newsletter august 2016ifmpaugust, 2016 monthly newsletter 04 03 public debt in pakistanthe sbp...

Institute of Financial Markets OF Pakistan

(Formerly Institute of Capital Markets)

NEWSLETTER | AUGUST 2016

“The name of the institute has been changed

from Institute of Capital Markets (ICM) to Institute

of Financial Markets of Pakistan (IFMP).”

Our New Address and Telephone Number:

Park Avenue Building, Suite No. 1009, 10th Floor,

P.E.C.H.S Block No. 6, Shahrah-e-Faisal, Karachi.

+92 (21) 34540843-44

AN OVERVIEW OF ECONOMIC GROWTH IN PAKISTAN

INVESTORS’ TERMS OF THE MONTH

REGULATORY NEWSFLASH

BUSINESS AND ECONOMIC NEWSFLASH

MARKETS IN REVIEW

PUBLIC DEBT IN PAKISTAN

00 CONTENT

01

Message from the CEO

02

Introduction to the

Organization

03

Public Debt in Pakistan

04

An Overview of

Economic Growth in

Pakistan

06

Business and Economic

Newsflash

07

Regulatory Newsflash

08

Markets in Review

05

Investors’ Terms of

the Month

Page: 3 Page: 4 Page: 5 Page: 11

Page: 14 Page: 15 Page: 17 Page: 18

DETAILS: www.ifmp.org.pk 92 (21) 34540843-44 [email protected]

Message From The CEO

The last few years have seen a rapid growth in size, quality and

sophistication of financial markets, because of changes in the policy

and regulatory environment, the entrepreneurial initiatives of indi-

viduals and institutions, and the availability of trained manpower.

The continuing growth of financial markets is further adding to the

demand for well-trained professionals.

Institute of Financial Markets of Pakistan is dedicated to the profes-

sional development of financial markets and research on financial

markets as well as the well being of financial markets by educating

the professionals about the norms and ethics being practiced in the

markets. IFMP has had a pioneering role in meeting the demand for

educated manpower. It is Pakistan's first specialized institution

devoted to the education and updating of knowledge of manpower

for financial markets. It will provide high-quality educational stand-

ards for all types of financial market participants; investors, bro-

kers, mutual funds, investment banks and policy makers.

The Institute's main activities are (1) Licensing the professionals

working in the financial markets by certifications. The institute’s key

responsibility is to educate the professionals working in different

financial markets of Pakistan through examining their knowledge in

their relevant field of work; (2) Studying the latest developments in

the financial markets in order to discover whether there is such a

thing as an ideal market economy; and (3) Contributing to the devel-

opment of financial markets in Pakistan. By means of these three

activities the Institute seeks to communicate its ideas to the audi-

ence both at home and overseas. The Institute's research is intend-

ed, first and foremost, to be neutral, professional and practical.

Rooted in practice, it aims to contribute to the healthy development

of Pakistani financial markets as well as to related policies by con-

ducting neutral and professional studies of how these markets and

the financial system are regulated and organized and how they per-

form.

The economy is changing all the time. The Institute hopes that, by

responding to these changes positively, it can contribute to the dy-

namic development of the country's financial markets as well as of

the economy itself.

Mr. Muhammad Ali Khan

Message from the Chief Executive Officer 01

The last few years have seen a rapid growth in size, quality and so-

phistication of financial markets, because of changes in the policy

and regulatory environment, the entrepreneurial initiatives of in-

dividuals and institutions, and the availability of trained manpow-

er. The continuing growth of financial markets is further adding to

the demand for well-trained professionals.

Institute of Financial Markets of Pakistan is dedicated to the pro-

fessional development of financial markets and research on finan-

cial markets as well as the well being of financial markets by educating the professionals

about the norms and ethics being practiced in the markets. IFMP has had a pioneering

role in meeting the demand for educated manpower. It is Pakistan's first specialized insti-

tution devoted to the education and updating of knowledge of manpower for financial

markets. It will provide high-quality educational standards for all types of financial mar-

ket participants; investors, brokers, mutual funds, investment banks and policy makers.

