Pakistani central bank lifts interest rate as inflation bites

A brass plaque of the State Bank of Pakistan is seen outside of its wall in Karachi, Pakistan. (File/Reuters)
Updated 20 May 2019

Pakistani central bank lifts interest rate as inflation bites

ISLAMABAD: Pakistan’s central bank raised its key interest rate to 12.25% on Monday, warning that already soaring inflation risked further rises on the back of higher oil prices and reforms required for a bailout from the International Monetary Fund.
The 150 basis points increase follows a preliminary agreement last week with the IMF for a $6 billion loan that is expected to come with tough conditions, including raising more tax revenues and putting up gas and power prices. It was the eighth time the central bank has increased its main policy rate since the start of last year.
With economic growth set to slow to 2.9% this year from 5.2% last year, according to IMF forecasts, the rate rise adds to pressure on Prime Minister Imran Khan, who came to power last year facing a balance of payments crisis that has now forced his government to turn to the IMF.
Higher prices for basic essentials including food and energy has already stirred public anger but the central bank suggested there was little prospect of any immediate improvement.
Noting average headline inflation rose to 7% in the July-April period from 3.8 percent a year earlier, the central bank said recent rises in domestic oil prices and the cost of food suggested that “inflationary pressures are likely to continue for some time.”

 

It said it expected headline inflation to average between 6.5% and 7.5% for the financial year to the end of June and was expected to be “considerably higher” in the coming year. Expected tax measures in next month’s budget as well as higher gas and power prices and volatility in international oil prices could push inflation up further, it said.
It said the fiscal deficit, which the IMF expects to reach 7.2% of gross domestic product (GDP) this year, was likely to have been “considerably higher” during the July-March period than in the same period a year earlier due to shortfalls in revenue collection, higher interest payments and security costs.
Despite some improvements, financing the current account deficit remained “challenging” and foreign exchange reserves of $8.8 billion were below standard adequacy levels at less than the equivalent of three months of imports.
The central bank said it was watching foreign exchange markets closely and was prepared to take action to curb “unwarranted” volatility, after the sharp fall in the rupee over recent days that saw the currency touch a record low of 150 against the US dollar.
Details of what Pakistan will be required to do under the IMF agreement, which must still be approved by the Fund’s board, have not been announced but already opposition parties are planning protests.
As well as higher energy prices that will hit households hard, there are also expectations of new taxes and spending cuts in next month’s budget to reach a primary budget deficit — excluding interest payments — of 0.6% of GDP.
With the IMF forecasting a primary deficit of 2.2% for the coming financial year, that implies squeezing roughly $5 billion in extra revenues from Pakistan’s $315 billion economy, which has long suffered from problems raising tax revenue.

FASTFACTS

Pakistan’s economic growth is set to slow to 2.9% this year.


Bolivia gears up for soaring lithium demand

Updated 4 min 15 sec ago

Bolivia gears up for soaring lithium demand

SALAR DE UYUNI, Bolivia: Over 3,600 meters above sea level on the blinding white plain of the world’s largest salt flat, landlocked Bolivia is dramatically ramping up production of lithium to cope with soaring global demand for the prized electric-battery metal.

Bolivia, among the poorest countries in South America, sits on one of the world’s largest lithium reserves, at the Salar de Uyuni — or Uyuni Salt Flats — ready to take full advantage in the coming age of the electric car.

But while it sits at the apex of South America’s “lithium triangle,” along with Chile and Argentina, Bolivia has not had the capacity to produce the metal on a commercial scale.

That will change when its Llipi plant comes online in 2020.

The factory, guarded by the army because of the metal’s value, will have an annual production capacity of 15,000 tons of lithium carbonate, project manager Marco Antonio Condoretty told AFP.

State company Yacimientos de Litio Bolivianos (YLB), established by the government of President Evo Morales in 2008 to exploit lithium in the salt flats, aims to make Bolivia the fourth-largest producer by 2021.

Morales, a leftist and former coca farmer, is counting on lithium to serve as the economic engine that lifts his country out of poverty.

YLB teamed up last year with German company ACI Systems to help develop the Uyuni complex.

It’s part of a plan to form strategic partnerships that “bring their technology and guarantee outlets,” said Condoretty.

The joint venture will manufacture electric-vehicle batteries in Bolivia for the growing European market.

China’s Xinjiang TBEA Group came on board with YLB in another joint venture in February to help extract lithium from Bolivia’s two other salt flats, in Coipasa and Pastos Grandes.

Bolivia said earlier this year that Uyuni alone likely has at least 21 million metric tons of lithium, more than double previous estimates.

Until now, the Salar de Uyuni has been a major tourist attraction, and environmentalists have raised concerns about the landscape being irreparably altered by exploiting the lithium deposits underneath.

But Condoretty insisted that lithium exploitation would use “clean technologies” and affect only about 3 percent of the salt flat.

China is the world’s biggest consumer of lithium, with 63 percent of the market, according to Ingred Garces, professor of engineering at Chile’s Antofagasta University.

With its voracious appetite for lithium, the Asian giant has positioned itself at the center of the world’s main deposits of the metal.

By 2025, China will need 800,000 tons of lithium carbonate per year to meet the growing demand for electric vehicles.

China’s Tianqui Lithium Corp. took a 24 percent stake in Chilean producer SQM last December, placing itself inside the “Lithium Triangle,” which has 80 percent of the globe’s known deposits.

Worldwide production grew 23 percent in 2018 to more than 85,000 tons.