Banking Industries Updates

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In a first, Rs4.143tr revenue collected in 11 months

Pakistan’s top tax machinery claimed to have crossed Rs4.143 trillion in 11 months of the current fiscal year against Rs3.536tr collected over the corresponding months of last year indicating a revival of economic activities in the country.

More revenue ranging between Rs15bn and Rs20bn will come into the government kitty in the last two days (May 30-31) of the current month, which will further improve the overall revenue collection in the July-May period of the current fiscal year.

Soon after the revenue collection data was shared with Prime Minister Imran Khan, the premier took to Twitter commending the Federal Board of Revenue (FBR) for crossing a ‘historic milestone’ by collecting more than Rs4 trillion in taxes for the first time in any fiscal year

 

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SBP governor sees national economy growing at around 4%


by The Frontier Post

KARACHI (APP): The governor State Bank of Pakistan, Dr Raza Baqar, has said that Revised growth forecast of 4% demonstrated that central banks policy based on prudent fiscal and aggressive stimulus has been successful.

In an interview with international media on Tuesday he noted that Central bank earlier predicted 3 to 4 percent growth, after seeing the recent data particularly on agriculture output SBP’s revised forecast for fiscal year 2020-21 is also 3.9 percent.

SBP governor said, it comes upon a combination of two factors; one is the central bank’s aggressive stimulus equaling to 5% of GDP and the second one is prudent re-calibration of government spending on the part of fiscal authorities injection in cash program.

It curbed the fiscal deficit and supported market sentiments, he noted.

Investors saw growth in Pakistan unlike other developing economies while calibrated risks by a combination of prudent fiscal and aggressive monetary measures were one of the key factors that underpins the economic turnaround increase in growth to about 4%.

On a query regarding inflation outlook for the country, he said that SBP announced a forecast for inflation several months ago between 7 to 9 percent on average for FY 20-21. Recent estimates see it close to the top end while the most recent print is around 11%.

On a question about the IMF program he said that the program right now is in a stage of pivoting to growth. In recent IMF programs Pakistan has successfully demonstrated that it has stabilized the current account which at the end of previous fiscal year was in deficit of USD 19 billion.

The deficit was converted in the first three quarters of FY 2020-21 into a surplus of $ 900 million.

He said that Foreign exchange reserves of Pakistan were 7.2 billion when the IMF program was started and now reserves held by the central bank were in the range of 16 billion exhibiting an increase of more than double than starting amount.

Increase in net international reserves drawn not by borrowing but by high quality measures, the governor boasted and added that “Now pivoting to growth is critical for any national economic program because you have to show that gains of stabilization are going to reach people in the form of growth.”

IMF in its World Economic Outlook acknowledged that the ratio of Public debt to GDP remained broadly unchanged in Pakistan while in emerging markets the rate grew at 10% of GDP.

On a question on the decision of keeping policy rate unchanged SBP governor informed that the Monetary Policy Committee maintained policy rate at 7 percent while considering COVID related uncertainties,
factors affecting the rate of inflation recently in the shape of food and energy prices and forward guidance.
Baqar said that MPC also decided to maintain current accommodative stance as well but the committee may decide to moderate the extent of accomodative in a gradual and measured manner if signs of demand side pressure emerge. “In the current disease related uncertainties ravaging emerging markets it is more dangerous to withdraw stimulus too soon rather than too late,” he opined.

‘Ehsas’, Pakistan’s cash transfer program is recognized as one of the global successes. The World Bank noted it amongst the top four cash programmes in terms of the number of people reached and among the top three global programmes in terms of shift of population reach.

This program was one of the elements of the government’s strategy to deal with COVID-19, he said adding that in 3 successive waves the government, through administrative measures, has been able to bring down the number of new cases as the rate of new cases is 12 in a million, which is very low compared to other emerging economies.

The second element was Ehsas cash support program and the final one is extensive monetary stimulus that was given by the central bank coming to around 5 percent of GDP, besides the prudent fiscal policy, he maintained.

 

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The bull run at the Pakistan Stock Exchange (PSX) continued on Tuesday as the benchmark KSE-100 Index crossed the 48,000-point level, registering its highest closing in almost four years.

