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CONTENTS

10 Budget season - this week in Pakistan’s business and economics twitterverse 12 Where did all the Burnol go? 14 Budgeting on hope

14 14 The global financing crunch is here. How will it impact Pakistan? Ozair Ali 21 Adding fuel to the fire M A Niazi 23 Corporate lies S M Talib Rizvi

27 27 Provinces to get 17pc additional share from federal divisible pool 29 In confidential meeting, SBP warns banks at the behest of the Ministry of Finance

Profit

Publishing Editor: Babar Nizami l Editor: Khurram Husain lJoint Editor: Yousaf Nizami l Assistant Editor: Abdullah Niazi Reporters: Ariba Shahid l Babar Khan Javed l Taimoor Hassan l Meiryum Ali l Shahab Omer Chief of Staff & Product Manager: Muhammad Faran Bukhari Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Malik Israr (Isl) Layout: Ahmad Salahuddin l Photographers: Zubair Mehfooz & Imran Gillani l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk

Readers Say Good thread, would have been better if the appropriate term "private label" (vs "white label") was used somewhere to create awareness on this particular type of store branding. Apropos: How the branding game has changed in Pakistan @abeeerr, Twitter its very true that Marketing strategies have a greater emphasis on branding and brand equity Apropos: How the branding game has changed in Pakistan Anzalic , Website Rightly so!,they have made a mockery of these testing times and making hay!,demanding more for their money over the discount rate is unacceptable!!all the big banks have a much lower cost of funds thus having big spreads on these rates! Apropos: In confidential meeting, SBP warns banks at the behest of the Ministry of Finance @NaveedSavul, Twitter Twisting the arms of financial institutions can not solve the fundamental issues. Market forces determine the yield & exchange rate. If they’re unreal, correction will take place on its own. Apropos: In confidential meeting, SBP warns banks at the behest of the Ministry of Finance Nadeem Malik, Website 50 percent tax must be imposed on the earnings of commercial banks. They don't share their profit with depositors on one hand, and charge too much interest on loans given to the government on the other hand. Apropos: In confidential meeting, SBP warns banks at the behest of the Ministry of Finance Manzoor Naazer, Facebook @rogueonomist analysis gotta be my favourite gender. Legendary economist Apropos: A cruel summer ahead @SaadAthar16, Twitter

facebook.com/Profitpk twitter.com/Profitpk linkedin.com/showcase/13251020 profit.com.pk profit@pakistantoday.com.pk

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Thank you, Khurram for this indispensably realistic analysis. I wish economic analysts and research institutions become a formidable force in Pakistan. Unless a strong tradition of bipartisan, objective analysis of economic trends, constraints and opportunities develops, Pakistan cannot secure robust economic policy planning and decision-making. Apropos: Budgeting on hope NAJM AKBAR, Website On the 2nd of June this year, Finance Minister Miftah Ismail ordered that the process of importing edible oil from Malaysia and Indonesia be facilitated to ensure smooth supply of the commodity to the consumers and stabilise its price – which had been hiked by more than Rs 200 a day before. Apropos: The edible oil saga

Zee Raja, Website No one included time value of money, as we are investing now, plus Solar panels don’t produce the same amount of electricity every year because of wear and tear. It’s expected life of 25 years but mostly just covers 10 years in warranty and affordability Apropos: Want to go solar? Here’s what you should know @saimpall_, Twitter Recently installed a 10 kW system at my home in karachi and thanks God Made a timely decision… next on the list is solar geyser Apropos:Want to go solar? Here’s what you should know @twrh2, Twitter I have had multiple experience both at a professional level and personal level. I do have an Engineering background as well. So here's my summary. Batteries must not be used with Solar system. Batteries life is more about charging/ discharging cycles rather than years. The battery goes through several cycles each day due to configuration (would not go into details) leading to derating of battery severely and much faster than those used with UPS inverter. As the battery even slightly ages , it wouldn't support loads as AC/ Fridge and the system will frequently trip due to low bus voltage. The best thing that could happen is if you do Net Metering. Moreover cleaning panels is also important. Solar panels works best at lab temperatures of 25' C. Apropos:Want to go solar? Here’s what you should know Mohsin Ehsan, Facebook The state is fast becoming a criminal enterprise where strong arm tactics are extension of policy considerations. Apropos: In confidential meeting, SBP warns banks @javedhasan Banks made record profits while average person dying of hunger. Reality of banking system. It is meant to siphon money from poor to rich. Global banking system is exploitative and anti poor, anti progress, anti democratic. But controlled by powerful interests. There are some alternative like cooperative banking, small local public banks, post office banking system which need to be explored in Pakistan's context.Uncontrolled unregulated banking system is what rich want. It helps them to become richer, make money without lifting a finger, exploit the lesser advantaged. Apropos: In confidential meeting, SBP warns banks @shahnazsk, Twitrer

COMMENTS

IN BRIEF Miftah Ismail presented the budget for upcoming fiscal year Finance Minister Miftah Ismail submitted a Rs9.5 trillion inflationary budget, keeping both the IMF and the voters in mind, despite a tough task to accomplish lofty objectives.

Remittances at record high During the first 11 months of the current fiscal year, Pakistan received a record $28 billion in remittances, up 6.3% from the same period last year.

Petroleum prices are expected to increase further Consumers are going to be taken for a spin in 202223, as the budget proposes hiking the petroleum levy objective from Rs610 billion in 2021-22 to Rs750 billion.

Road infrastructure around Gwadar to evolve When completed, the Eastbay Expressway would connect Gwadar Port to Pakistan’s major roads, allowing for increased mobility between Gwadar and other parts of the country and even neighbouring areas.

Load shedding continues to be a thorn for the Government Although experts applaud the government’s initiatives to save energy, many believe they are insufficient and would merely lower the magnitude of the issue rather than solve it.

Power Sector ahead in the ques for subsidies

Tax on power subsidy to be scrapped

In the federal budget for the fiscal year 2022-23, which begins in July, the government boosted subsidy allocation to Rs699 billion, with a large portion going to the power sector.

The administration has resolved the debate over the tax on subsidies given to power users by eliminating the fee in the forthcoming fiscal year 2022-23 budget.

A scary summer ahead

this week in Pakistan’s business and economics twitterverse

By Asad Ullah Kamran The PTI has upped the ante once again and mounting pressure on the existing government. With huge increases in oil prices the overall economy is slumping as the business community braces for the worse. The evolving situation in the economic and political landscape is scary to say the least.

With the new budget right around the corner, fund allocations to different government intuitions is again up for debate. Regardless of how this happens and what factors are considered, one thing is for certain that if we continue to progress the way we’re doing there will be no change.

The issue of OMC’s importing fuel from China to avoid paying the regulated 10% customs duty was first highlighted by Profit’s very own @ Ariba . This prompted the government to take decisive action ensuring fair trade as well as recover additional revenues north of Rs 25 billion.

SOCIAL MEDIA ROUNDUP

Everyone was surprised! Taxes are primarily used to curb demand by increasing the prices. The PTI government on the one hand in its manifesto wanted more renewables in the overall energy mix while at the same time imposed a 17% GST on solar panels. The “take or pay” conditions of the agreement with IPP’s is another thorn that makes the situation worse.

