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Inflation rate highest since Great Recession

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ISLAMABAD:

The consumer price in Pakistan rose to nearly 25% in July – the highest surge since October 2008 – as people suffered from the double-edged sword of food and energy prices with transport inflation peaking to a record 65%.

The annual inflation rate increased to 24.9% in July 2022, the Pakistan Bureau of Statistic reported on Monday, beating the expectations of the Ministry of Finance that four days ago had projected around 21% inflation.

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It was the highest increase in consumer prices since October 2008 amid a steep slide in the value of the rupee that slipped to a record low of Rs239 to a dollar. This will contribute to a big price shock which will be felt in the coming months.

Transport prices recorded the biggest increase of nearly 65% on back of petrol prices that saw 94.4% increase in urban areas and almost 100% in rural areas, followed by food and non-alcoholic beverages.

The monthly inflation rate jumped 4.3% in July over June–probably the second highest increase in a single month in the history of Pakistan.

Amid skyrocketing prices, the government on Sunday directed the Federal Board of Revenue to prepare a mini-budget of Rs30 billion to compensate the supplementary grant of the same value that the Economic Coordination Committee of the Cabinet approved for the Pakistan State Oil.

However, the people no more have the capacity to bear the burden of additional taxes, as they have been forced to pay record petrol, electricity and gas prices in addition to an increase in their tax burden in the budget.

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The core inflation, calculated after excluding the volatile energy and food prices, also surged to 12% last month in urban areas and 14.6% in rural areas, which may become an excuse for the State Bank of Pakistan to further increase the interest rates.

The government committed with the International Monetary Fund to keep the real interest rates positive.

The PBS reported that the CPI-based inflation rate increased to 23.6% in urban areas –a jump of another 3.8% in a single month. In villages and towns, the inflation rate skyrocketed to nearly 27% — an increase of 3.3% in just one month.

The constant double-digit inflation in the country has eroded the people’s purchasing power and the decision to slap more taxes may now force them to reprioritise their expenses from health and education to meet essential food needs.

The pace of food inflation surged to 27.4% from 24% a month ago in cities and to nearly 30% in villages and towns last month, according to the PBS.

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The real cost of inflation is on political stability and high inflation can cause a serious damage to social stability, according to the KTrade Securities. The most famous example of course is Germany post-WW-I. Even the recent Arab Spring was caused by high food inflation, it added.

The prices of both non-perishable and perishable food products increased significantly last month. The food group prices surged over 29% in July compared to the same month a year ago. Prices of perishable food items increased 33%, according to the PBS.

The low-middle and middle-income groups started crumbling under an unbearable increase in the cost of living.

The SBP had increased the key policy rate to 15% to curb inflation and correct external sector imbalances.

The central bank so far failed to contain inflation despite almost doubling the interest rates.

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The federal government set the inflation target at 11.5% for this fiscal year but the SBP distanced itself from the official target, saying that the inflation may remain in the range of 18% to 20% during the current fiscal year.

The prices of all essential products seemed to slip out of the control of authorities, particularly crucial kitchen items like edible oil. The prices of onions jumped 100% last month compared to a year ago, followed by a 90% increase in the rates of pulses in the rural areas and 83% for various types of ghee and cooking oil, according to the PBS.

The rates of petrol were almost double in June over a year ago, followed by 87% increase in prices of electricity.

The alcoholic beverages and tobacco group prices soared 22.5%, clothing and footwear 14.6%, housing, water, electricity and gas fuels group prices surged 22% and transport 65%. The cost of hotels also increased 25% last month, according to the PBS.



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Business

Foreign investors get immunity

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ISLAMABAD:

The cabinet has turned down a proposal of issuing binding instructions regarding commercial transactions with foreign countries and agreed to give immunity to foreign investors by placing a bar on court jurisdictions under the Inter-Governmental Commercial Transactions Act 2022.

Sources told The Express Tribune that cabinet members expressed reservations about Clause 5 of the proposed bill, pertaining to powers of issuing binding instructions.

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They observed that the clause was against the spirit of the 18th Amendment to the Constitution and was open to misuse as it undermined the provincial autonomy.

In a recent meeting of the cabinet chaired by Prime Minister Shehbaz Sharif, the minister of law and justice explained that the clause had “limited invocation”, only to the extent of particular transactions to facilitate foreign investors and obviate delays in the execution of projects.

Cabinet members were, however, of the view that sub-clause 2 and word “binding” in Clause 5 should be deleted.

Expressing their views on Clause 8 of the proposed bill regarding bar on the jurisdiction of courts, some cabinet members felt that its insertion was futile as it would not bar superior courts from taking cognisance under their original jurisdiction.

The law minister explained that it was a standard clause present in many other laws, which helped mitigate frivolous litigation.

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Furthermore, similar clauses already exist in the Special Economic Zone (SEZ) and Special Technology Zone (STZ) laws. He advocated that its inclusion was necessary to provide protection and comfort to the foreign investors.

While agreeing that the immunity to foreign investors was necessary, the cabinet members felt that Section 8 may be revisited.

The law minister suggested that the observation may be taken up by the National Assembly standing committee, where members of all parliamentary parties had representation, while discussing the proposed legislation, which was agreed.

