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SBP Cuts Policy Rate by 250bps and Updates Economic Outlook for FY25

Khashif Sarfraz
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SBP Cuts Policy Rate by 250bps and Updates Economic Outlook for FY25

The State Bank of Pakistan (SBP) announced a 250bps policy rate cut in today’s Monetary Policy Committee meeting, aiming to support economic activity while managing inflation and debt obligations. Here are the key highlights:

External Debt Management

For FY25, Pakistan faces external debt obligations totaling USD 26.1 billion, with USD 22 billion as principal and USD 4 billion in interest. Nearly USD 16.4 billion is anticipated to be rolled over, with USD 2.3 billion already extended. Pakistan has so far repaid USD 5.7 billion, including the rollover, leaving USD 6.3 billion to be repaid over the remaining eight months of FY25.

Macroeconomic Projections for FY25

  • GDP Growth: Expected to range between 2.5% and 3.5%.
  • Current Account Deficit (CAD): Projected to stay between 0-1% of GDP.
  • Inflation: Estimated to average below the previous forecast of 11.5%-13.5%.
  • SBP Reserves: Expected to surpass USD 13 billion by the end of FY25, up from the current USD 11.2 billion.

Debt Reprofiling Initiatives

SBP reported on government-led debt restructuring, emphasizing a shift from short-term to long-term external debt. Domestically, the government has reduced the share of short-term Treasury bills in total debt, from 24% in FY24 to 21% in 4MFY25, with a goal of further reducing it below 20% by the fiscal year’s end. This strategy allows for more sustainable debt servicing by favoring longer-term bonds.

Government Interest Expense

The government’s interest payments for FY25 are forecasted to decline, aided by PKR stability, the recent rate cut, and a lower overall debt stock. Interest payments initially budgeted at PKR 9.8 trillion for FY25 are now projected to be slightly above PKR 8.2 trillion from last year but below PKR 8.5 trillion.

Debt-to-GDP Ratio

As of June 30, 2024, Pakistan’s total public debt stood at 75% of GDP. This has since decreased to 67.2%, reflecting improved fiscal discipline and debt management.

Current Account Deficit and Remittances

The current account deficit remains manageable, supported by remittance inflows projected to exceed USD 3 billion for October 2024. SBP continues to monitor global commodity prices, such as oil, to incorporate any potential impact into its forecasts, accounting for a 10-15% price variance.

Funding and Reserve Position

The SBP confirmed no current funding gap, in alignment with IMF assessments. Additionally, a USD 500 million loan from the Asian Development Bank is expected to raise SBP reserves to around USD 11.7 billion by next week, strengthening Pakistan’s financial position.

PSX Hits All-Time High as KSE-100 Surges

Khashif Sarfraz
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PSX Hits All-Time High as KSE-100 Surges

The Pakistan Stock Exchange (PSX) has soared to new heights, with the KSE-100 Index reaching a record high of 91,916 points. This remarkable increase reflects optimism in the market, largely driven by expectations that the State Bank of Pakistan (SBP) will announce a significant rate cut soon.

KSE-100 Index Climbs to All-Time High

On Monday, the KSE-100 Index surged by 1,056 points, or 1.15%, reaching 91,916.42 points by midday. This came after an impressive market opening that saw the index jump by 1,156 points to an intra-day high of 92,016.55 points. The trading volume was equally robust, with around 115 million shares exchanged, totaling approximately Rs9.95 billion.

Anticipation Builds as SBP’s Monetary Policy Committee Meets

Investors are keenly awaiting the SBP’s Monetary Policy Committee (MPC) meeting, where a substantial rate cut is anticipated. Analysts forecast a 200 basis points cut, marking the fourth consecutive reduction since June. This trend is fueled by a series of economic indicators: falling inflation, a declining current account deficit, and rising remittances from overseas workers. If confirmed, this rate cut would be a significant move to boost economic activity by reducing borrowing costs.

Market Rally Driven by Optimistic Inflation Data

The stock market’s upward momentum began on Friday, with the KSE-100 Index surging by nearly 1,900 points to close at 90,859.85. This rally was ignited by a lower-than-expected inflation rate for October, which eased investor concerns and fueled optimism for an extended period of monetary easing by the central bank.