The economy is struggling, the first ones to feel the pinch is the world of start-ups. Mass layoffs at multiple companies is alarming but not unwarranted. Higher costs with an anticipated lower demand companies are shifting to survival mode, cutting costs and trying to stay afloat.

A staggering economy and an equally struggling political situation are leading us into very unprecedented times. The society is being pulled and stretched at the very seams by extremely antagonistic politics and quite plainly creating a very dangerous rhetoric all around. As for how much power the ISI would have, it is a question only time will tell.

The situation is extremely fragile and Imran Khan seems to be adding fuel to the flames. Personally I think he wants to provoke the government and other quarters of power in Pakistan to react which can potentially be construed into a victory one way or another. Be careful of what you say Mr. Khan, a country of 220 million people is watching you.

With supply side taps being kept on a tight leash, it would be safe to expect higher future oil prices due to shortfalls in production.

As fuel prices increase the country is heading towards troubled waters. Although it was a necessary step, that does not make it any less painful for the masses and business alike. Fuel prices have a direct price impact on almost everything we consume, and therefore an increase in prices will have a domino effect on all the other goods and services. Faisal Aftab

The spats and uncertainty in the political landscape although might not be in the best interest of the nation or the economy, it is however giving the whole nation a chance to introspect. Most of the time political debates more or less spiral into arguments, nonetheless a healthy debate with an open mind can go a long way in educating people. Why not look at it glass half full for a change? The glove just doesn’t fit ?

Politicising critical matters of economy and foreign policy needs to end. Umar Saif rightly points out each successive government a financial mess for the next, this again restarts the cycle of blame games and tragic public statements.

SOCIAL MEDIA ROUNDUP

Burnol go? Where did all the

The household product is missing from pharmacies in Pakistan. But its brand recall still holds By Abdullah Niazi

alk into any pharmacy in Pakistan and ask for Burnol. The pharmacist will definitely recognise the drug but will very quickly tell you that the quick-acting, iconic, yellow antiseptic cream that has been a mainstay in kitchen cabinets and medicine boxes for decades has not been on the market for a couple of years. While Abbott Laboratories, the manufacturers of and owners of the ‘Burnol’ name in Pakistan, have not commented on the famed burn remedy being discontinued, the word from sources in the pharmaceutical industry is that the cream is not being manufactured for the past couple of years after Abbott tried and failed to relaunch the cream in back in 2016. This is in stark contrast to India - where the cream has not just been a mainstay but its ownership has switched hands at heavy prices over the decades and continues to be a sought after product. The name Burnol both in India and Pakistan has become synonymous with any remedy cream that gives quick relief from burns or cuts. It is also a product that has an entrenched stake in the subcontinent’s ‘meme’ culture. Everytime a person feels that someone they disagree with has undergone a setback or humiliation, cheekily suggesting that they

‘apply Burnol’ is a retort that started off as childishly charming and has now been used ad nauseum.

Where did Burnol originate?

ne of the first mentions of ‘Burnol’ as a brand name can be found in the first volume of ‘The British Medical Journal’ from 1934. A small paragraph long section under the heading ‘Acriflavine Cream’ reads “Burnol acriflavine cream (Messrs. Boots) contains about 1 per 1,000 of acriflavine dissolved in a base of which the chief ingredient is liquid paraffin. It is intended as an antiseptic but soothing application suitable as a domestic and first-aid remedy in a wide variety of minor conditions. The valuable antiseptic properties of acriflavine are well known, and hence the cream appears to be very suitable for the uses for which it is recommended. The cream is put up in tubes.” While the formula for the cream has changed, and is now marketed under the slightly different salt name ‘Euflavine’, not much else has changed. The cream is still used as an antiseptic to treat minor cuts and burns that one might expect to get around the house. Acriflavine, the formula on which Burnol is based, has been around for a while. Originally introduced as a reddish-brown antiseptic powder in 1912 by the German medical-re-

search worker Paul Ehrlich, it was used extensively in World War I to kill the parasites that cause sleeping sickness. The topical cream took off quite well after its successful use in the great war. A volume of The British Medical Journal’ from 1917 points towards pharmaceutical companies fast adapting towards using the formula, which is how it was first turned from a powder into a cream. “Boots has several forms of Acriflavine, one of them as an emulsified cream for the first-aid treatment of wounds, abrasions, and burns. Reckitt and Sons Ltd meanwhile presented a new germicide called Dettol,” reads the journal. Boots, of course, would go on to mass produce Acriflavine under the brand name ‘Burnol’ and find great success in India, where a marketing campaign targeting women working in the kitchen sick of minor burns would prove to be wildly successful. It is, however, a curious coincidence that Reckitt and its new product Dettol would be mentioned in the same breath as the Acriflavine that Boots was producing - particularly because eventually in post-partition India Reckitt would end up buying Burnol. And they would not be the only ones.

Enter India

ndia was one of the first markets where Burnol actively found a receptive audience. Most Indian women that worked in kitchens were constantly facing

burns because of the wood-fuelled ovens and stoves they used. Local remedies like applying turmeric were popular options, but did not have the same convenience as a tube sized solution. At the time of partition, much like everything, Burnol was also split between the two countries. In India, it continued to be popular and saw a high-rise in the public imagination during the 1960s after the company was acquired by Dettol manufacturer Reckitt. With stoves still predominantly either wood or kerosene based, the brand managed to connect with the woes of regular, minor, burns that those working in the kitchen faced. In the 1970s, the company launched its popular punchline: “Hath jal gaya? Shukar hai ghar mein Burnol hai.” (Burnt your hand? Thank goodness there is Burnol at home). Because of its name ‘Burnol’ - the immediate association of it being a solution to minor burns was obvious and the campaign worked wonders. Even though the cream is meant to be for more than burns and is a general antiseptic medication, because of its name and its marketing it became the go-to remedy for minor burns despite other antiseptics being as effective in reality. In Pakistan, marketing professionals went in a slightly different direction. Around this time in the late 60s that TV made inroads in the world of advertising in the late, meaning products had to be promoted in a fresh way. The legendary Pakistani marketing expert Khaula Qureshi in an interview with Aurora recalled with some pride an ad for Burnol she worked on that is still a part of common parlance today. “Jalgaya? Burnol Lagaye. Cut gaya? Burnol lagaye. Keere ne kata? Burnol Lagaye. Boots ka Burnol.” While the brand had changed hands from Boots to Reckitt in India by the early 1970s, in Pakistan it was still being provided by the original company Boots. The Burnol brand would eventually be bought by Abbott and launched in a yellow-brown packaging that is still remembered with great fondness by people that grew up from the 1970s and onwards From here on out Burnol seemed to become stagnant in Pakistan. In India, it reached new highs.

