In line with expectations, investors on Friday offered a huge financing of Rs479 billion to the government against the target of Rs30 billion in the auction of one-year Ijarah Sukuk at the Pakistan Stock Exchange (PSX), oversubscribing the offer by 16 times, according to unofficial results.

It was the maiden auction at the PSX by the Ministry of Finance, which has so far held such auctions through the State Bank of Pakistan (SBP). The ministry was yet to announce its official results.

Market observers were keenly watching as to what would be the cut-off yield, which was the key to holding the auction at the PSX.

Two leading research houses speculated that the rate of return (cut-off yield) would be below 20%, which was significantly lower than the average 22% return on one-year T-bills. Last week, Shariah-compliant banks acquired one-year Sukuk at a variable rental rate of “T (T-bills) minus 100 basis points” at the PSX, it was learnt.

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A currency market official said the Ijarah Sukuk auction at the PSX ended the monopoly of banks in the bond market as they were investing depositors’ money in government papers instead of extending financing to the private sector for economic activities.

Now, the heavy profit which banks were making alone from the bond market, will reach the common man as well, who can make investment of as low as Rs5,000.

A banker, who was part of the auction, said it was oversubscribed by 13 times at Rs369 billion.

Caretaker Prime Minister Anwaarul Haq Kakar launched the Sukuk at the PSX. Caretaker Finance Minister Dr Shamshad Akhtar was also present.

PSX, in its statement, said that in a landmark development for financial markets, the primary market auction of government debt securities (GDS) was held at the PSX. This follows a change in rules to enable the raising of government debt in capital markets.

Read: Govt poised to float Rs30b Sukuk at PSX

Addressing a ceremony marking the first auction of Ijarah Sukuk at the PSX, PM Kakar said it was the collective responsibility of stockbrokers, SECP and other participants to promote primary market auctions among a diverse group of investors, as it was a remarkable achievement for the entire market ecosystem.

He congratulated all stakeholders for the auction, “aimed at simplifying the participation in government securities, diversifying the investor base and enhancing transparency.”

The PM emphasised that investors had regained confidence after the successful signing of a standby arrangement with the International Monetary Fund (IMF), the execution of the annual budget 2023-24 and improvement in fiscal and external accounts.

The prime minister, who later rang the gong, said it did not only herald the beginning of market transactions but was also a symphony of progress and prosperity.

“The echo reverberates not only within these walls but across the financial corridors of the nation, symbolising our commitment to fostering an inclusive and robust financial ecosystem that welcomes diverse voices and promotes economic prosperity,” he remarked.

He said initially Pakistan’s economy faced multiple challenges at the start of 2023-24, but the government addressed structural and macroeconomic issues to rectify the situation. Collective efforts of all stakeholders successfully brought the economy back on track, leading to a lower dollar rate from Rs307 on September 5 in inter-bank to Rs284 now, which also resulted in a decline in inflation, he added.

He was of the view that the bullish sentiment in the stock exchange was made possible by an improved economy, the participation of foreign investors, a high yield and a stable exchange rate.

The PM said the capital market provided fuel for businesses to expand, create jobs and contribute to the overall development of society. He reiterated the government’s commitment to fostering an environment that would nurture the resilience of the capital market.

Akhtar said “it is a momentous occasion for financial markets and the economy of Pakistan where the government machinery, particularly the Debt Management Office of the Ministry of Finance, has taken the necessary steps, enabling primary market auction of government debt securities at the PSX.” This step is expected to enhance and augment efficiency, flexibility, registering, trading and transfer of the GDS.

PSX MD and CEO Farrukh H Khan stated, “The amendment in existing Government of Pakistan Market Treasury Bills 1998 and Government of Pakistan Ijarah Sukuk Rules 2008 made this possible, which means PSX, in addition to the State Bank, will also be responsible for the primary market auction of GDS.”
(With additional input from APP)

Published in The Express Tribune, December 9^th, 2023.

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The remittances sent home by overseas Pakistanis slowed down to $2.25 billion in November 2023 partly due to the return of volatility in rupee-dollar exchange rate in the first half of the month and partly because of a global economic slowdown.

The remittances dropped from a seven-month high of $2.46 billion reached in October 2023.

State Bank of Pakistan’s (SBP) data on Friday showed that the inflow of workers’ remittances decreased 9% to $2.25 billion in November compared to $2.46 billion in October.

The inflows, however, improved 4% when compared with the remittances of $2.17 billion received in the same month of last year.

Overall, in the first five months (Jul-Nov) of current fiscal year, the remittances dipped 10% to $11.05 billion compared to $12.32 billion in the same period of last year.