Ahsan Mehanti, an analyst from Arif Habib Corp, noted, “Positive data on consumer price index (CPI) inflation at 7.2% in October and the IMF’s revised inflation projection of 9.5% for FY2025 has bolstered investor confidence in the market.” These factors, coupled with speculation around a rate cut, have led to record-breaking activity at the PSX.

Foreign Reserves and Current Account Trends Boost Confidence

The SBP’s foreign exchange reserves increased by $116 million last week, reaching $11.156 billion. Total reserves now stand at $16.049 billion, following two consecutive monthly current account surpluses in August and September. This increase in reserves, further boosted by the first tranche of $1.03 billion from the IMF’s Extended Fund Facility, has also added to the market’s positive sentiment.

Lowering Inflation and Expected Rate Cut to Benefit Market

Inflation in Pakistan was reported at 7.2% in October, slightly higher than September’s 6.9% but far below the 26.8% recorded in October 2023. This figure supports a broader trend of easing inflation, which reached a record 38% last year. The CPI reading exceeded expectations of 6.8%, bringing the average inflation rate for FY2025’s first four months to 8.7%, down from 28.5% for the same period last year.

Given this backdrop, financial market experts are betting on a policy rate cut of up to 200 basis points during the SBP’s November 4 meeting. Such a move could stimulate economic growth by making borrowing more affordable, benefiting businesses and investors alike.

Outlook for Pakistan’s Stock Market and Economy

As inflation continues to decline and reserves grow, Pakistan’s economy shows signs of gradual recovery. With the anticipated rate cut, businesses are likely to benefit from lower financing costs, leading to increased economic activity. The stock market’s recent performance reflects a bullish outlook for Pakistan’s financial sector, highlighting investor optimism about the future.

Fastest-Spinning Neutron Star Discovered: 716 Rotations Per Second

Khashif Sarfraz
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Fastest-Spinning Neutron Star Discovered: 716 Rotations Per Second

In an extraordinary discovery, researchers from DTU Space have identified a neutron star spinning at an incredible rate of 716 rotations per second. The neutron star, located 26,000 light years away in the Sagittarius constellation, is one of the fastest-spinning objects ever observed in the universe. It belongs to a binary star system known as 4U 1820-30.

A Rare and Fast-Spinning Neutron Star

This neutron star is a small but extremely dense object, formed from the remains of a massive star that exploded in a supernova. Though only about 12 kilometers in diameter, its mass is 1.4 times greater than the sun’s, making it one of the densest observable objects in the cosmos.

Senior scientist Dr. Gaurava K. Jaisawal, part of the international research team, explained that the neutron star’s remarkable spin was discovered while studying thermonuclear explosions within the system. The star’s astonishing rotation rate of 716 times per second was recorded during these bursts, suggesting it’s one of the fastest-spinning neutron stars ever found. Only another neutron star, PSR J1748–2446, matches this incredible spin rate.

Flux–temperature diagram from time-resolved spectroscopy of all 15 X-ray bursts of 4U 1820–30. Credit: The Astrophysical Journal (2024). DOI: 10.3847/1538-4357/ad794e

Observations with NASA’s NICER Telescope

The neutron star was observed using NASA’s NICER X-ray telescope, which is fitted with star tracker technology developed by DTU Space. Mounted on the International Space Station, NICER helps astronomers point accurately at distant neutron stars, such as 4U 1820-30, located deep within the Milky Way.

Neutron stars are sometimes referred to as “dead stars” because they are the remnants of exploded massive stars. In X-ray binary systems like 4U 1820-30, a neutron star orbits closely with a white dwarf. The companion star, a white dwarf roughly the size of Earth, orbits the neutron star every 11 minutes—the shortest known orbital period for such a system.

Powerful Thermonuclear Bursts

Neutron stars are known for their intense gravitational pull, which can strip material from their companion stars. This process results in the accumulation of material on the neutron star’s surface. Once enough matter is gathered, a violent thermonuclear burst occurs, releasing energy equivalent to 100,000 times the brightness of the sun.

