Latest news with #PakistanEconomy
Arab News
4 days ago
- Business
- Arab News
Pakistan holds interest rate at 11% as Mideast conflict poses new economic challenges
KARACHI: Pakistan's central bank kept its key interest rate unchanged at 11% on Monday, maintaining a cautious stance, as financial analysts warn heightened Middle East tensions and volatile global oil prices add new risks to the country's fragile external sector and inflation rate. A Reuters poll released earlier on Monday had shown analysts revising their expectations for a rate cut in light of Israel's military strikes on Iran that began on Friday and have since intensified, pushing up global commodity prices. 'The [Monetary Policy] Committee noted some potential risks to the external sector amidst the sustained widening in the trade deficit and weak financial inflows. Moreover, some of the proposed FY26 budgetary measures may further widen the trade deficit by increasing imports,' the central bank said, announcing its decision to leave the rate unchanged. 'In this regard, the Committee deemed today's decision appropriate to sustain the macroeconomic and price stability.' Monday's decision comes days after Pakistan announced its Rs16.7 trillion ($62 billion) annual budget targeting 4.2% growth, up from a provisional estimate of 2.7% for the current year. The MPC noted that despite the widening trade deficit, the current account remained broadly balanced in April, and foreign exchange reserves rose to $11.7 billion as of June 6 after the completion of the first review under the International Monetary Fund's Extended Fund Facility. The country expects $14 billion foreign exchange reserves by the end June. The bank paused its policy rate easing cycle in March, following cumulative cuts totaling 1,000 basis points from a record high of 22%, and resumed it with a 100-basis-point reduction in May. Inflation in Pakistan has slowed markedly since peaking at around 40% in May 2023. However, last month it rose to 3.5% year-on-year, above the finance ministry's projection of up to 2%, partly due to the fading of favorable base effects. The central bank projects average inflation between 5.5% and 7.5% for the fiscal year ending this month. 'Going forward, inflation is expected to trend up and stabilize in the target range,' the MPC said. The escalating tensions in key oil-producing regions have triggered a sharp surge in global oil prices with brent, West Texas Intermediate (WTI) and Arab Light crude oils showing a 12% week-on-week increase and daily spikes exceeding 6%, Arif Habib Ltd, a Karachi-based research firm, said in its latest note. 'WAIT-AND-SEE' STANCE Amreen Soorani, the head of research at Al Meezan Investment Management, said the SBP's decision was primarily driven by emerging geopolitical risks that had affected international oil prices. 'Even with substantial improvements in Pakistan's inflation and external account, the central bank seems to have taken a cautious 'wait-and-see' stance,' she told Arab News. The regional tensions, she said, were posing potential challenges to Pakistan's balance of payment and inflation rate. Cash-strapped Pakistan spent $17 billion on oil imports last year. Soorani said petroleum was a major driver of Pakistan's trade deficit, accounting for approximately 30% of all imports and consuming around 55% of export proceeds. 'All else being equal, a $5 per barrel increase in average oil prices for the year would worsen our trade deficit by an estimated $900 million annually,' the analyst said. Pakistan is closely watching the global oil market, where brent and WTI crude traded at around $73.5 and $70.5 a barrel on Monday and fell 1% after opening lower in the Western markets, Finance Adviser Khurram Schehzad said. 'Global calls for increasing supplies is (are) one of the reasons among potential resolve of the Israel-Iran conflict by the US,' Schehzad said. Muhammad Waqas Ghani, head of research at JS Global Capital Ltd., said the SBP's current monetary stance was aligned with the IMF's recommendation to Islamabad to maintain a sufficiently tight monetary policy to anchor inflation. 'Additionally, the committee may have preferred to wait for greater clarity on the budget measures and their potential impact on inflation dynamics,' he told Arab News. STOCKS GAIN, RUPEE DECLINES Pakistani stocks gained by 82 points to close at 122,225 points 'despite geopolitical risk amid speculations over SBP policy announcement,' Ahsan Mehanti, chief executive officer at Arif Habib Commodities Ltd, said. The rupee declined for the fifth consecutive session and inched down 0.07% to Rs283.17 per dollar. Qazi Owais Ul Haq, a currency dealer at Arid Habib Ltd. said Pakistan's currency was 'feeling the heat' as regional tensions surge. 'They are trying to hold the rate but as a third-world country war affects us,' Haq told Arab News. Pakistan's top trade body, the Federation of Pakistan Chamber of Commerce & Industry (FPCCI) and the Karachi Chamber of Commerce and Industry, (KCCI) said the central bank's decision to maintain the policy rate at 11% was disappointing 'The SBP has not only ignored market signals but has also dampened business sentiment at a time when the economy urgently requires a boost,' KCCI President Muhammad Jawed Bilwani in a statement.
