Upload
hussainmh
View
214
Download
0
Embed Size (px)
Citation preview
8/6/2019 PBIC Econ Insight May2011 Presentation)
1/15
TREASURY GROUP
May 10, 2011
Economic InsightMacro Trends ahead of Budget FY12
Haider Hussain
(92-21) 35361215-9, Ext.141
Our Research is also available here.
So far, FY11 is proving to be a redemption year for Corporate sector
with robust earnings growth. But, macro realities are contrasting.Interest rates are high, fiscal deficit is soaring and inflation isshowing no signs of cooling down. The only blessing is a robustexternal account; but that too is overly dependant on remittances.
Under these circumstances, we expect the government toannounce a Budget focusing more on corrective measures, aslimited resources and a tough outlook hardly allow a growth-
oriented budget.
mailto:[email protected]://www.pakbrunei.com.pk/report_n_presentation.htmlhttp://www.pakbrunei.com.pk/report_n_presentation.htmlmailto:[email protected]8/6/2019 PBIC Econ Insight May2011 Presentation)
2/15
Inflationary pressures stand strong. Even if inflation stays at April-11 level (13.04%), movingaverage doesnt seem to be coming down before Sept-11
2
Inflation
Source: Federal Bureau of Statistics, PBIC Research
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
YoY Headline Inflation
YoY Headline Inflation (12-Month Moving Average)
Trend in Inflation
8/6/2019 PBIC Econ Insight May2011 Presentation)
3/15
International food and oil prices are touching new highs and will also fuel domestic inflationgoing forward
3
Inflation
Source: Food and Agriculture Organization, PBIC Research Source: Bloomberg
-40%
-20%
0%
20%
40%
60%
80%
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Global Food Inflation (YoY Change)
30
40
50
60
70
80
90
100
110
120
130
01-Jan-09
01-Mar-09
01-May-09
01-Jul-09
01-Sep-09
01-Nov-09
01-Jan-10
01-Mar-10
01-May-10
01-Jul-10
01-Sep-10
01-Nov-10
01-Jan-11
01-Mar-11
International Oil Price (Arab Light: USD/bbl)
8/6/2019 PBIC Econ Insight May2011 Presentation)
4/15
Why not buy today what is going to be expensive in future!
Increasing transaction demand for money shows general public have strong inflationexpectations
4
Inflation
Source: SBP, PBIC Research
9%
11%
13%
15%
17%
19%
1-Jul-10
15-Jul-10
29-Jul-10
12-Au
-10
26-Au
-10
9-Sep-10
23-Sep-10
7-Oct-10
21-Oct-10
4-Nov-10
18-Nov-10
2-Dec-10
16-Dec-10
30-Dec-10
13-Jan-11
27-Jan-11
10-Feb-11
24-Feb-11
10-Mar-11
24-Mar-11
7-A
r-11
21-Apr-11
Currency in Circulation (YoY Growth)
Currency in Circulation shows money hoarding and/or money held with public for daily transactions. It is the part of moneysupply that is outside the banking system
8/6/2019 PBIC Econ Insight May2011 Presentation)
5/15
SBP sticks to a hawkish monetary policy stance. Trend in inflation increases the likelihoodof a DR hike in the first half of next fiscal year
5
Monetary Policy Response
Source: SBP, Financial Market Association
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
SBP Discount Rate
Headline Inflation (12-Month Moving Avg.)