Associate Professor Jerome Chenevez from DTU Space, a co-author of the study, described these bursts as “extreme events” that offer valuable insights into the life cycles of binary star systems and the formation of elements in the universe.

Record-Breaking Spin Rate

Through NICER observations made between 2017 and 2021, the researchers recorded 15 thermonuclear X-ray bursts from 4U 1820-30. These bursts revealed a signature known as thermonuclear burst oscillations, confirming the neutron star’s spin rate of 716 times per second.

If future observations confirm this, the 4U 1820-30 neutron star will officially join the ranks of the fastest-spinning neutron stars ever observed, providing new insights into the extreme physics governing these fascinating celestial objects.

Apple Launches “Apple Intelligence” to Lead the AI Revolution

Khashif Sarfraz
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Apple Launches “Apple Intelligence” to Lead the AI Revolution

Apple has taken a major step into artificial intelligence with the launch of Apple Intelligence. This new set of AI features is now available on select iPhones, iPads, and Mac devices, marking the company’s entrance into the fast-growing world of generative AI.

Apple’s AI Vision

Apple first announced these AI features in June, and now they’re here. Competing with big tech companies like Google, Microsoft, and Amazon, Apple aims to make AI more personal and integrated into everyday tasks. Tim Cook, Apple’s CEO, shared his excitement, saying, “Apple Intelligence brings AI in a way only Apple can, making it easier for users to improve their daily lives.”

What Apple Intelligence Offers

Apple Intelligence comes with several key tools designed to improve how you interact with your Apple devices:

  • Smarter Writing Tools: You can now rewrite and proofread text more easily with improved AI-driven writing assistance.
  • Better Photo Search: The photo search feature has become more advanced, helping you quickly find the pictures you need.
  • More Conversational Siri: Siri has been upgraded to sound more natural and conversational, making interactions smoother.

By December, Apple plans to add even more exciting features, such as creating custom emojis and generating images from text.

Limited Release with Language Expansion Coming Soon

Right now, these features are available only in US English on the latest iPhones, iPads, and Macs. However, Apple plans to introduce more languages, including Chinese, French, German, and Spanish, throughout the next year. Though the European Union faced delays due to regulatory issues, Apple has announced that the Apple Intelligence tools will begin rolling out in Europe in April, starting with Mac computers.

Privacy-First AI

Apple has always been known for prioritizing privacy, and its approach to AI is no different. The company ensures that most of the AI processing happens on your device or through its new “Private Cloud.” This system keeps your personal data secure within Apple’s ecosystem, addressing the common concerns about AI and data privacy.

A New Era for Apple

Apple’s dive into generative AI is part of its broader plan to stay at the forefront of technology. Along with these new features, Apple also introduced a new iMac, which comes integrated with Apple Intelligence. As the company continues to roll out more updates, these AI-powered tools could change how users interact with their Apple devices.

Iowa Resident Dies from Rare Lassa Fever After Returning from West Africa

Khashif Sarfraz
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Iowa Resident Dies from Rare Lassa Fever After Returning from West Africa

The Iowa Department of Health and Human Services confirmed on Monday the tragic death of a middle-aged resident from Lassa fever. The individual, who had recently returned from a trip to West Africa, is believed to have contracted the virus during their travels.

What is Lassa Fever?

Lassa fever is a viral disease primarily found in West Africa, where it is spread through contact with the urine or droppings of infected rodents. While common in West Africa, Lassa fever is extremely rare in the United States. In fact, the U.S. has only recorded eight travel-associated cases in the past 55 years, according to the Iowa health department.

The U.S. Centers for Disease Control and Prevention (CDC) is currently working to confirm the diagnosis. Despite the confirmed case, the CDC has stated that the risk to the general public remains very low, as Lassa fever is not easily spread between people.

Impact of Lassa Fever

Lassa fever affects between 100,000 and 300,000 individuals annually in West Africa, with approximately 5,000 deaths each year. While the disease can cause severe illness, it is usually spread through direct contact with infected rodent excretions rather than person-to-person transmission.

