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Markup rates for export financing raised to 13%

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  • SBP raises export financing markup rates by 200 basis points.
  • Decides to reduce gap between policy rate and EFS, LTFF to 3%.
  • This will come into effect from December 30, 2022. 

KARACHI: The State Bank of Pakistan (SBP) has raised the export financing markup rates by 200 basis points in line with the key policy rate, The News reported Friday.

In a circular issued on Thursday, the central bank decided to reduce the gap between the policy rate and Export Finance Scheme (EFS) and the Long-term Financing Facility (LTFF) from the existing 5% to 3%.

“Accordingly, markup rates for financing under EFS (Part-I & Part-II) and LTFF are increased from the existing 11% per annum to 13% per annum each with effect from December 30, 2022.”

In the future with any change in the SBP policy rate, markup rates for EFS and LTFF would be revised automatically so that the gap between the policy rate and EFS and LTFF rates was maintained at 3%, the central bank added.

With the fresh SBP move, the interest rates on working capital financing and plant machinery have been increased.

The rates on EFS and LTFF schemes were fixed at 3-5% until March 2022. On July 7, 2022, the SBP linked the rates of EFS and LTFF with its policy rate.

The SBP hiked the policy rate by 100 basis points to 16% last month to prudently strike a balance between maintaining growth post-floods and managing inflation. The central bank is set to announce the upcoming interest rate decision on January 23.

Analysts expect the SBP to maintain a tight monetary stance in the second half of this fiscal year as inflation remains elevated. The policy rate is likely to be raised by 100 bps to 17% in the first quarter of 2023.

The rise in the cost of borrowing is expected to affect exports and the private sector credit growth.

In line with the slowdown in economic activity, private sector credit continued to moderate, increasing only by Rs86.2 billion during the first quarter compared to Rs226.4 billion during the same period last year, the SBP said in its last monetary policy statement.

This deceleration was mainly due to a significant decline in working capital loans to wholesale and retail trade services as well as to the textile sector in the wake of lower domestic cotton output, and a slowdown in consumer finance, it added.

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The government has introduced a comprehensive strategy to enhance industrial investment.

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Authorities are poised to execute an ambitious investment promotion strategy through a collaborative initiative between the National Institute of Public Administration (NIPA) and the Pakistan Administrative Staff College, aiming for substantial enhancements in industrial investment and economic development.

The Special Investment Facilitation Center (SIFC) will be instrumental in this transformative drive by establishing “Business Facilitation Centers” aimed at optimizing investment processes and attracting both domestic and foreign capital.

Principal features of the comprehensive plan encompass:

  1. Forming collaborative working groups to augment domestic and international investment prospects
  2. Formulating a comprehensive strategy to eradicate obstacles to industrial development
  3. Formulating a novel model to tackle issues in the execution of industrial projects
  4. Striving to enhance Pakistan’s international business rating by 50 points
    Targeting $20 billion in foreign industrial investments within the next five years.

The approach prioritizes digital transformation to enhance the transparency and efficiency of the investment process. SIFC’s strategy emphasizes fostering a favorable atmosphere for investors by streamlining bureaucratic processes and offering strategic assistance.

National administration officers are conducting ongoing study to identify and mitigate potential investment barriers, while a specialized research group is formulating a comprehensive strategy to solve current hurdles in industrial growth.

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Barrick CEO: Reko Diq mine will provide $74 billion in free cash flow over 37 years.

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Based on consensus long-term prices, the Reko Diq copper and gold project in Pakistan is anticipated to produce almost $74 billion in free cash flow over the next 37 years, according to the CEO of joint owner Barrick Gold, who made this statement in a media interview.

Half of the Reko Diq mine is owned by Barrick Gold, with the remaining 50% being owned by the province of Balochistan and the Pakistani government.

The development of the mine is anticipated to have a major impact on Pakistan’s faltering economy, and Barrick views it as one of the greatest untapped copper-gold zones in the world.