The Institute's main activities are (1) Licensing the professionals working in the financial

markets by certifications. The institute’s key responsibility is to educate the professionals

working in different financial markets of Pakistan through examining their knowledge in

their relevant field of work; (2) Studying the latest developments in the financial markets

in order to discover whether there is such a thing as an ideal market economy; and (3)

Contributing to the development of financial markets in Pakistan. By means of these

three activities the Institute seeks to communicate its ideas to the audience both at home

and overseas. The Institute's research is intended, first and foremost, to be neutral, pro-

fessional and practical. Rooted in practice, it aims to contribute to the healthy develop-

ment of Pakistani financial markets as well as to related policies by conducting neutral

and professional studies of how these markets and the financial system are regulated and

organized and how they perform.

The economy is changing all the time. The Institute hopes that, by responding to these

changes positively, it can contribute to the dynamic development of the country's finan-

cial markets as well as of the economy itself.

Mr. Muhammad Ali Khan

IFMP Monthly Newsletter 01 August, 2016

The Institute of Financial Markets of Pakistan (IFMP) (Formerly Institute of Capital Markets), Pakistan’s first secu-rities market institute, has been established as a permanent platform to develop quality human capital, capable to meet the

emerging professional knowledge needs of financial markets and create standards among market professionals. The Insti-

tute has been envisioned to conduct various licensing exami-

nations leading to certifications for different segments of the financial markets. In addition, IFMP will also provide a plat-

form for research & development, exchange of ideas and con-

sulting services on financial markets issues.

IFMP Monthly Newsletter 01

Introduction To The Organization

PROGRAMMES

LICENSING CERTIFICATIONS

Fundamentals of Capital Markets

Pakistan’s Market Regulations

Stock Brokers Certification

Mutual Funds Distributors

Commodity Brokers Certification

INSURANCE CERTIFICATIONS

General Takaful Training

Family Takaful Training

Life Insurance Agent

Non-Life Insurance Agent

OTHER CERTIFICATIONS

Financial Advisors Certification

Financial Derivative Traders

Certification

Compliance Officers Certification

Clearing and Settlement Operations

Certification

Risk Management Certification

Capital Budgeting and Corporate

Finance Certification

Investment Banking and Analysis

Certification

Islamic Finance Certification

August, 2016

02

For more information, please visit our website: www.ifmp.org.pk

-FEE STRUCTURE-

Candidate Registration Fee (One-Time)

Rs.10,000

Examination Registration Fee

Rs.7,000

Membership Fee (Annual)

Rs.5,000 -EXAMINATION

SCHEDULE-

(2016-2017)

- Sunday, 25 September, 2016

- Sunday, 27 November, 2016

- Sunday, 29 January, 2017

- Sunday, 26 March, 2017

- Sunday, 28 May, 2017


03

August, 2016


Public Debt refers to government borrowing through

various instruments domestically and internationally.

Governments may borrow money to meet the budget

deficit, meet the expenses related to extraordinary

situations, and to finance development activities.

The public debt comprises of the domestic debt and

external debt. Further classification of the public debt

in the Pakistani context is presented in Figure 1.

Figure 1: Classification of Public Debt

Source: Pakistan Ministry of Finance (2016)

Instruments for Domestic Public Debt

The Government of Pakistan (GoP) issues short-term

Treasury Bills (T-Bills) and long-term Pakistan Invest-

ment Bonds (PIBs) to raise a large portion of domestic

debt. The auctions of the long term Federal Invest-

ment Bonds (FIBs) were suspended in 1998 (Khalil,

2004). The PIBs were introduced in 2000 to enable

the GoP to raise long-term debt, to create a bench-

mark yield curve, and to meet the long-term invest-

ment needs of institutional investors.

As of April 2016, the GoP had issued PKR 4473.60 bil-

lion and PKR 4,909.9 billion worth of T-Bills and PIBs

respectively. The State Bank of Pakistan (SBP) issues T

-Bills and PIBs on behalf of the GoP under the Public

Debt Act 1944 (SBP, 2016 b,c). Table 1 presents an

overview of the characteristics of T-Bills and PIBs.

