Financial Risk Manager: Pakistan's Economic Review Jan-Jul FY-09

Pakistan's Economic Review Jan-Jul FY-09
Wednesday, February 25, 2009

Inflation Declining but Still High:

Inflation has started to decline slowly and Jul-Jan inflation was at 23.9% against 24.4 % during first six months of the current fiscal year, although it was 8.6% in the corresponding period last year.
Food inflation in first seven months of current fiscal year came down to 29.8% while it was 12.5% last year.
Non food inflation for seven months equaled 19.2% although it was mere 5.7 % last year.
Non food non energy inflation in seven months of FY-09 reached 17.6% as against 6.7% for the corresponding period last year.
Inflation is still above government’s target of 12%.

Money Market Review:

SBP announced monetary policy statement (MPS) in January 2009 keeping the discount rate unchanged.
There is an immense speculation that Central Bank might cut discount rate in coming policy statement.
The cut off rates of T-Bills have started coming down which could be a gesture from Central Bank for rate slash and cut off rate for one year T-Bill has come below 14% as well.
SBP accepted Rs 20 billion against participation of Rs 56 billion.
PIBs cut off rates recorded improvement in all tenors comparatively from last auction.

Trade Deficit crossed $10 Billion mark:

Trade deficit crossed whopping $10 billion mark and seven months deficit widened to $10.727 billion in FY-09 showing an increase of 3.5% from last year’s $10.357 billion in the same period.
Total Exports reached to $10.934 billion showing an increase of 8.02% mainly constituted of rice, chemicals and cement.
Imports for seven months reached to $21.661 billion,an increase of 5.77%.
Monthly exports for January reached to $1.36 billion while imports reached $2.528 billion making monthly deficit of $1.22 billion, an improvement from last year’s deficit of $2.064 billion.
Home remittances for January were $637 million showing a decline from December’s massive $674 million, which was the highest level in last five years.
The aggregate remittances in first seven months of fiscal year 2009 have totaled to $4.277 and it has been one of the biggest sources after exports, to earn foreign exchange for bridging gap between foreign currency inflows and outflows.

Future Outlook:

The economy has finally started to show signs of relative stability by achieving the first set of targets set by International Monetary Fund, which happens to be the prerequisite for the second tranche from IMF.
As a matter of direct consequence of IMF’s revenue target the government is reluctant to cut the oil prices further and it has further decided to review petroleum prices on
monthly basis instead of fortnightly basis.
All signs are that domestic inflation would be difficult to tame given relatively high POL and Food prices.
While country’s burgeoning trade and current account deficits have shown some signs of improvements, it is imperative that the foreign exchange numbers are still very much against the country.
The interest rates might go down in near future owing to tremendous pressure from business community provided that in addition to high interest rates, slowing exports orders have already made things worse for corporate.
Country’s foreign exchange position would mainly depend on IMF as Pakistan has already approached IMF for $4.00 billion finance in addition to $7.5 billion stand by facility.
Exchange rate would remain volatile in absence of any major investments from abroad.

Ref: Treasury, National Bank of Pakistan

posted @ 12:41 PM,