The importance of brand recall

ere was one of those rare products whose brand name becomes synonymous with the function of the product. Not only this, for problems like minor burns,

Burnol - production and packaging Burnol Cream is a combination of Aminacrine and Cetrimide. It is an antiseptic used for the treatment of minor burns. Burnol Cream provides immediate relief in burns, prevents infection, and helps in quick healing. It is also used for minor wounds, cuts, scrapes, abrasions, and insect bites. Originally in the form of a reddish powder, the salts are mixed with oil and water and emulsified to form a cream-like consistency. After this, the flexible squeeze tubes for creams and gels are filled using an automated machine which ensures a secure seal. These filling devices typically fill product from the base of the tube, rather than the dispensing end, using a piston which pushes the product up towards the nozzle. The end is then heat sealed, and excess material is trimmed to create an attractive tube design. people rarely go to doctors and a product like Burnol is easy to self-prescribe due to its popularity and age-old brand name - it is also an over the counter medication.In Pakistan, even though Burnol is not available in pharmacies anymore, any antiseptic cream meant to treat cuts and burns is called ‘Burnol.’ In India a similar situation exists. However in India there was a very clear recognition of this brand recall, which has made pharmaceutical companies constantly invest in the product and spend money on acquiring it, and Burnol has remained a flagship over-the-counter-product for a number of large pharmaceutical companies. The brand was acquired by Dr Morepen, an arm of listed pharma-cum-healthcare firm Morepen Laboratories, in 2001 for Rs 8.95 crore. Soon, Dr Morepen earmarked Rs 2.5 crore for promoting the brand. But in 2002, Burnol clocked sales of Rs 4 crore in just three months, which was reportedly 80 per cent of the ointment’s total sales the previous year. Other than this one hitch, Burnol has seen itself be a reliable cash-cow for Dr Morepen, with the company seeing a 35 percent rise in Burnol sales in their last reports from 2019. In fact, the brand recall of Burnol is strong enough that when Swiss firm Corinth announced they would be investing $100 million into Dr Morepen, the headlines read “Swiss firm Corinth to invest $100 mn in Burnol owner Morepen” - clearly indicating that Burnol was more recognisable than the company’s own name. In Pakistan, a failure to capitalise on this brand recall has resulted in Burnol still being a part of the national consciousness, but no longer being a necessary part of the kitchen cabinet. With no marketing effort since those early days after Abbott took over, the cream was slowly taken over by antibiotics and new formula antiseptics. After all, Burnol is a very old formula and better and more versatile products to treat

burns have been produced. In the early 2010s, Burnol was actually discontinued by Abbott. In 2016, it was relaunched in a new 30gram tube with new colours and packaging, but not real marketing efforts were made to promote the product and it once again disappeared from the market in a couple of years and is currently nowhere to be found.

The memefication of Burnol

urnol has always been a cultural product as much as it is a pharmaceutical product, but it really saw a boost in profile in the 2010s with the advent of social media. The household name has been turned into a witty punchline, used both in online cross-border skirmishes and domestic disputes. The trend seems to have begun with the large, unruly presence of India’s ruling BJP on social media, with party stalwarts often responding to clips or statements of Prime Minister Modi with statements like “Burnol needed for Congress.” From here, the Burnol burns (pun intended) grew, with trolls from India commenting on any kind of negative news coming from Pakistan with Burnol related quips. Their Pakistani counterparts were quick to act. A simple search on the website of Dawn for the word ‘Burnol’ will turn up hundreds of results of comments on different stories about CPEC where Pakistanis comment things like “Burnol moment for Indians.” The online battle of Burnol has gotten to a point where every time a Pakistani would use Burnol as a quip, Indians would respond by thanking them for promoting an Indian brand. The Pakistanis would then respond by pointing out that Burnol was actually produced by Abbott Pakistan in the country, leading to senseless if spirited and often profane exchanges over where the cream originates from. n

PHARMACEUTICALS

BUDGET

By Khurram Husain

f ever a budget raised more questions than answers, this is it. Just consider some of the numbers. Revenue collection is to rise by Rs1.175 trillion rupees of which Rs391 billion will come from direct taxes and Rs784 billion from indirect taxes. The total revenue to be collected from new tax measures is Rs355 bn. In direct taxes the bulk of the increase is budgeted from income tax (Rs387 bn), of which the new measures account for Rs316 bn. The revised slabs so far are a net revenue loss for the government, with much of the increase to come from hikes on banks’ net income, and other items like increase in tax on sale of cars of engine capacity above 1600ss. Likewise with indirect taxes. Paradoxically they are counting on a reduction of imports by almost $6 billion, while collections from customs duties are programmed to rise by Rs168 billion, of which new measures account for Rs34 billion. Rising custom duty collections in a time when imports are actually falling can only mean one thing: higher duty rates. But for now all the announcements only tell us where duty reductions have been applied. Nothing about what has been raised. Same story with with Sales Tax, the other big head that comes under indirect taxes. Recoveries here are budgeted to rise by a whopping Rs570 billion, of which Rs90 billion is to come from new measures (this figure includes new measures under the FED). Once again, since most sales taxes are collected at the import stage, it is important to look at how they intend to make this happen while imports are supposed to decline. The only way would be to raise the rates on many products, but the only thing that was announced during the budget speech was those items where these taxes are going to be eliminated (such as solar panels). Next up check out the increase in collection under Petroleum Development Levy. Last year the government announced a target of Rs610 billion under this critical head, which sounded alarmingly high at the time and would have meant a sharp increase in the price of petrol by Rs30 per litre just on account of collections to meet this target. Of course they didn’t manage to collect even half of that amount because oil prices started climbing in July and then Prime Minister Imran Khan ordered a reduction in applicable taxes and levies to keep the retail price constant. Three PDL increases were announced from November to January, bringing it to Rs12 per litre, to satisfy the IMF. Along with this a commitment was given that there will

be a Rs4 per litre increase every month after that to eventually bring the total PDL to Rs30 per litre by June. That was in January, but the very next month Khan backtracked, announced a price reduction, zeroed the collection under PDL and froze retail prices “till the budget”. This year they have announced Rs750 billion to be collected under the PDL, higher even than last year. It is hard to see how this will be possible under present conditions. The only way would be if oil prices in global markets drop sharply from the $120-125 range they are in these days to below $90 in a few months. That way the government could keep retail prices at the pumps steady and collect the difference through the PDL. But this is unlikely to happen. So far all oil market prognoses for the next 12 months are saying prices are expected to continue rising, with some, such as Goldman Sachs, forecasting them to reach $135 and others going so far as to say $150 could also be possible. Hardly anybody in global oil markets is expecting prices to come down in the near future, so it remains to be seen how this government will reach its target of Rs750 billion. Something similar is the case in the Gas Infrastructure Development Cess (GIDC) that is programmed to rise from Rs130 billion to Rs200 billion. Coming at a time when industry (the main party responsible for paying this Cess) is already reeling from gas shortages and proposed price hikes, it is difficult to see how the government will squeeze this additional bit of revenue out of an already overburdened economy. The revenue plan is at the heart of this budget. In a few days further details will emerge about how they intend to meet these ambitious targets at a time when the growth rate is tapering off and imports are being compressed. For now we can see that some innovative thinking is at play. For example, the speculative holding of “non productive assets” like land is being discouraged. Land held for less than one year will be taxed at 15 percent, although its not clear yet how the valuation will be done. After the first year the value of the tax will drop by 2.5 percent every year till it reaches zero in six years. The idea is to reduce speculative buying and selling of land. This is not the first time the government has tried this, and the last time it was tried it didn’t work mainly because the FBR was not particularly eager to do all the work that it takes to operate such a tax scheme. Let’s see how much luck they have this time round. Moreover, people who are sitting on multiple properties will now have to pay a tax on all those they are not using for their own residence. Any property worth above