Arab News
5 days ago
- Business
- Arab News
Pakistan forms committee to tackle possible economic fallout of Israel-Iran conflict — adviser
ISLAMABAD: Prime Minister Shehbaz Sharif has formed a high-level committee led by the finance minister to monitor any possible economic impact of the escalating conflict between Israel and Iran, a senior government adviser said on Sunday, as rising oil prices threaten to add new pressure on the South Asian nation's fragile economy. Oil prices have climbed about 7 percent since Friday, with Brent crude closing at $74.23 a barrel after hitting a session high of $78.50, amid fears of supply disruptions if Middle East tensions escalate further. 'The prime minister has constituted a committee under the supervision of the finance minister, which will monitor the situation,' Khurram Schehzad, an adviser at the finance ministry, told Arab News. 'The committee will assess the impact of the changes and volatility in oil prices on fiscal and external sides, and devise a strategy to pacify the impacts on Pakistan's economy.' Pakistan relies heavily on imported oil, and any sustained spike in prices could widen its current account deficit and push inflation higher at a time when the country is struggling with low foreign reserves and slow growth. Israel and Iran launched fresh attacks on each other overnight into Sunday, killing scores. The conflict started on Friday when Israel launched a massive wave of attacks targeting Iranian nuclear and military facilities but also hitting residential areas, sparking retaliation and fears of a broader regional conflict. A 909 kilometer (565 mile) long international boundary separates Iran's southeastern Sistan-Baluchestan province from Pakistan's southwestern Balochistan province. 'Israel-Iran conflict presents complex challenges for Pakistan as rising oil prices may increase import costs and inflation, influencing monetary policy and growth, while disruptions to key routes like the Strait of Hormuz can affect energy supplies and critical projects,' said Khaqan Najeeb, an economist and former finance ministry adviser. 'It can potentially affect consumer purchasing power and production costs ... Possible disruptions to shipping routes and higher freight charges might result in delays to imports and exports, thereby exerting additional pressure on Pakistan's external sector.' DIPLOMATIC BALANCING As the crisis deepens, analysts widely believe Islamabad should maintain 'careful diplomatic balancing' between its ties with Iran and its other partners in the Gulf, as well as the United States. 'Diplomatically, Pakistan has to navigate a balanced and principled stance, honoring its historic ties with Iran alongside its strategic relationships with the US and Gulf partners, emphasizing dialogue and regional stability.' Former Defense Secretary Lt Gen (retired) Naeem Lodhi said Israel was unlikely to target Pakistan directly but an expanding conflict could complicate matters for Islamabad, adding that it should remain vigilant but avoid 'deeper' involvement. 'If the war expands to include more Middle Eastern countries, some of which are friendly to Pakistan, then it would be a difficult proposition for Islamabad... whose side it takes,' Lodhi added. Former Foreign Secretary Aizaz Ahmed Chaudhry said Pakistan would respond 'forcefully' if directly targeted. 'Israel knows that Pakistan has the capacity to hit back hard,' Chaudhry said, referring to a May 2025 military confrontation with India in which Islamabad retaliated to New Delhi's strikes, taking down fighter jets and hitting airfields, air bases and other military facilities. Pakistan's former ambassador to Iran, Asif Durrani, warned that the crisis could spill over if not contained. 'Not only Pakistan, but the entire Middle East and North Africa (MENA) region can be engulfed if the ongoing spat between Israel and Iran turns into an all-out war,' Durrani said. However, he said the likelihood of a refugee crisis was limited unless the conflict escalated into a ground invasion. 'A refugee influx is possible if it becomes a full-fledged war, but Israel or the United States are unlikely to commit boots on the ground in Iran,' Durrani added. Qamar Cheema, executive director of the Sanober Institute think tank, said Pakistani security forces should increase patrols and surveillance in border districts as the conflict could impact militant groups operating along the Iran-Pakistan border region, such as Baloch separatists and other sectarian outfits. 'Whenever such a situation arises, separatist and sectarian outfits often try to take advantage of it, either by increasing their activities or by shifting them from their hideouts inside Iranian territories,' he said. 'Their movement is likely to intensify if the threat reaches the border region.'
