Pakistan - South Asia's sick man

Pakistan - South Asia's sick man

Today, Pakistan is South Asia’s sick man. This year – the financial year ending on June 30 – if the Pakistani economy grows at all, the rate of increase will be no more than the rate of growth in population. This means that there will be no increase in average income and, for most of the population, income per head will decline. This will add another 10 million to the pool of poverty, bringing the total to over 70 million. In the immediate future, the national output is likely to increase at a rate less than one-half of that expected for Bangladesh and one-third of that projected for India.

I pointed this out to Pakistan’s President Asif Ali Zardari in a recent meeting. He responded by saying that by comparing the performances of India, Bangladesh and Pakistan I was comparing apples and oranges. India had had a democratic system of government for more than 60 years and Bangladesh had been under democratic rule for a longer period than Pakistan. He said he had inherited a damaged economy and a dysfunctional political system from a military dictator. His government’s first priority was to provide the country with a political system that was fully representative of the wishes of the citizenry.

My purpose for bringing to the attention of the Pakistani president the divergent tracks being followed by the major economies of mainland South Asia was to suggest that there were public policy lessons to be learnt from the development experiences of India and Bangladesh. However, upon reflection I thought that the president was raising a valid point: the importance of a democratic system for sustained economic development. One thing that stood out in India’s case – and to some extent also in the case of Bangladesh – was the continuity in the making of economic policy. In a democratic system policy makers would not be allowed to make sudden changes in the direction of policy unless it was warranted. The Indian electorate punished Indira Gandhi when she put the country under an emergency. It rewarded the Congress party when it gave up, during a period of deep financial crisis, the discredited “license raj” in favour of a more open economy. In Pakistan, however, the roller coaster political ride – alternating between civilian and military rules – had also resulted in wide swings in the economic priorities pursued by those in power.

Do more Uncle Sam

Pakistan seeks US help for next IMF tranche

ISLAMABAD: Pakistan has asked US to use its influence on International Monetary Fund (IMF) for the release of next tranche in the month of March so that the government could make its budget for next financial year 2011-12.

Pakistan’s chief executive Syed Yusuf Raza Gilani has placed this request in a meeting with US delegation led by David Lipton, Senior Advisor to the US President at the PM House here on Thursday afternoon, a senior official told our sources.

 

The premier said while the government of Pakistan was implementing the IMF programme in the interest of the country, the US influence would be crucial for the disbursement of the next IMF tranche in March this year to help his government prepare the next fiscal year’s budget.

 

The official said Pakistan’s request came at a time when multilateral donors including World Bank, Asian Development Bank (ADB) and Islamic Development Bank (IDB) have reportedly halted budgetary support to Pakistan and asked the government to first get the Letter of Comfort (LoC) from the International Monetary Fund.

The IMF programme has been suspended for the last 7 to 8 months because of the government’s failure to implement the Reformed GST. The $11.3 billion Stand-By Arrangement (SBA) has already been extended till September 2011 on Pakistan’s request which was earlier scheduled to end in December 2010. Pakistan has so far received over $8 billion under the SBA programme loan of IMF.

The clock is ticking

Govt has crossed borrowing limit, say senators 

The government has crossed the borrowing limit prescribed under the Fiscal Responsibility and Debt Limitation Act, 2005.

During the question hour in the Senate on Friday, Senators Haroon Akhtar and Prof Khursheed Ahmed said that under the law, the public debt must not exceed 60 per cent of the GDP. But a recent briefing given to a Senate panel by the State Bank clearly indicated that borrowing had gone up to about 64 per cent of the GDP.

The law requires the government to seek an approval from the parliament if it wants to exceed the limit on account of unforeseen expenditure warranted by a calamity or a national security issue.
Minister of State for Finance and Economic Affairs Hina Rabbani Khar initially denied that the limit had been crossed, claiming that “we are just on the borderline”.
But on the insistence of the members, she said the government would take up the matter in parliament if this indeed was the case.

She said that as on Sept 9, 2010, the outstanding public and publicly-guaranteed debt was about $53.8 billion, including $43.9 billion medium- and long-term loans and $8.9 billion from IMF. She said the government had acquired Rs1.527 trillion from domestic sources from November 2008 to October 2010.
During the last quarter, the government took a loan of Rs80 billion from the State Bank and Rs204 billion from commercial banks, but paid back the amount, the minister said.

Answering a question, she said the government had provided subsidy of over Rs412 billion to Wapda and Pepco over the past five years. She said that Rs19.5 billion was paid in subsidy during 2005-06, Rs41.9 billion in 2006-07, Rs113.6 billion in 2007-08, Rs90.4 billion in 2008-09 and Rs146.5 billion in 2009-10.
She said the government was paying subsidies to Wapda and Pepco, picking up the difference between the tariff determined by Nepra and the one notified by ministry of water and power.

Ms Khar said that Rs1.8 trillion had been allocated for subsidy during the current year, including Rs30 billion for Pepco, Rs40 billion for payment of circular debt and Rs38 billion for payment of bills in Fata.
For subsidy in energy sector, Rs130 billion was allocated of which Rs100 billion had been paid so far.
She said the rising price of oil in the international market ultimately caused increase in subsidy, adding that the smart meter scheme had been introduced to check power theft.

Pakistan will have the single largest Muslim population by 2030

Doomed generation?

ACCORDING to a study released on Thursday by the Washington-based Pew Research Centre, the world`s Muslim population — currently at 1.6 billion — is projected to reach 2.2 billion by 2030. The growth of the Muslim population will slow down over the next two decades, from an average annual rate of 2.2 per cent in 1990-2010 to 1.5 per cent in 2010-2030. Nevertheless, Muslims` pace of population increase will be about twice the rate of that of non-Muslims. By 2030 Muslims will constitute 26.4 per cent of the world`s population, which is expected to have swelled by then to 8.3 billion.

This information must be framed in the context of the global population`s competition over resources, both natural and man-made, and over opportunities for economic and other sorts of benefits. While the sum total of the essentials of human life is shrinking, the number of people who must share them is increasing. Worst-affected are the poorer countries and their people. Fierce competition over access to education and health services as well as job opportunities is leading to growing numbers of people from under-deve- loped countries to seek immigration to the deve- loped nations. This, no less than other factors, is causing a number of developed countries to tighten immigration laws. The findings of the Pew study must be taken as a signal for a more equitable division of the world`s resources. Some of the most under-developed countries in the world are Muslim countries. Their governments must make a serious push to improve welfare indexes across the board, and the developed world must help in doing this.

The problem is mirrored in the situation Pakistan faces. The Pew research indicates that by 2030 Pakistan will have surpassed Indonesia as the country with the single largest Muslim population. More worryingly, during the next two decades this country`s population is expected to grow from the current 178 million to 256 million — and this despite the fact that population planning programmes have been successful in bringing birth rates in the country down somewhat. Does Pakistan have a plan to ensure a steady growth of resources and infrastructure to match the needs of a burgeoning population? Hardly. The needs of even today`s citizenry are far from being met. It is estimated that one child in four is acutely malnourished, and the problems of access to education, health services and jobs, if available, are well-known. Projected into the future, the situation appears frightening. There is a need for a two-pronged effort if the generations to come are to be saved. On the one hand, the state must start some serious planning. On the other, the birth rate must be brought down further.

