new cotton season has begun, with some factories operational. Cotton prices range from Rs 20,400-21,000/ maund, Phutti from Rs 9,500-10,700/40 kilograms. Heat affects sowing, but international cotton prices are rising.
• The federal government is considering sharing debt servicing and electricity circular debt with provinces, as they have refused to revisit their share under the NFC Award. Pakistan borrowed $7.142 billion in the first 10 months of fiscal year 2023-24, compared to $8.123 billion in the same period last year.
• Pakistan seeks Chinese funding of $17 billion for three electricity projects and proposes seven infrastructure schemes, potentially expanding the China-Pakistan Economic Corridor (CPEC). The IMF and Pakistani authorities are close to reaching a Staff Level Agreement (SLA) on an economic reform program eligible for support under an Extended Fund Facility (EFF).
• Cyclone Remal hit the low-lying coast of Bangladesh on Sunday, prompting nearly a million people to seek shelter inland from the fierce winds and waves. Over 670 people are feared dead in Papua New Guinea's massive landslide, with ongoing rescue efforts.

AGRI-UPDATES - COMMODITIES, POLICY & DEVELOPMENTS

• New Cotton Season Begins: The new cotton season has begun, with some factories operational. Cotton prices range from Rs 20,400-21,000/ maund, Phutti from Rs 9,500-10,700/40 kilograms. Heat affects sowing, but international cotton prices are rising. APTMA must ensure standard cotton production. Dr. Yusuf Zafar's appointment as Vice President of the Pakistan Central Cotton Committee is a positive move. [BR] [Dawn]
• Pakistan Emerges as Top Coarse Rice Exporter: Pakistan has become a leading global exporter of coarse rice, with exports increasing by 80% in the first 10 months of the current fiscal year. This growth follows upward revisions in Minimum Export Prices by the Ministry of Commerce, despite challenges such as high export refinance and policy rates, and a stable rupee against the dollar. [ET]
• Perishable Goods Prices Fluctuate: Last week, official prices of perishable goods varied, with some rising, others stable, and a few dropping. Consumer prices remained high due to regulatory oversight issues. Live chicken prices fell by Rs 34/kg to Rs 250-260 but sold for Rs 300-330/kg, while poultry meat prices dropped by Rs 51/kg to Rs 377 but sold for Rs 390-530/kg. [ET]
• Call to Increase Tobacco Tax: Speakers called on the FBR to implement the Health Ministry's recommendation for raising tobacco taxation in FY 2024-25. SPARC organized a policy dialogue on tobacco taxation, highlighting both the tobacco industry's economic contribution to Pakistan and the health costs associated with tobacco use. [BR]
• APFVEA Advocates for Horticultural R&D: The APFVEA emphasized the need for R&D to introduce new horticultural varieties in its budget proposals for fiscal year 2024-25. Waheed Ahmed, APFVEA Patron-in-Chief, specifically called for developing new varieties of fresh mandarin (kinnow) to boost citrus fruit exports, proposing an allocation of Rs200 million for this purpose. [ET]
• Textile Sector Import: Rs 10.4 billion was the import value of synthetic fiber in April 2024, up 13.7% compared to Rs 9.15 billion in April 2023. [ET]
• Vegetable Export: Rs 9.09 billion was the export value of vegetables in April 2024, up 20.59% compared to Rs 7.54 billion in April 2023, according to the Pakistan Bureau of Statistics. [ET]

