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IMF concerned at Pakistan’s weakening economy

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ISLAMABAD: The International Monetary Fund (IMF) on Wednesday expressed concern over Pakistan’s weakening macroeconomic situation, including widening external and fiscal imbalances, reduction in foreign exchange reserves and emerging risks to economic and financial outlook.
The IMF executive board asked the government to immediately refocus on near-term policies to preserve macroeconomic stability and get back to fiscal discipline shown under the three-year $6.64 billion multi-tranche Extended Fund Facility (EFF) to minimise risks and economic distortions.
In its first post-programme monitoring (PPM) after the completion of fund programme in September last year, the IMF board also raised questions over the medium-term debt sustainability and called for additional revenue measures and containing expenditures.
The board expressed its anxiety over the deteriorating assessment that the country’s fiscal deficit was set to hit 5.5 per cent of GDP — almost Rs505bn or 1.4pc — higher than 4.1pc budgeted by the government and current account deficit to touch 4.8pc of GDP with the economic growth rate staying conservative at 5.6pc instead of budgeted 6pc.
The IMF said the near-term economic growth outlook was broadly favourable but “continued erosion of macroeconomic resilience could put this outlook at risk”. Therefore, “Directors also emphasised the need for prudent debt management and caution in phasing in new external liabilities, and the urgency of tackling rising fiscal risks stemming from continued losses in public sector enterprises”, the IMF said in a statement issued two days after the executive board meeting that took place on March 5 in Washington.
The IMF said that real GDP was estimated to grow by 5.6pc during the fiscal year 2017-18 due to improved power supply, investment related to the China-Pakistan Economic Corridor (CPEC), strong consumption growth and ongoing recovery in agriculture. Inflation has remained contained and is estimated at 5.4pc.
Following significant fiscal slippages last year and current year deficit estimated at 5.5pc of GDP, with risks towards a higher deficit ahead of upcoming general elections, surging imports have led to a widening current account deficit and a significant decline in international reserves despite higher external financing.
The IMF noted gross international reserves further declining in a context of limited exchange rate flexibility. Against the backdrop of rising external and fiscal financing needs and declining reserves, “risks to Pakistan’s medium-term capacity to repay the Fund have increased since completion of the EFF arrangement in September 2016”.
The board directors welcomed move to allow some exchange rate adjustment last December, but stressed the importance of greater exchange rate flexibility on a more permanent basis to preserve external buffers and improve competitiveness. They also encouraged the authorities to phase out administrative measures aimed at supporting the balance of payments as soon as conditions allow them to minimise potential economic distortions.
The executive board noted that the external sector pressures were in part linked to the fiscal deterioration during the last fiscal year and an accommodative monetary policy stance, as well as high imports related to the CPEC projects.
The directors called upon the authorities to “strengthen fiscal discipline through additional revenue measures and efforts to contain current expenditure while protecting pro-poor spending”, and emphasised that complementing the recent increase in the policy interest rate with further monetary tightening would be important to address inflationary risks and help reverse external imbalances.
The directors underscored the importance of accelerating structural reforms to reinforce macroeconomic stability, raise competitiveness and promote higher and more inclusive growth.
In the aftermath of recent setback at the Financial Action Task Force, the IMF board called for further enhancing anti-money laundering/counter-terror financing regime and strengthening the fiscal federalism and monetary and financial policy frameworks. The IMF also advised the authorities to improve the business climate, continue to strengthen governance, achieve cost recovery in the energy sector and expand social safety nets to protect the most vulnerable.
Because of substantially higher credit outstanding from the IMF, the borrowing members have to face closer monitoring of the policies under the PPM and undertake more frequent formal consultation with the Fund than is the case under surveillance, with a particular focus on macroeconomic and structural policies that have a bearing on external viability.


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RBI to remain watchful on growth, financial stability: Das

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Mumbai: The Reserve Bank of India (RBI) will remain vigilant and strive to revive growth in Asia’s third-largest economy, as well as pushing to maintain macroeconomic, financial and price stability, its governor said in a speech.

India lost momentum in the final quarter of 2018, reducing its annual rate of economic growth to 6.6 percent, the slowest pace in five quarters and much less than expected.