Sindh vs Punjab

Poor law and order situation: over 10,000 investors relocate their centres to Punjab

 KARACHI  (January 29, 2011) : The persistent poor law and order situation has triggered the internal investment shift from Sindh to Punjab, as over 10,000 investors from Karachi have relocated their centres to different cities of Punjab, market sources said on Friday.

Despite, the gas and electricity load shedding has reduced small-scale business activities in Punjab, investment continued to pour in the province particularly from Karachi, they said. The reason for relocation of investment from Pakistan's commercial hub to its largest province, they underlined a relatively peaceful business environment.

"Peace is important for business growth, which the Punjab government is greatly ensuring to investors in the province, which allured a huge investment," they said. They said Sialkot, Gujranwala, Faisalabad, Rawalpindi and Lahore received the Karachi's desperate investors during the last one year.

The everyday extortion and spontaneous violence in Karachi had resulted in transfer of investments from the country's commercial city to Punjab, said Chairman All Karachi Tahir Ittehad, Muhammad Atiq Mir. He said a huge deployment of police was made to protect the politicians, whereas public had been left at the mercy of target-killers in the city. "Also, the tax payers (traders) and revenue generators have been left at the mercy of extortionists," Mir said.

He said he had also information about the transfer of investment to Punjab, adding there was a simple reason of "dwindling peace" in Karachi. He said there was 80 percent shortage of police personnel in every town of the city to ensure security to public because the major portion of the police force the political elite had reserved for their personal protection.

"As along as police is not freed from political interference in Karachi, the situation would continue to deteriorate with rise in killings and extortions," he said. He observed the criminals were well-equipped with arms, as compared to law enforcers, besides having staunch support from within the government ranks.

Atiq Mir said majority was small and medium size investors who faced risk to life and business from criminals in the metropolis. He said police should be depoliticized to ensure a perpetual peace in the city to help growth of business and trade activities.

Project management Pakistani style

Cost, time: 2,000 projects incur overruns

Meeting the financial requirements of about 2,000 through forward approved projects and schemes with Rs 3 trillion liability, has become a challenge given the revised estimated budget deficit target of 8.5 percent.

"Our current accumulated backlog of approved projects where investment is lagging, is around approximately Rs 3 trillion comprising about 2,000 projects and schemes which suffer from cost and time overruns," reveals a paper titled 'Pakistan: New Growth Framework (PNGF)', prepared by Planning Commission.

"The question about where this investment will come from, still remains unanswered. Traditionally it has been a combination of both public and private investments primarily driven by foreign aid and loans respectively and in Pakistan, public investment has consistently been given greater emphasis than private investment," Planning Commission says in PNGF draft.

"This (currently prevalent) strategy has led to Public Sector Development Programme (PSDP) being skewed towards brick and mortar projects, where the government is involved in building assets that could have been furnished by the private sector, more efficiently," says PNGF.

Examples such as: government building houses, office buildings, roads and related infrastructure in commercially viable areas lead to encroachment in private sector initiatives and activities. The high share of civil works in PSDP (almost 50 percent) leaves little space for training and retaining human capital in productive and social sectors.

In PNGF, Planning Commission says that there is a tremendous need to review Pakistan's development planning process. Even within the structure of public investment, there is an urgent need to review underlying incentives for planners and project directors to assess the quality aspects of PSDP, timeliness, cost efficiency, and compute the net present values of the projects and return to the total portfolio of existing and potential investments.

"The current narrative of growth that focuses on 'my project' and 'my allocation' combined with distortive incentives (subsidies and protectionism) for industrialisation needs to be shifted to a new narrative that drives us beyond excessive focus on building infrastructure and overly diversified public investment, and towards the pillars of 'new growth theory' ie, towards productivity (improving returns/yields) of assets and all factors of production and efficiency (producing goods and services cost-effectively)," PNGF reveals.

Control price hike or face Tunisia-like situation

Control price hike or face Tunisia-like situation

 

ISLAMABAD: The opposition in the National Assembly (NA) on Thursday warned the government to control the rising prices of items of daily use or get ready to face a “Tunisia” like revolution that will sweep everything with it.

As the debate on skyrocketing prices of essential items of daily use commenced, interestingly no member of the economic team of the government was present in the house.

PML-N legislator Rana Tanveer-ul-Hasan, who kicked off the debate, demanded rightsizing of the National Assembly itself, arguing that after the number of MNAs was increased to 342, expenditure had increased tremendously. However, he did not elaborate what kind of right sizing in the NA was needed.

He warned that if efforts to control the prices were not made or were made half-heartedly, the situation could go out of control. He demanded abolition of monopolies and letting atmosphere of fair competition prevail. “This could be an effective step to control the prices,” he said.

Rana Tanveer suggested that the government should take visible checks to reduce the prices and stop printing currency notes to meet the government expenses. Raja Asad Khan of the PML-N came down hard on the Benazir Income Support Programme (BISP), saying that instead of spending Rs70 billion on such a project to get cheap publicity, the government should construct a dam in the name of Benazir Bhutto to provide cheap electricity to the people.

He was of the view that economic policies of the government should be for the benefit of the masses. No loans should be taken from foreign donors. He warned that if the prices were not controlled, the situation could take the shape of a revolution in which case, the rulers will not be able to escape the fury of the people.

Fauzia Wahab did not see any gloomy picture of the economy, saying that the economic indicators prove that the economy is moving in the right direction. She said that agriculture sector showed a growth of Rs300 billion during a year while textile exports fetched $1.5 billion on monthly basis and $10 billion were received through remittances.

She held terrorism responsible for all the economic ills of Pakistan and said that till terrorism was brought under control, stability in economy would remain a far cry. She said terrorists were getting bails from the judiciary and the conviction rate in Pakistan was 20 percent, which is very low as compared with other parts of the world where conviction rate is 80 percent.

However, Raza Hayat Hiraj of PML-Q did not agree with Fauzia Wahab’s thinking and asked if the economic situation was not that bad, then why the government was approaching the opposition for joint efforts for the stabilization of economy. “If the economic picture is rosy, then why did the government take a loan of $13 billion from the IMF?” he questioned.

He suggested that all the party heads should sit down to find out the causes of the price hike to formulate a joint economic strategy. Chief Whip of PML-N Sheikh Aftab stressed the need for good governance and questioned as to why reputed professionals were not being inducted to run huge public sector enterprises to make them profitable.

Obviously referring to the 10-point agenda of the PML-N, Sheikh Aftab said that it was for the first time that instead of embarrassing the government by leg pulling, the opposition was facilitating it to improve its governance.

Defenseless pakistan army

Fighting against militancy: Gunships grounded over high costs 

ISLAMABAD: With the country’s economy on a downslide, the military is struggling to keep up the momentum of its campaign against the Taliban and their al Qaeda cohorts in the tribal badlands, security officials said.

