Pakistan’s external financing gap could rise to $8bn: Morgan Stanley

By Khurram Hussain

The outlook for Pakistan is worsening, says Morgan Stanley in a report released on Friday. The country has “underperformed significantly since February”, with spreads widening up to 1250 basis points and some bonds selling for as low as sixty cents on the dollar. “The key driver has been rising concerns about Pakistan’s external funding gap” say the authors of the report. The deteriorating current account deficit, “increased risks to the IMF disbursements” and slowing remittances are principally responsible. “We expect total funding to be $35 billion for 2022” the report says. The current account deficit could widen to $17bn, and “predetermined drain on reserves” is $18bn. The authors consider external financing requirements under two scenarios: with and without and IMF program. “[I]n a better scenario, we estimate the available sources to be $32bn, assuming Pakistan will receive the next IMF tranches and issue Eurobonds successfully. This means a $3bn funding gap.” This means even with a fund program and a successful Eurobond floatation, there will still be $3bn required to plug the financing gap in 2022. The real problem begins in the absence of an IMF program. “[I]f Pakistan does not get the rest of the EFF loans from the IMF, it would add $2.8bn of funding pressure. And if Pakistan is not able to roll over the global sukuk bond due in December 2022 it adds another $1bn of funding pressure. In this case we estimate the funding gap to be $8bn, also driven by lower private sector loan disbursements”. The authors advise their clients to steer away from Pakistani paper. “We suggest a dislike stance on Pakistan” they say bluntly, pointing to the “downside risks regarding funding” and persistent uncertainty around the talks with the IMF, with oil prices continuing to rise. The authors also point out risks to Pakistan’s credit rating of B negative given these powerful vulnerabilities.

“[W]e don’t think that now is a good time to be long in Pakistan despite their cheaper valuations. Pakistan’s bonds rallied on Friday as the government began the process of fuel price adjustments on late Thursday night. The adjustment was cheered by the markets since it is the first step down the road the country has to walk to restore its economic viability. n

Khaadi announces $25mn investment from IFC

By Saad Tanvir

In a news filing today, Khaadi officially announced that IFC is to invest up to $25 million in the organization against a minority stake. In an email sent from Khaadi’s top management to its employees, it claimed “This strategic investment will enable us to accelerate our growth plans, support future sustainability and empower us to achieve our vision of becoming a global brand.” This would be the first investment by IFC in Pakistan’s fashion retail sector, where IFC has not only promised financial investment, but also its strategic expertise and global presence to bring Khaadi closer to its vision of becoming a global brand.

In September 2021, IFC had announced this proposal as a quasi-equity investment via convertible preference shares for up to $25 million. This takes Khaadi’s initial expansion plan to: grow its operations as it recovers from disruptions related to Covid-19 through expansion of footprint/retail space; accelerate global online sales; and expand the international store network, a step further towards its implementation phase. The International Finance Corporation is an international financial institution that offers investment,

advisory, and asset-management services to encourage private-sector development in less developed countries. The IFC is a member of the World Bank Group and is the largest global development institution focused on the private sector in emerging markets, with a presence in more than 100 countries.

Khaadi Corporation Limited is one of the companies in Pakistan in fashion retail with the largest market share in the formal apparel retail market. Having started operations in 1998 with one store, Khaadi has expanded its retail network to 62 stores over 25 cities in Pakistan and 14 international stores in Qatar, UAE, Bahrain and the United Kingdom.

Currently, Khaadi is a single member private limited company with Shamoon Sultan as its founder, Chief Executive and sponsor owning 100% of its capital. Shamoon, who started his career by working for a prominent couture designer for a couple of years set up his own clothing line in 1998 under the brand name “Khaadi” defined as “handlooms” in local language. Since its inception, Khaadi and Shamoon have won numerous local industry awards, and now Khaadi seeks to expand to a global scale. n

Committee fails to finalize inquiry into MG’s under-invoicing case

By Shahzad Parach

An inquiry committee tasked to probe the alleged under-invoicing of MG motors, reportedly is using delaying tactics in finalizing the inquiry. Sources said that the four-member inquiry committee led by Director General Customs Intelligence and Investigation Rasheed Shiekh failed to furnish a report in the MG under-invoicing case.