ENERGY - WEATHER, WATER & POWER

• Hot Weather to Persist: Karachi May Reach 40°C+ - A weather official stated that the current hot weather spell is expected to persist until June 4-5, with temperatures possibly reaching 40 degrees Celsius or above in Karachi from May 29-31. Chief Meteorologist Sardar Sarfaraz warned of maximum temperatures of 40-42 degrees Celsius during this period. [ARY] [Dawn]
• Afghan Transit Trade: The government will strictly enforce the Afghan Transit Trade (ATT) rules, requiring cargo to use only agreed routes and mandating transport operators to register for Temporary Entry Documents (TED). Afghan goods must follow specific routes, with transport operators registering at Peshawar and Quetta for TEDs. [ET]
• IMF Urges OGRA's Independent Pricing: The IMF urged the government to let OGRA independently set gas prices twice a year to curb rising gas circular debt and align tariffs for Captive Power Plants with RLNG by January 1, 2025. The ECC had approved OGRA's authority to set prices without government interference. [The News]
• Ministry Denies Fertilizer Subsidy Withdrawal: The Ministry of Industry and Production refuted claims of withdrawing gas subsidies for fertilizer companies, stating it was not on the cabinet's agenda. Gas prices for fertilizer firms will be determined by the ECC following past rules to prevent price hikes, urging against speculation. [ARY] [ET]
• Sharif Rejects FBR's Tax Proposals: Prime Minister Shehbaz Sharif rejected two key budget proposals by the FBR: raising the sales tax from 18-19% and imposing an 18% tax on petroleum products. The FBR aimed to generate extra revenue, but the Prime Minister opposed due to concerns about immediate inflationary effects on the public. [BR]
• K-Electric Proposes 76% Tariff Increase: K-Electric has proposed a 76 percent increase in its base tariff, aiming to raise it to Rs 44.69 per unit under the Multi-Year Tariff (MYT) mechanism for the period from FY 2023-24 to 2029-30. The adjustments include increases in various components such as the cost of power, transmission charges, distribution charges, O&M, retail margin, recovery loss allowance, and working capital. [BR]
• Petroleum Division Seeks Rs 260 Billion for Circular Debt: The Petroleum Division seeks Rs 260 billion in the next budget to clear circular debt from RLNG diversion to the domestic sector, as urged by the IMF to ensure ample gas availability. This debt, totaling Rs 260 billion from FY19 to FY22, contributes to the gas sector's total circular debt of Rs 2.9 trillion. [The News]
• Government Ends Fertilizer Gas Subsidy: The federal government has decided to stop subsidized gas for the fertilizer industry, including urea, aligning with IMF demands. This was decided during a recent cabinet meeting, where ECC decisions from May 7, 2024, were discussed, focusing on fertilizer requirements for Kharif 2024. Cabinet discussions centered on providing subsidies directly to farmers. [BR]
• Neelum-Jehlum Hydropower Project Inquiry: The prime minister's inquiry into the recent technical fault at the Neelum-Jehlum Hydropower Project is just the start. Authorities must take immediate action beyond waiting for results, given the project's past major breakdown in July 2022 due to cracks in the tail race tunnel, which took 13 months to resolve. [BR]
• Karachi Approves Groundwater Regulations: The provincial government approved regulations by Karachi Water and Sewerage Corporation to manage subsoil water extraction and prevent illegal usage for industrial and commercial purposes. The Groundwater Regulations-2024, gazetted on May 16, include issuing two-year licenses for underground water extraction in industrial areas and installing meters on all boreholes. [Dawn]

PAKISTAN - ECONOMICS, POLITICS & SECURITY

• IMF, Pakistan Near Agreement: The IMF and Pakistani authorities are close to reaching a Staff Level Agreement (SLA) on an economic reform program eligible for support under an Extended Fund Facility (EFF). Led by Nathan Porter, an IMF team visited Islamabad from May 13-23, 2024, to discuss Pakistan's plans for an IMF-supported economic program. [BR]
• PML-N & PPP Urge PTI to End Protests: The PML-N and PPP, part of the ruling coalition, have urged the PTI to end street protests and engage in political dialogue. Acting President Yousuf Raza Gilani and Planning Minister Ahsan Iqbal emphasized the government's openness to talks, with the PTI needing to decide on negotiation partners. [ET]
• Finance Ministry Gathers Public Asset Data: The Finance Ministry is collecting reliable data on public assets to share with the IMF for public financing. The IMF has recommended addressing inconsistencies in the data, which is currently decentralized, hindering planning for public investment and maintenance budgeting. [BR]
• Finance Bill 2024: Tax Law Reforms - The Finance Bill 2024 is set to introduce significant changes in tax laws, including raising costs for non-filers and enforcing measures expected to generate Rs 300-400 billion in 2024-25. It will also empower the FBR's Directorate General of Digital Invoicing to document major businesses' supply chains, with budget proposals drafted for the next fiscal year. [BR]
• Debt & Circular Debt Share Debate: The federal government is considering sharing debt servicing and electricity circular debt with provinces, as they have refused to revisit their share under the NFC Award. However, reaching a consensus on a new formula seems unlikely due to provinces' unwillingness to compromise on their share, according to former state minister for finance Dr. Aisha Ghaus Pasha. [BR]
• Pakistan's Fiscal Borrowing Trends: Pakistan borrowed $7.142 billion in the first 10 months of fiscal year 2023-24, compared to $8.123 billion in the same period last year. In April 2024, $237.24 million was received, down from $358.61 million in April 2023. However, the EAD data doesn't reflect the $3 billion received under the IMF Stand-By Arrangement. [BR]
• KP Government Reveals Rs 1.7 Trillion Budget: The PTI-led Khyber Pakhtunkhwa government unveiled its Rs 1.7 trillion budget for FY25, featuring a Rs 416 billion development outlay, prioritizing social protection, law and order, and economic development. Presented before the federal budget, it projects a surplus of Rs 100 billion and marks a 21% increase in expenditure from FY24. [Dawn]
• Pakistan-Iran Border Open 24/7: Pakistan and Iran will now keep the Taftan and Gabd borders open 24/7, a move aimed at boosting bilateral trade and local businesses. Ambassador Mudassir Tippu announced this on social media, expecting a surge in the flow of goods and broader economic prospects. [BR]
• Minister Attributes Bisham Attack to TTP: Interior Minister Mohsin Naqvi attributed the March 26 suicide attack on Chinese engineers in Bisham to the leadership of the banned Tehreek-i-Taliban Pakistan (TTP), based in Afghanistan, and hostile foreign intelligence agencies. He stated that the attack was planned in Afghanistan and executed with the help of handlers and facilitators in Pakistan. [Dawn]
• Pakistan Seeks Chinese Funding for Infrastructure Expansion: Pakistan seeks Chinese funding for three electricity projects and proposes seven infrastructure schemes, potentially expanding the China-Pakistan Economic Corridor (CPEC). The projects include the Diamer Basha dam, Hyderabad-Sukkur motorway, Mainline-I project of Pakistan Railways, and four roads and bridges, valued at over $17 billion, with $4.5 billion allocated for energy schemes. [ET]
• PSX Hits Record High: During the week ending May 24, 2024, the Pakistan Stock Exchange hit its highest-ever level, with the KSE-100 index surging by 640.69 points to close at 75,983.04 points. This was fueled by strong buying from local and foreign investors, alongside institutional support. While trading volumes slightly increased, the average daily traded value declined. [BR]