Resource constraints have grounded almost all operations against the home-grown Taliban to a near halt notwithstanding sporadic actions in some volatile areas, the offi cials told The Express Tribune. They spoke on condition of anonymity because of the sensitivity of the matter.

Aerial attacks, which helped the military take out several high-value targets in the tribal regions, have particularly been affected by the shortage of funds. “Air power has always been a real difference between us and them. Without aerial cover, ground troops often face stiff resistance,“ said a fighter pilot from the Army Aviation, who took part in the 2009 Swat operation.

Helicopter gunships have been the most effective weapon the Army Aviation used in operations against militants in Swat and lately in South Waziristan and Orakzai tribal regions.
“But flying gunships on a daily basis is a very expensive affair,“ said the pilot, who once pounded the hideouts of the Taliban led by fugitive cleric Mullah Fazlullah, also known as Mullah Radio, in the high mountains of Swat Valley.

Of late, ground troops also relied on air power to make inroads into the deep valleys surrounded by mountainous terrain in the militant-infested South Waziristan and Orakzai.
But for quite some time now, the aerial operations have been halted, primarily because of their exorbitant cost, which runs into billions of rupees, said officials at the General Headquarters (GHQ) in Rawalpindi.
Another official also confirmed the development but cited a different reason. “Yes, it is true helicopter gunship attacks are rare now. But it is due to the fact that militants are now scattered in different areas,“ he said. “Whenever the militants regroup we use helicopter gunships like we did on Tuesday in Mohmand,“ he added.

The military’s presumed `foot dragging’ is coincidental with efforts by top leaders from the country’s largest political parties to evolve a mechanism to pull the country’s ailing economy out of troubled waters.
Last week, a government economic team engaged the main opposition party in talks in an effort to seek its support for the economy that has since 2008 been breathing on an $11.3 billion bailout package by the International Monetary Fund.

The economic crunch is hitting the military alike.
Recently, the army decided to allow two weekly holidays in its units to cope with the situation.
“Fighting a war is a costly affair,” said Lt-Gen (retd) Abdul Qayyum. “With the government facing serious economic challenges, it is obvious the military cannot sustain its activities in the tribal areas in this situation,” said Gen Qayyum, who is a former chairman of the Pakistan Ordnance Factories.

“I don’t think the military can launch any new full-scale operation in the tribal areas,“ he said. “According to my estimate, the ongoing operations in the tribal areas cost Pakistan roughly $250,000 per soldier annually as compared to $1 million being spent by the Americans in Afghanistan,“ he said.

Qamar hints at Rs9.43/liter hike in POL prices 

ISLAMABAD: The parliamentary committee on petroleum prices earlier on Thursday evening met here to review the prices of POL products, Geo News reported.

The committee was told that the fuel prices may see rise up to Rs.9.43 a liter if government drops subsidy from POL products.

Officials of petroleum ministry, attending the meeting, briefed committee that POL products’ prices may inflate by more than 13 percent upon withdrawal of subsidy.

Diesel prices will have to be hiked by Rs.9.20 per liter, officials told committee, adding that if government continues subsidy on POL products so Rs.12 billion will have to be spent additionally till the end of February.

Hillary says Pakistan fuel price move a ‘mistake’ 

WASHINGTON: US Secretary of State Hillary Clinton, who has pushed Pakistan hard to improve its fiscal management, said on Thursday that Islamabad’s decision to reverse an unpopular fuel price increase was a “mistake”.

“We have made it clear, as I did in a meeting with their ambassador, that we think it is a mistake to reverse the progress that was being madeto provide a stronger economic base for Pakistan and we will continue to express that opinion,” Clinton told reporters during an appearance with visiting Japanese Foreign Minister Seiji Maehara.

Earlier, Mark Toner, a State Department spokesman, told reporters said the United States signaled it opposes the Pakistani government’s reversal of controversial fuel price hikes. “What we’ve said all along is that the reforms that the government of Pakistan is undertaking are difficult, but they’re important for its long-term economic stability,” .

“Well, that is our belief and that is our position,” Toner said when asked if it was a “bad thing” for Pakistan to reverse the fuel price increases. “Our position is that ... Pakistan needs to undertake difficult economic reforms that are going to require some pain, frankly, politically,” Toner said when asked to spell out what he meant by the US position. “But beyond that, I’m not going to weigh into what is a domestic political debate in Pakistan,” Toner said

An imminent food price increase

An imminent food price increase

IN this space last week I wrote about the likelihood of Pakistan’s already battered economy receiving another shock sometime soon. In 2011 the economy is likely to be hurt by an imminent and significant rise in the prices of commodities.

Last week, I wrote about the recent trends in the movement of two groups of commodities: energy producing items and metals. Today I will turn to the likely impact of a number of global developments on the prices of agricultural commodities several of which are important in Pakistan’s import basket.
There is a mounting anxiety in international circles that we are about to witness an extraordinary increase in the prices of several agricultural commodities that enter the food chain.

While the economy was hammered by a number of domestic developments in the last couple of years – some of them brought on by nature such as the flood last summer of biblical proportions and some by poor public policies – further shocks are likely to be delivered by a series of developments in the international market place over which policymakers have no control.

In these difficult times Pakistan cannot afford to alienate its foreign friends. The policymakers’ poor performance in the area of domestic resource mobilisation means that its relations with the International Monetary Fund and much of the Western world will remain strained. Pakistan’s leaders will have to demonstrate that they can gather the political will needed to introduce long postponed structural reforms in particular of the tax system. They will need to do this before the donors are prepared to loosen their purse strings and come to the country’s help one more time. Help will be needed if the prices of the imported commodities increase and begin to eat into the accumulated reserves.

Much of IMF $11.3 billion standby credit has arrived and is responsible for taking the foreign exchange reserves to a comfortable level. But the Fund has stopped further disbursements since Pakistan has not been able to meet one of the more important conditions: improving the tax system to generate more resources from within the economy. With the Fund stepping aside, Pakistan has very limited options available to meet the pressure on external accounts that will result from a rise in commodity prices.

As is usually the case with commodities, price rises are the result of a number of factors: natural disasters and changes in weather conditions, changes in the structure of demand in large countries, actions by the governments across the globe, and speculation in the forward markets. All these are in play at this time.
Russia, a major producer of wheat had one of the hottest and rainiest summers in 2010. That affected wheat output. Australia has faced serious floods in their summer (our winter) as did Pakistan. Both countries are important producers of several commodities. Argentina had a long dry spell that has affected its grain output.
Financial speculators are adding fuel to the fire that is burning in the commodities markets. Money flows have been large in recent months. Barclays Capital estimates $60 billion was injected into commodities in 2010 contributing to the increase in these prices.

Figures from the Commodity Futures Trading Commission, the US regulator, reveals very bullish bets among many mangers such as hedge funds. Concerns about speculation in the markets has prompted the United States Congress to begin to worry about the impact on the level of prices that may follow heavy trading by speculators not connected with the fundamentals of the market – supply and demand changes. Some US Senators have warned of a “speculative bubble that threatens to drive up gas and food prices even further.” They have threatened to take legislative action if the speculators continue to affect market stability.