Table 1: Characteristics of T-Bills and PIBs

Source: SBP (2016 a,b)

Treasury Bills Pakistan

Investment Bonds

Denomination Multiples of PKR 5,000

Multiples of PKR 100,000

Tenor 3, 6 and 12 months 3, 5, 10, 20 years

Coupon Zero Coupon (Issued at dis-count)

Face value

Profit Difference between discounted and face value

Fixed semi-annual coupon

Auction Fortnightly Quarterly Form Scrip less (Electronic) Participants in the Auction

Primary Dealers designated by the SBP

Investors Retail and Institutional Eligibility for Investment Resident and non-resident

Internment holding of Secu-rities

Investor Portfolio Securities (IPS) ac-count maintained by primary dealers and scheduled banks

Custodian SBP Redemption Upon maturity only Trading Primary and secondary markets Liquidity High Returns High as compared to bank deposits Default Risk Virtually risk free securities

Income Tax Payable on profit based on prevailing rates

Zakat Deduction Not mandatory at source


03

August, 2016

The SBP floats T-Bills of varying maturities to main-

tain the desired levels of liquidity in the economy,

control inflation by managing liquidity, and at times

to control monetary exchange rates.

The GoP also borrows funds from retail investors

through National Savings Schemes (NSS), which in-

cludes Regular Income Certificates, Defence Saving

Certificates, Special Savings Certificates, Prize Bonds,

and Pensioners Benefit Accounts. The Central Direc-

torate of National Savings (CDNS) is responsible for

raising funds through NSS. The CDNS operates

through 12 regional directorates and 367 savings cen-

ters across Pakistan (National Savings Organization,

2016). The GoP considers this mechanism to mobilize

national savings and offers significantly higher rates

of return on these instruments.

Insights into Pakistan’s Total Public Debt

Figures 2, 3, and 4 highlight the composition of the

overall public debt, domestic debt, and external debt

as of April 2016. It is evident that the domestic debt is

nearly 2.5 times of the external debt, with nearly 45%

of domestic debt being permanent. On the other hand,

short-term external debt is a mere 3% of overall ex-

ternal debt.

Figure 2: Composition of Domestic and External Debt

Source: SBP (2016c) Notes: *excludes IMF loans to Central Bank for BOP support, for-eign exchange liabilities and includes IMF loan for budgetary sup-port

Figure 3: Composition of Domestic Debt

Source: SBP (2016c)

Notes: *It includes FEBCs, FCBCs, DBCs and Special US Dollar Bonds held by the residents.

Figure 4: Composition of External Debt

Source: SBP (2016c)



03

August, 2016

Figure 5 presents the details of domestic public debt raised through NSS in recent years. A decline in the NSS

instruments in 2015-2016 from the previous year is evident. This may be a reflection of GoP’s preference to

retire expensive debt and investors’ preference for higher returns that can be earned from the exceptional

performance of the Pakistan Capital Markets.

Figure 5: Domestic Public Debt Attributed to National Savings Scheme

Source: SBP (2016d)

Yields and Rates of Return on Domestic Public Debt Instruments

The target policy rate has been declining gradually and steadily. The SBP reduced the policy rate from 7% in

May 2015 to 5.75% in May 2016. A subsequent decline in the cut-off and secondary market yields for T-Bills

and PIBs is witnessed as presented in Figures 6 and 7. The average secondary market yields are higher as

compared to cut-off yields for T-Bills. On the other hand, for PIBs the secondary market yields are lower than

the cut-off yields.

Figure 6: Average Monthly Cut-off and Secondary Market Yields for T-Bills

Source: SBP (2016e)

Notes: * 12-m T-Bills bids rejected in a fortnight of Nov, Dec ‘15 and two fortnights of Sept’15



03

August, 2016

Figure 7: Monthly Cut-off and Average Monthly Secondary Market Yields for PIBs

Source: SBP (2016d) Notes: *Bids for 10-yr PIBs were rejected; **Bids for all PIBs were rejected

Auctions for 20-yr PIBs are infrequent

Historically the GoP offered exceptionally attractive returns on the NSS instruments (Figure 8); however, in

recent months the rates of return on these instruments has declined significantly, which is in line with the cur-

rent target policy rate of 5.75% (since 23 May 2016). Offering high rates on the NSS instruments encourages

savings from retail investors, but restrains efficient allocation of resources and impedes the growth of finan-

cial markets.