Inflation and Monetary Policy Response
8/6/2019 PBIC Econ Insight May2011 Presentation)
6/15
thus we are bullish on market interest rates in the medium term
6
Interest Rates
Source: SBP, Financial Market Association
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
1-Jun-09
1-Jul-09
1-Aug-09
1-Sep-09
1-Oct-09
1-Nov-09
1-Dec-09
1-Jan-10
1-Feb-10
1-Mar-10
1-Apr-10
1-May-10
1-Jun-10
1-Jul-10
1-Aug-10
1-Sep-10
1-Oct-10
1-Nov-10
1-Dec-10
1-Jan-11
1-Feb-11
1-Mar-11
1-Apr-11
1-May-11
6-Month TBill
6-Month KIBOR
SBP Discount Rate
Interest Rates Trend
8/6/2019 PBIC Econ Insight May2011 Presentation)
7/15
Investors are preferring liquidity and are not ready to bet on long term securities. Riskpremium is quite high between short and long (12-Month and above) tenors
7
Interest Rates
Source: Financial Market Association
12.5%
13.0%
13.5%
14.0%
14.5%
1m 3m 6m 12m 2Yr 3Yr 4Yr 5Yr 6Yr 7Yr 8Yr 9Yr 10Yr
Yield Curve as on May 4, 2011
8/6/2019 PBIC Econ Insight May2011 Presentation)
8/15
Deficit has been increasing big time. 9MFY11 deficit is 25% higher YoY
8
Fiscal Deficit
Source: Ministry of Finance, PBIC Research
138
112
156
275
224
180
223
303
276
214
293
0
50
100
150
200
250
300
350
1Q-09 2Q-09 3Q-09 4Q-09 1Q-10 2Q-10 3Q-10 4Q-10 1Q-11 2Q-11 3Q-11
Quarterly Fiscal Defict (PKR Billion)
FY099-Month deficit PKR 406 billion
Cumulative deficit PKR 680 billion (5.2%of GDP)
FY109-Month deficit PKR 627 billion
Cumulative deficit PKR 929 billion (6.3%of GDP)
9MFY119-Month deficit PKR 783
billion (4.5% of GDP)
8/6/2019 PBIC Econ Insight May2011 Presentation)
9/15
Commercial banks have been financing a higher portion of deficit, which is one of the IMFs
key requirements. Also because banks have limited alternate risk-free investment avenues
9
Fiscal Deficit Financing
Source: SBP, PBIC Research Source: SBP, PBIC Research
-10%
0%
10%
20%
30%
40%
50%
60%
70%
1-Jul-10
22-Jul-10
12-Aug-10
2-Sep-10
23-Sep-10
14-Oct-10
4-Nov-10
25-Nov-10
16-Dec-10
6-Jan-11
27-Jan-11
17-Feb-11
10-Mar-11
31-Mar-11
21-Apr-11
From SBP
From Scheduled Banks
Breakup of GoP Budgetary Borrowing (YoY Growth)
12%
14%
16%
18%
20%
22%24%
26%
28%
30%
32%
1-Jul-10
15-Jul-10
29-Jul-10
12-Aug-10
26-Aug-10
9-Sep-10
23-Sep-10
7-Oct-10
21-Oct-10
4-Nov-10
18-Nov-10
2-Dec-10
16-Dec-10
30-Dec-10
13-Jan-11
27-Jan-11
10-Feb-11
24-Feb-11
10-Mar-11
24-Mar-11
7-Apr-11
21-Apr-11
Government Budgetary Borrowing (YoY Growth)
8/6/2019 PBIC Econ Insight May2011 Presentation)
10/15
And this shift in borrowing has compelled the government to offer higher returns onTreasury Bills
10
Fiscal Deficit Financing
Source: SBP
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
15-Jul-09
09-Sep-09
07-Oct-09
04-Nov-09
02-Dec-09
30-Dec-09
27-Jan-10
24-Feb-10
24-Mar-10
21-A
r-10
19-May-10
16-Jun-10
28-Jul-10
26-Aug-10
23-Se
-10
20-Oct-10
15-Nov-10
15-Dec-10
12-Jan-11
09-Feb-11
09-Mar-11
06-A
r-11
TBill Auctions: 6-Month T-Bill Weighted Average Yield
8/6/2019 PBIC Econ Insight May2011 Presentation)
11/15
A robust current account is mostly depending on remittances, which is a hard-to-predictquasi-exogenous factor
11
External Account
Source: SBP, PBIC Research
0
5
10
15
20
25
Jan-08
Mar-08
May-08
Jul-08
Se
-08
Nov-08
Jan-09
Mar-09
Ma
-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Se
-10
Nov-10
Jan-11
Mar-11
Ex. Remittances Actual
Current Account Deficit (12-month mov. avg.) USD Bill ion
8/6/2019 PBIC Econ Insight May2011 Presentation)
12/15
Exchange rate has stabilized around PKR 85/USD following a rejuvenated external account,while foreign exchange reserves position is also strong