Arab News
13-06-2025
- Business
- Arab News
Pakistan eyes over $6 billion in Saudi support as top foreign financier in FY26
KARACHI: Saudi Arabia is expected to be Pakistan's largest source of external financing in the upcoming fiscal year with over $6 billion in support as the South Asian country seeks to raise more than $20 billion from international lenders to uplift its fragile economy, official budget documents released this week showed. In the 2025–26 fiscal year starting July 1, Pakistan aims to secure $6.46 billion from Riyadh, including $5 billion in time deposits, $1 billion in oil on deferred payments, and $46.4 million in economic assistance, according to the budget documents. The financial support is intended to help stabilize the country's external account and meet its balance of payments needs. Islamabad has long relied on financial support from its Gulf and Chinese partners to shore up its foreign reserves and avoid default. In 2023, these inflows played a key role in helping Pakistan avert a sovereign debt crisis. 'The support from Saudi Arabia in the form of deposits and oil facility is undoubtedly the major source of the external stability,' said Shankar Talreja, head of research at Karachi-based Topline Securities. Pakistan's government unveiled a Rs17.6 trillion ($62 billion) federal budget on June 10, aiming to consolidate what it describes as fragile macroeconomic stability achieved under a $7 billion bailout loan from the International Monetary Fund (IMF). Notably, Pakistan has not earmarked a specific amount under the International Monetary Fund (IMF) in its external financing estimates for 2025-26. The country is currently operating under a 37-month IMF Extended Fund Facility approved last year. In total, Pakistan has budgeted for Rs5.78 trillion ($20.4 billion) in foreign assistance in FY26, including both loans and grants from bilateral and multilateral partners, to help shore up reserves and finance its current account. The country's total external receipts for the year are budgeted at Rs20.3 trillion ($71.9 billion). China, Pakistan's largest trading partner and longtime ally, is projected to be the second-biggest lender after Riyadh with $4.37 billion, including $4 billion in 'safe deposits,' a form of central bank support, and $37 million in economic assistance. 'China is a major bilateral partner… supporting Pakistan with both commercial loans and time deposits,' said Talreja. 'Both types are refinanced and renewed annually.' Pakistan's multilateral lenders include the Asian Development Bank (ADB), World Bank, Islamic Development Bank (IsDB), Asian Infrastructure Investment Bank (AIIB), and others such as the United Nations, OPEC Fund, and International Fund for Agricultural Development (IFAD). SMALLER LENDERS AND REMITTANCES Besides Saudi Arabia and China, Pakistan will also seek smaller amounts of aid and financing from countries including the United States, France, Germany, Denmark, Italy, Japan, and South Korea, according to the budget documents, which also list smaller expected inflows from Kuwait ($21.4 million) and Oman ($5.14 million). However, a long-delayed Saudi oil facility, initially expected last year, has yet to materialize. Media reports have suggested Riyadh has linked its final approval to progress on Saudi investment in Pakistan's Reko Diq copper and gold mining project. State media reported in September that Saudi Arabia had offered a 15 percent equity stake in the multibillion-dollar Reko Diq mine in Pakistan's southwestern Balochistan province. The project, one of the world's largest undeveloped copper-gold reserves, is operated by Canada's Barrick Gold. Islamabad also plans to raise $1.3 billion in commercial loans and $400 million through international bond issuances, though the finance ministry has not specified the sovereign guarantees or instruments. Finance Minister Muhammad Aurangzeb has separately said the government aims to issue Panda bonds, yuan-denominated debt instruments issued in China, to raise around $200 million from Chinese investors to boost foreign exchange reserves. In addition to official financing, Pakistan continues to benefit significantly from worker remittances, particularly from the Gulf region. According to the Pakistan Economic Survey 2024–25, released this week, Saudi Arabia accounted for $7.4 billion in remittances in the last fiscal year, about 25 percent of the national total. Remittances from all six Gulf Cooperation Council (GCC) countries — Saudi Arabia, the UAE, Qatar, Kuwait, Oman, and Bahrain — totaled $16.1 billion, or more than half of Pakistan's total remittance inflows in 2024. 'In the GCC region, expanding Saudi mega-projects led to higher migrant employment, further contributing to inflows,' the economic survey said. 'It's not just deposits and oil facilities helping Pakistan,' added Talreja. 'Remittances from Saudi Arabia alone are a quarter of Pakistan's total remittances.' 'Saudi Arabia is a key nation for Pakistan in terms of foreign inflows, whether in the form of remittances or economic assistance,' Sana Tawfik, head of research at Arif Habib Ltd. said.