Rs2.5 crores will be liable to a tax at 1 percent of fair market value (not clear how this will be assessed) or 20 percent of “deemed rental income” which will be assessed as a percentage of the property value. The idea here is to generate revenue from people who are sitting on large holdings of land, whether productive or not, in an effort to squeeze revenue out of the rich. Whether this works is also question mark. Those with declared earnings above Rs300 million per year will pay a “poverty alleviation tax” of 2 percent, a throwback to the “supertax” that was imposed on large enterprises in the wake of the floods in 2010. One strong signal sent by the budget is the increase by 15 percent of government salaries because private sector employers will now be under pressure to follow suit. How they will manage this in an environment of rising costs and taxes will be their headache. A number of items have been added to the Sixth Schedule of the Sales Tax Act 1990, making them exempt. They include newsprint (although these were already exempt for newspapers, all this means is now everybody can import newsprint without paying GST and sell it in the market), books, solar panels, tractors, seeds, gold and silver, and raw materials for export purposes. Some of this will come as good news to the users of these goods. In the case of solar panels, the distributors are now in a small fix since some of them already hold inventory on which these taxes have been paid and they will have a hard time selling them from here on because buyers will demand the exemption right away. But that’s their headache. The elimination will help reduce prices of solar panels at a time when their sales are picking up and will help spur their adoption further. It is important to normalize solar panels like other household appliances. People need to start seeing rooftop solar like they do any other essential household appliance like TVs and fridges. On the whole the budget seems to be riven with its challenges. There is a visible effort to push the burden of the tax effort onto the rich, but the steps don’t seem to go far enough. The government is hoping that the steps they have announced this time will work where they didn’t last time, and that oil prices will come down in the near future. Both of these are a very large hope, and a very large risk facing their budget. The next step will be to convince the IMF that the projections around which this budget is built are realistic. After that, the real challenge will be to proceed with what the budget envisages, without burdening the poor any further, and without falling afoul of the commitments given to the Fund. The whole enterprise rests on a hope and half. n

BUDGET

OPINION

Ozair Ali

The global financing crunch is here. How will it impact Pakistan?

hat do turbulence in the global economy and the plunge in tech valuations imply for Pakistan’s emerging startup ecosystem? Let us evaluate. In short, these are some of the outcomes you can expect: 1. Most companies recently raised funds, right before the downturn, and will be able to ride this out 2. Layoffs in the tech ecosystem will increase to conserve cash 3. Adoption could actually increase for some efficiency-enhancing products 4. Startups will consolidate into more sustainable businesses. Let’s establish the base set of facts that will work with. Two data points capture these facts. Firstly, Pakistan foreign exchange reserves fell to roughly USD 10 billion last month, down 50 percent from August 2021. Secondly, Tiger Global has allegedly seen losses of roughly 17 billion in its portfolio this year, according to estimates by the FT. The first statistic illustrates the impact of rising commodity prices and irresponsible fiscal management on foreign exchange reserves, the inevitable pressure on the PKR exchange rate, and the painful adjustment in interest rates and fiscal management that’s al-

The writer is Former: Emerging markets VC with Alter Global. Now: Entrepreneur PS: I also write short speculative fiction

ready underway. The second statistic speaks to the fall in public market valuations for tech stocks and the ensuing cascade on losses for growth-stage investors. The comparison between the two puts Pakistan’s economy into perspective. This has many implications and second-order effects for the Pakistani startup ecosystem, but here I’m going to focus on two immediate ones that I believe are most relevant: (i) funding for early-stage startups is expected to get scarcer, and (ii) local consumer and business demand is expected to slow as the macroeconomic adjustments take their toll on the economy.

Most startups should be able to ride this out

hat happens when the prospect of future financing looks less certain? Most startups calculate how much time they have left until they go bankrupt, assuming they stay the course, and then try to extend that time. Here, I would argue that most Pakistani startups should be in a relatively strong position: according to data from i2i, startups raised 350M in 2021, which is roughly 62 percent of the total amount raised by Pakistani startups over the last five years (2016-21). Roughly 240M of this was in the second half of the year. In addition, startups have raised a total of 207M in 2022 thus far. Given that most companies raise for a runway of 18 months, these companies should have enough cash on hand to make it through until mid-2023 at the very least. The impact will obviously depend on the startup’s business model. What kinds of businesses suffer most with rising fuel prices, contracting consumer demand, and an adverse funding environment? Anything related to delivery, especially those that ran deep discounts to drive adoption. But the fact that the majority of the funding for Pakistani startups is so recent means that most startups have a good chance of riding out this downturn, by resorting to greater financial discipline.

Layoffs are inevitable and should not be an indicator of business health

art of that financial discipline will involve layoffs. As startups shelve expansion initiatives and curtail marketing spend, layoffs are inevitable. Those layoffs or hiring freezes are not indicators that a startup is performing poorlyc. In fact, one could question the management skills of founders running businesses that have not broken even, and do not downsize in such a macroeconomic environment. That’s not to say that layoffs aren’t painful –

they’re often the worst decision a manager has to take. However, even with layoffs, some startups will fail. In fact, most startups will fail. Two-thirds never show a positive return. The giddiness of the last two years in the Pakistani ecosystem has disguised the likelihood of failure for early-stage ventures. I would be surprised if the majority of startups did not fail – recession or not. And as any venture investor will tell you, the failures often happen before the breakout successes. Expect a few startups to go under.

Economic slowdown will drive digital adoption for efficiencies, but customer wallets are small

Having said that, the slowdown in growth of consumer and business incomes could accelerate adoption for digital products. The promise of digitization is in the reduction of transaction costs and greater utilization of fixed assets. For small business owners, for instance, it may now make sense to invest in a solution that promises better inventory management, faster sales cycles

In fact, one could question the management skills of founders running businesses that have not broken even, and do not downsize in such a macroeconomic environment. That’s not to say that layoffs aren’t painful – they’re often the worst decision a manager has to take. or reliable delivery to maximize efficiency. But the challenge for startups will be to deliver those products affordably since the size of consumer and business wallets will not increase quickly. The business case for investing in “edges” – enhancing efficiencies and savings – is stronger in a slowdown, but the trade-off instead is in how much revenue a startup can generate from customers with limited spending power.

