Traders fear 10pc drop in Sept exports
Traders have voiced fear that Pakistan’s export revenues will decline further in the coming months and have called on the government to make serious efforts in order to place monthly exports on a growth trajectory.
They added that the growth in July 2020 export figures was a temporary phenomenon and the dip in August 2020 export revenues was predicted beforehand by the exporters.
“Next three months are highly crucial for Pakistan’s export sector, primarily textile, as we are anticipating a dip of over 10 percent in export revenues for September,” said Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) Patron-in-Chief Ijaz Khokhar.
Khokhar said export orders dropped to nearly zero during the months when the Covid-19 pandemic had been at its peak ie April-June 2020 – and all shipments were put on hold.
“The dispatch of piled-up orders was the main reason behind the growth in exports in July,” Khokhar said.
According to the Pakistan Bureau of Statistics, the country earned around $2 billion in exports during July 2020, however, the receipts fell 20 percent to $1.6 billion in August.
Financial managers have targeted export revenue of $27.7 billion for the current fiscal year but exporters are uncertain about achievement of the target.
“Achieving the yearly export target is now out of the question since there is a looming fear of the second wave of Covid-19 in European markets,” Khokhar added. “On the other hand, textile exporters are currently working on 50 percent capacity due to low demand from international buyers.”
Renowned economist Dr Qais Aslam was of the view that any increase in exports was not sustainable for Pakistan at this point in time, highlighting that exporters and government officials had to make additional efforts to diversify the product lines.
“There is a reason why exports increased in July,” he told. “During that month, international trade and global transportation resumed after lockdown and piled-up orders were dispatched, which translated into higher exports.”
Power division seeks exemption from guaranteed lng sought
The Power Division is seeking exemption from guaranteed liquefied natural gas (LNG) offtake for three power plants, a move that may aggravate woes of LNG suppliers and hurt gas imports from Qatar.
Since Pakistan started importing LNG from Qatar in 2015, the Pakistan Muslim League-Nawaz (PML-N) has been facing criticism from different quarters for striking a long-term LNG deal at high rates, which resulted in lower consumption of the fuel in the power sector.
LNG-based power plants were set up during the 2013-18 tenure of PML-N government with higher efficiency rates. However, the plants have remained shut most of the time because of being lower in the economic merit order, which leads to lower consumption of LNG and millions of dollars in capacity payments to LNG terminal operators.
At present, textile, compressed natural gas (CNG) and fertiliser sectors are consuming LNG. Textile and fertiliser industries are receiving LNG at almost half the actual price, which has put a burden of billions of rupees on the national exchequer.
The three LNG-based power plants had signed a gas sale-purchase agreement with LNG suppliers at a minimum 66 percent offtake.
However, the Power Division withdrew from the agreement of guaranteed gas offtake for a 1,263-megawatt LNG-based power project near Trimmu Barrage, fearing that the project may not come on top of the merit order due to expensive gas.
Earlier, the government had decided that 66 percent guaranteed offtake would continue till 2025 due to an agreement with Qatar as contracts had already been signed and had a back-to-back cover through the supply chain. However, such conditions will be revisited after 2025.
Power producers feel that LNG-based power plants are not economical because of high gas prices. This is why such plants stay shut most of the time.
However, consumers are bound to pay capacity charges if the plants are not operated at full capacity. LNG terminal operators also receive capacity charges if their facilities are not run at maximum capacity due to low offtake by power producers.
Government mulls options to expand tax net
As the Federal Board of Revenue (FBR) fails to expand a narrow tax base, the government on Thursday considered creating a new legal arrangement to bring more people in the tax net.
The proposal to carve a new legal structure was discussed during a meeting of the FBR policy board, chaired by Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh.
Like its predecessor, the Pakistan Tehreek-e-Insaf (PTI) government has struggled to expand the tax base and its promise of recovering billions of dollars presumably stashed abroad has also remained unfulfilled.
For the last many months, there has been no permanent director general of international taxes and the information received from abroad about offshore wealth also remains underutilised.
The government set up a committee to review the possibility of integration of data in possession of various departments and use it for the purpose of expansion of tax base.
The finance adviser created a sub-group of members to point out and address the difficulties hindering the progress on data sharing between the two organisations, according to a statement issued by the Ministry of Finance after the meeting.
The sub-group will comprise Minister for Industries Hammad Azhar, Adviser to Prime Minister on Institutional Reforms Dr Ishrat Husain, National Assembly Standing Committee on Finance Chairman Faizullah Kamoka, FBR chairman and National Database and Registration Authority (NADRA) chairman, stated the finance ministry. The sub-group would share its report with the chairman in a week, it added.