12
Exchange Rate
Source: SBP, PBIC Research
78
79
80
81
82
83
84
85
86
87
0
2
4
6
8
10
12
14
16
18
20
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
FX Reseves, PKR Billion (LHS)
PKR/USD (RHS)
Reserves Position and Exchange Rate
8/6/2019 PBIC Econ Insight May2011 Presentation)
13/15
However, both reserves and exchange rate would face headwinds after Dec-11 whenrepayments to IMF will start escalating
13
IMF Repayments
Source: IMF, PBIC Research
-
128 103 131
521
647
514
784
918 909
1,0461,103
680 649
560
375
218 217
611
1Q-CY11
2Q-CY11
3Q-CY11
4Q-CY11
1Q-CY12
2Q-CY12
3Q-CY12
4Q-CY12
1Q-CY13
2Q-CY13
3Q-CY13
4Q-CY13
1Q-CY14
2Q-CY14
3Q-CY14
4Q-CY14
1Q-CY15
2Q-CY15
3Q-CY15
4Q-CY15
Repayments to the IMF (USD Million) including principle & interest payements and other service charges
CY11 USD 362Million
CY12 USD 2,467Million
CY13 USD 3,976Million
CY14 USD 2,264Million
CY15 USD 497Million
8/6/2019 PBIC Econ Insight May2011 Presentation)
14/15
What would be on the cards?
14
Federal Budget FY12
We expect Budget FY12 to be a replica of Budget FY09 when economy was experiencing afiscal crisis, despite the fact that macro indicators are in a relativelybetter position now
Similar to FY09, upcoming Budget will also focus more on stabilizing the economy throughcorrective measures. Despite the commitment of economic managers, limited resourcesand a tough outlook hardly allow a growth-oriented budget
Budget FY12 will primarily focus on fulfilling IMF requirements RGST reforms and a modest focus on Agriculture income tax is on the cards, though they are likely
to face political resistance
Possibility of the imposition of one-off Gross Asset Tax on corporate sector assets
Likelihood of upward revision in the rates of existing direct taxes
GoP cant afford to announce a large PSDP in current circumstances, especially when a fat chunkof resources will be transferred to provinces through NFC award
Subsidies will be restrained further
We cannot dream of significant pro-poor measures in this budget. But, some additional resourcesfor Benazir Income Support Program (BISP) can be set aside
8/6/2019 PBIC Econ Insight May2011 Presentation)
15/15
Disclaimers: This report is published solely for information purposes. It is not to be construed as a solicitation or an offer to buy or sell any securities orrelated financial instruments nor should it be regarded by recipients as a substitute for the exercise of their own judgment. The information and opinionscontained in this report have been compiled or arrived at from sources believed to be reliable, but no representation or warranty, express or implied, is madeas to their accuracy, completeness or correctness and are subject to change without notice. PBIC does not accept any loss or liability whatsoever arisingfrom the use of the material or information contained herein. PBIC may from time to time hold positions in, and may effect transactions in, the companies,sectors and/or securities mentioned herein.
Copyright 2011, Pak Brunei Investment Company (PBIC). All rights are reserved. PBIC prohibits the redistribution of this material in whole or in part withoutthe consent of PBIC and PBIC accepts no liability whatsoever for the actions of third parties in this respect.
Pak Brunei Investment Company Limited,Khadija Towers, Plot No. 11/5, Block No. 2, Scheme No. 5, Clifton, Karachi, Pakistan
Tel Off :- (+92-21) 35361215-19 | Fax: (+92-21) 35361213http://www.pakbrunei.com.pk
http://www.pakbrunei.com.pk/http://www.pakbrunei.com.pk/