CENTRAL BANK LEAVES POLICY RATE UNCHANGED AT 12 PERCENT

The Central Board of Directors of the State Bank of Pakistan at its meeting held under the Chairmanship of SBP Governor, Mr. Yaseen Anwar in Karachi today has decided to keep the policy rate unchanged at 12 percent after thoroughly considering the need to revive growth and emerging risks to macroeconomic stability.

‘To promote competition in the banking system and to offer alternative sources of savings to the population, SBP has been encouraging depositors to invest in government securities through Investor’s Portfolio Securities (IPS) accounts,’ the State Bank of Pakistan said in its Monetary Policy Decision.

It said the option of maintaining saving deposits or investments in IPS accounts could provide stiff  competition  to  banks  forcing  them  to  offer  better  returns  on  deposits.  ‘This  in  turn  would incentivize savings and help lower the currency in circulation,’ it added.

Moreover, it will improve the transmission of monetary policy changes to market interest rates, SBP’s  Monetary Policy  Decision said,  adding  that  over  time  this  strategy  would  also  diversify  the government’s funding source, deepen the secondary market of government securities, and facilitate the issuance of corporate debt.

Following is the complete text of the Monetary Policy Decision:

“The SBP reduced its policy rate by 200 bps, to 12 percent, in FY12 so far. The objective of adopting this stance is to support revival of private investment in the economy despite a constraining domestic and global economic environment.   The primary factors in support of this stance were the expectation  of  average  CPI  inflation  remaining  within  the  announced  target  in  FY12  and  a  small projected external current account deficit. In pursuing this stance SBP did acknowledge the risks to macroeconomic stability emanating from fiscal weaknesses and falling foreign financial inflows. These include resurgence of medium term inflationary pressures and challenges SBP is facing in managing market liquidity and preserving foreign exchange reserves.

A reassessment of latest developments and projections indicate that macroeconomic risks have somewhat increased during the last two months. For instance, although the year‐on‐year CPI inflation stands at 11 percent in October 2011, the month‐on‐month inflation trends, averaging at around 1.3 percent per month during the first four months of FY12, show existence of inflationary pressures. The sifting of commodity level CPI data reveal that the number of CPI items exhibiting year‐on‐year inflation of more than 10 percent is consistently increasing and almost all of these items belong to the non‐food category. The government has also increased its wheat support price by Rs100 to Rs1050 per 40kg for the next wheat procurement season.

Thus, while the average inflation may settle around the targeted 12 percent for FY12, it is uncertain that inflation will come down to a single digit level in FY13. The main determinants of this inflation behaviour are government borrowing from the banking system and inertial effects of high

inflation on its expected path. The severe energy shortages are also holding back the effective utilization of productive capacity and adding to the high inflation‐weak growth problem.

On the external front, the earlier comfortable external current account position for FY12, which helped SBP in lowering its policy rate, has become less benign. The actual external current account deficit of $1.6 billion for the first four months of FY12 is now higher than the earlier projected deficit for the year. The main reason for this larger than expected deterioration is the rising trade deficit. In particular, the windfall gains to export receipts due to abnormally high cotton prices in FY11 have dissipated faster than anticipated. This is indicated by slightly less than $2 billion per month export receipts in September and October 2011. At the same time, international oil prices of around $110 per barrel and strong growth in non‐oil imports have kept the total import growth at an elevated level of close to $3.4 billion per month. Adding to the challenges faced by the external sector is the precarious global economic outlook.

A relatively larger external current account deficit in FY12 would require higher financial inflows to maintain foreign exchange reserves. However, during July‐October, FY12, the total net direct and portfolio inflows were only $207 million while there was a net outflow of $113 million in official loans. As a consequence, SBP’s liquid foreign exchange reserves have declined to $13.3 billion at end‐October

2011 compared to $14.8 billion at end‐June 2011. Given the scheduled increase in repayments of

outstanding  loans  in  H2‐FY12,  realization  of  substantial  foreign  flows,  especially  the  proceeds  of assumed privatization receipts, euro bond, Coalition Support Funds, and 3G licence fees, becomes important for strengthening the external position.

A reflection of widening external current account deficit and declining financial inflows can be seen in the reduction of Rs115 billion in the Net Foreign Assets (NFA) of SBP’s balance sheet during 1

July – 18 November, 2011. This implies that to meet the economy’s prevailing demand for money, SBP has to provide substantial liquidity in the system, at least to the extent of compensating for the declining NFA of SBP. As of 28 November 2011, the outstanding amount of liquidity injected by SBP through its Open Market Operations (OMOs) is Rs340 billion. This is significantly higher than normal SBP operations and appears to have developed characteristics of a permanent nature at this point in time.

