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March 13, 2017 Pakistan Research | News Briefs REP-033also log onto www.jamapunji.pk KSE 100 Index:

March 13, 2017

Pakistan Research | News Briefs

REP-033also log onto www.jamapunji.pk

KSE 100 Index:

49,191.75

Net Change:

-200.69

Volume:

78,116,280

49,191.75 Net Change: -200.69 Volume: 78,116,280  Curbs on non-essential imports: In a move to restrict
49,191.75 Net Change: -200.69 Volume: 78,116,280  Curbs on non-essential imports: In a move to restrict
49,191.75 Net Change: -200.69 Volume: 78,116,280  Curbs on non-essential imports: In a move to restrict

Curbs on non-essential imports: In a move to restrict imports and

reduce the trade gap, the State Bank of Pakistan has taken a major step by imposing a 100% cash margin requirement on import of as many as 404 items.These items consist mainly of motor vehicles (both CKDs and CBUs), mobile phones, cigarettes, jewellery, cosmetics, personal care, electric and home appliances, arms and ammunitions etc.Margin requirement is a credit control tool in the hands of central banks. It is mainly used for facilitating or restricting the flow of funds to restrict import commodities not considered essential for the national economy.This initiative is to spare scarce foreign exchange to import those capital goods needed for a growing economy. The real picture of the widening trade deficit is presented in the table. Over the last four years, a liberal import policy has resulted in pushing up imports of commodities.

policy has resulted in pushing up imports of commodities.  The most striking extravagance can be

The most striking extravagance can be seen in case of vegetables and fruits because apples, oranges, bananas and vegetables of foreign origin are now a common sight in local markets and department stores.During the past three years, more than $8bn has been spent on vegetable products as per official import data. Further, the annual vehicle import bill exceeded $2bn during this period. Imported consumer goods have flooded the domestic market owing to liberal imports coupled with easy availability of foreign exchange in the local market. The magnitude of this import spree can be judged from the fact that 404 consumer items had to be brought under the margin requirement.According to the SBP, discouraging import of the above items would have a nominal impact on the general public. If this is really the case, who were the main beneficiaries of the highly loose import policy? During the past three years, the country had a windfall in the shape of the highly low international fuel and commodity prices. Home remittances also increased substantially during this period.There was a net saving of around $16bn on account of decreased oil prices and increase in home remittances from FY14 to FY16, as is shown in the table. Fall in export earnings during this three year period comes at around $7bn.Even after offsetting the adverse impact originating from exports, the trade deficit was likely to be below $15bn as against the current level of close to $25bn.In simple words, gains made on account of low oil prices and enhanced workers’ remittances were wasted due to import driven consumerism. Continuation of this high trade deficit, particularly in the event of any price hike in international fuel prices, might add to external sector vulnerabilities.In the backdrop of mounting pressure on the external sector, the SBP initiative of a 100% cash margin requirement seems to be a step in the right direction. However, much more is yet to come from the import policy.With accelerating CPEC projects, different types of machinery and raw materials will be required from abroad. The scare foreign exchange earnings need to be spent on importing essential items required for the development needs of the country.Among other things, mainstreaming agri-processed products is also warranted so that millions of dollars currently spent on import of pulses, milk and butter etc. can be saved. (Dawn March 13, 2017)

Large consumers may pay higher rates for RLNG: The government is considering restructuring the natural gas tariff to provide imported re-gasified liquefied natural gas (RLNG) to large domestic consumers at significantly higher rates.A senior government official told Dawn that the Directorate General of Gas a policy wing of the Ministry of Petroleum and Natural Resources would be sending a formal summary to the upcoming meeting of the federal cabinet to include domestic consumers in the highest slab of natural gas consumers among recipients of RLNG.Presently, domestic consumers using more than 300 cubic metres of natural gas per month are charged at a rate of about Rs700 per unit compared to less than Rs280 per unit for consumers using less than 300 cubic meters a month.In contrast, RLNG is currently priced at about Rs1,000 or above per unit. That would mean the price for large domestic consumers could be increased by 40% for the purpose of price parity with CNG, industry, fertiliser and power sector. Currently, RLNG is being provided to the fertiliser, industrial, power and transport sectors because of limited imports. But RLNG users will increase as the government ramps up imports with additional LNG terminals coming up.