 

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SBP touts Pakistan’s economic recovery, cautions govt over interest payments

• Central bank hails pickup in industrial activity, but flags some areas of concerns

Ali Ahmed
03 Jun 2021

Karachi: Pakistan’s economic recovery that became visible in the first quarter of the outgoing fiscal year strengthened in the next three months, stated the ‘Second Quarterly Report on The State of Pakistan’s Economy’ released on Thursday by the country’s central bank.

However, the State Bank of Pakistan (SBP) report also highlighted some areas of concerns including public debt management, inflationary and import bill pressures. It also pointed towards the growing pace of industrial activity, promising output of major Kharif crops (with the exception of cotton), and a pick-up in the services sector during the review period.

The report covered the period between January and March of 2021, and gives a favourable view of economic activity as Pakistan battled the pandemic.

“The pick-up in economic activity was also reflected in the services sector indicators and a steady improvement in business confidence. At the same time, headline inflation moderated during the period,” read the SBP report.

“These favorable economic outcomes were facilitated by the continuation of the liquidity support measures introduced after the Covid-19 outbreak, as well as by the introduction of supportive sector-specific policies in H1-FY21,” it added.

The report said that large-scale manufacturing (LSM) grew by 7.6 percent during 1HFY21, with its growth in the second quarter accelerating to 10.4 percent, the highest quarterly LSM growth since Q4-FY07.

“Construction-allied and food processing industries generated much of the momentum in industrial activity. The construction industry benefited from the favourable policy environment, which included the government’s fiscal incentives under the construction support package, the Naya Pakistan Housing Scheme, as well as financial measures from the State Bank.”

Within agriculture, most of the major Kharif crops performed better than last year; this improvement was attributed mainly to increases in their areas under cultivation. The government’s support package for Rabi crops, comprising subsidies on key inputs, and an increase in the support price for wheat, are likely to bolster the overall crop sector growth, said SBP report.

However, cotton exerted a drag on the overall agricultural performance, as the revised production estimate of 7.7 million bales represented the lowest output since FY86. Nonetheless, due to better output of other crops, the overall agriculture sector is expected to register positive growth.

As economic momentum picked up and the country successfully navigated the second wave of Covid without resorting to strict mobility restrictions, firms’ demand for credit nearly doubled on YoY basis during 1HFY21. “Specifically, the approved financing under the TERF scheme reached Rs 435.7 billion as of 31st March, 2021. House building loans also increased, after SBP set the mandatory target for banks to increase their housing and construction loans to 5 percent of their overall private sector credit portfolios by end-December 2021.”

In the external sector, the current account posted a surplus of $ 1.1 billion during 1HFY21, driven by record-high workers’ remittances and reductions in the services and primary income deficits.

With the current account in surplus and sufficient external financing available, the SBP’s foreign exchange reserves increased by $ 1.3 billion and its net forward liabilities also reduced by $ 1.2 billion during 1HFY21. Moreover, the rupee appreciated by 5.1 percent against the US Dollar during the period.


Areas of concern

Notwithstanding these positive developments, the report flagged three areas of concern.

“Challenges with respect to public debt management have deepened,” said the report. “Interest payments are now consuming nearly half of the federal revenues and comprise around 53 percent of federal current expenditures

“Also, the rollout of new debt instruments on flexible mark-up has increased the repricing risk for the government. In this context, the government should now recalibrate its policy mix and devise a workable short- and medium-term strategy with well-defined timelines.”

Second, while national CPI inflation declined during 1HFY21 on YoY basis and stayed within the SBP’s projection for the full year, the prices of food items remain vulnerable to supply-side pressures in recent months.

"Third, with the domestic economic activity recovering and global commodity prices rising, import pressures are resurfacing. Moreover, these pressures have been accentuated by the domestic supply-side challenges for major agricultural commodities – cotton, sugar and wheat – which necessitated their imports," stated the report.

 

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Increase in Imports, causing high CAD is worrisome / dangerous

 

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State Bank of Pakistan, Karachi 1960's

 

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Quaid-i-Azam Muhammad Ali Jinnah speaking at the inauguration ceremony of the state bank of Pakistan in Karachi.

 

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Rare photograph
July 01, 1948

Opening the door of State Bank of Pakistan Karachi.

..

 

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100 Rupees currency note.

 

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June 17, 2021

The SBP has now directed banks to provide free of cost digital fund transfer services to individual customers up to, at least, a minimum aggregate sending limit of Rs25,000 per month per account or wallet.