Startups will focus and consolidate

he relative scarcity of easy capital should force startups to focus on their core business case. It’s also easier to partner with or acquire others, rather than compete with them when capital is scarce, especially since most startups need a certain

level of scale for their unit economics to work. Therefore, I expect mergers, acquisitions and acqui-hires to accelerate in the next twelve months. In short, I believe the Pakistani startup ecosystem is well-positioned to weather the next twelve months. Layoffs, bankruptcies and consolidation are inevitable, but startups that emerge on the other side of this episode will be on firmer footing and more resilient. As a footnote, I also hope this puts valuations in context. For most early-stage investing, valuations are a second-order number: they’re a function of the money raised, and shares issued. Economic downturns demonstrate that cash on hand, ownership and control matter significantly more. Despite newspaper and press release headlines, I hope the only time a valuation gets serious attention is when a Pakistani startup goes public as a unicorn. n

COMMENT

OPINION

M A Niazi

taxes, which is the government skim-off, up or down, but actually paying the Oil Marketing Companies the difference between the cost and the price at the pump. This was hard cash, which was unfunded, in the sense that the government didn’t know where the money was going to come from. Sooner or later, the government wouldn’t have the money, in which case, it would have a choice between welshing on its debts to the OMCs, or Making hay near petrol fumes is dangerous printing more money and paying them. There are already signs that it has tried welshing, which he shocking thing about the two-step Rs 60 hike in is why power generation plants are shutting down for want of the per litre petrol price is that it still left the governfuel. This is separate from the circular-debt problem bedevilling ment paying a subsidy of Rs 9 per litre. That means the sector. And while the State Bank may well be printing more that the petrol subsidy introduced by ousted PM Immoney, it has not yet done so because of the subsidy. The fall of ran Khan at its peak was costing the exchequer over the rupee does indicate, however, that there are more rupees in Rs 69 per litre. Finance Minister Miftah Ismail also the market than before. said meaningfully that the government was not raising any revenue In this era of fiat currencies, one of the first signs of there from petrol. being a printing of money by the central bank is its fall in value This was a clear signal that the Budget would clear the petrol compared to other currencies. However, if the subsidy had consituation, as the rest of the subsidy was eliminated, and taxes were tinued, the government would have run out of money. The State reimposed. Petrol will go up. At the same time, the main driver of Bank has already been granted, under IMF pressure, autonomy, international oil prices, which has caused the current crisis, the and even under a PTI government ready to cock a snook at the Russo-Ukrainian conflict, is showing no signs of a resolution, which IMF, the State Bank’s refusal to print more notes could have means that there is no decline in oil prices around the corner, at least caused tremors. not so that there can be any planning based on it. Another painful reality is that oil is imported. Therefore, The PTI has got two issues in the fire. The first is whether it a decline in the rupee, even if oil prices remain the same, means would have stuck with the subsidy had it remained in office. The that prices will go up in rupee terms, adding to the burden on the consequences of sticking with the subsidy are extremely serious, and budget, leading it to print yet more rupees, and push down its its has not been removed merely because of IMF orneriness. The IMF value further. may have pushed the government, but the subsidy had to go sooner In a best-case scenario, the government would be unable to or later. pay salaries. In a worst-case scenario, there would be hyperThe reason for this is that it was not simply a matter of taking inflation. Not only does hyperinflation have harsh economic consequences, but it is also grossly destabilizing socially and politically. If the government ran out of money, and stopped paying salaries, the subsidy would stop being paid as well, so government employees would find The writer is a veteran themselves hit by a double whammy. Not only would they find they suddenly have to pay the full journalist and joint editor price of petrol, but their salaries would be worth almost nothing. Petrol would not be the only at Pakistan Today problem. Food would be too. The PTI is trying to guild the lily by saying that Imran would ave got cut-rate petrol from Russia. Somehow or the other, there has been a translation of the Pakistani courtship of the USSR into the belief that he was going to get the same for Pakistan as India has got. While Pak-Russia relations are stop-start, with long periods when Pakistan opposed it, Indo-Russia relations were warm during the Cold War. Just because India has access to discounted Russian oil, does not mean Pakistan would get the same access. There is no record available with the government of any discussion on discounted oil be-

Adding fuel to the fire

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tween Imran and Russian President Vladimir Putin. The meeting of the Pakistani ambassador in Moscow with Russian officials has been as fruitless as the letter from the Pakistan government to its Russian counterpart. It seems that the Russian desperation to earn foreign exchange has not grown so great that it will sell discounted petrol. Also, Pakistani demand is not so high (as is India’s) as to make the running for the market. The fuel subsidy removal is in the hope that this will enable the government to keep borrowing from the IMF. Though the IMF loan is substantial, its importance is so that it will open further routes for borrowing, including from traditional sources of funding. Whereas Pakistan used to ask them to help it against the IMF, now they have combined with the IMF to put pressure on Pakistan. The petrol price hike has an underpinning that cannot be easily avoided: Pakistan wants to remain part of the international economic system. The price of keeping the petrol price low would be to exit that system. Not only does the present government clearly have no such intention, but the PTI has made

no proposals or expressions of intention which would imply that it wants to do anything different. Its record in government does not show that it has any radical ideas it would like to implement. Indeed, there have been none of the debates on this issue that would indicate that it was ruminating any change. .It seems that even if the PTI is brought back, or if the military takes power a fifth time, the price of petrol will go up. Is there any way out of this? The sort of posturing that is going on will not help. The only solutions possible are if there are genuine out-of-the-box solutions. Those are not available with mainstream electoral parties, mainly because they subscribe to the kind of economic system which prevails. It is indicative that the All-India Muslim League had a Fabian-socialist economic programme similar to that of the Congtress in its 1946 manifesto The League was not as concerned with economic issues as Congtress, which led by Pandit Jawaharlal Nehru, who was a convinced Fabian, and an admirer of the post-1945 welfare state the Labour Party called into being.

The PPP still includes ‘socialism hamari mueeshat’ (‘Socialism is our economics’) in its slogans, but it has not really practised it since the 1970s. The PTI has never had anything socialistic in its manifestoes except perhaps the riasat-i-Madina trope Imran as used at times. It seems as if all he meant was the establishment of a UK-style welfare state, not the economic revolution that was brought about. That meant he was unable to access the sayings of the Holy Prophet (PBUH) about land reforms (We must remember that Madina was that rarity among the Arabs, an agricultural society) or the commonalty of fire, pasture and water. At a certain level, it is possible to see that a society based on these three being public property would lead to a very different society (and economy) from the present one, and not have been merely a version of capitalism merely with Islamic labels, as the PTI tried to have. How far such a society would fit into the present system is a separate discussion, but it is safe to predict that it would be much more disruptive than anything Imran might have tried in the past, or would try in the future. n