INTERNATIONAL - MARKET, POLITICS, SECURITY & DEVELOPMENT

• Hamas Launches Rocket Barrage at Tel Aviv: Hamas launched a "large rocket barrage" at Tel Aviv on Sunday, triggering sirens in the Israeli city for the first time in four months. This action by the Palestinian group aimed to demonstrate military strength amid Israel's Gaza offensive. In response, Israeli strikes killed at least five Palestinians in Rafah, with tanks probing around the city's edges near the main southern crossing point into Egypt. [Dawn]
• Iran Plans to Boost Oil Output: Iran has approved a plan to increase its oil output to four million barrels per day, according to the country’s Tasnim news agency. The plan, approved by an economic council headed by interim president Mohammad Mokhber, aims to raise Iran's oil production from 3.6 million to 4 million barrels per day. Iran is a significant producer within OPEC. [BR]
• Devastating Landslide in Papua New Guinea: Over 670 people are feared dead in Papua New Guinea's massive landslide, with ongoing rescue efforts. Initial estimates suggested over 300 people were buried, but the death toll could be more than double that, according to the International Organization for Migration (IOM), due to hazardous conditions hindering aid and rescue operations. [BR] [Dawn]
• EU States Urge Action Against Company Restrictions: Eight EU states urged Brussels to address unfair restrictions by multinational companies on product sales within the bloc, resulting in higher costs for European consumers. This plea follows the European Commission's imposition of a 337.5-million-euro ($366-million) antitrust fine on Mondelez for limiting cross-border chocolate sales. [BR]
• Cyclone Remal Hits Bangladesh: Cyclone Remal hit the low-lying coast of Bangladesh on Sunday, prompting nearly a million people to seek shelter inland from the fierce winds and waves. Bangladesh Meteorological Department Director Azizur Rahman warned that the storm could continue battering the coast until early Monday morning. [Dawn]
• G7 Considers Using Frozen Russian Assets to Aid Ukraine: The G7 finance chiefs plan to explore using future income from frozen Russian assets to aid Ukraine, but details were not provided. Approximately $300 billion of Russian financial assets were frozen by the G7 and allies after Russia's invasion of Ukraine in February 2022. [Dawn]

OPINION(S) & REMAINDERS

• 18,371 shopkeepers have been enrolled under the Tajir Dost Scheme. [BR]
• Opinion: Pakistan’s Energy Sector - “Not only do residential customers have to pay higher rates, but they are also the most major victims of the inefficiencies that are present within the electricity system. This is especially true for families with middle-income families. This is due to the fact that they are required to pay in the event of theft, system losses, subsidies for prominent industry lobbyists, and other charges of a similar kind on each and every unit that they use inside the power sector.” - By Dr. Muhammad Fahim Khan [BR]
• Opinion: The Wheat Procurement Conundrum - “Considering the price support history for wheat in recent years, an exaggerated support price was announced last year, with a 77pc increase from the previous year, 2021-22. Although the minimum support price (MSP) was raised by 77pc for the year 202223, the per 40 kg cost of production was reported to increase by 46pc from Rs 2,105 to Rs 3,075, as per the Agriculture Policy Institute (API). However, with an Rs 3,900 MSP, the market price went as high as Rs 6,500, yielding exorbitant profits for wheat traders and hoarders.” - By Azhar Abbas [Dawn]
• Opinion: Why Should They Suffer from Malnourishment & Poverty? - “As a first step, spatial structure of each village was established: village communities removed the debris as well as traditional flammable boundary bushes. The extent of each para (cluster of families) and the village itself were delineated. This exercise of chalk markings for the construction of earth walls defined the jurisdiction of a group of families as well as the village periphery.” - By Yasmeen Lari [BR]