Prices of agricultural commodities jumped recently after the United States government surprised the forward markets with the announcement that its stocks of key crops were running very low. The US Department of Agriculture said in a statement that the ratio of stocks-to-demand will fall this year to their lowest level since the mid-1970s. That was the last time the world went through a food scarcity scare. The international community at that time reacted quickly. A World Food Conference was convened in Rome which led to the creation of the International Fund for Agricultural Development, IFAD. This new UN agency was tasked with the responsibility for increasing investment in agriculture in the developing world.

For the moment no international action is contemplated as was the case in 1974. The result is that most governments are taking steps on their own. Some of these are likely to aggravate the situation as happened with the decision by Moscow to ban most agricultural exports. Moscow has said that the restrictions it placed on the export of many food products will remain in place until the end of 2011. South Korea and the Philippines have suspended some of their import duties on food items such as fish and powdered milk.
In December, Sri Lanka released rice stocks and re-imposed a price ceiling that had been removed in October 2010. The Indian government is very nervous about the price of onions that soared 80 per cent in just one week. It has allowed the import of onions from wherever it is available.

According to the Financial Times, “still in its infancy, 2011 is conjuring up memories of the start of 2008. Soaring crop prices have stoked fears of a food crisis and oil markets are bubbling…Prices of corn, soyabeans and wheat in January returned to heights that only two years ago sparked riots in more than 30 countries from Haiti to Bangladesh”.

For obvious reasons the poor are hurt more by a rise in the price of food. For them food constitutes a larger proportion of the budget than for other income groups. According to the World Bank, 65 million were thrown into poverty in 2008 and 2009 as a result of food price increases.

For the moment the prices of the crops that are important items of import by Pakistan have risen while those the country exports have stayed steady. The price of rice, by far the most important agricultural export, is likely to remain steady compared to some other food crops that are imported.
The group that matters the most for Pakistan are the oil bearing crops. The news about the stock situation in the United States resulted in a sharp increase in the price of corn and soya bean. They increased to their highest levels in 30 months. Both crops are important in this group of commodities.

There is a long history of food price increases causing political problems for governments in power which is one reason why policymakers react quickly – sometimes irrationally – to food inflation. Ayub Khan was brought down in the spring of 1969 by public agitation following the rise in the price of sugar, an
important item of consumption for the poor.

Rising food prices may have been an ingredient in the political movement that drove Tunisia’s president, Zine el-Abidine Ben Ali, from office and out of the country. One of the measures Ben Ali used a few days before throwing in his hat was to cut prices for sugar, cooking oil and other commodities. There are lessons in these experiences for Pakistan.

In a weakened and weakening political system a commodity price shock may be hard to absorb since it affects the poor and the lower middle classes more than the classes represented in the political establishment. The government needs to prepare itself and do it soon to deal with this expected shock to the troubled economy.

Economy on verge of collapse, Hafeez tells MPs

Economy on verge of collapse, Hafeez tells MPs

ISLAMABAD: The country is facing unprecedented economic challenges and the economy is in dire straits. And if drastic measures are not taken urgently, the budget deficit could exceed eight percent of the GDP (equivalent to Rs1,370 billion) against the target of 4.7 percent while inflation could swell to over 22 percent.

Finance Minister Dr Hafeez A Shaikh presented these disturbing figures while briefing the parliamentary leaders of some political parties on the economic situation of the country. Federal Minister for Water and Power Raja Pervaiz Ashraf and Federal Minister for Petroleum and Natural Resources Naveed Qamar represented the government.

 

Senator Professor Khurshid Ahmad of Jamaat-e-Islami told media persons after the briefing that the country’s economy was on the verge of collapse. The parliamentary leaders of the political parties in the next meeting to be held next week will come up with their recommendations and suggestions to wriggle the country out of the economic morass.

 

But, at the same time, Dr Hafeez claimed that in the first six months of the current fiscal, the government has performed very well and managed to achieve 2.9 percent fiscal deficit against the target of 3.3 percent.

As far as eight percent budget deficit is concerned, the minister said that the government needed the support of all the political parties for major steps to bring the economy on track, failing which the economy was bound to nosedive. The minister, however, in the same breath said that the president, prime minister and political leadership would not allow the economic landscape to deteriorate to such a level.

The government has reduced the expenditures and achieved budget deficit of less than three percent in six month period. The minister said that the government was in contact with all the political parties and the consensus is that fiscal discipline had to be maintained.

 

Khurshid said the meeting was told that although all major sectors of the economy present a bleak picture, there are some positive signs also as exports are improving and will hit the $22 billion mark this year. Likewise, remittances have also increased substantially and will cross $10 billion. Apart from it, the government is also expecting a bumper wheat crop.

 

He said that the government should concentrate on reducing non-development expenditures and establish good governance. “Corruption is rampant, which should be checked with prudent steps.”

The government has already reduced the development budget, first from over Rs400 billion to Rs280 billion which was further slashed to Rs180 billion. According to one estimate given by the government, the size of tax evasion has increased to a staggering Rs700- 750 billion while corruption amounts to over Rs300 billion. The government is also spending huge amount on debt servicing, defence and security. It has already spent 35 percent more that the budgeted target on defence and security in the first six months of the current fiscal.

 

“I have suggested to the government to come up with integrated and coherent economic policies along with good governance,” Prof Khurshid said, adding that if the tax evasion and corruption were contained, the country will have a major increase in its revenue.

 

He said the current shape of the Reformed GST was not acceptable and in case the government introduces some changes in the existing RGST, then the Jamaat-e-Islami will be ready to review it.

To a question, he suggested that the government should avoid increasing the power and POL prices. Instead, it should concentrate on reducing 30 percent line losses through better efficiency.

Munir Aurakzai, parliamentary leader of Fata members in parliament, urged the government to rationalise expenditure. Salman Siddique, FBR Chairman, told our sources that in the month of December, FBR’s performance has been outstanding as it managed to collect Rs159 against the target of Rs147 billion and in the month of January, it has so far collected Rs72 billion in 22 days. To a question, he said that out of $1.3 billion arrears under the head of the Coalition Support Fund, Pakistan has managed to get $743 million.

Small loan write-offs seen hitting Rs1bn

Small loan write-offs seen hitting Rs1bn

 

KARACHI: Pakistan’s microfinance institutions will likely write off between Rs800 million and Rs1 billion as recovery of loans becomes difficult in the areas worst affected by last year’s floods, said a senior official of the industry body.
This, however, makes up just four percent of the outstanding loans of Rs25 billion and poses no direct threat to the industry, said Syed Mohsin Ahmed, CEO of Pakistan Microfinance Network (PMN).

Factors such as economic slowdown, recurrent power outages and religious extremism are retarding progress of industry, which saw annual growth of 30 percent between 2005 and 2008 but since then has plunged drastically, he said.