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OPINION

S.M. Talib Rizvi

Corporate lies

by some key factors. Individuals, at all levels of the hierarchy, do not want to expose their inadequacies and want to give the impression that they are competent. Individuals want to ensure that they maintain a positive image in the minds of their co-workers “A lie can run round the world before the truth has got its boots on.” and this often results in them hiding their errors through dubious - Terry Pratchett means. Moreover, competition between employees may result in situations where individuals place greater emphasis on their own rganizations have to constantly deal with a myrcareer progress at the expense of the organization. This leads to iad of problems and challenges that inhibit their individuals often engaging in subtle lies to either undercut their potential to grow. Issues such as lack of vision, fellow employees or misrepresent the true scale of their contriflawed business strategy and poor customer serbutions. Additionally, certain employees are afraid of triggering vice have led to the fall of several organizations conflicts and upsetting others. Their emotional attachment to a throughout history. particular project may lead them to lie to others in order to avoid Whilst it is true that organizations may suffer from differcausing them disappointment if the project is not going well. ent problems due to their unique set of circumstances, there are Despite these factors having a strong influence on individuals to certain issues that are almost universal across various corporaengage in corporate lies, organizations are wary of the destructive tions in different industries. It is rare to find any organization impact that it may have on the organization at multiple levels and that does not suffer from ‘corporate lies’. want to take substantial measures to effectively handle this issue. Corporate lies have a dark history of causing chaos in Organizations can explore several avenues to tackle corpoorganizations and serving as the root cause of organizational rate lies. One of the most important elements is the development decline. A quite recent example of a major corporation engaging of a culture of honesty, fairness from the top management that in this practice is that of Volkswagen. It was found that they will trickle down the organization. This is crucial to provide had implemented softwares to misrepresent the contaminating employees with the confidence that being honest will serve as a impact of their engines on the environment in their supposedly key basis for their success in an organization. The emphasis on environment-friendly cars. fairness will ensure that people are rewarded for their work on This led to Volkswagen encountering a significant backlash merit and this would help in creating a positive organizational that forced their CEO to resign and suffering from legal actions culture based on honesty as employees will be incentivized to not that amounted to penalties of $9.5 million. As this example only to work hard to show their value to the organization, but shows, corporate lies have the power to damage the credibility of also to stay away from practices such as corporate lies that may organizations significantly by creating a negative perception in lead to them being viewed negatively. how various stakeholders look at the entity. Another avenue is the presence of strong internal processes Despite this reality, corporate lies occur in organizations on and procedures that tackle such lies firmly. This can be done in a daily basis. The prominence for this practice can be explained different ways such as having a strong policy against corporate lies in the company manual. This can help organizations to create examples out of employees that engage in lies by holding them accountable and ensuring that there is a greater level of transparency within the organization. Employees are also likely to engage in lies, in particular, when The writer is a senior they have to achieve unrealistic goals and deal with extremely tight deadlines. Therefore, it is important that organizations focus on the well-being of employees by managing their professional banker with workload in a better fashion through setting realistic targets that would help to maintain varied experience spanning a healthier workforce that is less likely to engage in unethical behavior. over 25 years Furthemore, organizations can employ various policies to deal with corporate lies. These can vary from providing regular training to employees on corporate ethics to the presence of a compliance culture where employees are regularly informed about the boundaries between right and wrong. Another common tactic is the presence of a well

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managed whistle-blowing policy which would enable the organization to better identify corporate lies and deal with them in a more private manner. These are just some examples of ways organizations can employ to reduce the negative impact of corporate lies and provide a healthy working environment to its employees. Having a strong course of action against corporate lies is a key determinant of an organization’s success and whilst it is nearly impossible to completely remove them, organizations throughout the world have generally improved in this domain. This has helped not just well-renowned companies, but also startups and small companies to become more successful across different regions of the world. However, despite these improvements globally, organizations in Pakistan still suffer significantly from this issue. Organizations in Pakistan have found it difficult to take serious action against the presence of corporate lies in light of certain factors. Usually, employees tend to develop biases towards certain groups of people that they do not like and this often leads to the creation of factions within organizations that are competing against one another for their own interests. This dynamic fosters the growth of corporate lies as groups try to misrepresent each other for their goals and this often results in a difficult working environment. Moreover, the ‘boss’ culture is very much

prevalent in Pakistan, which allows a few individuals that wield significant power to use corporate lies for their own benefit, knowing that they will not be opposed. A typical example of this is how ‘bosses’ castigate those employees that have differing opinions from them and are often not allowed to reach their potential as their reputations take a significant hit from lies which are spread by ‘bosses’ that cannot be easily challenged. One of the most common breeding grounds for corporate lies is when employees decide to leave organizations. Whether it is supervisors, managers or fellow team members, people tend to cast a negative light on those that decide to leave the organization. This often leads to departing employees being labeled negatively through baseless claims that only leads to an uncomfortable environment for the particular employee. Such baseless claims and lies are often employed to maintain a positive image of the company in front of the workforce and change their perception of the departing employee. Corporate lies lead to significant repercussions for organizations in Pakistan. Undoubtedly, organizations suffer from a poor culture where there is less trust and absence of strong working relationships between employees which often inhibit the potential of what a corporation can do. Moreover, as employees are often dragged down by ‘bosses’ through this tactic, organizations are unable to develop leaders within the organization,

which makes it difficult for inhouse succession and leads to a greater reliance on a policy of acquisition of external talent. This can be deflating for the existing workforce who may choose to leave and also makes the organization a less attractive option for new talent that fear that their growth would be stunted. Moreover, ‘bosses’, who use such unethical tactics to manipulate various stakeholders towards their line of thinking, lead to the loss of human capital and poor decisions that damage the long-term prospects of the organization. Throughout my 25-year banking career, I have been fortunate enough to see how dealing effectively with corporate lies impacts organizations. In Bank Alfalah, where I have worked in several senior positions over the course of 16 years, there was a strong culture created by the management that focused on taking strict action against corporate lies and investing in the development of young talent that would eventually become leaders at Alfalah. This development of talent and Alfalah’s rise were undoubtedly linked to how a culture of honesty and accountability was fostered and maintained over the years. It is imperative that Pakistani organizations also focus on developing similar capabilities to deal with corporate lies and the following quote from the great Michael Jackson sums up why organizations need to take this matter seriously: “Lies run sprints, but the truth runs marathons.” n

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EasyPaisa shutters card payments on online gateway

Growing competition, rupee devaluation and dirty tactics make card payments on online gateways a tough business By Taimoor Hassan

elenor Bank-backed EasyPaisa has decided to shutter card payments on its online payment gateway which it offers through various banks. As the competition grows stronger and the rupee devalues against the dollar, keeping the card payments going was an expensive proposition and felt to be unsustainable by Easypaisa. In an email sent to its partners today, EasyPaisa said that it was shutting down the payment gateway because of a ‘critical change’ in their business process. “As part of the company strategy, we will be discontinuing card payments on the Easypaisa payment gateway from 30th June 2022 onwards,” the company said. An official from EasyPaisa confirmed the news of the shutdown of its gateway and said that the company was going to focus on its core business of mobile wallets which had now touched 10 million accounts. Omar Moeen Malik, Head of EasyPaisa Branchless Banking Business, said that their card transactions on the payment gateway were significantly less than wallet transactions. The company has seen a decline in merchants using EasyPaisa payment gateway, which have moved on to other inexpensive card processing options. Merchants such as online sellers on Instagram or Facebook use payment gateways like EasyPaisa to accept card payments against an order. EasyPaisa offers payment gateway through different banks and therefore charges a higher rate than gateways from acquirers such as HBL or UBL, making EasyPaisa gateway expensive for merchants. On the other hand, devaluation of the rupee against the dollar means payments to Visa and Mastercard on card payments have also become expensive, making it a costly affair for EasyPaisa to keep its online card processing service running through the gateway. “When the gateway was introduced, we made the card options available then have a consolidated gateway with payment options. It

was never a focus. The space now has evolved to the point that there are new payment processors in the market such as NIFT and PayFast. There are multiple players so for a merchant now, getting a Visa and Mastercard processing is not difficult,” Omar told Profit. “The rates offered are also better than EasyPaisa because EasyPaisa gets the gateway from acquiring banks and then offers it to the merchants. Therefore, it was a strategic decision to discontinue card service,” he adds. Bankers and online payment gateway operators also say that operating an online gateway in Pakistan is difficult because of issues such as payment recoveries for instance in case of a chargeback, and lack of user trust. “On the merchant side, you have to take a lot of pain because the merchant is not technologically ready,” another expert in digital payments said. They also say that the industry is dominated by large acquiring banks such as HBL and UBL, who resort to undercutting of prices to acquire a merchant. “There is also no concept of escrow services in Pakistan. So if EasyPaisa wants to go to escrow, a large bank would offer the gateway without escrow, leaning the merchant towards that bank,” he adds. Escrow services are offered by third party intermediaries that hold money for the transacting parties, and disburse them if the condi-