The cabinet considered a summary titled “Inter-Governmental Commercial Transactions Act 2022”, submitted by the Law and Justice Division.

It approved the proposal with the stipulation that in Clause 5 the word “binding” in marginal heading and expression “(1)” shall be deleted; and sub-clause (2) of Clause 5 shall be deleted.

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The Law and Justice Division briefed the cabinet that there was no legislation for authorising, negotiating and supervising inter-governmental agreements between the government of Pakistan and the government of a foreign state for the purpose of entering into business agreements.

As a result, the cabinet in its meeting held on July 4, 2022 constituted a sub-committee to establish a statutory framework for inter-governmental commercial transactions.

The sub-committee prepared a draft ordinance titled “Inter-governmental Commercial Transactions Ordinance 2022” and finalised its report for submission to the cabinet for approval.

The cabinet, in its meeting held on July 15, 2022, considered the report and accorded its approval, in principle, to the draft ordinance.

Later, a summary was introduced by the Cabinet Division for the Cabinet Committee on Legislative Changes (CCLC) and a draft was approved by the CCLC in its meeting on July 20, 2022. Subsequently, it was ratified by the cabinet.

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A summary was initiated by the Cabinet Division on July 22 for the promulgation of the draft ordinance but the prime minister directed that instead of promulgation of the ordinance, a bill may be introduced in the National Assembly.

Consequently, the draft ordinance was converted into a bill for its presentation in a National Assembly session.

Under the proposed law, the federal government will constitute a cabinet committee on inter-governmental commercial transactions comprising members of the cabinet. The committee’s primary function will be to authorise negotiations and execution of inter-governmental agreements.

It will allow state-owned enterprises of both countries to form a commercial venture either in Pakistan or in a foreign country. The enactment of the proposed bill is imperative to attract and encourage foreign countries to have economic and business relations with Pakistan.

The Law and Justice Division requested that the vetted and improved draft titled “Inter-governmental Commercial Transactions Act 2022” may be exempt from placing before the CCLC again as its ordinance had already been considered by the forum and may be approved by the federal cabinet in terms of its mandate under Rule 16(a) read with Rule 27 of the Rules of Business 1973.­­

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Published in The Express Tribune, August 11th, 2022.

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Oil rebounds on renewed gasoline demand

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NEW YORK:

Oil prices rose on Wednesday, rebounding from losses early in the session on lift from encouraging figures on US gasoline demand and as a lower-than-expected US inflation figure drove investors into riskier assets.

Brent crude futures rose 68 cents, or 0.7%, to $96.99 a barrel as of 1746 GMT. US West Texas Intermediate crude futures gained 83 cents, or 0.9%, to $91.33.

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US crude oil stocks rose by 5.5 million barrels in the most recent week, the US Energy Information Administration said, more than the expected increase of 73,000 barrels.

However, US gasoline stocks fell sharply as implied demand rose after weeks of lacklustre activity during what is supposed to be peak summer driving season.

“Everyone has been very much focused on potential demand destruction, so seeing implied demand showing an outsized rebound for last week has probably given some comfort to those really concerned about that,” said Matt Smith, lead oil analyst for Americas at Kpler.

Gasoline product supplied rose in the most recent week to 9.1 million bpd, though that figure still shows demand down 6% over the past four weeks compared with the year-ago period.

US oil refiners and pipeline operators expect strong energy consumption for the second half of 2022, a Reuters’ review of company earnings calls showed.

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US consumer prices were unchanged in July due to a sharp drop in the cost of gasoline, delivering the first notable sign of relief.

Published in The Express Tribune, August 11th, 2022.

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Indian firms swapping dollar for Asian currencies

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NEW DELHI:

Indian companies are using Asian currencies more often to pay for Russian coal imports, according to customs documents and industry sources, avoiding the US dollar and cutting the risk of breaching Western sanctions against Moscow.

Reuters previously reported on a large Indian coal deal involving the Chinese yuan, but the customs data underlines how non-dollar settlements are becoming commonplace.

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India has aggressively stepped up purchases of Russian oil and coal since the war in Ukraine began, helping to cushion Moscow from the effects of sanctions and allowing New Delhi to secure raw material at discounts compared to supplies from other countries.

Russia became India’s third-largest coal supplier in July, with imports rising by over a fifth compared with June to a record 2.06 million tonnes. In June, Indian buyers paid for at least 742,000 tonnes using currencies other than the US dollar, according to a summary of deals compiled by a trade source based in India using customs documents and shared with Reuters, equal to 44% of the 1.7 million tonnes of Russian imports that month.

Indian steelmakers and cement manufacturers have bought Russian coal using the United Arab Emirates dirham, Hong Kong dollar, yuan and euro in recent weeks, according to the customs documents separately reviewed by Reuters.

The yuan accounted for 31% of the non-US dollar payments for Russian coal in June and the Hong Kong dollar for 28%. The euro made up under a quarter and the Emirati dirham around one-sixth, the data from the trade source showed.

India’s Ministry of Finance, which administers the customs board, did not respond to emails seeking comment confirming the documents. The Ministry of Commerce and Industry declined to comment.

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Published in The Express Tribune, August 11th, 2022.

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