Figure 8: Rates of Return Offered on NSS Instruments

Source: SBP (2016e)

Notes: *Includes Pensioners’ Benefit Accounts

Public Debt and Economic Development

Panizza (2008) argues that in the recent years, developing countries have opted to increase domestic public



03

August, 2016


Figure 10: Trend in Composition of External Debt (Current US$)

Source: World Bank (2016)

The literature also provides evidence that there is a non-linear, concave (U-shaped) association between the

Debt-to-GDP ratio and economic development. This means that the ratio positively impacts the economic de-

velopment up to a certain level; however, once the ratio surpasses that level, it has a negative impact on eco-

nomic development. The ratio varies greatly for developed and emerging countries. Mencinger et al. (2015)

provide evidence from several OECD member and non-member countries that the cut-off Debt-to-GDP ratio

for developed countries is 90-94% and 44-45%.

Figure 11: Percentage Change in GDP per Capita and Public Debt

Source: Pakistan Ministry of Finance (2016 a,b); World Bank (2016)

Figure 11 highlights the association between the two variables, Debt-to-GDP ratio and GDP per capita in the

Pakistani context with the former ranging between 56% and 64% since 2008, nearly 28% to 42% greater

than the threshold level suggested in the literature. Further research may provide detailed insights into the as-

sociation between public debt and various macroeconomic indicators.


03

August, 2016

References:

Mencinger, J., Aristovnik, A. & Verbic, M. (2015). Revisiting the Role of Public Debt in Economic Growth: The Case of Oecd Countries.

Engineering Economics, 26(1), 61-66.

National Savings Organization. (2016). About Us - National Savings Organization [Online]. Islamabad, Pakistan: Central Directorate of

National Savings, Available: http://savings.gov.pk/about_us.asp. [Accessed 8 August 2016].

Pakistan Ministry of Finance. (2016a). Pakistan Economic Survey 2013-2014 (Public Debt) [Online]. Islamabad, Pakistan: Pakistan

Ministry of Finance. Available: http://www.finance.gov.pk/survey/chapters_14/09_Public_Debt.pdf. [Accessed 10 August

2016].

Pakistan Ministry of Finance. (2016b). Pakistan Economic Survey 2015-2016 (Public Debt) [Online]. Islamabad, Pakistan: Pakistan

Ministry of Finance. Available: http://www.finance.gov.pk/survey/chapters_16/09_Public_Debt.pdf. [Accessed 10 August

2016].

Panizza, U. 2008. Domestic and External Public Debt in Developing Countries. United Nations Conference on Trade and Development.

United Nations. Available: http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1147669_code1051321.pdf?

abstractid=1147669&mirid=1. [Accessed: 10 August 2016].

SBP. (2016a). Central Government Debt (Provisional) [Online]. Karachi, Pakistan: State Bank of Pakistan. Available: http://sbp.org.pk/

ecodata/savings.pdf. [Accessed 10 August 2016].

SBP. (2016b). Investors' Guidelines for Market Treasury Bills [Online]. Karachi, Pakistan: State Bank of Pakistan. Available: http://

sbp.org.pk/dmmd/Guidelines/MTB.pdf. [Accessed 10 August 2016].

SBP. (2016c). Pakistan Investment Bonds Investor Guide [Online]. Karachi, Pakistan: State Bank of Pakistan. Available: http://

sbp.org.pk/dmmd/Guidelines/PIB.pdf. [Accessed 10 August 2016].

SBP. (2016d). Savings Mobilized by National Savings Schemes [Online]. Karachi, Pakistan: State Bank of Pakistan. Available: http://

sbp.org.pk/ecodata/savings.pdf. [Accessed 10 August 2016].

