Assignment # 2

Summary
Article # 1
Rising Corporate Profitability
CORPORATE profitability was on the rise these past nine-months (Jan-Sept 2018) as revealed
by the just concluded autumn financial results reporting season.

The profit after tax (PAT) clocked in by 96 of the 100 companies that comprise the KSE-100
Index amounted to Rs480.4 billion showing collective growth of around 7.8 per cent over net
profit of Rs445.5bn earned in the corresponding period of the previous year.

Fertilizer companies were ahead of the rest with earnings showing an impressive surge of 90pc
to Rs54bn over PAT amounting to Rs28bn earned in 9MCY17.

More positives for the economy that could translate to corporate earnings growth are shaping up.

Oil and gas exploration companies could shore up earnings by 27pc to Rs130.8bn from
Rs103.1bn followed by chemical sector earnings up 19pc and Power Generation and Distribution
bottom line boosted by 14pc.

Of particular interest going forward would be the textile sector as the country needs to accelerate
exports to alleviate the growing trade deficit.

On the flip side, major erosion in overall earnings for the nine-month period was witnessed in the
banking sector with earnings down 10pc to Rs113.8bn, from Rs126.8bn year-on-year.

But as long as corporate keep making profits, investors can bank upon the boards to pass on
benefits to shareholders in dividends and restore investors’ confidence in the equity market.

The poorer earnings of the banking sector spoil the profitability of the entire corporate sector
since commercial banks now command the highest weight of 24.6pc in the KSE-100 Index.
The overall profit growth for the corporate sector in 9MCY18 corresponded with a break in the
losing spree at the stock market.

Article # 2
Intricacies of Domestic Debt Management
In our case, we have a medium-term debt policy framework that is regularly updated.

But this is done under a policy framework with clearly spelled-out strategic guidelines.

Banks cannot invest in national savings schemes as they compete with their own deposit
schemes.

In this write-up, we will focus on the targets the government is supposed to meet in terms of
domestic debt mobilization and management and see what challenges it faces in both areas.

And they borrow from both domestic and foreign sources.

Governments have to borrow when they earn less and spend more.

New registered bonds can also be launched for upcoming agriculture and environmental
development projects to reduce reliance on prize bonds.

This means that the PTI government has little room for mobilizing short-term domestic debt
during this fiscal, which is the final year of the four-year medium-term debt strategy.

Effective domestic debt management requires greater fiscal-monetary coordination.

One key target was to lengthen the maturity profile of domestic debt.

In 2017-18, servicing of domestic debt consumed Rs1.32 trillion, or 17.7 per cent of total
expenses.

It did so to retire bank borrowings that had taken place earlier.

“So the government will have to attract enough investment in long-term Pakistan Investment
Bonds (PIBs) while keeping its reliance on short-term treasury bills low,” explains the treasurer
of a large domestic bank.

So meeting short-term borrowing requirements via short-term treasury bills or other short-term
instruments of non-bank borrowings is preferable,” says a well-placed source in the Ministry of
Finance.

But increasing non-bank borrowings can be an issue, officials of the Ministry of Finance admit.