But RBI Governor Shaktikanta Das said the country’s real gross domestic product (GDP) growth was expected to reach 7.2 per cent in the fiscal year to March 2020, which he described as the strongest among the world’s large economies.

 

India’s annual retail inflation rate rose in March to 2.86 per cent, from 2.57 per cent in the previous month, but remained below the central bank’s target for an eighth straight month, increasing the chances for a key interest rate cut in June.

“Inflation has remained below target, averaging 3.6 per cent for the period under the inflation targeting framework so far,” Das said in the speech, uploaded on the RBI website early on Saturday. He said he was referring to the period from October 2016 to February 2019.

The RBI has lowered its retail inflation forecast to 3.8 percent by January-March 2020, but warned it could be higher if food and fuel prices climb abruptly, or if fiscal deficits overshot targets.

India’s current account deficit is expected to be around 2.5 per cent of GDP in 2018-19 and the gross fiscal deficit has kept to budgetary targets, he added.

Das underscored the risks facing emerging market economies such as a India as global growth and trade weaken.

“There is considerable uncertainty as to whether this weakness is temporary or the beginning of a recession in advanced economies,” Das said, adding that central banks around the world were not tightening monetary policy, with some even promoting easier lending conditions.

The RBI cut its policy interest rate by 25 basis points earlier this month, in a widely expected move to boost the economy at a time Prime Minister Narendra Modi is seeking a second term in a national election.

Emerging market economies also remain exposed to financial market volatility, Das said, and financial conditions could heighten existing stress on the balance sheets of lending institutions in some countries.

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At 0.1%, India’s industrial growth falls to 20-month low in February

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New Delhi: A contraction in manufacturing output, especially in the sensitive capital and consumer goods segment, pulled down industrial growth to a 20-month low of just 0.1 per cent in February.

The bottom crawling growth rate follows a 1.43 per cent growth in the previous month of January. The index of industrial production (IIP) has witnessed low growth since November, 2018, and is expected to remain muted owing to weak exports, rural distress, credit constraints and uncertainty over the election outcome, according to economists.

In the April-February period of the current financial year, industrial output grew at 4 per cent, as against 4.3 per cent in the same period of the previous financial year.

 

The manufacturing segment, which constitutes the bulk of the index of industrial production (IIP) at 77.6 per cent, contracted by 0.3 per cent in February against an equally small rise of 0.93 per cent in January. Before, this, the December 2018 manufacturing number of 2.95 per cent. The numbers show continued volatility in the IIP, despite change in the index last year.

Most of all, the capital goods segment, which connotes investments, saw output growth turning to negative with an 8.8 per cent contraction, as compared to a 3.42 per cent contraction in the previous month.

Driven by machinery and heavy transport, capital goods production had been on a solid upward swing till October.

“The capital goods sector, which had shown an average growth of 8.9 per cent during April-October period in FY19 and raised hopes of an incipient investment recovery in the economy is once again appearing to be losing steam. With the exception of December 2018, capital goods are recording negative growth in each month since November,” Devendra Kumar Pant, Chief Economist at India Ratings and Research, said.

In January, the growth rate for consumer durables also fell to 1.2 per cent, from the 2.3 per cent growth in January. “A 1.2 per cent consumer goods production is also reflective of inventories that have built up in Q3, when capacity utilisation also improved. But, with demand tapering off, production has slowed down,” Madan Sabnavis, chief economist at CARE Ratings, said.

On the other hand, consumer non-durables commanded a growth rate of 4.3 per cent in February, up from 3.3 per cent in January. All other user-based segments either showed a negative growth or low-single digit growth.

Overall IIP growth for the entire year would be about 4.5 per cent, which is half per cent lower than what we had projected earlier, Sabnavis added.Of 23 sub-sectors within manufacturing, 13 recorded a year-on-year contraction, compared to 11 in January. Slowdown in major sectors such as metals and refined petroleum brought down overall growth. On the other hand, apart from furniture and food manufacturing, which saw healthy growth in the financial year, computer hardware production managed to see a healthy growth.

This is after the government pushed manufacturing in the sector on a sustained basis over the past nine months, through a series of benefits and the phased manufacturing programme aimed to reduce imports of electronics goods.