“Around 90,000 clients have been badly affected by floods,” he said. “They have lost everything and cannot repay loans, which must be taken off the books.”

At least 700,000 borrowers, mostly based in Punjab and Sindh, who came in the path of raging waters after heavy downpour last August, need additional loans to stand on their feet, he said.

“We estimate that refinancing of Rs7 billion to Rs8 billion is required to help bring these people to their feet,” Ahmed said. “They are not among those being accounted for write-offs. They just need money to reestablish their small businesses.”

These include clients of both microfinance banks (MFBs) and non-governmental organisations working in the area of micro-lending. PMN has 27 members.

State Bank of Pakistan (SBP) has relaxed provisioning requirements for microfinance banks, considering the challenges faced by them, he said. “MFBs can delay provisioning, which allows us to defer expenses and sparing cash to make loans again.”

But liquidity constraints for microfinance banks have increased, creating problem for future growth, said the CEO of PMN. Availability of funds from commercial banks that meet 35 percent of the funding needs of MFBs remains on the lower side, he said.

With limited outreach and relatively smaller operations, the MFBs are not yet able to raise enough deposits for meeting the lending requirement, he said. “It will take time to build brands, which enjoy customer trust.”

The deposit base of the MFBs increased to Rs9 billion in 2010 from Rs3 billion in 2006. The overall balance sheet of MFBs stands close to Rs20 billion. Other microfinance institutions raise funds from Pakistan Poverty Alleviation Fund (PPAF) and multilateral donors.

“Commercial banks do not feel the need to make risky lending to MFBs when they earn enough on government securities,” Ahmed said. “We need to promote the fact how important MFBs are to prosperity of the society.”

In 2008, SBP introduced a Microfinance Credit Guarantee Facility to encourage commercial banks to lend to MFBs. “It is doing very well. In the past six months, three deals (between commercial banks and MFBs) were finalised under the facility.”

Still, the risky nature of micro-lending business and larger economic woes discourage commercial banks to fund the MFBs, he said.

Ahmed said that more than inflation, economic slowdown and power crises limited the ability of microfinance borrowers to repay loans on time. “A tailor cannot do much if he doesn’t get electricity for eighteen hours a day.”

Religious extremism in Khyber Pakhtunkhawa has caused the portfolio of microfinance lending to shrink by almost 50 percent, he said. “NGOs were threatened as extremists say the work they do is not Islamic.”

MFBs are now allowed to take deposits from public sector organisations, he said and explained that only scheduled banks can do that. “It’s a technical issue and we are working with the central bank to find a way out of it.”

Pakistan has 2 million microfinance borrowers. The industry, however, sees the market could be as large as 20 million as a large part of population still depends on traditional moneylenders.

Budget deficit reaches record Rs 510 billion

Budget deficit reaches record Rs 510 billion

* Govt left with no option but to implement painful decisions from Feb 1
* All subsidies to be withdrawn

ISLAMABAD: The government has plans to implement some painful economic decisions from February 1 as budget deficit has grown to unprecedented Rs 510 billion and it has decided that subsidies on power tariff, oil prices and others will be withdrawn, official sources said on Saturday.

The political leadership has been informed of the country’s economic situation, which has no space to meet additional demands of subsidies on oil and other sectors, they said.

A five-member committee constituted by Prime Minister Yousaf Raza Gilani during economic review meeting on Friday, would hold meetings with the heads of all political parties to develop a consensus on economic decisions, the sources added.

They said the painful economic decisions have become necessary as the government has missed its initial upward revised target of containing the budget deficit at 2.6 percent of the GDP. The budget deficit for the first half (July-December) of the ongoing fiscal year 2010-11 has now been estimated at 3 percent of the GDP or around Rs 510 billion against the initial target of Rs 442 billion, they continued.

The sources said power tariff subsidies over and above parliament’s approved limit, withdrawal of increase in POL prices and additional security expenditures were the main causes that resulted in increase in budget deficit. The economic review meeting was informed that if subsidies were allowed during the second half of the fiscal, they would put unbearable burden on the economy and would leave no option but to increase borrowing from the market on higher interest rates.

They said the government would also try to develop consensus on the implementation of the performance benchmarks agreed with the International Monetary Fund (IMF), World Bank (WB) and Asian Development Bank (ADB), until June 2011.

A nine-month extension allowed by the IMF has provided Pakistan with time for completing the RGST, implementing a set of measures to correct the fiscal policy and amending the legislative framework for the financial sector.

They said implementation of a reformed GST involving a broader base, reduced exemptions, and input crediting, both at the federal and provincial level, parliamentary passage of the amendments to the State Bank Act and the Banking Companies’ Ordinance, agreement on measures to achieve the revised fiscal deficit target, including a realistic envelope for energy subsidies in 2010-11 based on a plan that is yet to be endorsed by the Asian Development Bank and the World Bank, and third-quarter fiscal performance that was consistent with achieving the full-year target were among the actions that would be critical for the completion of the fifth review. The government has plans to bring State Bank of Pakistan borrowing from existing Rs 180 billion to nil by June 30, 2011 and in this regards many proposals were under discussion at the Finance Ministry, the sources maintained

The IMF is expected to hold discussions with Pakistan for the fifth review soon and propose a set of performance criteria for end June and structural benchmarks that would form the basis for the sixth and final review under the Stand-By Arrangements.

Railways awaits Rs11.1bn to be back on track

Railways awaits Rs11.1bn to be back on track

 

KARACHI: Pakistan Railways is eagerly waiting for the release of 11.1 billion rupees to get back on track while a former railways minister sees next two months crucial for the survival of this loss-making entity.

The federal cabinet on December 30, 2010 approved the Rs11.1 billion bailout package for Pakistan Railways, which will be used on the rehabilitation of the locomotives, improvement of tracks and maintaining strategic reserves to buy diesel.

“We are in urgent need of money to rehabilitate 145 locomotives,” Ghulam Ahmed Bilour, Minister for Railways, told The News on phone. “There is a beeline of hundreds of vehicles waiting to send their goods, but we don’t have locomotives to fulfil the demand.” According to the minister, only three to four freight trains are currently in service and the overall need of Pakistan Railways goes up to 400. The existing locomotives, he said, are 30 to 40 years old and the addition of just 100 in past twenty years was nothing by any standards, he said. “We must add 30 locomotives a year to become sustainable,” Bilour added.

A former railways minister, Sheikh Rasheed Ahmed, said the ministry was dragging its feet on necessary reforms which could derail the organisation by March this year.

“The absence of locomotives is a big issue. But, the ministry doesn’t want to deliver and it’s a question of blue eyed officials,” Ahmed said.

Citing his experience, Ahmed said that railways could easily fix around 100 out of 500 defunct locomotives. He stressed the need of starting work on new projects and to renovate 27 stations burnt in the December 27 carnage in 2007. According to the former railways minister, selling land and outsourcing freight business could also boost the organisation’s revenue like it happened in the past.

The government earmarked Rs13.63 billion for the cash-strapped entity in the current fiscal year’s budget. The major losses faced by the Pakistan Railways today are a direct result of decreasing revenues with increased expenditures.

