KARACHI: Pakistan’s central bank cut its key interest rate by 150 basis points on Monday in a widely expected move, marking its first rate reduction in nearly four years in its effort to boost growth amid a sharp decline in retail inflation.
The decision to cut the key rate to 20.5 percent comes two days ahead of Pakistan’s annual budget and a week after data showed inflation slowed to a 30-month low of 11.8 percent in May.
It also comes ahead of Pakistan’s negotiations with the International Monetary Fund (IMF).
Pakistan is in talks with the IMF for a loan estimated to be anything between $6 billion to $8 billion to avert a default for an economy that is growing at the slowest pace in the region.
The growth target for the upcoming year is expected to be higher at 3.6 percent than this year’s 2 percent and last year’s economic contraction.
Analysts and the business community have had mixed reactions to the cut, and are looking forward to the upcoming budget for clarity on the central bank’s next moves.
PAKISTAN BUSINESS COUNCIL
“With headline inflation decelerating by 550 bps from April to 11.8 percent in May, and the policy rate significantly positive, businesses generally expected a sharper cut.
“However, as the monetary policy committee points out, upward inflationary risks emanate from the FY 25 budget and future increases in energy tariffs. So the ball is in the government’s court to manage inflation.”
“Businesses should derive comfort from the narrowing current account deficit, a primary surplus on the fiscal account, deceleration in the growth of currency in circulation, declining food inflation, and stable FX reserves... All these factors augur well for further reduction in the policy rate.”
MUSADAQ ZULQARNAIN, DIRECTOR OF THE PAKISTAN TEXTILE COUNCIL
“I expect that, while the policy rate should come down by 300 basis points, out of abundant caution it was reduced by 150-200 basis points.
“It will surely help a bit, though the rates will still be in a higher than workable range. But this will set the direction. We will also have to wait for the budget to see what the overall impact (is).”
M ABDUL ALEEM, CEO AND SECRETARY GENERAL OF PAKISTAN’S OVERSEAS INVESTORS CHAMBER OF COMMERCE AND INDUSTRY
“At present our real policy rate stands at 10 percent. This leaves room for a higher cut, at least by 2 percent. However, the monetary policy committee decided to cut the rate by 150 bps.
“This decline in the policy rate will provide relief of around 600 billion rupees ($2.16 billion) in debt servicing to the government and also to businesses by lowering the cost of borrowing.
“Business confidence has already improved, as reflected in the latest OICCI Business Confidence Index.
“Post the June 12 budget, we expect a revival of economic activities and the creation of employment opportunities. Moreover, as inflation is declining, we expect more cuts in future.”
TAHIR ABBAS, HEAD OF RESEARCH AT ARIF HABIB LIMITED
“The central bank has indicated that inflationary pressures are easing, supported by a significantly positive real interest rate. We believe that this monetary easing cycle will persist, with an additional 3-4 percent decline expected in 2024.
“The stock market is expected to take the news positively. However, there remains fear and uncertainty over hefty taxation measures in the upcoming federal budget.
“For industries, it would be a welcome step as it would reduce borrowing costs. More importantly, it would be positive for the federal government fiscal account as well, as it is the largest borrower in the system.”
ABID SULERI, EXECUTIVE DIRECTOR OF THE SUSTAINABLE DEVELOPMENT POLICY INSTITUTE
“This is a prudent measure by the central bank. The central bank is cautious because of the upcoming budget and some measures that may push inflation up once again.
“Once in an IMF program, we may see some changes in the rupee-dollar parity.
“We need to remember that the monetary policy is not just for inflation, but also to encourage domestic savings to prevent dollarization.
“In the next two meetings, if things remain constant, we will see the key rate ease further.”
ALMAS HYDER, SENIOR MEMBER OF THE LAHORE CHAMBER OF COMMERCE AND INDUSTRY
“A rate cut signifies taming of inflation and creating opportunities for investment. This will start a positive cycle of investment planning for the future.”
