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KSE 100-index bounces back after morning’s 1,000-point fall

KARACHI: After falling over 1,000 points early Wednesday, the Pakistan Stock Exchange bounced back later in the day, with the KSE 100-index settling at 43,980 points around 2pm. When the index dropped by over 1,000 points in the morning, it was feared that Wednesday’s performance would mirror the day before’s, when the index plunged over 2,100 points.

Analysts blamed the uncertainty surrounding the prime minister’s future in light of the Panama case Joint Investigation Team (JIT) report submitted to the Supreme Court on Monday for the recent declines.

Nearly all leading opposition parties have called on Prime Minister Nawaz Sharif to resign from his post. Even though senior government officials, in a press conference on Tuesday night, asserted that the premier will not be resigning and instead prove his innocence in court, the stock market continues to dip.

The Supreme Court will begin hearing the case following the JIT’s report submission on July 17. Stock market experts said the market is reacting to the political uncertainty prevalent in the country.

On Tuesday, the KSE 100-index declined by over 2,100 points representing a loss of Rs425 billion, with share values of 305 companies falling as a result.

On Monday, the day the JIT report was submitted, the KSE-100 index experienced a gain of 2.33% or 1,051.66 points, to close at 46,273.81 points.

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Moody’s affirms Pakistan’s B3 rating, maintains stable outlook

NEW YORK (NNI): Moody’s Investors Service has affirmed the Government of Pakistan’s B3 issuer and senior unsecured ratings, and maintained a stable outlook.

Pakistan’s medium-term growth outlook is strong, supported by the China-Pakistan Economic Corridor (CPEC) project to address critical infrastructure constraints, and the continuing effects of macrostability-enhancing reforms started under the International Monetary Fund (IMF)’s Extended Fund Facility (EFF) program in 2013-16.

However, the government’s debt burden is high and fiscal deficits remain relatively wide, driven by a narrow revenue base that also restricts development spending. In addition, foreign exchange reserve adequacy, albeit stronger than a few years ago, would still be vulnerable to any significant increase in imports. Domestic politics and geopolitical risk also continue to represent a significant constraint on the rating.

The decision to maintain the stable outlook on Pakistan’s B3 rating reflects broadly balanced risks related to these two sets of factors Concurrently, Moody’s has affirmed the B3 foreign currency senior unsecured ratings for The Second Pakistan Int’l Sukuk Co. Ltd and The Third Pakistan International Sukuk Co Ltd.

Pakistan’s Ba3 local currency bond and deposit ceilings remain unchanged. The B2 foreign currency bond ceiling and the Caa1 foreign currency deposit ceiling are also unchanged. These ceilings act as a cap on the ratings that can be assigned to the obligations of other entities domiciled in the country.

The outlook for growth has strengthened as a result of increased macroeconomic stability due to reforms started during the three-year IMF EFF program and following the launch of the CPEC project in 2015.

In the fiscal year ended June 2016 (FY2016), real Gross Domestic Product (GDP) growth reached 4.5 percent, up from 4.1 percent in both FY2015 and FY2014. Moody’s expects such growth rates to be maintained or exceeded in the next few years. By contrast, the median rate of growth for B-rated sovereigns was just 2.7 percent in 2016.

From a macroeconomic stability perspective, the IMF program succeeded in fostering fiscal deficit reduction, more rigorous inflation management and the rebuilding of foreign exchange reserves. While further progress will be challenging, as fiscal metrics remain weak and reserve adequacy is relatively fragile, our baseline assumption is that the steps that the authorities have taken in the last 3-4 years will not be reversed.

Continued government commitment to reform implementation will help to reinforce fiscal and monetary discipline, preserving recent macroeconomic stability gains.

Moody’s expects that real GDP growth will rise towards 6 percent over the next few years, as the economic benefits of the CPEC gradually materialize and past policy reforms continue to support economic potential. The CPEC will increase Pakistan’s competitiveness and lift potential GDP growth by relieving supply-side constraints, particularly in power and transport infrastructure, and by catalyzing private sector investment.