A protracted conflict that ended in 2022 caused the project to be delayed, although it is anticipated that production will begin by the end of 2028. In its initial phase, it will cost an estimated $5.5 billion and generate 200,000 tons of copper annually.

In an interview with the media, Barrick CEO Mark Bristow stated that the first phase should be finished by 2029.

He said that production will increase in a second phase, which is expected to cost $3.5 billion.

Although the mine’s reserves are estimated to last 37 years, Bristow stated that with improvements and additions, the mine’s useful life may be significantly extended.

Pakistan, which now has just about $11 billion in foreign reserves, could receive substantial dividends, royalties, and taxes from a free cash flow of $74 billion.

Additionally, Barrick is negotiating with infrastructure providers and railway authorities to renovate the coal terminal in Port Qasim, which is located outside of Karachi, Pakistan, in order to provide infrastructure for the domestic and international transportation of copper.

The project is on schedule, according to Bristow, with surveys, fencing, and lodging already finished.

In the next two quarters, the Saudi mining corporation Manara Minerals may make an investment in Pakistan’s Reko Diq mine, Pakistani Petroleum Minister Musadik Malik stated last week.

Manara executives traveled to Pakistan in May of last year to discuss purchasing a share in the project. Additionally, Pakistan is discussing mining prospects with other Gulf nations, according to Malik.

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According to projections made by the World Bank, Pakistan’s gross domestic product will expand by 2.8% during the fiscal year 2024-25.

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A significant gain of 0.5% from its previous estimate of 2.3% in June 2024, the World Bank has updated its forecast for the growth of Pakistan’s gross domestic product for the fiscal year 2024-25 to 2.8%.

The International Monetary Fund (IMF) has projected a growth rate of 3%, and our prediction falls short of that projection. Additionally, the government’s goal growth rate of 3.6% is lower than this prediction.

Pakistan’s growth is still relatively slow in comparison to that of its neighbors in the region, as stated in the World Bank’s World Economic Prospects Report 2025.

With a growth rate of 6.7%, India is anticipated to top the South Asian region. Bhutan, with a growth rate of 7.2%, Maldives, with a growth rate of 4.7%, Nepal, with a growth rate of 5.1%, Bangladesh, with a growth rate of 4.1%, and Sri Lanka, with a growth rate of 3.5% should follow.

The findings of the analysis reveal that although Pakistan’s economy is showing signs of minor improvement, it is still confronted with substantial obstacles. The nation’s foreign exchange reserves have been strengthened as a result of the fact that inflation, which had reached double digits in previous years, has now fallen to single digits for the first time since 2021.

Following the elections that took place in February 2024, the administration has implemented stringent fiscal and monetary policies, which have contributed to a reduction in uncertainty. This improvement can be linked to these policies.

It is anticipated that Pakistan’s per capita income will continue to be low until the year 2026, according to the World Bank, despite the fact that some favorable improvements have occurred. Not only does this reflect broader regional patterns, but it also underscores the fact that Bangladesh and Sri Lanka are also facing comparable issues.

The rising weight of debt was another topic that was brought up in the report. It is anticipated that interest payments will increase in both Pakistan and Bangladesh.

The ratio of Pakistan’s debt to its gross domestic product is expected to steadily decrease, assuming that the government continues to uphold its commitment to the existing loan arrangement with the International Monetary Fund. A warning was issued by the World Bank, stating that any deviation from the program might have a significant impact on the economic operations of the country. The World Bank emphasized the significance of complying to the requirements of the International Monetary Fund (IMF).

Despite the fact that the country’s inflation rate has been moderated and its reserves have been strengthened, experts have pointed out that the implementation of structural reforms and the management of external debt are the most important factors in determining the country’s long-term economic stability.

According to a report published by the World Bank, Pakistan needs to provide consistent policies and a stable macroeconomic environment in order to maintain investor confidence.

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