MUSTAFA PASHA, CHIEF INVESTMENT OFFICER AT LAKSON INVESTMENTS
“(I) don’t see (the cut) being an issue with the IMF as we are still very far from an accommodative policy stance (12 percent or lower). (I) foresee aggressive rate cuts in the second half of the year (4-5 percent) if we get an IMF program.”
Expert and industry present mixed reviews on Pakistan central bank rate cut
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Expert and industry present mixed reviews on Pakistan central bank rate cut
- Pakistan is in talks with the IMF for a loan estimated to be anything between $6 billion to $8 billion to avert a sovereign default
- The growth target for upcoming year is expected to be higher at 3.6 percent than this year’s 2 percent and last year’s economic contraction
Pakistan tax association says foreign investment at risk as authorities deny security clearances
- Pakistan Tax Bar Association says foreign subscribers, directors getting ‘unilateral’ rejection letters with no reason given
- Union says the actions go against the government’s stated aim of inviting foreign companies to invest in Pakistan
ISLAMABAD: The Pakistan Tax Bar Association (PTBA) has written a letter to the interior minister this week raising concern about the ‘unilateral’ rejection of security clearances for foreign investors, which the union said could jeopardize their business activities in the country.
The government of Prime Minister Shehbaz Sharif says it is committed to improving Pakistan’s investment climate as the South Asian country struggles to meet external financing needs. In 2023, Pakistan set up the Special Investment Facilitation Council to attract foreign funds and projects. In recent months, Saudi Arabia has promised to expedite a $5 billion investment plan for Pakistan, while the UAE and Kuwait have committed $10 billion each in promising sectors and Qatar has pledged $3 billion.
However, potential investors in Pakistan face many challenges such as taxation, persistently high inflation, red tape, weak rule-of-law, inconsistent regulation, corruption, political uncertainty, security concerns and a lack of transparency in public-sector decision-making.
“We are writing to you to raise a very serious issue in terms of rejection of security clearance for foreign investors who have incorporated a 100 percent foreign equity company in Pakistan,” the PTBA, a private body, said in the letter to Interior Minister Mohsin Naqvi on Wednesday.
As per the Companies Regulations, 2024, every foreign subscriber and director is required to seek security clearance by filing required documents to the interior ministry through the Securities and Exchange Commission of Pakistan. After the incorporation, companies start their investments and set up their premises and factories to commence business operations in Pakistan.
“Nowadays, companies have been receiving unilateral rejection letters from the SECP, informing them that the security clearance for their foreign subscribers and directors have been rejected,” the PTB said. “These letters neither specify the reasons for such rejection nor any opportunity of hearing to explain the defects/discrepancy if any.”
The union said these actions were sending a “very negative message” to foreign investors.
“Pakistan and one fine morning they are informed that they are not security cleared,” PTBA said. “This jeopardizes their entire business set up in Pakistan, which is against the government’s stated aim of inviting foreign investors to invest in Pakistan.”
The PTBA urged Naqvi to “immediately” address the issue, which was “adversely” affecting Pakistan’s ability to attract foreign investment.
The interior ministry has not yet commented on the PTBA’s letter.
Pakistan in 2023 nearly defaulted on the payment of foreign debts when the International Monetary Fund rescued it by agreeing to a $3 billion bailout to Pakistan.
Last year, Islamabad secured a new $7 billion loan deal from the IMF. Since then, the country’s economy has started improving with weekly inflation coming down from 27 percent in 2023 to 1.8 percent earlier this month. Sharif has vowed to reduce dependence on foreign loans in the coming years and to seek more foreign investments.
First international flight takes off for Muscat from Pakistan’s Gwadar airport
- China-funded airport opened for commercial operations on Monday after months-long delay
- Opening in August of $246 million airport postponed due to security fears after separatist attacks
KARACHI: The first international flight took off for Muscat from the China-funded Gwadar airport on Friday with 39 passengers aboard, just days after the facility in southwestern Pakistan began commercial operations after a months-long delay.
A security review, prompted by a string of deadly attacks by separatist militants in the southwestern Balochistan province in August last year, had delayed the airport’s opening to the end of 2024 from Aug. 14. The airport was then due to begin operations on Jan. 10 but finally opened this Monday as a Pakistan International Airlines flight arrived from the southern port city of Karachi.