SBP. (2016e). Structure of Interest Rates [Online]. Karachi, Pakistan: State Bank of Pakistan. Available: http://sbp.org.pk/ecodata/

sir.pdf. [Accessed 10 August 2016].

Khalil, U. (2004). The Development of Debt Securities Market Country Experience of Pakistan. Seacen-World Bank Seminar on

Strengthening the Development of Debt Securities Market. Karachi, Pakistan: State bank of Pakistan. Available: https://

www.google.ca/url?

sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwjsidq0psHOAhWMth4KHaZpCuoQFggbMAA&url=http%

3A%2F%2Finfo.worldbank.org%2Fetools%2Fdocs%2Flibrary%2F83883%

2Fcountry_pakistan.doc&usg=AFQjCNEox5p3dEiw_1iFsGc82f1z-1JZSg&sig2=53YBTY3f34b1ajohqS262Q&bvm=bv.129422649,d.dmo.

[Accessed: 11 August 2016].


The economy of Pakistan during last three years has

witnessed higher economic growth accompanied by

remarkable recovery in commodity and services sec-

tors. The economy maintained its growth momentum

in the year 2015-16 which suggests that the recovery

of investment is more sustainable. The growth that

the economy has sustained for last few years is sup-

ported by vitality in industry, agriculture and ser-

vices.

The government infrastructure development drive

along with SBP’s expansionary monetary policy has

enhanced business activities. The preconditions for

sustained economic growth appear to have gained on

account of economic reform and improved security

situation. Inflation went down during the recent

years, and current account deficit reduced with favor-

able prices for oil and other commodities.

Government initiated a mega relief package for small

farmers to introduce progressive agriculture by

providing them cash support and agriculture loans. A

new Automobile Policy 2016-21 was approved by the

government which offers tax incentives to new en-

trants in order to help them establish manufacturing

units and build a healthy car competition in the indus-

try.

Government also presented the Strategic Trade Policy

Framework (STPF-2015-18) to promote regional

trade particularly with Afghanistan, Iran, China and

Central Asian Republics to boost annual exports to

$35 billion. The policy will improve export competi-

tiveness, transition to efficiency and innovation driv-

en economy and increase share in regional trade.

The confidence of domestic as well as international

investors is rebuilding which can be noticed by stock

market, rise in domestic commerce in Karachi and

increase in FDI. The country is committed to imple-

ment China-Pakistan Economic Corridor (CPEC)

which is a mega project of US $46 billion with Chi-

nese Government. CPEC will provide major support

for development of infrastructure including commu-

nication, energy, special economic zones and Gwadar

development.

Government is implementing an agenda of four

points which primarily aims at energy, economic sta-

bility, education and elimination of extremism. With

concrete efforts of government, Pakistan’s economy

04 AN OVERVIEW OF ECONOMIC GROWTH IN PAKISTAN

August, 2016 IFMP Monthly Newsletter 02


is stabilized and revived and the focus is now to accel-

erate economic growth and maintain sustainability.

GDP GROWTH

Figure 1: GDP Growth (%)

Source: MoF, Foundation Research, June 2016

Figure 1 presents an overview of GDP growth which

shows that positive economic growth is projected to

continue in the coming years. The economy has con-

tinued the recovery path, GDP growth has been pro-

jected to increase to 4.7% in FY2016 against the

growth of 4% recorded in FY2015. The economy

could not reach to the target of 5.5% due to lower

growth of agriculture sector. However, the GDP

growth attained in this fiscal year is higher as com-

pared to previous years since FY2009.

04

August, 2016

Sectoral Performance

The economy of Pakistan is divided into three main

sectors: Agriculture, Industry and Services. Sectoral

share recognizes performance of various segment of

the economy and also identifies their significance in

growth of the economy.

Pakistan’s economy has been experiencing structural

transformation as its GDP structure has changed dur-

ing last few decades. Manufacturing and services sec-

tors got relatively more advantage as compared to

agriculture sector.

Agriculture sector could not grow due to some struc-

tural, social and cultural drawbacks. It remains

weather dependent which makes it inconsistent in

performance. Manufacturing and services sectors

performed better due to government policies along

with scientific and technological developments com-

pared to agriculture sector.

