Ary One World Latest News Updates

November 12, 2008

Stocks in the News

SBP may raise discount rate by 200 basis points: board meeting today:

Newspaper: Business Recorder

Link: http://www.brecorder.com/index.php?id=836843&currPageNo=1&query=&search=&term=&supDate=

Sector: Economy

Impact: In order to full fill IMF’s condition for loan, SBP is likely to announce increase in discount rate by 150-200bps. With this increase the discount rate will now stand at 14.5% to 15%. IMF has ask Pakistan to raise policy rate by 200 bps to 15% prior to the disbursement of the first tranche with a firm commitment to increase it further some 150-200bps in case inflation does not come down and imports are not curtailed. Highly leveraged sectors of the economy will be most hit like textile, cements etc.

Ecnec approves $12.6 billion Diamer-Bhasha dam project:

Newspaper: Business Recorder

Link: http://www.brecorder.com/index.php?id=836857&currPageNo=1&query=&search=&term=&supDate=

Sector: Water & Power

Impact: The Dam is expected to generate 450MW of electricity. The government would open bids for pre-qualification by November 30. The Minister for water and power said that the project would benefit the country by providing electricity worth US$1.5 billion per annum. He said that agriculture sector would get the benefit of US$500 million annually. The government would enhance power generation capacity to 33,000MW by 2015 and would require US$30 billion investment to make it a reality. The country would need 116,000MW electricity by 2030, as demand for power was increasing by 7-8% annually.

Banks warned not to raise lending rates:

Newspaper: Business Recorder

Link: http://www.brecorder.com/index.php?id=836840&currPageNo=1&query=&search=&term=&supDate=

Sector: Banking

Impact: According to stakeholders, banks have already priced in the expected 200bps raise in SBP policy rate, due to the commitment to IMF (SBP rate at present is 13%, while six months KIBOR is at 15.75%). Therefore, SBP wants banks to freeze KIBOR at this level, and not raise it further when the discount rate goes to 15%. During the current calendar year 2008 SBP already has increased the policy rate by 300bps to 13%. First raised announced in January by 50 bps, second in May by 150bps in interim monetary policy and third raised announced on July 29, 2008 by 100 bps. The industrial sector is already operating under harsh conditions and a further rise in discount rate will make them uncompetitive.

Finance given green signal to send LoI to IMF:

Newspaper: Business Recorder

Link: http://www.brecorder.com/index.php?id=836860&currPageNo=1&query=&search=&term=&supDate=

Sector: Economy

Impact: The much needed IMF loan has been okayed by GoP after a poor response from friends of Pakistan. The country needs US$5 billion on an immediate basis in order to meet its balance of payment crisis. Beside the discount rate hike the IMF wants GoP to lower Fiscal Deficit to 4.7% of GDP and remove all the subsidies. According to Khaliji media, IMF will provide $9 billion to Pakistan over 2 years. It has agreed to give immediate loan of $1.5 billion, while the remaining amount will be provided in 3-month installments.

15 percent cut in oil prices likely:

Newspaper: Business Recorder

Link: http://www.brecorder.com/index.php?id=836846&currPageNo=1&query=&search=&term=&supDate=

Sector: OMCs

Impact: This is being done due to falling crude price in the international market. PM has taken notice of high oil prices in the country, and directed the Ministry to work out a 15% cut in petrol, diesel and kerosene oil prices. The present government has paid a subsidy totaling Rs280 billion on diesel and kerosene and still has to pay Rs30 billion to OMCs. The rupee depreciation against dollar value also raised the import costs of oil. The OMCs are already struggling with inventory losses and increase burden of PDCs and other government claims. The decrease in prices of POL products will further deteriorate their earnings as it will bring down their margins on these products.