Data breakdown showed that inflows from Saudi Arabia decreased 12% to $540 million in November compared to $617 million in the prior month.

Expatriate Pakistanis sent home $409 million from the United Arab Emirates (UAE), which was 14% lower compared to $474 million in October.

Non-resident Pakistanis sent $268 million from European Union member countries, which was 10% less than $298 million received in the previous month.

Remittances from the United States dropped 8% to $261 million compared to $283 million in the previous month.

Read: SBP brings incentives to attract remittances

Inflows from other countries decreased 7% to $429 million compared to $461 million last month.

UK was the only source from where remittances improved in November, which went up 3% to $342 million compared to $330 million in the previous month.

Earlier, the return of volatility in rupee-dollar exchange rate in the first two weeks of November had encouraged the illegal Hawala-Hundi network operators to re-emerge in the border areas of Afghanistan and in the Middle Eastern countries.

They offer higher prices to Pakistani expatriates for sending their foreign currency earnings back home, leading to a decline in the inflow of remittances through official channels.

In addition, the global economic slowdown has reduced the capacity of overseas Pakistanis to send more money to their family members and relatives in the country, partly resulting in a reduction in official inflows.

Published in The Express Tribune, December 9^th, 2023.

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The textile industry has submitted an ambitious plan to the government for achieving a $50 billion export target as it comes up with a set of recommendations for removing barriers and providing incentives to extend the outreach in international markets.

The industry has proposed the setting up of 1,000 garment plants on a fast track to create exportable surplus and diversify the export basket. Each plant will consist of 500 stitching machines with an investment of $5 million, produce garments to make exports of $20 million per annum and generate 1,000 jobs.

In a presentation given to the Export Advisory Council for Textiles, the industry proposed a “no-cost-no-commitment” incentive package, featuring proposals such as free office spaces for international brands and retailers to encourage their physical presence in Pakistan.

It pointed out that the cost of first six months would be covered through upfront financing from the Export Development Fund along with a rebate of 0.1% of the sourcing value for firms acquiring merchandise worth over $50 million from Pakistan.

It was highlighted that the US fashion industry was shifting from a strategy called “China plus Vietnam plus many” to a new system named “Asia plus rest of the world”. Finding new sources for textile products other than China is a top priority of the US fashion firms.

Some firms were of the view that “Made in China” would gradually become “Managed by China” as Chinese manufacturers were looking at the possibility of outsourcing production. This presents opportunities to Pakistan as well as it can directly supply goods to international firms and also cater to the needs of Chinese companies looking to outsource production.

Textile companies are expected to increasingly source clothing made from recycled or other sustainable fibres. As many as 60% of firms plan to sustainably increase the sourcing of apparel made from sustainable or recycled textile materials over the next five years.

Demand for cotton and other sustainable fabrics is likely to rise compared to the less sustainable and biodegradable manmade fibre. High sourcing costs and low profit margins are the top challenges to sourcing clothing made from recycled or other sustainable fibres.

There are growing calls for policy support for sourcing such clothing, such as preferential tariff rates and guidance on sustainability and recycling standards.

Read: Pakistan, China forge textile ties

Meanwhile, Pakistan’s textile industry has urged the government to announce a separate power tariff category for exporters, excluding cross-subsidies, stranded costs and other inefficiencies.

It called for ensuring adequate supply of re-gasified liquefied natural gas (RLNG)/ locally produced gas at regionally competitive prices and transition to zero emissions for exporting industries.

Net zero greenhouse gas emissions are required across the value chain to continue exporting to western markets beyond 2030.

In addition, traceability across the textile and apparel value chain is increasingly sought by importers. This necessitates a mandatory and centralised track and trace system. The system should give priority to upstream sectors like cotton and ginning factories to ensure full compliance along with a fully operational National Compliance Centre to monitor environmental and social compliance.

The textile industry has sought exemption from sales tax for export-sector inputs to expedite processes and become competitive in global markets. It also called on the Federal Board of Revenue to process all FASTER refunds within the promised 72-hour time frame.

It demanded the refund of all pending dues in order to create a favourable and liquid business environment.

It floated the idea of setting up free commercial zones with simplified procedures to facilitate exports, reduce turnaround time and centralise export-related services. It asked for simplifying and digitalising all import and export procedures to enhance efficiency.

The industry advocated the need for tax incentives and financing schemes like those provided by regional economies, which will result in some competitive advantage in relation to competitors like Vietnam, Bangladesh, India and Cambodia.

It emphasised that varieties of exportable surplus should be increased and textile and apparel exports diversified beyond cotton-based products.

Published in The Express Tribune, December 9^th, 2023.

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