tions between the transacting parties are met. For instance, an escrow service will disburse payment to an online seller on Instagram when the buyer receives the product and is satisfied with the condition of the product. “A small player, in this case, can only lose money, making it a difficult business that hits the bottom line,” he says. EasyPaisa has been a small player in online payments and the space has been dominated by HBL, UBL, Bank Alfalah and MCB, with multiple new PSO/PSPs making entry into the foray. On the other hand, EasyPaisa’s bank, Telenor Bank, has been struggling to keep a healthy bottom line. According to the financial statements, Telenor Bank posted a net loss of Rs2.5 billion in 2018, Rs16.2 billion in 2019 and Rs10.7 billion in 2020. In 2021 as well, Telenor Bank was unable to curb its losses reeling from the effects of the Covid-19 pandemic and posted a net loss of Rs10.7 billion. The new fintech players are technologically ahead of traditional banks and can onboard merchants and equip them with an online payment gateway in a matter of days. On the other hand, banks can take weeks or months to provide a payment gateway because of their old tech, depending on the requirements and readiness of the merchants. n

Provinces to get 17pc additional share from federal divisible pool By Ghulam Abbas

hile center has been crying for short of revenue to meet rising expenses after the 18th amendment in constitution, the provinces are set to re-

ceive 17 per cent more share from the federal divisible pool in the next financial year as the government has estimated to transfer Rs4.099 trillion to the four federating units as compared to Rs3.511tr last year. As per the budget documents, Punjab will get over 50 per cent of the share from the federal divisible pool leaving behind the same amount to be distributed among the

Govt proposes massive increase in levy on import of mobile phones

By Ahmed Ahmadani

he government has proposed heavy increase in a new levy upto Rs16,000 on the import of mobile phones through the Finance Bill, 2022. According to the Finance Bill, there shall be a mobile handset levy at the rates specified on smartphones of different price categories. And, the government has estimated a revenue of Rs10 billion from the levy on the import of mobile handsets. As per the proposal, there will be a levy of Rs100 per set on a mobile phone with cost and freight (C&F) value of up to $30. The rate of levy per set on mobile phones having a C&F value between $30 and $100 will be 200. The rate of levy per set on mobile phones having a C&F value between $101 and $200 will be Rs600. Similarly, the rate of levy per set on mobile phones having a C&F value between $201 and $350 will be Rs1800. The rate of levy per set on mobile phones having a C&F value between $351 and $500 will be Rs4000. The rate of levy per set on mobile phones having a C&F value between $501 and $700 will be Rs8000. The rate of levy per set on mobile phones having a C&F value of above $701 will be Rs16000.

three remaining provinces, shows a document of the federal budget for the financial year 2022-23. According to the budget document, out of the total Rs4.099 trillion estimated federal divisible pool for the next fiscal year starting from July 1, Punjab will get Rs2.029tr, followed by Sindh which will receive Rs1.029tr. The two other smaller provinces Khyber Pakhtunkhwa (KP) and Balochistan will get Rs670.46 billion and Rs370.23 billion, respectively. In the outgoing financial year, the provinces have received Rs3.511tr from the federal divisible pool whereas the Pakistan Tehreek-i-Insaf (PTI) government while presenting the federal budget had estimated the provincial share as Rs3.411tr. In the outgoing financial year, Punjab had got a lion share from the federal divisible pool amounting to Rs1.74tr. Sindh’s share from the divisible pool was Rs873 billion, followed by Rs575bn for Khyber Pakhtunkhwa and Rs322bn for Balochistan. The procedure for distribution of resources among the provinces has been spelt out in Article 160 of the Constitution, which provides for setting up of the National Finance Commission (NFC) with intervals not exceeding five years. The mandate of the NFC is to make recommendations to the president for distribution of resources between the federal and provincial governments.

Govt allocates Rs183.215bn funds for 87 water projects By Ahmed Ahmadani

uring his budget speech, Miftah Ismail said that bringing improvement in electricity generation, transmission and distribution was the government’s top priority, announcing that the government had earmarked funds amounting to Rs183.215 billion for 87 ongoing and new schemes of the Water Resources Division. According to federal government’s budget documents for Financial Year (FY) 2022-23, an amount of Rs180,015.465 million has been allocated for 74 ongoing schemes, and Rs3,200 million for 13 new projects. The ongoing schemes include 13 hydel and 61 water sector projects, whereas there are only 13 new projects. As per details, the allocation of ongoing hydel projects includes Rs55,383 million for Dasu Hydropower Project (2,160 MW), Rs12,083 Neelum Jhelum Hydropower Project (696 MW), and Rs12,000 million for Tarbela 5th Extension HydroPower Project (1,410 MW). Similarly, for the ongoing water sector projects, Rs20,000 million each has been allocated for Diamer Basha Dam Project and K-4 Greater Water Supply Scheme (260 MGD), Rs12,060 million for Mohmand Multipurpose Dam Project, Rs7,000 million for Diamer Basha Dam Project (Land Acquisition and Resettlement), and Rs5,000 each for Nai Gaj Dam Project Dadu (Sindh) and Kachhi Canal Project (Phase-I) Dera Bugti, Naseerabad, Bolan and Jhal Magsi. It is also learnt from the budget documents that the major allocation for new schemes includes Rs500 million for Chashma Right Bank Canal Left Cum Gravity Project and Rs300 million each for construction of five Small Dams Salari-2 Dam, Rai Jo Da Dam, Shalmani Dam, Garwari Dam and Amari Dam in Kohistan Dadu, for construction of six dams including Densi, Kcodal, Kambowah, Khiropora and others; for construction of six smalls dams in District Zhob and Sherani, and others projects. According to budget documents of FY 2022-23, the government has earmarked Rs73 billion for the power sector keeping in view the importance of energy for development of the country. Miftah Ismail also said in his speech

that out of total allocation, a sum of Rs12 billion would be spent for early completion of Mohmand dam. The project would benefit both the agriculture sector and the farmers. The minister said that Pakistan was facing acute energy shortage. Thermal energy has become expensive due to skyrocketing prices of imported fuel. Promotion of renewable energy was a possible way forward to cope with such a situation, he added. He said it was proposed to exempt sales tax on import of solar panels and local supply. Moreover, through banks, easy loans would be provided to consumers using less than 200 units for purchasing solar panels, he said. Miftah said it would not only promote environment friendly energy in the country but also help reduce import of expensive oil and gas. the property and 2% by the ‘Non-Filers’ it is suggested that for ‘Filer’ it should be reduced to .25% (point Two Five Percent) and for non-filer, it should remain 2% (Two Percent). Capital Gain Tax- For Immovable Property The maximum period for determining gain tax may be fixed at 3 years instead of 4 years, with a 5% (Five Percent) flat rate. Reduction in the maximum period for determining Gain tax to 3 years with 5% (Five Percent) will enhance the Sale/Purchase

activity and boost the economy. Real Estate Regulatory Authority RERA The government has passed Real Estate Regulatory Authority (RERA) bill 2020 from National Assembly and Senate for Capital Territory (ICT) only, but still not implemented. If it is implemented then at least 70 to 80% of issues in the Real Estate Sector will be settled. There is a dire need for the formulation of RIM and its proper implementation just on the lines of other developed countries. Such a step by the government will facilitate removing different hurdles in the Real Estate Sector. Special Relief Package For Real Estate Sector It is suggested that strong measures/announcements from the Prime Minister should be made to further boost the prevailing Real Estate Sector. In this regard, Membership fee, Transfer fee, and Possession/Site Plan charges must be reduced at least 50%. The government should legalise the Two Percent (2%) service charges (Commission) on the Sale/purchase transactions from each side and One (1) Month Rent on Lease/Rental deals from each side by ordering all registration/Mutation/Transferring Authorities and Societies. It is strongly emphasised that keeping these considerations while finalising the Federal Budget 2022-23 for the Real Estate Sector. n