Referral to IMF in 20 days: Tarin

Newspaper: Dawn

Link: http://www.dawn.com/2008/11/12/top3.htm

Sector: Economy

Impact: This infers the fact that the country’s economic managers are hopeful that some positive outcome may emerge from the Friends of Pakistan forum to be held in Dubai next week. The country is all set for the IMF program with its strict conditions with a possible hike of discount rate by 350 bps (200 bps immediate and 100 bps in January) and removal of oil and power subsidies. IMF loan though will help the country’s Balance of Payment situation, but the conditions entailed in it will significantly slow down the economy. The Advisor to PM on Finance, Shaukat Tarin added that if the country avoids the IMF, it still may need its endorsement of economic stabilization plan.

Remittances fall sharply in October

Newspaper: Dawn

Link: http://www.dawn.com/2008/11/12/ebr7.htm

Sector: Economy (Balance of Payment )

Impact: Remittances fell by $194 million to $ 466 million as compared to September when the country received remittances of $ 660 million. On YoY basis it declined by 19.67 percent. The decline in remittances can be attributed by the global recessionary pressures and the financial meltdown. Data provided by SBP shows that remittances declined from all the regions where Pakistani’s are working with notable decrease from US, UK and Saudi Arabia. Workers remittances is one of the key sources of the country’s forex reserves and its decline may further deteriorate the balance of payment situation of the country.

Stocks in the News

Inflation surges to 30-year high of 25 per cent:

Newspaper: Dawn

Link: http://www.dawn.com/2008/11/11/top5.htm

Sector: Economy

Impact: During Oct’08, inflation edged up to 25% as against 9.3% in the same period last year. The consumer price rose to an unmanageable level on the back of a 31.7 per cent surge in food prices and over 39 per cent increase in transportation fares, putting further pressure on the government to seek an immediate bailout package from IMF. The inflation rate, which is based on CPI, went up to 24.6% from July to October compared to a 7.6% increase in the same period last year. Despite fall in international crude prices the inflation has not eased due to increase in government tariffs on utilities. The figures showed that the non-food non-energy (core) inflation also reached an all-time high of 18.3% in October compared to 6.5% last year, despite tight monetary policy adopted by the central bank, adding to the worries of the general public.

Budget deficit target cut unlikely to be achieved:

Newspaper: Business Recorder

Link: http://www.brecorder.com/index.php?id=835421&currPageNo=1&query=&search=&term=&supDate=

Sector: Economy

Impact: According to leading economist of the country, the government is unlikely to meet its budget deficit target of Rs584 billion or 4.7% of GDP for FY’09. These panel of economists have projected a budget deficit of Rs853 billion as against Rs777 billion deficit in FY’08. They also pointed out that inflation target of 12% and 5.5% GDP growth are also unlikely to materialize.

Record trade deficit of $7.5bn in 4 months:

Newspaper: Dawn

Link: http://www.dawn.com/2008/11/11/ebr3.htm

Sector: Economy

Impact: Pakistan’s trade deficit ballooned to an all-time high figure of US$7.5 billion during 4mths’09, up by 33.3% from US$5.6 billion over the corresponding period last year. Due to this highest-ever deficit, the country appears heading toward a balance of payments crisis unless relief arrives from the Friends of Pakistan or IMF. The government has also sought help from Saudi Arabia in the shape of deferred payment of oil imports, which would also help reduce pressure on the country’s reserves. A similar request has also been made to the Iranian government. This unexpected increase in imports bill also resulted into shrinking of country’s foreign reserves to US$3.7 billion on Oct 25 from US$14.2 billion a year ago, raising concern that Pakistan may not be able to pay its US$3 billion debt-servicing costs due in the coming year.

Government to get over $11 billion aid, oil on deferred payments:

Newspaper: Business Recorder

Link: http://www.brecorder.com/index.php?id=835435&currPageNo=1&query=&search=&term=&supDate=

Sector: Economy

Impact: Advisor to PM has informed that Pakistan is expecting US$11.7 billion from different sources including $7-7.5 billion from the IMF and over US$1 billion each from the WB, ADB, the Islamic Development Bank and US$0.8 billion from the UK Department for International Development (DFID). Saudi Arabia, Kuwait and UAE, have not committed any cash but agreed to provide oil on deferred payment. Iran has agreed to provide furnace oil on deferred payment, said the sources. The US has promised to provide US$200 million worth wheat.