KARACHI: The State Bank of Pakistan on Wednesday allowed banks and other service providers to charge a minimal fee on high-value transactions while the low-income segments of population will continue to use digital transactions free of cost.

After emergence of Covid in the first quarter of 2020 the State Bank took a number of measures to cope with the extraordinary situation and advised banks and other service providers to offer free of cost Inter Bank Fund Transfer (IBFT) services to all their customers regardless of the size of transaction.


The SBP has now directed banks to provide free of cost digital fund transfer services to individual customers up to, at least, a minimum aggregate sending limit of Rs25,000 per month per account or wallet. However, banks may choose to set this aggregate limit at a higher amount as well. This would allow individual customers to make as many free fund transfer transactions remaining within their aggregate monthly limit of free transfers.

For transactions above the aggregate limit of Rs25,000 per account in a month, banks may charge individual customers, a transaction fee of no more than 0.1 per cent of the transaction amount or Rs200, whichever is lower. This will enable service providers to recover part of costs they incur on providing inter-bank fund transfer service and build sustainable and innovative business models.

“Surely banks will make money with this decision while it would be slightly discouraging for the stakeholders. But it is not possible to go back to the chequebook system,” said Samiullah Tariq, Head of research at Pakistan Kuwait Investment (PKI).

At the same time, the digital system provides extra facility to make payment or withdraw cash without going to the bank with stress of bank’s timing in mind, he added.

During the 1st quarter FY21 review, PRISM (Pakistan Real-time Interbank Settlement Mechanism) processed 972,000 transactions valuing Rs92.2 trillion. These transactions showed a quarterly increase of 36 per cent by volume while it showed decrease of 1pc by value.

In addition to the interbank funds transfers (settlement transactions between participating institutions), PRISM has also facilitated customers through its customers’ transfers’ facility which accounts for the largest share of 89pc in the total volume of PRISM transactions whereas the government securities transfers’ facility has the largest share of 65pc in terms of value of transactions as at the end of the 1st quarter.

During the quarter under review, e-banking channels ie RTOBs, ATM, POS, eCommerce, Banking through mobile phone, internet and call centres altogether processed 253.7 million transactions of value Rs19.1tr. In total number of e-banking transactions, ATMs have the highest share ie 53pc in volume of transactions. While in the 2nd quarter of FY21, a total of 296.7m transactions valuing Rs21.4tr were processed. ATMs processed the majority chunk with 51pc.

During the quarter under review, PRISM processed around 1m transactions valuing Rs94.9tr. These transactions showed a quarterly increase of 3pc by value.

Now the situation has improved and encouraging regarding the Covid-19. “In this backdrop, SBP reviewed the current IBFT pricing mechanism and has made some changes to ensure that free of charge IBFT services are provided by banks and other financial institutions on a sustainable basis,” said the circular.

The central bank said that the new instructions encourage banks to provide free of cost digital fund transfer services to their customers to promote adoption of digital payments in the country.

The SBP has also advised banks that all digital fund transfer transactions between different accounts within the same bank (intrabank fund transfers) shall remain free. Further, incoming interbank fund transfer transactions shall also remain free. SBP has further directed banks to ensure proper disclosure of charged and free IBFT amounts along with applicable fees to their customers by sending regular notifications through SMS, apps and email.

After every digital transaction, banks are required to send free of charge SMS to their customers on their registered mobile numbers intimating them about the transaction amount and the charges being recovered.


Published in Dawn, June 17th, 2021

 

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Increased spending on health, education: Govt to seek fiscal space from IMF

• Finance Minister Shaukat Tarin says it would be impossible for Pakistan to come out from the International Monetary Fund programme at this time
• Did not agree to demand of increasing personal income tax to collect additional Rs150 billion, adds ex-banker

Zaheer Abbasi
17 Jun 2021


https://www.facebook.com/sharer/sha...er.com/news/40100803&display=popup&ref=plugin

ISLAMABAD: Finance Minister Shaukat Tarin said that it would be impossible for Pakistan to come out from the International Monetary Fund (IMF) programme at the moment. He stated this during the meeting of the Senate Standing Committee on Finance presided over by Senator Talha Mahmood to discuss the Finance Bill 2021.