A dominant source of demand for money and thus liquidity injections by SBP is government borrowings for budgetary support from the banking system. Excluding the issuance of government securities  of  Rs391  billion  to  settle  the  circular  debt  and  commodity  loans,  the  government  has borrowed Rs255 billion from scheduled banks and Rs62 billion from SBP during 1 July – 18 November,

2011 to finance its current year’s budget deficit. The growth in private sector credit has remained muted so far but may pick up in coming months as the desired effects of a cumulative decrease of 200 bps in the policy rate and reduction in financial constraints of the energy sector gather momentum.

In this context where government is the main user of the system’s liquidity and banks remain hesitant to extend credit to the private sector, SBP faces a dilemma. Efforts to scale down liquidity injections could have implications for settlement of payments in the interbank market, which is an important consideration given SBP’s mandate of maintaining financial stability. Even if these considerations are addressed, the government may end up settling its obligations by borrowing from SBP. This does not bode well for government’s own commitment of keeping such borrowings at zero on quarterly basis. The marginally increasing trend of these injections, on the other hand, also carries inflationary risk, which is not consistent with the objective of achieving and maintaining price stability.

There are three solutions to this predicament of reconciling price and financial stability considerations and supporting private investment in the economy. First, the government needs to ensure that all or major parts of budgeted foreign inflows materialize as soon as possible. This will alleviate pressure on the balance of payments and help inject fresh rupee liquidity in the system. Second,  sooner  than  later  the  government  will  have  to  initiate  comprehensive  tax  reforms  that broadens the tax base of the economy. This is of paramount importance to reduce the government’s borrowing requirements from the scheduled banks that are currently not consistent with the objective of promoting private sector and economic growth. Third, efforts need to be stepped up to improve financial deepening and increase competition in the banking system.

The last of these solutions is something that SBP has been actively working on. For instance, to promote  competition  in  the  banking  system  and  to  offer  alternative  sources  of  savings  to  the population, SBP has been encouraging depositors to invest in government securities through Investor’s Portfolio Securities (IPS) accounts. The option of maintaining saving deposits or investments in IPS accounts could provide stiff competition to banks forcing them to offer better returns on deposits. This in turn would incentivize savings and help lower the currency in circulation. Moreover, it will improve the transmission of monetary policy changes to market interest rates. Over time this strategy would also diversify the government’s funding source, deepen the secondary market of government securities, and facilitate the issuance of corporate debt.

Finally, it must be understood that there are uncertainties involved in realizing the full benefits of these measures. These uncertainties can potentially have adverse effects on SBP’s recent efforts to support private sector credit and investment in the economy. Therefore, after giving due consideration to the need to revive growth and emerging risks to macroeconomic stability, the Central Board of Directors of SBP has decided to keep the policy rate unchanged at 12 percent.”

SECP facilitating corporate sector in collection of annual returns and accounts

ISLAMABAD, November 28: In order to facilitate the filing of annual statutory returns and accounts, the Company Registration Offices (CROs) of the Securities and Exchange Commission of Pakistan (SECP) is extending facilitation in collection of annual returns and accounts.

The last date of filing of Forms A/B for companies other than listed companies, which held their AGM on October 31, 2011, is November 30. The companies are required to file annual returns on Forms A/B within 45 days, in case of listed companies and 30 days in case of other companies, of holding of annual general meetings (AGMs). The annual audited accounts are required to be filed within 30 days of holding of AGMs.

The SECP has provided the facility for collection of returns and accounts, at the Chambers of Commerce and Industry, in the cities of Sialkot, Hyderabad, Gujranwala, Gujrat, Rawalpindi, Bahawalpur, Rahim Yar Khan and Sheikhupura and its representatives will be present at these chambers on due dates of filing of Forms A/B, for collection of annual returns and accounts.

Special facilitation desks have been established at the CROs to facilitate companies in submission of annual returns and accounts. The CROs shall also remain open until  8 pm p.m.., on November 29-30.

Sui Southern Gas Company declares 25pc cash dividend, 5pc bonus

Sui Southern Gas Company  has earned a net profit of Rs. 4,724 million for financial year 2010-11 as compared to Rs. 4,399 million during the last corresponding period. In addition, the Company’s earnings-per-share for the period under review increased to Rs. 5.63 from Rs. 5.24 in FY 2009-10. The Board of Directors of SSGC, in its meeting held on 29 September 2011, approved the final accounts for the year ended 30 June 2011 and proposed a 25% cash dividend for its shareholders; in addition, 5% bonus shares was also declared by the Board.