Pakistan hopes the $246-million Chinese-backed project, which will handle both domestic and international flights, will become one of the country’s largest airports.
“First international flight departs from New Gwadar International Airport to Muscat,” national carrier PIA, which operated the flight, said in a statement, adding that it would initially run one weekly flight to Muscat.
“PIA is committed to activating air operations across the country in line with national aspirations and public needs.”
Last month, Prime Minister Shehbaz Sharif’s office said the Gwadar airport would be able to handle A-380 aircraft and accommodate four million passengers annually.
The airport will eventually feature facilities like a cold storage, cargo sheds, hotels and shopping malls, with banking services arranged through the State Bank of Pakistan, according to the PM’s office. PIA has also planned to increase flights between Karachi and Gwadar to three times a week, while discussions are ongoing with private airlines and carriers from China, Oman and the United Arab Emirates to launch both domestic and international services.
China has pledged over $65 billion in infrastructure, energy and other projects in Pakistan under the China Pakistan Economic Corridor (CPEC). Part of President Xi Jinping’s Belt and Road Initiative, the program in Pakistan is also developing a deep-water port close to the new Gwadar airport, a joint venture between Pakistan, Oman and China that is close to completion.
Although no Chinese projects were targeted in the militant attacks in August that delayed the airport’s launch, they have been frequently attacked in the past by separatists who view China as a foreign invader trying to gain control of impoverished but mineral-rich Balochistan, the site of a decades-long insurgency.
Recent attacks, including one in October 2024 in which two Chinese workers were killed in a suicide bombing in Karachi, have forced Beijing to publicly criticize Pakistan over security lapses and media has widely reported in recent months that China wants its own security forces on the ground to protect its nationals and projects, a demand Islamabad has long resisted.
Pakistan, Azerbaijan finalize agreement on arms trade, defense infrastructure, intelligence sharing
- There have been a series of visits by Azerbaijani officials to Pakistan in recent months
- Islamabad is seeking closer trade and investment ties with former Soviet republics
ISLAMABAD: Pakistani Defense Minister Khawaja Asif said on Friday Islamabad and Baku were in the process of finalizing a memorandum of agreement to enhance security ties through cooperation in arms trade, defense infrastructure and intelligence sharing.
Asif was addressing the eighth session of the Pakistan-Azerbaijan joint commission alongside Azerbaijani Defense Industry Minister Vugar Mustafayev who is visiting Islamabad.
There have been a series of visits by Azerbaijani officials to Pakistan in recent months, as Islamabad seeks closer ties, especially in trade and investment, with former Soviet republics and Central Asian states.
Last July, Azerbaijan President Ilham Aliyev visited Pakistan and announced that the two nations were working to increase bilateral trade to $2 billion.
“I’m hopeful that once we finalize our memorandums of understanding on cooperation in the field of the defense industry, we will be able to further our security ties through arms trade, defense infrastructure and sharing of intelligence,” Asif said.
He invited Azerbaijan to join Pakistan’s Strategic Underground Gas Storage (SUGS), a critical component of energy infrastructure, and the White Oil Pipeline project that transports oil from ports to refineries and other distribution points.
Asif also suggested organizing regular trade exhibitions between the two countries to showcase local products in each other’s markets.
Last December, Pakistan waived customs and regulatory duties on imports from Azerbaijan under the Pakistan-Azerbaijan Preferential Trade Agreement. The agreement aimed to boost economic cooperation by reducing tariffs on goods like Pakistan’s sports equipment, leather, and pharmaceuticals and Azerbaijan’s oil and gas products.
On International Day of Education, Pakistan vows to embrace ‘promise of AI’
- Theme of this year’s International Day of Education is “AI and Education: Preserving Human Agency in a World of Automation”
- Around the world, AI is being increasingly used in education to improve the learning experience for both students and teachers
KARACHI: Pakistani Prime Minister Shehbaz Sharif on Friday, the International Day of Education, reaffirmed his government’s commitment to advancing an education system that embraced the “promise of AI” and supported the country’s youth in thriving in an evolving technological landscape.