He said that he did not agree to the IMF demand of increasing personal income tax to collect an additional Rs150 billion in the next fiscal year, and plainly told them that he would not burden the people already paying taxes and the poor, and would explore other options to increase revenue collection.

Tarin said he would also seek fiscal space of one or two percent from the IMF to increase spending on health and education.

The minister explained that the financing gap of $29 billion had left no other option for the government but to go to the IMF, which means accepting their difficult conditions to increase discount rate, devaluation of exchange rate, and power/gas tariff increase.

“We have gone to the IMF because the country did not have dollars for repayment of past loans,” he said, adding that $10 billion in short-term borrowing was done by the previous government.

The finance minister said it would be impossible for Pakistan to come out from the IMF programme at this point in time.

Tarin said that the economic mess was already created when the present government came to power with a huge current account deficit and an overheating economy.

As a result of the measures taken under the IMF to deal with the overheating economy, there was a slowdown and decline in growth before the Covid-19.

However, Prime Minister Imran Khan’s smart lockdown policy provided support to the economy and the poor, he added.

Now the current account deficit is in surplus since many months, fiscal deficit is being contained, and the stimulus package provided to the industry during Covid-19 has started yielding positive results in industrial sector (large scale manufacturing) and exports, he added.

The minister said that now the strategy is to move on inclusive, sustainable and long-term growth to provide jobs to the people, and public sector development programme spending – Rs900 billion earmarked for the next fiscal year – would help bring about growth in the country.

The finance minister said that he was not in a position to state that growth would be sustainable or not because it would be known only after three to four years, whether the country is heading towards sustainable growth or not.


However, one thing that he can assure the committee that measures being taken in the budget would bring about inclusive growth as for the first time bottom up approach would be adopted, he added.
He said his first priority is to increase revenue, followed by increasing productivity of agriculture and industrial sector as well as exports of textile and IT sectors.

Additionally, he said that investment would be attracted to the CPEC, and the construction industry would be focused on employment creation.

Tarin identified power sector as a major challenge of the economy and the government would be dealing with the capacity payment issue as well as improve performance of distribution companies to privatise them.

Senator Sherry Rehman said that a ‘mini-budget’ has started rolling out following increase in petroleum prices and the IMF programme is being criticised because it was frontloaded that made the life of the common man difficult.

She said that the government was borrowing externally and domestically and added Rs13 trillion to the foreign debt.

Overall debt was increased 55 percent, she added.

In response to Senator Sherry Rehman’s question that this programme was being criticised because it was frontloaded, the minister reminded her that “you and I had [a] discussion on the IMF programme during [the] cabinet meeting in 2008 and I told you if you had other option then go and bring the money (dollars) from someone else”.

He said that the IMF programme does not happen with consensus because “you are borrowers and they are lender”.

The minister said that the present government was borrowing to repay the past loans.

He said that the debt-to-GDP ratio was decreased from 89 percent to 86 percent in one year of the present government when all other countries’ debt-to-GDP ratios were increased due to Covid-19.

In response to a question by Senator Faisal Subzwari, he pointed out that agriculture sector that has a share in the GDP of 22 percent was out of the tax net and the provincial finance commissions have not been constituted.

Later, talking to media persons after the Senate Standing Committee on Finance meeting, Tarin said that the 6th review of the International Monetary Fund (IMF) under the $6 billion Extended Fund Facility (EFF) would take place in September 2021.

He further said that discussion with the IMF are continuing and the next review will take place in September instead of July 2021.

The minister said he has already told the IMF that he cannot burden the people already paying taxes and would not increase power tariff.

Tarin had previously stated that the next review would take place in September, if not possible in July 2021.
Sources said the economic team led by Finance Minister Shaukat Tarin held various rounds of talks with the Fund over video links before the budget to bring budgetary measures within the ambit of the Fund programme.

They added that the power sector and revenue appeared to be the main issues in reaching an understanding with the IMF even though the government assured the fund that it would try to deal with these challenges through alternative plans.

Copyright Business Recorder, 2021

 

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As per SBP, government has paid $26.2bn altogether in debt payment in last 21 months. $10.6bn paid in the 9 months of current fiscal. $14.6bn in FY20. Imagine, if CAD is not being in surplus what would be exchange reserves situation & exchange rate?

 

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