FBR's Clarification regarding Payment of surcharge at 15% under section 4A of the Income Tax Ordinance 2011—levied vide Income Tax (Amendment) Ordinance 2011

The Federal Board of Revenue has announced that the 15@ surcharge under section 4A of the Income Tax Ordinance 2011 is payable by all tax payers of their tax liability for the Tax year 2011, irrespective of whether their tax year ends on 31st December 2010 or 30th June 2011 or any other date.

In a circular issued here today, the FBR has made certain clarifications to the 15% Surcharge under section 4A of the ordinance in view to address the queries being received by the Board suggesting multiple interpretations of this Section and to streamline the implementation of this time bound provision.The circular further clarifies that the Tax Liability for the entire Tax Year 2011 may not be subjected to the imposition of surcharge and the same be levied on the proportionate liability for a period of three and a half month.It may hence be noted again that the surcharge is to be computed @ 15% of the Income Tax payable for three months and a half on pro-rata basis and the tax liability inclusive of 15% surcharge so calculated is to be set off against the taxes withheld or collected in the tax year.

Experts compare notes on developing corporate sector at SECP Forum

At the first meeting of the SECP Financial Markets and Corporate Sector Development Forum on Thursday in Karachi key market experts, industrialists and policymakers shared their ideas on developing fair, transparent and efficient financial markets and a vibrant corporate sector.

The forum was a gathering a select group of best minds in the market. It was aimed at seeking guidance from the rich and diversified experience of key stakeholders from various sectors and professions, including Mr Shoukat Tareen, Mr Hussain Dawood, Mr Iqbal Ali Lakhani, Dr Ishrat Hussain, Mr Zakir Mahmood, Mr Shahid Ghaffar, Mr Mahmood Mandiviwala, Mr Shabbar Zaidi, and Mr. Omer Moershed.

While opening the session, Mr Mohammad Ali, the SECP Chairman, remarked that the SECP recognizes the need for developing vibrant markets, sectors and market players as well as for improving their capabilities and processes. That’s why it has engaged the external stakeholders in a consultative process both at policy level of the SECP Forum and working level of sector-specific committees. The ideas and suggestions shared at the forum will steer the SECP to be an effective regulator of the markets and contribute to the capital formation leading to the growth of the economy, he said. He stated that the guidance taken from the policy level of the SECP Forum will be implemented at the working level and would reflect in the SECP’s actions in the near future.

The forum discussed various issues that hampered the growth and development of the markets and corporate sector in the country and have resulted in fragmentation in the markets. The issues identified range from the access to capital for the SME sector and the outreach expansion of non-bank financial sector to the SME and rural areas of the country, development of second tier of financial institution after the banking sector, enhancing the investor base in the capital markets, implementation of an effective legal framework covering corporate rehabilitation, de-mutualization of stock exchanges and future trading etc. The participants also highlighted the immediate need for implementing Corporate Rehabilitation Act and De-Mutualization Act and urged the SECP to push forward the process in this regard.

The need to work on corporate governance and restructuring of SOEs, implementation of the national warehousing project to improve functioning of commodities exchanges and the need to clearly define DFIs role for infrastructure and industrial development of the country was also emphasized by the participants. Mr Tahir Mahmood, Commissioner, SECP, apprised participants of the improvements in the legal framework of the takeover and the corporate law that are under consideration at the Corporate Law Review Commission that has been reactivated by the SECP.

The forum in Karachi was the first event as part of the SECP’s monthly programme which will alternate between Karachi, Lahore and Islamabad inviting stakeholders from industry, regulators, academia, media, sector associations, multilateral agencies, market participants, and other important players. The second meeting of the forum will take place in Lahore

SECP tells holding companies to enhance public disclosure

ISLAMABAD: Group Companies Registration Regulations, 2008, were issued by the Securities and Exchange Commission of Pakistan in 2008 to provide a regulatory framework for the formation of group companies, comprising a holding company and its subsidiaries and to streamline the group ownership structures.

The Regulations provided a registration mechanism of holding companies along with their subsidiaries as a group with the SECP, and also provided an enabling framework for the group companies intending to avail themselves of tax relief from the FBR.

In order to further enhance the public disclosure of intra-group shareholding and financial position of the group companies, it has now been required that all the holding companies registered under the Regulations shall maintain their websites and place thereon the annual audited financial statements of their group along with their directors’ report and the auditors’ report. SRO No. 640(I)/2011 was issued on June 22, 2011, mandating the aforesaid requirement, and the holding companies have been required to report the compliance by intimating the SECP of their website address within 15 days of the issuance of the notification.