A Rare Case in the United States

This tragic case serves as a reminder of the potential health risks associated with international travel, especially to regions where certain diseases are more prevalent. However, with only a handful of cases in the U.S. over several decades, Lassa fever remains a very rare occurrence in the country.

Government Sets Up Task Force to Digitize FBR

Khashif Sarfraz
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Government Sets Up Task Force to Digitize FBR

According to Samaa,

In a significant move to enhance Pakistan’s tax system, the government has established a 10-member task force to digitize the Federal Board of Revenue (FBR). This initiative, supported by the State Information and Facilitation Center (SIFC), aims to streamline FBR’s operations through comprehensive digital transformation.

Key Objectives of the Task Force

The task force has been given a wide-ranging mandate to modernize FBR’s systems. Among its primary goals are automating data processes, implementing advanced software solutions, and collaborating with provincial revenue authorities for smoother integration. By addressing these areas, the task force seeks to improve overall efficiency and transparency in revenue collection.

One of the key focuses of the task force is developing an automated supply chain system for wholesalers and distributors. This initiative aims to simplify and digitize the entire supply chain process, making it more efficient and transparent. Additionally, the task force plans to introduce a track-and-trace system through integrated automation, allowing for better monitoring and control of goods throughout the supply chain.

Transforming PRAL into an Independent IT Bureau

Another major goal is converting Pakistan Revenue Automation Limited (PRAL) into an independent IT bureau. This transformation is crucial for generating accurate data and statistics, which will help in more effective planning and decision-making within the FBR. The government believes that by leveraging technology in this way, FBR can significantly improve its operations.

Enhancing Trade Collaboration

The task force also aims to create a seamless interface between the FBR and trade partners. By ensuring accurate pricing and estimates, this interface will not only enhance collaboration but also improve tax compliance across the supply chain.

A Step Towards Greater Transparency and Efficiency

The government’s initiative to digitize the FBR reflects its commitment to improving transparency, enhancing revenue collection, and making the tax system more efficient. Through the power of technology, this digital transformation promises to bring long-lasting benefits to Pakistan’s economy.

Zarea Limited Aims to Raise Rs1 Billion Through IPO on Pakistan Stock Exchange

Khashif Sarfraz
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Zarea Limited Aims to Raise Rs1 Billion Through IPO on Pakistan Stock Exchange

Zarea Limited’s IPO: A Major Step Towards Digital Transformation

Zarea Limited (ZL), a business-to-business (B2B) e-commerce platform, applied for listing on the Pakistan Stock Exchange (PSX) on Monday. The company aims to raise at least Rs1 billion through an initial public offering (IPO) of 62.50 million shares, priced at a minimum of Rs16 per share. This offering is open to corporate investors, affluent individuals, and retail investors, presenting an exciting opportunity for those interested in Pakistan’s growing digital economy.

According to the prospectus available on the PSX website, Zarea Limited specialises in providing construction materials, including cement, steel, and agricultural biomass. As part of its growth strategy, the company plans to expand its product offerings by adding coal, chemicals, grains, pulses, sugar, fertilizers, cotton, yarn, and other agricultural perishables.

Expanding with a Strong Technology Focus

The proceeds from the IPO will be primarily used to enhance ZL’s IT infrastructure and grow its customer base. Under the current regulations, the share price could increase by up to 40% through a Dutch auction process, reaching a maximum of Rs22.4 per share. This could boost the total raised funds to Rs1.4 billion, enabling ZL to invest heavily in its technology platform.

The company has developed a proprietary platform that allows buyers to purchase goods at competitive rates and track prices through an easy-to-use interface. Zarea’s mission is to revolutionize the B2B commodity marketplace by digitising the procurement process and offering additional services such as logistics, storage, credit, and data analytics.

Key Players in the Offering

Topline Securities and Growth Securities are acting as joint consultants and book runners for the IPO, which notably marks the sixth listing on the PSX’s main trading platform in 2024. In comparison, the previous five IPOs collectively raised Rs8 billion, further signaling a growing investor interest and improved economic conditions in Pakistan.