The two other sectors in the IIP — electricity and mining — also saw muted growth in February, data released on Friday showed.

Electricity generation rose 1.2 per cent in the latest month, slightly more than the 0.93 per cent rise in January. On the other hand, mining output grew by 2 per cent in February, against a 3.92 per cent rise in January.

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TCS net profit up 17.7% to Rs 8,126 crore in Q4, crosses $20-bn revenue

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Mumbai: Tata Consultancy Services (TCS) on Friday reported robust numbers both for the fourth quarter of 2018-19 and the full financial year, with the country’s largest IT services company crossing the $20-billion revenue mark for the first time. Growth in net profit as well as revenue exceeded Street expectations, though margin contracted a bit in the fourth quarter.

For the quarter ended March 31, TCS reported Rs 8,126 crore in net profit, a jump of 17.7 per cent over the corresponding quarter last year. Revenue, at Rs 38,010 crore, saw an increase of 18.5 per cent on a year-on-year (y-o-y) basis. When compared with the trailing quarter, net profit was almost flat, while revenue grew 1.8 per cent.

A survey by Bloomberg based on consensus analysts’ estimates had pegged TCS’ revenue and net profit at Rs 37,829.1 crore and Rs 7,970.7 crore, respectively. “This is a year when TCS has fired from all cylinders, and we are exiting the year on a much stronger note than how we entered it,” CEO and MD Rajesh Gopinathan said during a post-earnings interaction with media. “This is the strongest revenue growth that we have had in the last 15 quarters. Our order book is bigger than (what it was in) the previous three quarters. The deal pipeline is also robust,” Gopinathan added.

 

For FY19, TCS reported Rs 31,472 crore in net profit, an increase of 21.9 per cent over the previous fiscal year, while revenue at Rs 1.46 trillion was 19 per cent higher than FY18’s.

For the first time, TCS crossed $20 billion in its dollar revenue, posting $20.91 billion in top line in FY19, a growth of 9.6 per cent over the previous year, while it widened the revenue gap with the closest Indian competitor, Infosys, by $9.1 billion. In constant currency terms, it maintained double-digit revenue growth and grew 11.4 per cent.

Operating profit margins for Q4 as well as the full year, however, were marginally lower than the expectations and came below the guided range of 26-29 per cent. In the quarter under review, margins at 25.1 per cent saw a 50 basis point decline over the previous quarter, while margins for the full year stood at 25.6 per cent, up 79 bps.

The firm added six clients, each contributing revenues in excess of $100 million during FY19, while the employee headcount addition stood robust. The year ended with 4,24,285 employees, almost 30,000 higher than last year. Attrition at 11.3 per cent was one of the lowest in industry.

TCS continued to witness strong growth in its digital business, which accounted for 31 per cent of the overall revenue. Banking, financial services & insurance, which lagged other verticals, rebounded to double-digit growth with an increase of 11.6 per cent in the March quarter, although for the full year, it was 7.7 per cent.

chart In terms of geographies, North America business grew 9.9 per cent y-o-y (constant currency terms) in Q4, while for the full year, growth was 8.3 per cent. The UK, where TCS has the highest exposure compared with other Indian peers, saw maximum growth with revenues from the country rising 21.3 per cent y-o-y for the quarter and 22 per cent for the full year.

“Deals have come from many different markets and verticals. These give us the confidence that we’ll continue the momentum. Last year, we had very large segments that were dragging with growth of less than 2-3 per cent. We now have a benefit of a few large deals, so almost all segments are growing on a par with the company average,” Gopinathan said.

“TCS has delivered a decent set of numbers for Q4FY19, which beat estimates on the revenue and net profit fronts. Reported EBIT margins missed our estimates, though adjusted for Rs 220 crore contribution to electoral trust in Q4, margin was higher than estimates,” said Sanjeev Hota, AVP Research at Sharekhan.

The company reported deal TCV (total contract value) of $6.2 billion compared to $5.9 billion in the last quarter.

TCS said that like the previous year, it would start rolling out salary hikes in the range of 2-6 per cent based on geographies the employees are located, and some other metrics. In Q4 of last year, the company had doled out 120 per cent variable payouts, which will be 100 per cent this year.

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