The government is aiming for increased LNG imports from the current 400-500 million cubic feet per day (MMCFD) to almost two billion cubic feet per day by the next year as fresh terminals will begin coming online from July this year.The official said the idea was to extend RLNG supplies to all those who can afford it by making the imported product a part of domestic gas through weighted average cost of gas, while protecting lower and middle-income consumers from a major price hike.The move is aimed at improving cash flows of gas utilities giving a policy signal to richer consumers to opt for alternate fuel if they cannot control their consumption. “They should not have unlimited access to a scarce resource at subsidised rates,” the official explained.Supply of domestic gas to utilities has been declining, hampering their revenue growth. There may well come a stage when the companies are unable to sustain their operations.As a consequence, RLNG would be replacing domestic gas as the major source of supply and revenue growth for gas companies. Officials said the RLNG was originally ring-fenced by the government for supplies to large consumers like industry and power to protect domestic consumers from a price shock. However, the tariff for lower and middle class consumers with a monthly consumption of less than 300 cubic metres would be kept generally stable, because of politico-economic considerations.The government had reduced gas prices for industrial consumers by 33% in November last year, but then reversed the decision a month later. (Dawn March 13, 2017)

Banks lend more as economy grows: 2016 was a very good year for small and medium enterprises due to a surge in bank lending. A similar trend was witnessed in corporate loans.The pace of consumer loans’ growth also more than doubled last year, but agricultural lending remained flat on net basis.“I guess the trends in credit distribution seen in the last quarter,

Disclaimer: This report has been prepared by Standard Capital Securities (Pvt) Ltd and is provided for information purposes only. The information and data on which this report is based are obtained from sources which Standard Capital Securities (Pvt.) Ltd believe to be reliable but Standard Capital Securities (Pvt.) Ltd do not guarantee that it is accurate or complete. Standard Capital Securities (Pvt) Ltd accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take professional advice before making investments and Standard Capital Securities (Pvt) Ltd does not take any responsibility and shall not be held liable for undue reliance on this report. This ‘Research Report’ may not be reproduced, distributed or published by any recipient for any purpose.

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Standard Capital Securities (Pvt) Ltd and in 2016 as a whole, are here to stay. Going

and in 2016 as a whole, are here to stay. Going forward, net yearly advances to agriculture, too, will grow though that has to remain far lower than other sectors simply because the bulk of agricultural loans are repaid the same year,” says head of one of the top five banks in the country.Bank credit to SMEs grew 29.2% in CY16 against just 6% in CY15, according to the recent SBP report on banking performance. “This is very promising. And since we see this coming along with a 47% annual growth in private sector company’s credit and strong consumer lending it is can be reflection of higher economic growth,” opines a senior central banker. Pakistan’s GDP growth between FY14-FY16.

Has averaged at 4.3% against 3.7% average growth between FY11-FY13. “This year the GDP is set to grow even higher, around 5%.” Another encouraging credit distribution development in CY16 is that 21% of corporate loans up from 19% in FY15 was in fixed assets. During this period loans to SMEs for fixed assets fell from 33% to 18%.Demand originated from SMEs both in the manufacturing and services sector. In SME manufacturing, the fastest growth in demand came from downstream auto and leather industries’ and in the services, from food business and retailing.

The net non-performing loan portfolio started declining from the beginning of 2016 and that encouraged banks to lend more to this sector, senior bankers say.Loan infection ratio of SMEs fell from 26.1% in 2015 to 20.3% in 2016. Also, in 2016 the SBP eased cash payment condition for immediate declassification of NPLs of SMEs from 50pc to 35pc. That helped SMEs to clean up their balance sheets and go for additional eligible borrowing from banks During CY16, corporate lending also increased, due to higher credit demand for larger working capital to finance growing outputs. A number of them went for fixed investment.Senior bankers say that private sector companies, taking advantage of low interest rates, also kept retiring their old bank debts and regularised their NPLs.

This also was a key factor behind higher corporate lending in the last year,” according to a senior official of Habib Bank. Corporate loan infection ratio came down from 12.3% in FY15 to 10.6pc in FY16. With pickup in large-scale manufacturing, banks’ private sector corporate lending remained dominated by manufacturing loans that grew by 53% to Rs225bn in CY16 from Rs119bn in CY15.Consumer finance in 2016 picked up on strong demand for auto loans and loans for purchase of property, house building and renovation. And demand for personal loans was also high during last year, bankers say adding that the trend still continues. The overall consumer lending of banks grew more than 100% to Rs70bn at end-December 2016 from Rs29bn at end-December 2015.“We see credit demand in all segments of private sector businesses growing further this year as the economy takes off,” says head of credit division of a large local bank. (Dawn March 13, 2017)

News Coverage by Naseem Alam naseemalam@scstrade.com UAN 111 111 721 researchdesk@scstrade.com

Disclaimer: This report has been prepared by Standard Capital Securities (Pvt) Ltd and is provided for information purposes only. The information and data on which this report is based are obtained from sources which Standard Capital Securities (Pvt.) Ltd believe to be reliable but Standard Capital Securities (Pvt.) Ltd do not guarantee that it is accurate or complete. Standard Capital Securities (Pvt) Ltd accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take professional advice before making investments and Standard Capital Securities (Pvt) Ltd does not take any responsibility and shall not be held liable for undue reliance on this report. This ‘Research Report’ may not be reproduced, distributed or published by any recipient for any purpose.