Moreover, the PSX has seen impressive performance this year, with the KSE-100 Index rising by 42.5% to over 90,000 points, reflecting strong investor sentiment. Additionally, the top 100 companies in the KSE-100 Index reported a 24.4% increase in profitability, reaching a record high of Rs1.6 trillion in FY24.

Impressive Financial Performance

Zarea Limited has demonstrated strong financial growth over the past year. For the fiscal year ending June 30, 2024, the company reported a remarkable 144% increase in revenue, reaching Rs281 million compared to Rs115 million in FY23. Additionally, profit after tax surged to Rs292.8 million, a significant increase from Rs81.3 million in the previous year.

At the floor price of Rs16 per share, the shares are priced at a price-to-earnings (P/E) multiple of 10.93x, based on the trailing twelve months (TTM) earnings as of June 30, 2024. This represents a notable discount of around 52% compared to the average P/E of 22.99x in the technology sector on the PSX, making ZL’s IPO an attractive opportunity for investors.

Pakistan Stock Exchange Hits New Highs with Record Rally

Khashif Sarfraz
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Pakistan Stock Exchange Hits New Highs with Record Rally

The Pakistan Stock Exchange (PSX) continued its record-breaking rally on Monday, with the benchmark KSE-100 Index registering new highs after gaining over 900 points during trading.

Benchmark Index Performance

At 12 PM, the benchmark index was at 90,936.21, reflecting an increase of 942.25 points or 1.05%. Earlier in the day, it reached an intra-day high of 91,054.83.

Sector Highlights

Buying was prominent in index-heavy sectors, including automobile assemblers, cement, commercial banks, oil and gas exploration companies, and oil marketing companies (OMCs). Notable stocks such as National Bank of Pakistan (NBP), MCB Bank, Meezan Bank (MEBL), Oil and Gas Development Company (OGDC), Pakistan Petroleum Limited (PPL), Pakistan State Oil (PSO), and Sui Southern Gas Company (SSGC) traded positively.

Market Sentiment and Expectations

The stock market has been on a record-breaking spree recently, as investors anticipate a significant policy rate cut in the upcoming Monetary Policy Committee (MPC) announcement by the State Bank of Pakistan (SBP), scheduled for next week. Optimism is further buoyed by corporate result announcements and favorable economic developments.

Last week, the PSX performed exceptionally well, hitting historic levels due to aggressive buying mainly from local investors and institutional support. The benchmark KSE-100 index surged by a massive 4,743.88 points on a week-on-week basis, closing at its highest level ever at 89,993.97 points. During this period, the index crossed the psychological 90,000 points mark but failed to sustain it due to profit-taking in some stocks.

International Market Update

On the international front, Mainland China stocks fell in early trade on Monday, while Hong Kong stocks showed little movement as investors awaited potential outcomes of a key legislative meeting in China and the upcoming U.S. presidential election. China’s blue-chip CSI300 Index eased by 0.4%, while the Hong Kong benchmark Hang Seng remained largely flat in early trading.

Pakistan Stock Exchange Breaks 90,000-Point Barrier

Khashif Sarfraz
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Pakistan Stock Exchange Breaks 90,000-Point Barrier

The Pakistan Stock Exchange (PSX) reached a historic milestone on Friday as the KSE-100 index broke past the 90,000-point barrier during intra-day trading.

The index climbed to 90,087.41 points at 10 a.m., gaining 1,109.73 points or 1.25% from the previous close of 88,945.98 points. This upward momentum continued throughout the week, showcasing sustained market optimism.

Factors Driving the Rally

Investor confidence surged, fueled by economic reforms and government initiatives. As a result, trading activity saw 62.3 million shares changing hands, reflecting strong market participation. The total value of shares traded reached Rs5.05 billion.

On Thursday, the market had already crossed another key milestone, nearing 89,000 points, with a gain of 1,750 points. This was largely driven by investor interest in blue-chip stocks and expectations of a policy rate cut in the upcoming monetary policy announcement.

Key Contributors to the Market Surge

Several factors contributed to the bullish trend:

  • Positive corporate earnings reports during the ongoing results season.
  • Negotiations with China over restructuring energy sector debt.
  • Surging global crude oil prices.
  • Anticipation of State Bank policy rate cuts.
  • Government discussions about privatizing state enterprises.