In view of the hike in diesel prices since 2008, Railways recently jacked up fares to the tune of 10 to 30 percent for passenger and freight trains.

“The strategy to increase fares have proven counterproductive, which passenger traffic by 60 percent,” Ahmed said.

To increase the number of locomotives, the government signed two separate deals with China’s Dong Fang and General Electric of the US to purchase 75 and 150 locomotives respectively. Both agreements are worth $105 million and $447 million respectively and await Supreme Court decision.

Defence ministry seeks Rs1.66bn for dogs` training

Defence ministry seeks Rs1.66bn for dogs` training 

ISLAMABAD: At a time when the government is facing paucity of funds for civilian development projects, the defence ministry has asked the Planning Commission (PC) for over Rs1.66 billion for setting up a national canine centre for training of dogs.

The government has already slashed the Public Sector Development Programme to Rs140 billion from the budgeted Rs280 billion in the wake of last year`s floods and consequent financial crunch.
Among other reasons, the development budget was reduced to spare money for debt servicing and defence expenditure needed for the fight against militancy.

The military already runs a well-established army dog centre in Rawalpindi, which is financed through the defence budget.

The ministry has sought funds for salaries and vehicles for dog trainers and the rent for the land where the centre is planned to be set up in four years. According to official estimates, the per dog cost is projected at Rs2.710 million, including Rs1.405 million capital cost and Rs1.305 million operational and maintenance expenses.

After its completion, the centre is projected to train 3,260 dogs in 10 years.
The defence ministry has requested the PC for the money despite the fact that the proposed canine centre was withdrawn from the list of projects funded under the PSDP.

According to sources, various departments and state institutions, including the president`s secretariat, have pressured the PC to include the project in the agenda of the meeting of the Central Development Working Party.

The PC-1 of the project was initially submitted to the PC in February last year. However, it was removed from the CDWP agenda after the government`s focus shifted to flood-affected people.
Then in September, the president`s secretariat wrote to then Planning Commission Secretary Ashraf M. Hayat asking that the project be approved. It was suggested in the letter that the actual funding be put on hold till the financial position improves.

So far, Dawn has learnt, three attempts have been made to get the canine centre approved from the CDWP, which approves only civilian projects.
Despite strong reservations of the finance ministry and some PC officials, the CDWP discussed the project in its recent meeting, but decided to seek further information.

The president`s secretariat, however, is not the only office to have supported the project. Mr Hayat also wrote a letter for its inclusion in the agenda of the CDWP meeting.
Planning Commission`s Deputy Chairman Dr Nadeemul Haq has also approved in principle the idea of financing the project from the civilian budget with a suggestion that its cost be revised.

A finance ministry official told Dawn that the ministry questioned its requirement of 338 personnel to be headed by a brigadier and suggested that the number of employees be reduced to 263, including the staff of Rawalpindi`s army dog centre.

The finance ministry also said that there was no need to pay Rs79.2 million as land rent because a dog centre already existed on a land of 28 acres.

The proposed centre will purchase 15 vehicles, including land cruisers worth Rs22.678 million, to be maintained and operated at a cost of another Rs11.764 million.

Govt in state of fiscal emergency: FBR

Govt in state of fiscal emergency: FBR 

KARACHI: The government is in a “state of fiscal emergency” that can only be overcome by developing ‘working partnership’ with the business community, says chairman of the FBR.
Addressing members of the Karachi Chamber of Commerce and Industry (KCCI) on Saturday, Salman Siddique said the FBR would extend maximum cooperation to the business community to address their complaints about payment and collection of taxes.

He suggested that the KCCI office-bearers should set up a committee to help the FBR resolve issues regarding refund claims of exporters.

Mr Siddique held out the assurance that all the refund claims would be handled expeditiously as compared to the past, adding that no malpractice by any official would be tolerated.
He said the Board’s revenue advisory council would be told to have working relationship with the KCCI and added that FBR’s functions would be restructured in consultation with members of the chamber.
He hinted at formation of “an alternative dispute resolution mechanism to improve relations with taxpayers”.

FBR chief paints gloomy picture of economy 

KARACHI: Chairman of the Federal Board of Revenue Salman Sidiqqui has said that the government cannot provide a bailout to the industrial sector as the regime is facing an unannounced economic emergency.
He stated this while addressing a ceremony under the aegis of the Karachi Chamber of Commerce and Industry here on Saturday.

Talking to the media on the occasion, the FBR chairman said that the government was trying to curtail loans to control inflation.

The current amount of loans stands at Rs140 billion not 500 billion rupees, he added.

He said in the first phase, the Islamabad Electric Supply Company (Iesco) would be privatised, adding that the economic sector was facing a crisis and the government could not meet its expenditures.
He questioned how it could be possible to provide resources to the business community in these circumstances.

The FBR chairman pointed out that no one would come forward from abroad to provide a bailout package for the restoration of the economy.

"We should resolve our problems and every citizen should be brought into the tax net," he added.

The FBR chairman suggested that a ban had to be imposed on the government from borrowing from the State Bank.

Policymaking is not the responsibility of the FBR but its function is its implementation.

He advised tax defaulters to contact the actual department for the solution of their problems. The FBR is working for the welfare of various departments.

It is not difficult to overcome the issue of economic deficit through local resources, he underlined.

To a question, he said that the economic downfall started after the government borrowed loans from banks.

Salman Sadiqqui urged businessmen not to attach any expectations to the government as it was facing economic problems.

He suggested traders should set up representatives of the business community for the solution of their problems regarding tax.

On this occasion, a KCCI member, Qasim Teli, said that traders were facing several problems about tax, adding that the traders wanted to pay tax but the policy of the government should be clear in this regard.

The government should improve the tax system. He demanded an end to corruption in the FBR.

Referring to various complaints on export refund claims, the FBR chairman said that a committee of the KCCI should be formed by the chamber office-bearers, who could help the board in resolving the claims of exporters.

"I assure you that all the refund claims will be made expeditiously as compared to the past and non official malpractices will be tolerated," he added.

The FBR chief said that the Board's Revenue Advisory Council will be asked to have a working relationship with the KCCI and further gave an assurance to the business community members that functions of the FBR will be restructured after consultation with the members of the chamber.

Earlier, KCCI President Saeed Shafique dwelt at length over the problems of the business community pertaining to taxation.

Cut in gas supply leaves daily wagers penniless

Cut in gas supply leaves daily wagers penniless

FAISALABAD: As per new Gas Load Management (GLM) schedule, gas supply to industrial units has been suspended for four days with affect from today (Sunday) following which, the production activities in many local factories have come to complete standstill here in Faisalabad, Geo News reported.

Thousands of laborers on daily wages have suffered from decision as they have been left penniless, struggling to generate income from other ways, sources told Geo News.
According to new GLM schedule issued from Sui gas, gas supply to industrial units in Faisalabad would remain on halt for four days (from January 16 to 19), turning out to be tough financial challenge for daily wagers.