Reuters
10-06-2025
- Business
- Reuters
Pakistan to cut overall spending but raise defence budget in 2025-26, source says
ISLAMABAD, June 10 (Reuters) - Pakistan's federal budget for fiscal year 2025-26 is expected to cut spending to 17.57 trillion rupees ($62.30 billion) from 18.9 trillion rupees in the previous year, a source said ahead of the announcement on Tuesday. But it is expected to raise defence spending to 2.55 trillion rupees ($9.04 billion) from 2.1 trillion rupees in the previous year, the source said, following a military conflict with old foe India last month. ($1 = 282.0000 Pakistani rupees)
Arab News
09-06-2025
- Business
- Arab News
Pakistan expects 2.7% economic growth in FY25 amid weak farm and industrial outlook
KARACHI: Pakistan's economy is expected to grow 2.7 percent in the outgoing fiscal year, missing the government's 3.7 percent target due to what analysts called weaker-than-expected performance in the agriculture and industrial sectors, as Finance Minister Muhammad Aurangzeb unveiled the annual Economic Survey on Monday. The survey, released ahead of the national budget on June 10, serves as a pre-budget document assessing the economy's trajectory over the past year. It outlines key indicators and policy challenges facing the country, which remains under an International Monetary Fund (IMF) program and is navigating a fragile recovery after a prolonged financial crisis. 'This has been a gradual recovery,' Aurangzeb told a televised news briefing in Islamabad, adding that the country's economic performance must be viewed in the larger global context. The finance minister said after contracting by 0.2 percent in FY23, Pakistan's economy grew 2.5 percent last year and is expected to expand slightly to 2.7 percent in the outgoing year. 'We plan to stay the course to ensure that we remain on the sustainable growth trajectory,' he added. Aurangzeb reaffirmed the government's commitment to implementing IMF-backed structural reforms to transform the fundamentals of Pakistan's economy. 'The DNA of Pakistan's economy has to be fundamentally changed through tax and energy reforms that have started showing remarkable results,' he said. The minister maintained staying in the IMF program would help Pakistan bring permanence to its hard-earned macroeconomic stability and reduce its economic vulnerability. 'Implementing a 37-month, US$7 billion IMF Extended Fund Facility (IMFEFF) has bolstered policy credibility and provided essential financial support to promote inclusive and reform-driven growth,' the Economic Survey also proclaimed. Analysts said Pakistan targeted 3.7 percent economic growth for the outgoing fiscal year but was forced to revise it to 2.7 percent last month due to underperformance in the agriculture sector. 'The government did fall short of its 3.7 percent GDP growth target for FY25 and primarily it was due to a major setback in the agriculture sector,' said Sana Tawfik, head of research at Arif Habib Limited. 'The agriculture sector posted a growth of just 0.6 percent so the situation was especially concerning in major crops,' she added. According to the survey, the agriculture sector is expected to grow by 0.56 percent, while the industrial and services sectors are likely to expand by 4.77 percent and 2.91 percent, respectively. Meanwhile, inflation has eased significantly, giving room for monetary easing. Aurangzeb called the inflation trend a 'fantastic story' for Pakistan, with the pace of price hikes slowing to a record low of 0.3 percent in April. Inflation is expected to settle at 4.3 percent in the outgoing financial year. The State Bank of Pakistan also cut its benchmark interest rate by over 1,000 basis points to 11 percent in FY25, with more easing likely ahead. 'This is the domain of the State Bank and the monetary policy committee so I don't want to comment on that,' Aurangzeb said. 'But I do expect where our core inflation is, where headline inflation is, there is room to do more.' On the fiscal side, the survey showed that the government managed to contain the deficit at 2.6 percent of GDP for July-March, compared with 3.7 percent during the same period a year ago. Revenues rose sharply, with tax collections increasing by 26.3 percent to Rs9.3 trillion ($32.9 billion), while total revenues stood at Rs13.4 trillion ($47.5 billion). Primary surplus also improved to 3.0 percent from 1.5 percent. Government expenditure during this period rose to Rs16.3 trillion ($58 billion), with current and development spending increasing by 18.3 percent and 33 percent, respectively. On the external front, Pakistan recorded a sharp turnaround in its current account, moving from a $1.3 billion deficit to a $1.9 billion surplus, driven by improved exports and record remittance inflows. 'The industry also struggled. If you look at the manufacturing sub-sector so LSM [large scale manufacturing] remained in the negative territory,' said Tawfik, noting that weak domestic demand, high inflation and elevated interest rates had weighed on performance. 'In short both demand and supply side factors combined dragged down the overall growth across key sectors of the economy,' she continued. Aurangzeb said the government was working to further reduce energy costs for local investors. 'On the energy side, as I said one-third of the tariffs, seven rupee is not a small amount and Mr. Leghari [power minister] is working on it day in and day out,' he said. Planning Minister Ahsan Iqbal last week said the government was targeting 4.2 percent growth in the next fiscal year starting July. Aurangzeb echoed this target, noting that growth would be driven by a rebound in agriculture and industry. 'This target would be achieved through growth in industries and agriculture that are expected to rebound on the back of government's favorable financial, tax and energy policies,' he said. Pakistan's multilateral and bilateral partners, including the IMF, World Bank, China, Saudi Arabia and the United Arab Emirates, remain supportive of the country's reform path. 'With respect to the Fund and multilateral partners I've already mentioned we are in a good place with them both in terms of the mission and the senior management of the Fund,' Aurangzeb said. 'The monetary institutions and our bilateral partners are standing by us as we move forward.' Shankar Talreja, an economist and director at Topline Research Ltd., expressed optimism about the outlook. 'There will be some natural rebound in important crops under the agriculture segment,' he said. 'Similarly, due to lower interest rates, industrial and services sectors will also post decent growth.'