Interest rate to rise under any IMF deal

Newspaper: Business Recorder

Link: http://www.brecorder.com/index.php?id=835373&currPageNo=2&query=&search=&term=&supDate=

Sector: Economy

Impact: An expected IMF loan package is likely to include an interest rate increase of up to 100 - 150 basis points, according to government sources. The government official said the size of a possible IMF loan had not been officially agreed but it was likely to be a 2-year facility and would include steps to tighten monetary policy. The country needs US$3.5 billion to US$4.5 billion quickly to fill a financing gap and US$10 billion to US$15 billion to avoid a balance of payment crisis and make adjustments over the next two years.

Offshore investors withdraw $2.917 million in a single day:

Newspaper: Business Recorder

Link: http://www.brecorder.com/index.php?id=835404&currPageNo=1&query=&search=&term=&supDate=

Sector: Equity Markets

Impact: A massive outflow of foreign portfolio investment was witnessed yesterday as the offshore investors withdrew over US$2.9 million on a single day from the country’s equity market. According to NCCPL data, foreign investors sold out over 2.0 million shares on the first day of the week against their buying of only 20,599 shares the same day. The cumulative outflow of foreign investment has increased to US$2.9 million in the current month. This portrays the lack of confidence by the foreign investors in the country’s bourses due to the ongoing economical and political turmoil in the country.

Two brokers default, two funds stop redemptions

Newspaper: Dawn

Link: http://www.dawn.com/2008/11/11/ebr4.htm

Sector: Equity market & mutual fund industry

Impact: Two brokers defaulted and two income funds have declined further redemption due to lack of cash. KASB Funds Ltd., an asset management company, declared on Monday that it had opted to suspend redemption of two of its income funds: the KASB Islamic Income Fund (KIIF) and KASB Liquid Fund (KLI) from Nov 7. It observed that the mutual fund industry had witnessed redemptions in income and money market funds of approximately 30% in the last one month. Redemption in the KIIF and KLI were stated to have been witnessed at 35%, since the beginning of October.  This was the result of the prevailing situation in the financial and capital markets of the country, which has continued to deteriorate. If the current situation persists than we may see other funds and equity companies to default.

Oil consumed 5pc less in 4MFY09

Newspaper: Financial Daily

Link: http://www.thefinancialdaily.com/NewsDetail/60260.aspx

Sector: OMC’s

Impact: Consumption declined to 5.9 million tons in 4MFY09 as compared to 6.2 million tons in the same period in FY08. All major categories including HSD, furnace oil, gasoline, kerosene, LDO, and JP-1 showed a decline in consumption within the range of 3.8 per cent to 32.1 per cent. This is attributable to the slow down in the economy, higher oil prices and rising circular debt which has effected the demand of both individuals and industrial consumers.

LAHORE (November 10 2008): Special Duty Magistrate on Sunday remanded Javed Khanani Director of Khanani and Kalia International (Pvt) Limited involved in a forex scam under the custody of FIA for a day. FIA will again produce Javed Khanani before the court of area magistrate on Monday.

Javed Khanani is under the custody of FIA, which is interrogating him to get details about the transfer of forex abroad through illegal means. Sources in FIA said here on Sunday that FIA has widened the scope of investigations following receipt of some information from Javed Khanani and other two officials of Duniya Enterprises.

KARACHI (November 10 2008): Pakistan has received a $200 million loan from the Islamic Development Bank it is reliably learnt. The loan is on a floating rate for general purpose use and is repayable after one year.

In the past, Pakistan had normally been availing trade finance facility from IDB - where payment is made by IDB directly to the supplies - from an Organisation of Islamic Countries (OIC) - of crude oil or POL products or palm oil. Just three months ago, IDB provided $100 million for the import of wheat from Turkey at 1.95 percent over LIBOR.