Citing the ongoing suspension in gas supply, factory owners have warned provincial government against complete closure of their businesses.

Kitchen items prices register drastic increase

Kitchen items prices register drastic increase

ISLAMABAD  (January 16, 2011) : The prices of kitchen items registered a drastic increase during the week ended on January 15, compared to previous week, according to a survey carried out by Business Recorder. Traders at Gunj Mandi Rawalpindi (grains and cooking oil wholesale market) told Business Recorder that prices of cooking oil, tea, ghee, bread, jam, and other essential kitchen items had again increased during the week.

The price of ghee/cooking oil has almost gone up by Rs 10 per kg while price of one kg Lipton tea pack has increased by Rs 35 in the retail market and tomatoes by Rs 10 per kg. According to traders, the price of 12 kg tin of normal quality cooking oil shot up to Rs 2,000 from Rs 1,810.

The price of 16 kg tin of cooking oil and ghee surged to Rs 2,700 from Rs 2,500, showing an increase of Rs 200 per tin, while branded cooking oil and ghee in one kg packing increased by Rs 10 per pack, which now is being sold at Rs 190 per kg.

Different buyers at Fruit and Vegetable Market, Islamabad lamented the rise in prices and stated that they were unable to understand why the government was not taking serious steps to reduce prices. They said that a few years back there was a proper market mechanism and no one was allowed to overcharge, but today in wholesale market as well as in retail market no one is monitoring prices.

"We are facing multiple problems including gas load shedding which renders us unable to cook food in our homes while electricity load shedding is also increasing our problems as our kids are unable to complete their homework and are not able to study at night time" said Nasreen, a school teacher.

She said that skyrocketing prices of vegetables and other essential kitchen items had made it difficult for a common man to manage his monthly budget. Jamshed, a vegetable dealer, said that prices of vegetables continue to rise due to insufficient supply due to fog. He added that tomatoes, which cost Rs 40 per kg in mid-October, now cost almost Rs 80 to 100 per kg. "Prices of most common vegetables like potatoes and tomatoes have doubled. And fresh vegetables like spring onions, green leafy vegetables and turmeric are hardly available," he added.

According to traders, grains, pulses and oil are getting costlier with each passing day. They said that this year prices of kitchen items would keep increasing as was witnessed in the past year. During the week under review, onion prices went up by Rs 5 as the commodity is being sold at Rs 50 in wholesale market and Rs 60 in retail market, which a few days back was being sold at Rs 40-45 per kg in the retail market per kg.

Up 17 percent on law & order: spending on infrastructure down 36.57 percent

Up 17 percent on law & order: spending on infrastructure down 36.57 percent

ISLAMABAD  (January 16, 2011) : The government's spending on infrastructure development in relation to roads, highways, and bridges declined by 36.57 percent in the first quarter of current fiscal year as compared to corresponding period of last year, while expenditure on law and order shot up by 17.18 percent, according to Poverty Reduction Strategy Paper (PRSP).

Official figures of PRSP, released by the Ministry of Finance for the first quarter of current fiscal year, show a sharp decline infrastructure development spending to Rs 5.536 billion, 36.57 percent down compared to Rs 8.728 billion for the same period of last year.
The expenditure on law and order increased to Rs 34.526 billion in the first quarter of current fiscal year, 17.18 percent up compared to Rs 29.463 billion for the same period of last year. Analysts say that any increase in spending on law and order is a clear indication of the deteriorating law and order and may be one of the reasons for cut in expenses on infrastructure development .

The expenses of federal government on law and order for the period under review went up to Rs 11.234 billion against Rs 9.232 billion for the same period of last year. The expenditure of Punjab government to maintain law and order went up to Rs 12.061 billion for the first quarter as compared to Rs 10.955 billion for the corresponding period of last year.

The spending of Sindh government on law and order increased to Rs 6.124 billion from Rs 5.066 billion for the last year, and Khyber Pakhtoonkhwa province to Rs 3.298 billion from Rs 2.592 billion. Balochistan government's expenses on law and order situation rose to Rs 1.771 billion during July-September 2010-11 from Rs 1.618 billion for the same period of last year.

The expenditure on justice administration increased by 29.38 percent in the first quarter of the current fiscal year as compared to the same period of last year. The expenses on justice and administration increased to Rs 3.069 billion during the period under review from Rs 2.372 billion.

The expenditure on education under the PRSP increased to Rs 66.367 billion in the first quarter of current fiscal year from Rs 50.672 billion for the same period of last year. The increase witnessed in the provincial spending may be largely because the subject has been devolved to the provinces after the approval of 18th Constitutional Amendment.

The education expenditure of federal government declined to Rs 7.049 billion in the first quarter as compared to Rs 9.037 billion for the same period of last year. The spending on health also increased during the first quarter of the current fiscal year to Rs 17.237 billion compared to Rs 13.492 billion for the same period of last year.

Pakistan: Power generation decreasing

Pakistan: Power generation decreasing

LAHORE, Jan. 14 -- The water release from the country's three reservoirs has reduced drastically, forcing the hydro-power generation to come down to 1,196MW against the capacity of 4,662MW of the three reservoirs.

The Water and Power Development Authority (Wapda) said it was releasing water from the country's three reservoirs i.e. Tarbela Dam, Mangla Dam and Chashma as per the indent issued by the Indus River System Authority (Irsa).

Officials said water releases from the three reservoirs were reduced due to the ongoing canal closure. They said the present releases were 45,000 cusecs from the three reservoirs. They said at present 4.1 MAF water was available in three reservoirs in comparison with the previous year's 1.3 MAF.

According to the IRSA indent to the Wapda, water releases from Mangla from December 26, 2010 to January 12, 2011 were 10,000 cusecs and at Tarbela water releases were 30,000 cusecs on December 25, 2010 and 20,000 cusecs from December 26, 2010 to January 5, 2011. Similarly, the IRSA directed the Wapda to further cut down water releases to 15,000 cusecs for January 6-7 and 10,000 cusecs from January 8-10, 2011. However, on January 11 and 12, 2011, the IRSA directed the Wapda to increase water releases from Tarbela to 15,000 cusec Published by HT Syndication with permission from Right Vision News.

Textile sector investment on decline

Textile sector investment on decline

 

LAHORE: Though Asia accounts for over 90 percent of the global investment in textile machinery led by China, India, and Bangladesh; the textile industry stakeholders believe that Pakistan has been left behind due to the energy crisis and high interest rates.

The latest textile machinery shipment statistics released by the International Textile Machinery Federation revealed that 97 percent of the spindle shipments in 2009 were to Asia.

China bought 5.04 million spindles, accounting for 70 percent of the total global spindle sales. India with 1.37 million new spindles had global share of 19 percent. Vietnam and Bangladesh installed 111,000 and 108,000 spindles to occupy third and fourth positions.

In 2006 when the Pakistani economy was booming, the country added 670,000 spindles to emerge as the third largest importer after China (6.7 million spindles) and India (2.8 million spindles).

