PM reaches out to heads of chambers of commerce across country

ISLAMABAD: Prime Minister Muhammad Shehbaz Sharif on Wednesday said that achieving economic stability was the first step while the journey of national development has begun now.

The prime minister expressed these views during a meeting with presidents of various chambers of commerce in Pakistan. He directed all ministries and relevant secretaries to formulate a policy action plan based upon the suggestions of the chambers of commerce after holding consultations with them.

The delegations appreciated the government’s economic stability measures and expressed gratitude for their inclusion in the consultative process, the PM Office Media Wing said in a press release.

The PM said that everyone should work together for development of economy, adding that resolution of issues of the business community was a top priority and the government would fully support them.

Despite difficult economic conditions, he said the Pakistani business community continued industrial and commercial activities. “The government is taking every possible measure to facilitate the business community. Through the FBR digitisation and other reforms, the business community is being provided with facilities. The faceless clearance system has significantly reduced container clearance times at ports,” the press release quoted the prime minister as saying. Various ministers and officials attended the meeting.

The PM also sought suggestions from the business community for system reforms to enhance government tax revenue.

The meeting participants said that for the first time, the government was demonstrating seriousness in addressing the issues of the business community. Inclusion of the business community in the consultative process, especially in budget discussions, was a positive step for which they were grateful to the prime minister, they further said. –APP

News Desk adds: Moody’s Ratings has revised its outlook on Pakistan’s banking sector to positive from stable, citing improved operating conditions and resilient financial performance, it said on Wednesday. The shift corresponds to the government’s (Caa2 positive) improved outlook, supported by banks’ significant exposure to sovereign debt.

“We have changed our outlook on Pakistan’s banking system to positive from stable to reflect the banks’ resilient financial performance as well as improving macroeconomic conditions from very weak levels a year ago,” according to the Moody’s statement.

“The positive outlook on the sector also mirrors the Government of Pakistan’s (Caa2 positive) positive outlook, with Pakistani banks having significant exposure to the sovereign through their large holdings of government securities, which account for around half of total banking assets.

“However, Pakistan’s long-term debt sustainability remains a key risk, with its still very weak fiscal position, high liquidity and external vulnerability risks,” according to the report.

The credit rating agency anticipates Pakistan’s economy to expand by 3pc in 2025, compared with 2.5pc in 2024 and -0.2pc in 2023. “Inflation is also significantly easing, which we estimated at around 8pc for 2025 from an average of 23pc in 2024,” it said adding, “Problem loan formation will slow as borrowing costs and inflation reduce, although net interest margins will narrow on the back of interest rate cuts.

“Banks will maintain adequate capital buffers, supported by subdued loan growth and solid cash generation, despite dividend payouts remaining high.”

Moody’s said the outlook revision to positive from stable reflects a better operating environment. “Pakistan’s economic outlook is improving from very weak levels, with enhanced government liquidity and external positions compared to 2024.” Moody’s noted that Pakistan’s $7 billion, 37-month IMF programme, approved in September 2024, provides a credible external financing source for the coming years.

“We forecast GDP growth of 3pc in 2025 and 4pc in 2026, up from 2.5pc in 2024, further driven by a 10 percentage point cut in interest rates since the start of the monetary policy easing cycle in June 2024. We expect inflation to slow sharply to around 8pc in 2025, from an average of 23.4pc in 2024. We expect that lower inflation and policy rate cuts will spur private-sector spending and investment in Pakistan from current low levels.”

Moody’s however warned that banks’ high exposure to government securities increases asset risk. “As of September 2024, government securities accounted for 55pc of banks’ total assets. This significant exposure links banks’ credit strength to that of the sovereign, which is improving from very weak levels.

“Although problem loans have deteriorated to 8.4pc of total loans as of September 2024 from 7.6pc in the prior year, overall loans account for only 23pc of banks’ total assets,” it said.

Moody’s said the removal of the advance-to-deposit ratio (ADR) tax for 2025 was expected to ease pressure on banks to expand lending, while demand remains subdued despite lower borrowing costs. It also noted that the ADR-linked tax incentive required banks to reach a 50pc advance-to-deposit ratio by end-2024, with noncompliance triggering an additional 10-15pc income tax.

Following recent interest rate cuts that have reduced the policy rate to 12pc, margins will narrow as local banks derive the bulk of their earnings from the interest they receive on large investments in government securities, which are yielding lower returns compared to last year, it added.

“Concurrently, downward asset repricing will only be partly offset by lower funding costs, while growth in business activity and non-interest income will not fully counterbalance margin compression. “We expect banks’ return on assets to moderate to around 0.9pc-1.0pc in 2025,” it said.

The financial services provider said that Pakistan’s foreign exchange (FX) risks had reduced in response to a rise in State Bank of Pakistan’s foreign exchange reserves since the unlocking of the IMF programme.