Share in GDP

Composition of the economy has changed over time.

In 1969-1970, agriculture was the largest commodity

producing sector with 38.9% contribution in GDP,

which has decreased to 19.82% showing that the

share of the agriculture has been reducing over time

in favor of the manufacturing and service sector. The

share of services sector has gone up to 59.16% in

FY2016 indicating an upward trend in the services

sector of the GDP.



04

August, 2016


Figure 2: GDP Composition

Source: Pakistan Bureau of Statistics

Figure 2 shows the composition of GDP. The composition for the year 2015 and 2016 shows no major differ-

ence. Agriculture sector has further declined from 20.88% to 19.8%. The sectoral share of the large scale

manufacturing sector has slightly gone up from 10.62% to 10.9%. The share of other industries has increased

from 9.68% to 10.1%. The share of the various components of services sector has also risen in 2016.

POLICIES

Government’s economic policies were quite successful in maintaining the price stability and smooth supply of

the commodities. The economic situation improved and reflected better movement in key economic indicators

due to growth policies of the government.

The remarkable improvement in workers’ remittance is also recorded during the FY2016 which shows that

overseas Pakistanis have confidence on government policies. This improvement has played an important role

in building foreign exchange reserves of the country.

Government took different policy measures to enhance economic activities in all major sectors of the economy

and played major role in picking up all sectors of the economy. SBP has also brought down the discount rate

gradually and reached at 5.75%, which is also a major stimulus for business and investor’s community to in-

crease economic activities.

2014-2015 2015-2016

Asset Management Company

A company which offers invest-

ment schemes under trust deeds

and issues redeemable securities.

Body Corporate

It includes a company incorpo-

rated outside Pakistan, but does

not include-

i. A corporation sole; or a co-

operative society registered un-

der any law relating to the regis-

tration of co-operative societies;

or

ii. Any other body corporate, not

being a company as defined in

this Ordinance, which the Federal

Government may notification in

the official Gazette, specify in this

behalf.

Discretionary Portfolio

A portfolio of securities managed

by a Non-Banking and Finance

Companies under an agreement

entered into with a client on a du-

ly notarized stamp paper of appli-

cable value and whereby investment

decisions are made and executed by

the Non-Banking and Finance Compa-

nies on behalf of its client.

Family Takaful

Takaful for the benefit of individuals,

groups of individuals and their fami-

lies as elaborated in the provisions of

the Ordinance pertaining to life insur-

ance business.

Free Reserves

Any amount which, having been set

aside out of the revenue or other sur-

pluses is free in that it is not retained

to meet any diminution in value of the

assets, specific liability, contingency

Investors’ Terms Of The Month


05

or commitment of that company

known to exist at the date of the

balance sheet.

Last Quoted Price

The Closing Price as reported by

the Exchange, on each trading

day, for the purposes of risk man-

agement and collection of market-

to-market differences.

Other Form of Security

It includes hypothecation of stock

(inventory), assignment of receiv-

ables, lease rentals and contract

receivables.

Retrocession

A contract of reinsurance under

which the event, specified in the

contract, contingent upon the

happening of which, payment is

promised to be made to the policy

holder there under, is payment by

the policy holder of a claim or

claims made under another con-

tract or contracts of reinsurance

issued by that policy holder.

August, 2016

Business and Economic Newsflash


06

August, 2016

Domestic Newsfeed

IMF Bailout Programme completed by

Pakistan

Pakistan and IMF completed the

$6.4 billion bailout programme

on a successful note, paving the

way for release of $102 million

last tranche next month. The

successful completion indicates

government`s strong commit-

ment in implementing difficult structural reforms in

the areas of taxation, energy, monetary and financial

sectors and public sector enterprises.

The government met the end-June 2016 quantitative

performance criteria on net international reserves,

foreign currency swap/forward position, and govern-

ment borrowing from the SBP by significant margins.

The targets on net domestic assets and budget deficit

were missed marginally.