The committee was supposed to submit its report by May 15, 2022. Sources said that the committee members are waiting for the written instructions of the Public Accounts Committee for investigating the alleged under-invoicing matter. The MG motors scam has been already adjudicated by the Collector Adjudication Karachi however such an adjudicated case needs to be reopened by the FBR through a written order under section 195 of the Customs Act as Chairman FBR or member customs legal can mandate a probe committee to reinvestigate such an adjudicated case, sources added.

Sources also said that member customs legal has asked incumbent chairman FBR to decide on re-opening of the adjudicated order in the MG case but no response has been given to her so far. According to the TORs of the probe committee, its members have been required to determine the fair value of imported MG vehicles under section 25 of the Customs Act. The valuation department of FBR determines fair values of imported goods under section 25 usually by following the deductive value method of customs valuation. In the deductive value method of customs valuation given under section 25 of the Customs Act, the basic idea is, to begin with, the market value in the country of importation of imported goods similar or identical to the imported goods being valued and work back all through from country of importation to the country of exportation deducting from the market value all the expenses incurred from the country of exportation to the country of importation.

The expenses which are to be deducted under the law from the market value of similar/ identical goods to arrive at the assessable value of the goods being valued include duty/ taxes payable on importation/ sale in the country of importation, usual costs incurred on account of transport and insurance and the additions to value usually made on account of profit and general expenses incurred on the sale of similar/ identical imported goods in Pakistan.

Under the deductive value method of customs valuation, the determination of the true assessable value of 10,000 MG vehicles allegedly under assessed by the customs at Karachi has to begin with the market sale value of MG vehicles imported into Pakistan other than the 10,000 MG vehicles in question. If the probe committee follows this FBR’s usual and most commonly used valuation practice for MG vehicles too, the revenue losses caused in the MG motors scam may swell far beyond the presently alleged amount.

However, by following the FBR’s favorite deductive value method of customs valuation, the probe committee members may end up spoiling the career of their benefactor who is accused of the scam. The scribe approached Chairman FBR and DG Customs intelligence and investigation for comments but no reply was received till the finalization of the story. n

Airlift slashes operations, workforce amid global downturn

By Taimoor Hassan

Quick commerce startup Airlift has announced closing down operations in South Africa as well as some cities in Pakistan as the global capital downturn ravages startups. “In light of the significant downturn in global capital markets, Airlift is undertaking a strategic realignment to reduce the surface area of operations and to increase focus in key areas that drive sustainability and profitability. As a part of efforts to reduce the surface area, Airlift is pulling out of certain markets, including Faisalabad, Gujranwala, Sialkot, Peshawar, Hyderabad, Johannesburg, Cape Town and Pretoria.” Airlift said in a statement. “Additionally, the company is relocating 8-10 dark stores in our largest markets (Lahore, Karachi and Islamabad), which account for almost 90% of our revenue,” Airlift said in a statement.

“The above efforts are a part of Airlift’s strategy to focus on building scale and profitability in markets with considerable scale and high order density,” the statement added. Additionally, Airlift is also reducing headcount by 31 per cent across all markets and limiting the number of categories on the platform. “The decision to part ways with talented teammates has been incredibly challenging for the company. For impacted teammates, Airlift stands committed to providing financial and placement support to help find new roles.”

These decisions, Airlift said, are an important step toward Airlift’s long-term vision of enabling self-empowerment and leveraging technology to offer customer-centric solutions. “By reducing the breadth of our operations, Airlift seeks to achieve greater depth in key areas and deliver stronger value to customers in our largest markets,” Airlift said. n