According to Ahsan Mehanti, Managing Director of Arif Habib Corp, the combination of strong blue-chip stocks, speculation during earnings season, and positive economic signals drove the PSX to new heights.

Market Data & Key Players

At the close of trading, the KSE-100 index registered a significant rise of 1,751.45 points, or 2.01%, ending the day at 88,945.99 points.

Top gainers included:

  • Fauji Fertiliser Company (+6.7%)
  • United Bank Limited (+5.33%)
  • Oil and Gas Development Company (+3.65%)

Notable losers:

  • Systems Limited (-1.53%)
  • Interloop Limited (-2.74%)
  • Mari Petroleum (-0.44%)

Trading Volume & Market Sentiment

Friday’s trading volumes surged to 757.6 million shares, up from 699.3 million on the previous day, with a total value of Rs36.05 billion. A total of 454 companies were traded, with 238 gaining, 167 declining, and 49 remaining unchanged.

K-Electric led the volume chart, with 113.2 million shares traded, followed by Pakistan Telecommunication Company and Fauji Cement.

Foreign investors were net sellers, offloading shares worth Rs2.68 billion, according to the NCCPL.

Pakistan Misses IMF Cash Surplus Target by Rs182 Billion

Khashif Sarfraz
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Pakistan Misses IMF Cash Surplus Target by Rs182 Billion

Pakistan Misses IMF Cash Surplus Target by Rs182 Billion Due to Punjab’s Performance

Pakistan has failed to meet a major condition of the International Monetary Fund (IMF) to generate Rs342 billion in cash surplus from the four provincial governments. This shortfall, driven by Punjab’s underperformance, reached Rs182 billion, falling 53% short of the target in the first quarter of the fiscal year.

According to preliminary federal government data, the provinces collectively posted a cash surplus of Rs160 billion, missing the Rs342 billion target. This shortfall underscores the difficulties Pakistan faces in meeting the $7 billion IMF Extended Fund Facility (EFF) conditions. Punjab’s inability to meet its target resulted from the retirement of its commodity-related commercial debt, which reduced its surplus.

Challenges in Meeting IMF Conditions

Despite missing the cash surplus target, provincial governments did meet another important IMF condition—collecting Rs213 billion in taxes, exceeding the Rs184 billion target by Rs29 billion. However, the cash surplus shortfall is the third major IMF condition that Pakistan has missed so far. Previously, the federal government failed to meet the Federal Board of Revenue (FBR) target of Rs2.652 trillion and a Rs10 billion collection from traders, which yielded only Rs1 million.

The IMF set a goal for the provincial governments to generate Rs1.217 trillion in cash surplus for the current fiscal year. For the first quarter, the target was Rs342 billion, but Punjab’s inability to meet this goal caused the significant shortfall. Provincial spending surged, particularly on current expenditures, which increased by 28% year-on-year.

Impact on the $7 Billion IMF Deal

The IMF’s $7 billion EFF aims to improve fiscal discipline, reduce Pakistan’s debt burden, and re-balance relations between the federal and provincial governments. However, the underperformance at the provincial level raises concerns about meeting the overall fiscal targets set by the IMF.

Sources revealed that the provinces spent Rs1.75 trillion in the first quarter, a 33% year-on-year increase. Most of this spending was on current expenditures, while development spending rose by only 4%. The provinces also generated Rs213 billion in independent revenue, up 22% from the previous year, largely through sales tax on services.

Looking Ahead: Fiscal Challenges

Pakistan’s ability to meet the IMF’s conditions depends heavily on both federal and provincial fiscal performance. The National Fiscal Pact, agreed upon by the IMF, the federal, and provincial governments, requires greater collaboration to meet cash surplus targets and enhance revenue collection.

The IMF staff report acknowledged the risks of slippage at the provincial level, noting that provincial governments must play a more active role in fiscal performance through both revenue mobilization and spending restraint. The report also stated that evolving conditionality might be necessary to address these emerging challenges.

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