Morning Briefing for Apr 06, 2012 – Standard Capital

Karachi: Economy round up …GDP, reserves, new federal budget antics

Country GDP target to surpass 3.6% and may reach 4%

Pakistan in bracing for 4% GDP this year thus surpassing target of 3.6% envisaged at the start of FY12.

According to Standard Capital, this enforces Standard Capital’s view that Pakistani economy is resilient and cannot be suppressed on few variables. There are challenges such as energy crisis which is hindering industrial output and overall mood in the country where sense of deprivation has increased given massive lay-offs in informal sector.

Forex reserves edge up to $16.51bn at end-March
Standard Capital has earlier shown concern on dwindling foreign exchange reserves. At present, these reserves have shown increase and rose to US$16.51 billion in the week ended on March 30, from $16.44 billion in the previous week, as being reported in newspapers. If Standard Capital sees the break up the reserves held by the State Bank of Pakistan (SBP) rose to US$11.84 billion from US$11.77 billion a week earlier, while those held by commercial banks remained unchanged at US$4.67 bn.

If Standard Capital sees the history, foreign exchange reserves hit a record US$18.31 billion in July last year, pumped up by inflows of US$411 million, including a US$191.9 million loan from the World Bank and a US$196.8 million loan from the Asian Development Bank. Higher exports in value and record remittances from expatriates have also helped in creeping up Pakistan’s reserves. If Standard Capital sees the break up wherein remittances from overseas Pakistanis increased by 23 % to US$8.59 billion in the first eight months of the FY12, compared with US$6.96 billion a year earlier which Standard Capital sees a remarkable in the making. As per reports, during February, overseas Pakistanis sent US$1.16 bn. As expected these reserves have since been depleted by debt repayments, including US$399 million in the week ending Feb 24 due on an overall US$8 billion International Monetary Fund loan.

Upcoming budget 2012-13: no drastic changes expected
News papers are reporting that some of the key import tariff rationalization plan are to be unveiled in federal budget for 2013 where it is suggested to simplify import regime. Furthermore, some slight adjustments in the rates of taxes and duties will also be suggested and Standard Capital won’t see major cut and major changes in rates.

As mentioned there will be no new tax imposed, as reported by newspaper reports, and the government will try to broaden the tax base rich who are still avoiding the tax obligation or still enjoying exemptions without any justification.

Corporate tax rate and GST update
There is no increase from 35% to 40 % in corporate tax rate, however, there might be changes suggested in slabs of income tax for other categories of taxpayers. However, there will be no increase in general sales tax (GST) from 16% to 18% and no change in customs duty on thousands of items, however, duty slabs for true tariff protection for infant industries purposes might be made.

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