The theme of this year’s International Day of Education is “AI and Education: Preserving Human Agency in a World of Automation.” Around the world, AI is being increasingly used in education to improve the learning experience for students and teachers. AI can automate tasks, provide real-time feedback, and create personalized learning experiences.
“As AI-driven systems become increasingly integrated into our lives, the boundaries between human intervention and machine-driven actions continue to blur,” Sharif said in a statement.
“This presents both opportunities and challenges, raising the critical question of how we can uphold and enhance human agency amidst the growing tide of automation.”
He said his government recognized the transformative power of education in preparing Pakistan’s youth to thrive in the evolving technological landscape.
“By fostering critical thinking, innovation, and ethical responsibility, we aim to equip our citizens with the tools not only to adapt to technological changes but to shape them in ways that uphold our values, protect our freedoms, and advance our society,” the PM said.
He highlighted steps taken in Pakistan to prepare its educational institutions to embrace technological advancements. These initiatives include the establishment of High-Impact IT Labs in ICT degree colleges, Digital Hubs in rural ICT schools, the Google Center of Excellence, SMART Classrooms, and the E-Taleem Portal for blended learning.
“Additionally, we have introduced E-Rozgar Centers, Software Technology Parks, Robotics and Mind Games programs, and STEAM Labs to foster innovation. It is imperative that our schools are equipped with the latest technologies to equip our children with the requisite skills,” the PM said.
“On this day, while we reaffirm our resolve to advancing an education system that embraces the promise of AI while safeguarding the essence of human creativity, compassion, and purpose.”
Pakistan rejects Afghanistan’s allegations it hosts Daesh militant camps
- Foreign Office says Afghanistan is a source of “support and logistics” for militant operations against Pakistan
- Ties between neighbors are strained over surge in militant attacks in Pakistan it blames on Afghanistan
ISLAMABAD: Foreign Office spokesperson Shafqat Ali Khan on Thursday rejected Afghanistan’s allegations Pakistan was hosting and facilitating Daesh militant camps, calling it “weird propaganda.”
The remarks come in response to allegations by Afghan officials that Pakistan was operating training camps for Daesh fighters and facilitating their movement through the Islamabad and Karachi airports for training in its southwestern Balochistan and northwestern Khyber Pakhtunkhwa provinces with the aim of carrying out militant activities in Afghanistan.
Islamabad also frequently accuses neighboring Afghanistan of sheltering and supporting militant groups that launch cross-border attacks amid a surge in militancy in its KP and Balochistan provinces. The Taliban government in Kabul says it does not allow Afghan soil to be used by militants, insisting Pakistan’s security issues are an internal matter for Islamabad.
“Frankly, we completely reject these allegations. They are not grounded in reality,” Khan said during a weekly press briefing when asked about the Afghan allegations on Daesh camps. “It’s just some kind of weird propaganda.”
He reiterated Pakistan’s concern over sanctuaries of the Pakistani Taliban or Tehreek-e-Taliban (TTP) in Afghanistan, accusing the country of being a source of “support and logistics” for TTP militant operations against Pakistan.
“It couldn’t do without the sanctuaries it’s enjoying in Afghanistan,” Khan added. “And we continue to impress upon the Afghan authorities to address this genuine and serious concern so that our bilateral relations can achieve full potential as good neighbors.”
Islamabad says it has consistently taken up the issue of cross-border attacks with the Taliban administration. The issue has also led to clashes between the border forces of the two countries on multiple occasions in recent months.
In December, the Afghan Taliban said bombardment by Pakistani military aircraft in Afghanistan’s eastern Paktika province had killed at least 46 people, most of whom were children and women. Just days later, the Afghan defense ministry said Taliban forces targeted “several points” in neighboring Pakistan, further straining tense ties.
Relations between the two countries have also soured since Pakistan launched a deportation drive in November 2023 against illegal aliens residing in the country. Though Pakistan insists the campaign does not only target Afghans but all those residing in Pakistan unlawfully, it has disproportionately hit Afghans, with at least 800,000 repatriated so far.