The target for end-June 2016 on targeted cash trans-

fers through BISP and on power sector arrears were

also met. The Federal Board of Revenue (FBR) not on-

ly achieved its original annual target of Rs.3.104 tril-

lion but exceeded it to reach Rs.3.115 trillion. In the

process, the figure of FBR`s tax-to-GDP ratio regis-

tered an increase to 10.5% from 8.5% in 2013.

All indicative targets and structural benchmarks were

met, except for the delayed notification of multi-year

tariffs for three power distribution companies.

Increase in Repatriation of Profits

Repatriation of profits surged to $145.8 million in July

from $52.5 million in the same month last year.

The amount of profits repatriated by foreign compa-

nies operating in Pakistan stood at $2 billion which

was the second biggest payment after debt servicing.

Pakistan has been facing many

odds on external front, the ex-

ports and remittances are de-

clining and foreign direct in-

vestment (FDI) inflows re-

duced to $64 million in July

compared to $75 million.

The country is already under stress to meet the trade

deficit which was close to $21 billion in 2015-16.

The uptrend shows that Pakistan would be under

pressure to arrange more than $7 billion in the cur-

rent fiscal year. It will be hard for the country to keep

its foreign exchange reserves at the current level. The

remittances for July 2016 fell by 20 per cent mainly

because thousands of Pakistanis working in the Mid-

dle East, lost jobs and their payments were held by

their employers. Decrease in remittances could add

more worries for the government struggling to in-

crease exports, which have been declining for last two

years.

Property Price Evaluation carried out by

FBR

The government implemented

new rates of taxes for the pur-

pose of taxation of property in

major cities.

The areas where no valuation

tables have yet been notified,

the district officer revenue or

provincial or any other authority authorized in this

behalf for the purpose of stamp duty will apply for the

collection of taxes.

The new valuation tables will only be used for the

purpose of calculating Capital Gains Tax (CGT), with-

holding taxes and for the purposes of Section 111 of

the Income Tax Ordinance 2001.

Business and Economic Newsflash


06

If the fair market value of the property is different than

the auction price, the applicable price will be the higher

of the two. The holding period of property was also re-

duced to three years from five years.

The government has introduced three slabs in order to

facilitate real estate investors, effective from July 1,

2016, on properties. The rate of CGT will be 10 per cent

on a property held for one year, 7.5 per cent held be-

tween 1-2 years, and 5 per cent if the holding period is

between 2-3 years. If a property is held for more than

three years, it will be exempt from CGT.

On the issue of transactions made before July 1, 2016,

the CGT rate will be 5pc on a property held up to three

years. No tax will be charged on property held for more

than three years.

International Newsfeed

Slide of Britain`s Pound

The pound has sunk about 10

per cent since Britons voted to

leave the EU. It is expected now

that it will fall roughly 6 per

cent. According to a Reuters poll,

the pound would fall to a level

not seen in over three decades.

It is also only expected to nudge up slightly by this time

next year.

Sterling is currently trading around $1.33, but accord-

ing to a forecast, the pound will fall as low as $1.25 this

year. With a July Reuters poll suggesting the economy

faces a 60 per cent chance of recession in the coming

year, the Bank is almost unanimously expected to an-

nounce a cut to interest rates when it reveals its latest

policy decision.

According to the policy makers, Britain should also ex-

pand fiscal policy to stimulate its economy as the

Bank`s tools have largely reached their limits and are

likely to be less effective than in the past.

After leaving policy unchanged last month, the Euro-

pean Central Bank left the door open to further stim-

ulus and a July Reuters poll suggested it would soon

be forced to extend and expand the scope of its asset

purchase programme. So with both central banks

loosening policy, sterling will hold pretty steady

against the euro.

Iraq’s Plan to Sell Oil

Iraq plans to sell crude oil

through Iran if talks with the

autonomous Kurdish region

on an oil revenue-sharing

agreement fail.

Iraq is the second-largest pro-

ducer of oil after Saudi Arabia,

depends on oil sales for 95 per cent of its public in-

come. Its economy is reeling under the double im-

pact of low oil prices and the war against Islamic

State militants. Minister Fayadh al-Nema said in an

interview that if the negotiations come to a close

without an agreement, they will find a way in order

to sell oil because they need money.