The government was considering having a separate administrative and legal structure to integrate data of the FBR and NADRA, and pick potential taxpayers on the basis of their consumption pattern. This special structure will then look after new taxpayers for some period of time.
However, past attempts to use NADRA data for expanding the tax base have remained unfruitful as there has always been opposition from within the FBR. There is also question mark over the practicality of NADRA data.
The finance adviser stressed the need for establishing a link between NADRA and FBR for data sharing and data analytics, according to the finance ministry.
The FBR has been struggling to expand the tax base and it has also abandoned the process of bringing new taxpayers in the tax net through the Directorate General of Broadening of Tax Base (BTB).
There were 2.5 million income tax return filers in tax year 2018 but two-thirds of them declared less than Rs500,000 in annual income and their tax contribution was negligible.
Covid-19 increases digitalisation
Covid-19 has provided an opportunity to expedite the adoption of e-commerce and other electronic business and trade solutions including e-payments and e-contracts.
Corresponding measures to get aligned with these solutions will ensure a safe and enabling business environment in the post-pandemic scenario.
These remarks were made by panellists during a virtual public-private dialogue on “Expediting Trade Facilitation Reforms for Manufacturing Sector amid Covid-19” on Thursday.
Speaking on the occasion, Economic Adviser to the Commonwealth Secretariat Dr Salamat Ali elaborated on the pertinence of using digital technologies at a time of pandemic. He said the shift had become increasingly important as it helped in cutting the cost and time faced by traders.
Health and safety of customs and border officials should also be the priority and the infrastructure-related gaps that lead to delay in consignments needed to be bridged.
Trade Development Authority of Pakistan (TDAP) Director General (Trade Facilitation) Riaz Ahmed Shaikh informed dialogue participants that TDAP was helping the private sector to explore new market opportunities and new export destinations amid the coronavirus outbreak.
“Online accessibility for relevant officials is part of this facilitation.”
He said a deeper public-private dialogue could play a critical role in ascertaining the right regulatory measures during these difficult times.
Sustainable Development Policy Institute (SDPI) Joint Executive Director Dr Vaqar Ahmed said Covid-19 provided an opportunity to introduce interventions related to e-payments, e-signatures and e-contracts in the overall trade processing chain.
Likewise, greater reliance of traders during Covid-19 on internet banking and insurance could cut trade costs, he added.
Automotive sales head towards recovery
The months-long pain for Pakistan’s automobile sector eased somewhat with an increase of 16 percent in year-on-year car sales, which were recorded at 11,678 units in August 2020 as compared to 10,102 units in the corresponding period of previous year, according to the Pakistan Automotive Manufacturers Association (PAMA). The reversal of trend came on the back of lower interest rates coupled with a recovery in economic activity. It is said Indus Motor Company and Honda Atlas Cars registered sales growth, however, Pak Suzuki Motor Company recorded a decline in sales volume. “Kia Lucky Motors (which is not a member of PAMA) continued to perform well,” source said. “As per source’s channel checks, the company recorded sales of 1,500 units in August 2020.” The analysts pointed out that the company was planning to switch production to double shift from January 2021 to meet higher customer demand.
SBP asks banks to resolve businessmen’s issues
Faisalabad contributes 20 percent to the national economy and local businessmen must fully utilise the incentive schemes introduced by the State Bank of Pakistan (SBP) in the wake of coronavirus to expedite the process of industrialisation, said SBP Governor Reza Baqir.
Speaking in a meeting with the business community at the Faisalabad Chamber of Commerce and Industry (FCCI) to create awareness of the incentive schemes, Baqir said despite a huge share in the national economy, the response of Faisalabad’s business community to the SBP schemes was poor.
The governor stated that commercial banks avoided out-of-the-box solutions to the problems but in a pandemic-like situation these became imperative and “we are also encouraging them to resolve the issues so that negative impact of the coronavirus could be controlled and compensated as early as possible.”
Baqir told the business community that the new SBP deputy governor was working on various schemes including agricultural finance, female entrepreneurs and digitalisation. “These schemes will give a jump-start to the economy, particularly to small and medium enterprises (SMEs),” he said.
“Apart from facilitating borrowers, we want to discourage the misuse of incentive schemes,” he remarked.
Baqir pointed out that when Covid-19 started, the policy rate stood at 13.25 percent, which was brought down to 7 percent within the shortest possible time. “It will help the business community to compete with rivals efficiently.”
He apprised businessmen that currently private-sector credit stood at around Rs6 trillion and due to the cut in policy rate, borrowers would be able to save Rs470 billion per annum.
Furthermore, banks have also deferred loan installments of Rs640 billion. “About 90 percent SME sector is the major beneficiary of the scheme.”