However, security related issues and a weak track record of public project implementation suggest the pace of project execution will be relatively slow. Therefore, while the CPEC will support Pakistan’s credit profile, Moody’s expects the economic impact to materialize more slowly than the government envisions, resulting in real GDP growth closer to 5.5 percent over the next two years, compared to government forecasts for 6.0 percent growth in FY2018, rising to 7.0 percent by FY2020.

Despite relatively robust GDP growth, weak government revenue generation poses fiscal constraints. It limits growth potential by curbing the government’s capacity to spend on physical and social infrastructure development.

General government revenues were equivalent to only 15.5 percent of GDP in FY2016, lower than most of Pakistan’s rating peers. This reflects the government’s narrow tax base, linked to very low per-capita incomes, along with weak tax compliance and administration, despite some improvements related to IMF program reforms.

At 67.6 percent of GDP in FY2016, the government’s debt burden is materially higher than the B-rated median of 52.6 percent. Moody’s expects the debt burden to remain broadly stable over the next two years.

Further fiscal consolidation, after the deficit narrowed to 4.4 percent of GDP in FY2016 from 8.1 percent of GDP in FY2013, will be challenging. The government had set fiscal deficit targets of 3.8 percent of GDP for FY2017 and 3.5 percent for FY2018.

However, despite relatively disciplined spending, revenue collection has fallen short of the target in the first half of this fiscal year. As a result, in June 2017, the government revised its FY2017 and FY2018 deficit targets to 4.2 percent and 4.1 percent of GDP, respectively.
Moody’s expects the fiscal deficit to widen to about 4.7 percent of GDP in FY2017 and 5.0 percent in FY2018 despite the government’s intention to advance fiscal consolidation.

The government’s revenue projections for FY2018 are based on GDP growth projections that we consider to be optimistic. Meanwhile, development spending, particularly related to CPEC power infrastructure investments, combined with political pressure ahead of the 2018 general election to maintain power subsidies, which are currently budgeted for about Rs 103 billion, will weigh on the public finances.

Large fiscal deficits and a reliance on short-term debt have also contributed to very high gross borrowing requirements. At about 32.0 percent of GDP, Pakistan’s projected gross borrowing need for 2017 is one of the highest among rated sovereigns. Meanwhile, with nearly 31 percent of outstanding government debt in foreign currency in FY2016, Pakistan is exposed to marked changes in the cost of refinancing debt, should the local currency weaken abruptly.

In addition, debt affordability metrics, which include interest payments as a percentage of revenues and GDP, are very weak for Pakistan relative to its peer group. At around 28 percent of revenues in 2016, Pakistan spends nearly three times as much revenue on interest payments as the median of B-rated sovereigns at about 10 percent.

Although foreign exchange reserve buffers have increased nearly fourfold since the onset of the IMF program and cover more than the full amount of external debt payments, they are still low in relation to current account payments and have been declining since their recent peak around September 2016. As of April 2017, import coverage had fallen from a high of about five months in mid-2016 to below four months. This is only slightly above the IMF’s three-month minimum adequacy level.

As a net oil importer, Pakistan has benefited from lower global oil prices, but the uptick in prices last year, combined with an increase in imported CPEC capital goods, widened the trade deficit. In addition, worker remittance inflows from abroad, which amount to nearly 7.0 percent of GDP, have declined. As a result, the current account deficit has widened and external pressures are building. Moody’s expects the current account deficit to grow to about 2.7 percent of GDP in FY2017 and 2.9 percent in FY2018 from 1.2 percent in FY2016.

In response to mounting external pressure, in March 2017, the central bank introduced a 100 percent cash margin requirement on certain imported consumer goods. Meanwhile, on July 5, 2017, after nearly two years of stability, the Pakistani rupee depreciated by about 3 percent following foreign exchange market intervention by the central bank. The intervention responded to mounting external pressures and deterioration of export competitiveness, following persistent real effective exchange rate appreciation.