An agreement between Iran and Iraq could function

in a similar fashion as oil swap deals. Iran would im-

port Iraqi oil to its refineries and export an equiva-

lent amount of its own crude on behalf of Baghdad

from Iranian ports on the Gulf.

The Kurdish government has been calling on Bagh-

dad since March to resume the pumping of Kirkuk

crude. Kurds are ready to strike an agreement with

Baghdad if it guarantees them monthly revenue of $1

billion, more than double what they make currently

from selling their own oil.

The dispute revolves around Kurdish oil exports that

Baghdad wants to bring under its control.

August, 2016

Regulatory Newsflash


07

Credit Rating Companies Regulations, 2016

The SECP has approved the Credit Rating Companies Regula-

tions, 2016. It is a new regime which has been introduced

for credit rating companies (CRC) based on international

best practices.

The regulations introduce some new requirements and

strengthen the existing requirements for the CRCs in order

to achieve the objectives of investor education. The key as-

pect is the brief introduction of licensing regime for the CRCs

with fit and proper criteria for promoters, CEOs, senior man-

agement officers and directors.

Internal control and business conduct requirements have

been introduced to protect the interests of investors and

other stakeholders.

Listed Companies (Buy-Back of Shares) Regula-

tions, 2016

The Securities and Exchange Commission of Pakistan has

notified the Listed Companies (Buy-Back of Shares) Regula-

tions, 2016. The new requirements will reform the Compa-

nies (Buy Back of Shares) Rules, 1999.

New regulations have been issued because the previous

framework did not provide for the retention of purchased

shares as treasury shares, rather the repurchased shares

had to be cancelled.

The guidelines provide the eligibility criteria for a buy-back,

like maintaining the minimum paid-up capital and free float,

procedure for setting the price, limitations of the treasury

shares, compliance with the applicable international finan-

cial reporting standards, maintaining records and disposal of

treasury shares .

The regulations will provide assistance to listed companies

to buy-back their own shares in a transparent manner.

Benchmark

Debt Market

Exemption

Financial Statements

Insider Trading

Late Fee

Paid-up Value

Quoted Shares

Revenue Board

Public Sector Companies (Corporate

Governance) Rules, 2013

The SECP has issued the draft of amendments in

the Public Sector Companies Rules, 2013. The

Rules were introduced in 2013, aimed at im-

proving the governance of PSCs.

Amendments have been made to ensure proper

compliance and implement good corporate gov-

ernance principles in the state owned compa-

nies.

Strict amendments have been made to remove

non-performing directors while the criteria for

appointment of chairman and CEO of PSCs has

been revised. The proportion of independent

directors in the Boards has also been reduced

from a majority to a minimum of one-third level.

GLOSSARY

August, 2016

Monthly Review

Gold

10 Grams

Beginning Rs.45,469.92

Ending Rs.44,485

Change -984.92

Crude Oil

(WTI)

Beginning 41.76

Ending 46.44

Change +4.68

KIBOR

(6 Months)

Bid % Offer %

Beginning 5.73 5.98

Ending 5.78 6.03

Change +0.05 +0.05

Foreign Exchange Rates

GBP (£) EURO (€) USD ($)

Buying Selling Buying Selling Buying Selling

Beginning Rs.137.79 Rs.138.05 Rs.115.75 Rs.115.97 Rs.104.40 Rs.104.60

Ending Rs.136.61 Rs.136.87 Rs.116.64 Rs.116.86 Rs.104.40 Rs.104.60

Change -1.18 -1.18 +0.89 +0.89 0 0

Pakistan

Stock

Exchange

100 Index

Beginning 39,636.66

Ending 39,809.58

Change +172.92

Silver

10 Grams

Beginning Rs.686.34

Ending Rs.634.28

Change -52.06

Markets In Review


08

August, 2016

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sbp

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DETAILS: www.ifmp.org.pk 92 (21) 34540843-44 [email protected]

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