Govt may collect Rs50bn from 3G/4G License Renewal

By Ahmed Ahmedani

he government has budgeted Rs50 billion for 3G/4G license renewal under the head of non-tax revenue for the next fiscal year 2022-23. According to the budget documents 2022-23, under the head of income from property and enterprise (Pakistan Telecommunication Authority (Surplus), the government has projected to generate Rs9 billion in the upcoming fiscal year against the budgeted Rs4 billion for the outgoing fiscal year which was later revised to Rs3 billion for 2021-22. The Pakistan Telecommunication Authority (PTA) is mandated to regulate the establishment, operation and maintenance of telecommunication systems and provision of telecommunication services in Pakistan, to dispose of applications for the use of radio-frequency spectrum, and to promote and protect the interests of users of telecommunication services in Pakistan along with ensuring the availability of a wide range of high quality, efficient, cost-effective and competitive telecommunication services throughout the country. It is also tasked with promoting the rapid modernization of telecommunication systems and telecommunication services, to investigate and adjudicate on complaints and other claims made against licensees arising out of alleged contraventions of the provisions of the Act, the rules made and licenses issued thereunder and take action accordingly. It is pertinent to mention that PTA receives fees for the issuance and renewal of various telecom licenses. It also imposed fines, and penalties for violations. n

In confidential meeting, SBP warns banks at the behest of the Ministry of Finance By Ariba Shahid

meeting was called on Tuesday at the State Bank of Pakistan (SBP), where the top 8-10 banks were warned by the central bank on the request of the Ministry of Finance. According to a source present in the meeting, bank treasuries were called to the SBP after the finance ministry expressed displeasure with the borrowing rates and the current exchange rate. The meeting discussed bank participation in the Treasury Bills (t-bills) and Pakistan Investment Bonds (PIBs) auctions, and participation in money markets, after which the SBP told the banks to start bidding lower in the auctions and talked about the threat of the government imposing a super tax on fixed income earnings in the case banks did not bring down yields. Banks were also cautioned on their Foreign Exchange (FX) activities. As per sources present, the SBP told banks to bring the exchange rate down in the interbank even if it means to incur losses. The Central Bank told treasurers that it was an issue of national importance and that incurring losses were part of having the privilege of running banking businesses. The source explains that the SBP is asking banks to sell dollars to customers without being allowed to buy them back from the inter-bank market. This exposes banks to changes in the FX rate, which could also mean potential loss of money for banks. Moreover, the bank treasurers present in the meeting were warned that if the banks did not comply, bank Presidents would be called in for a one-on-one meeting for a “dressing down” by the SBP. Profit reached out to the SBP for a comment but could not get one till the filing of this story. Can the SBP do this, and what does it have to gain? The SBP acting on the behest of the government does draw questions onto the autonomy of the central bank that is to act without government or political pressure. Intervening in the market because the Ministry of Finance is not pleased by the money and securities market is not under the

SBPs mandate, especially when it is encouraging the banks it regulates to incur losses. It is important to note that banks are private companies owned and answerable to shareholders who do not expect the bank to purposely engage in loss making activities. However, as per sources in the treasury departments at banks, they have agreed that banks incur FX losses from time to time when the SBP asks them to. Therefore, the SBP asking them to do so again, may bear results. Another source adds, “The business is run over the year so you get opportunities to make back the money. In the short term, going short (trading and not getting the chance to buyback in the interbank market) USD is negative trade but it can be recouped over the year.” It is also important to note that the SBP and government are blaming the banks for the depreciating rupee, despite the strict controls on FX. “The SBP is basically rationing dollars. Banks send a list of payments to the central bank. They then pick out approximately 10% payments to take place. The rest get carried forward. They’re in control and rationing. How can they claim the market is responsible?” explains the source. However, in the case of t-bill and PIB auctions, there is some ambiguity whether the SBP will be able to bring down yields. As the SBP cannot directly lend to the government, the government relies on borrowing from banks in auctions. The SBP, however, can indirectly lend to the government through OMOs (Open Market Operations). Back in December 2021 when banks were asking for higher yields while lending to the government, in anticipation of a monetary policy rate hike; the SBP injected liquidity through a 63 day OMO injection to calm down markets and to signal that the policy rate would remain unchanged for the next 63 days at the very least. “This [asking banks to bring down

yields] is not how the markets work. Unless the SBP and Ministry of Finance can back it with action, the markets will not respond, like it didn’t respond earlier,” explained a source. It is pertinent to point out that the market has already informed the central bank about restrictions in participating in t bill auctions. Banks claim to no longer have any more room on their balance sheet for t bills funded by OMO borrowing. “With OMOs at around Rs 4 trillion, that’s as much borrowing-funded market risk that banks can take.” In case of the imposition of a super tax, banks are likely to bid after adjusting for the tax. “Banks look at the tax effective yields. If taxes go up, banks will account for it,” explains a source. However, another source explains that it is not quite as simple and that not listening to the SBP and the government is a tough call for banks. “They can find all sorts of ways to hit banks with fines. This is a form of bullying,” says a source. Another source claims that the banks are likely to be compliant, especially banks that are hopeful for a digital banking license. “They hold leverage over us, banks are desperate for the license, the government and the SBP are desperate for control.” The previous government threatened banks to bring down yields. The SBP however, had to step in by conducting OMOs to calm the markets. This did not bring out desirable results. A comment was sought from the SBP Spokesperson but a response was not \received until the filing of this report. n

Civilians to eat up more than half of proposed Rs9.5 trillion budget for 2022-23

The federal cabinet has approved an expansionary fiscal policy that offers little for defence but gives away more than half of the estimated budget of Rs9.502 trillion — only slightly higher than last year’s Rs8.487 trillion – for the new fiscal year to meet the supposed growing civilian needs. The cabinet approved only Rs1.523 trillion for the regular defence budget sum that is significantly less than half of the proposed total budget. Analysts say the budget is the latest example of the

civilians overarching into other institutions’ realms and challenging their Constitutional supremacy. “This is the latest example of the civilian leadership exercising powers beyond its jurisdictions, at the cost of the masses’ fundamental right to be safeguarded by the military,” a leading analyst told The Dependent citing anonymity amidst a growing number of missing persons and channels. A military official, speaking off the record amidst security concerns, said everyone knows who’s actually running the country.

SATIRE