The Pakistani rupee has retraced much of its recent depreciation. Greater exchange rate flexibility would contribute to a more durable accumulation of foreign exchange reserves over time, which would help to strengthen external buffers and export competitiveness. The resulting reduction in external vulnerabilities would support Pakistan’s credit profile.

However, while Moody’s believes this to be the central bank’s medium-term objective, we expect any shift in exchange rate management to be gradual, as the government will likely want to avoid abrupt currency and other price movements, in particular in advance of the 2018 general election.

The stable outlook represents our expectation of balanced upside and downside risks to the sovereign credit profile. Support from multilateral and bilateral lenders has bolstered Pakistan’s foreign currency reserves and progress on economic reforms, and there is potential for further strengthening in growth and policy effectiveness beyond our current expectations.

Meanwhile, successful implementation of the CPEC project has the potential to transform the Pakistani economy by removing infrastructure bottlenecks, and stimulating both foreign and domestic investment.

However, downside risks also exist. In particular, the economic benefits of CPEC are still highly uncertain and power supply may continue to constrain growth to a greater extent than we currently envisage.

Moreover, the fiscal costs related to the project and, more generally, development spending could raise Pakistan’s debt burden more rapidly and significantly than we expect.

In addition, recent indications of renewed increases in external pressure could develop into greater external vulnerability.

Meanwhile, political event risk remains high in Pakistan, due to recurrent terrorist attacks.



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Gold price goes up by $2 in international market

KARACHI (PPI): Price of gold settled at $1210 per ounce in international market following a sharp surge of $2.

However, there was no increase in gold price in domestic market.

All Pakistan Supreme Council Jewelers Association’s report stated that price of gold remained stable at Rs50200 per tola and 10 gram remained stable at Rs43028.

Meanwhile, silver price witnessed a hike of Rs10 and settled at Rs720 per tola.

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Chinese company to reconstruct Lahore airport

BEIJING (Monitoring Desk): A Chinese construction company has won a contract worth an estimated $382 million to reconstruct the Allama Iqbal International Airport in Lahore.

According to China’s state-owned Peoples Daily, the contract was awarded to China Construction Third Engineering Bureau and after the reconstruction, the airport will become the largest in the country.

This is the third project by the company in the Pakistan. Several major projects in Pakistan, including the Karachi-Lahore Motorway’s section Sukkur and Multan, Arfa Software Technology Park in Lahore and The Centaurus Hotel in Islamabad are all projects of the Third Engineering Bureau.

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Panama JIT revelation jitters investors, PSX loses 1500 points

F.P. Report

KARACHI: Pakistan Stock Market plunged by 1500 points following the excerpts of Panama Joint Investigation Team (JIT) appeared yesterday evening, revealing all the transactions done by the Prime Minister Nawaz Sharif were not disclosed by him or his family members.

PSX 100-index fell 1,500 points or 3.25% in early trade, in reaction to the JIT’s report and the uncertain political situation. Out of 228 Scrips traded only 9 were positive with 216 down and 3 unchanged.

The revelation by the JIT during yesterday evening was enough for the investors who received tremors and index lost substantially. Recovery at the stock market now became a million dollar question and the index might suffer further downward session as the moods of the investors have been battered substantially.

Following the loss, the market capitalization has been eroded by more than Rs 220 billion. Since the appearance of Prime Minister Nawaz Sharif and his sons and daughter and Finance Minister Ishaq Dar, index has suffered a decline in excess of 8000 points and the market capitalization has been down by nearly Rs 1200 billion.

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Pakistan Mango Festival held in Paris

F.P. Report

ISLAMABAD: A large variety of Mango dishes creatively prepared and artistically presented by the renowned French two Michelin star Chef Sylvester Wahid enthralled the French dignitaries and notables at the first of its kind Pakistan Mango Festival held at the Embassy of Pakistan in Paris.

According to a statement issued here, Chef Wahid, with his team of cooks and other staff, prepared a special and a fine dine class mango based menu of starters, main course dishes and desserts.

Guests comprising local politicians, diplomats, businessmen, fruit exporters and media representatives enjoyed famous varieties of Pakistani mangoes especially flown in from Pakistan for the event.

Ambassador of Pakistan to France Moin ul Haque while talking to the guests said that Pakistan produces over 200 varieties of high quality mangoes which are known for their sweet taste, aroma and texture.

He said that although the Pakistani Mango affectionately called as the King of Fruit is exported to many countries of the world, yet it is relatively little known in France.

He said with this festival and other such promotional events planned by the Embassy of Pakistan, we aim to introduce Pakistani mangoes to the French public. Chef Sylvester Wahid, who originally hails from the city of Kohat in Pakistan, also gave a live demonstration of cooking mango based dishes and shared his exclusive recipes with the guests.

The mango festival was jointly organized by the Embassy of Pakistan to France and Trade Development Authority of Pakistan (TDAP).


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SBP sets rules for banks wanting to be fully sharia compliant

KARACHI (PPI): Pakistan’s central bank has issued guidelines covering how banks that want to be fully-fledged sharia compliant can achieve that status, setting a three-year time frame for applicants to complete the process.

The rules aim to accelerate the growth of Islamic banking in the Muslim-majority country. The sector enjoys double-digit growth but lags conventional banks in terms of size and profitability.

Islamic banks follow religious principles such as bans on interest and pure monetary speculation, ruling out the use of interest-based financial instruments such as bonds and treasury bills.

Eligible applicants must have existing Islamic finance operations and the conversion process must start within six months of approval, the central bank said in a circular.

After the conversion of conventional branches, the applicant can then apply for a full-fledged Islamic banking license.

Converting back to conventional banking operations will not be allowed, the circular said.

Such conversions are rare in Islamic finance but are seen as a way to increase the scale of Islamic banking and widen its reach into under-served rural areas.

Islamic banking in Pakistan, the second most populous Muslim-majority nation after Indonesia, currently includes five full-fledged Islamic banks and 16 conventional banks offering Islamic financial products.

As of March, they held assets worth 1.9 trillion rupees ($17.9 billion), a 16 percent increase from a year earlier and 11.7 percent of total banking assets.

However, their capitalization and profitability ratios remain below the industry average in Pakistan.

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Qatar Petroleum and Total to launch joint venture

DOHA (AFP): State-owned Qatar Petroleum and French energy giant Total will formally launch a 25-year joint venture to develop the Al Shaheen oil field this week, the companies said Monday.

The North Oil Company, to be launched on Tuesday, will be made up of a 70 percent stake from QP and a 30 percent stake from Total, which is taking over operations from Maersk Oil, according to a statement released by Qatar Petroleum.

The site it will develop is located some 80 kilometres (50 miles) off Qatar s northeast coast and lies over the North Field, one of the world s largest oil and gas fields.

While the contract was announced last year, the launch comes amid the worst crisis to hit Qatar, the world s largest exporter of natural gas, in years.

Saudi Arabia, the United Arab Emirates, Egypt and Bahrain last month cut diplomatic, political, and economic ties with Qatar, which they accuse of supporting Islamist extremism.

Qatar denies the charges.

Despite its regional isolation, Qatar has said it can survive what it has called a “blockade”. Qatar Petroleum last week announced it would increase natural gas production by 30 percent by 2024.

Central bank Governor Sheikh Abdullah Bin Saoud al-Thani also told US media at the weekend that Qatar has $340 billion in reserves to weather the crisis.

The signing of the Total contract also comes amid reports that Saudi Arabia and the UAE may pressure international companies to either do business with them or with Qatar.

The deal comes in the same month that Total defied US pressure to sign a multi-billion gas contract with Iran on July 3, the first by a European firm with Tehran in more than a decade.

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ICJ turns down India’s request for time to file pleadings in Jadhav case

HE HAUGUE (AFP): The International Court of Justice has turned down INdia’s request to give it six months to file its pleadings before the court in Kulbhushan Jadhav case. Had the Indian request been approved, the case would have been delayed by more than eighteen months. Pakistan had requested that the matter of filing of pleadings ought to be completed before the end of the hurriedly requested for expedited…