“Pakistan is fast losing its competitive edge in textiles as the investment in the textile sector has been on constant decline since attaining peak in 2005,” said All Pakistan Textile Mills Association Chairman Gohar Ejaz.

He said unavailability of gas and electricity is the main hurdle in investment in textiles, adding that prohibitive interest rates are another reason for stalled investment.

Asia accounted for 96 percent of the new shuttle-less looms added in the world in 2009. China with 25,600, shuttle-less looms was again the leader, accounting for 59 percent of the total purchases followed by Bangladesh that added 8,400 looms equivalent to 19 percent of the global investment in these machines.

There was no investment in weaving sector in Pakistan. In 2006, the country imported 2,400 shuttle-less looms and was fourth largest importer of looms after China, India and Bangladesh.

“Bangladesh had only 3,200 shuttle-less looms in 2004 against 24,000 installed in Pakistan,” said S M Tanveer, a leading textile mill-owner.

He said after five years, Bangladesh has overtaken Pakistan as investment after 2006 has dried in Pakistan.
The energy and power shortages played havoc with the local weaving industry that impeded investment, he said, adding that the current 15 percent shortage of gas could be overcome by importing liquefied natural gas (LNG) and putting gas in the natural gas distribution systems.

He said gas prices would have to be increased by 15 percent for all consumers to compensate for the high cost LNG.

‘Economy cannot afford more military offensives’

‘Economy cannot afford more military offensives’

ISLAMABAD: The finance ministry has said that Pakistan’s troubled economy cannot indigenously afford more military offensives if the government continues to compromise economic reforms for political concessions.

“The defence budget can rise abruptly if another military venture is launched. That will be unbearable for the economy,” an official was quoted as telling Prime Minister Yousaf Raza Gilani during a mid-year economic review meeting.

The warning came amid reports that the US was pushing Pakistan to send troops into North Waziristan to take on the Haqqani network. Experts say this can be one of the most expensive military campaigns undertaken so far. Earlier this week, both political and military leaders told US Vice-President Joe Biden during his Islamabad visit that they would consider sending the army into the border regions only at a time of their choosing.

The word of caution by finance authorities to the beleaguered administration comes less than a fornight after the government reversed an increase in fuel prices to appease protesting opposition groups.
“Since these are testing circumstances, tough and unpopular decisions need to be taken. Failing that, we will be further complicating our economic troubles,” an official told The Express Tribune what transpired during the meeting. Officials said that the finance ministry had warned the government that a fiscal deficit for the ongoing financial year could touch 7.5 per cent of Gross Domestic Product instead of an original estimate of 6.5 per cent if drastic measures were not taken to jack up revenue collection or control expenditure.

Meanwhile, a statement issued by the prime minister’s media office quoted Gilani as saying that the economic challenges of Pakistan would be shared with parliament to seek their proposals for resolving the financial difficulties of the country and the people.

“The objective behind the reconciliatory process and consultation with political leadership is to develop consensus and take decisions in the larger national interest,” Gilani told the meeting.

PEW expresses concern on PPP-led government excessive borrowing

PEW expresses concern on PPP-led government excessive borrowing

ISLAMABAD : The Pakistan Economy Watch (PEW) Thursday expressed concern on the PPP-led federal government’s excessive budgetary borrowing, as on the average it taking Rs68 billion (or US$795 million) a month from the banking system to fill its income-expenditure gap while ignoring its ’negative fallouts’ in shape of rising inflation that hitting hard the poor the most.

Only from the State Bank of Pakistan (SBP), the federal government is borrowing about 28 billion a month.
The President of PEW, Dr. Murtaza Mughal said, "The excessive borrowing from the central bank is diluting the effects of the SBP tight monetary policy and causing ’inflation’ to go up further". He added it also signaling towards the slower pace of the economy.
 
Currently, the state bank of Pakistan discount rate is highest in the region at 14 per cent. The bank tight its monetary policy to rein in the skyrocketing inflation, but on the other hand the government borrowing from SBP is ’nullifying’ possible positive effects of the bank policy.
 
Despite tight monetary policy, inflation is in double digit and above expectation. During 2010 CPI inflation rose to 15.68 per cent against 10.52 per cent in corresponding month of the last year and first half (July-December 2010-11), average inflation stood at 14.65 per cent.
 
He said as the public spending helps in developing right infrastructure for encouraging private investment; however, as the government spending is huge and not accompanying by increase in government revenue and proportionate increase in GDP, so it created public debt and inflation to go up. The higher government spending is also putting upward pressure on the interest rates and discouraging private investors borrow and invest in the economy and flourish their businesses.
 
He said, "the government should control its lavish spending and rein in the leakages from its state-run enterprises, as ultimately, it is the poor masses that finance it through their hard-earn ’tax money’ and in shape of higher inflation"
Elaborating, Dr. Mughal said, as these issues are causing budget deficit to widen, and for its financing it borrow from the banks, the bank print the money and there become a situation when "too much money chases too few goods" and the inflation shoots up.
 
While referring to the latest data of the State Bank, he said, "The central government during last six- month (from July to end December, 2010) has borrowed huge Rs408 billion from the banking system, which makes per month average borrowing to Rs68 billion". He added that out of this amount, about Rs168 billion were been borrowed from the state bank, while Rs240 billion from scheduled banks.
 
Dr. Mughal also said, the federal government’s this year borrowing was three-and-a-half-time more than what it borrowed Rs116 billion during same period of the last year. While, the provincial governments instead of borrowing have retired 76 billion debt of the State Bank of Pakistan and borrowed Rs6.15 billion from scheduled banks during the period.
 
He proposed the government to do legislation as soon as possible on "SBP Act" which envisages restrictions on the government borrowing from the central bank and which is still pending with the Senate.
The National Assembly has already approved it. However, some officials of the ministry of finance say that the government was dillydallying in getting through the Act from the Upper House as to avoid restrictions in the existing economic situation where revenue shortfall and expenditure overrun were forcing the government to pursue the SBP for providing money for budgetary support without any limit.

Rising crude prices to hit oil industry

Rising crude prices to hit oil industry


KARACHI: Rising oil prices in international markets are fast becoming a nightmare for the country’s refineries and oil marketing companies, which have already been burdened by heavy inter-corporate debt.
An official of Pakistan State Oil (PSO) said that the expected rise in oil prices to $105 per barrel would cause difficulties for the giant oil marketing company, whose receivables from various companies have already crossed Rs135 billion.

“In case of a further rise in petroleum prices, PSO would have to purchase expensive petroleum products and sell them to enterprises that are gradually paying their outstanding dues. This will certainly aggravate PSO’s financial woes,” he added.

A PSO spokesperson said that outstanding dues which Pakistan Railways has to pay stood at round Rs750 million, which is not a big amount but its cheques have bounced many a times.

“We have been requesting the Railways to sign a fuel supply agreement for the past two years, which will protect both the institutions, but they were not keen to agree on any payment plan,” she added.
President Petroleum Marketing Business Byco Petroleum Pakistan Limited, Kalim A Siddiqui, said the refining industry faces a critical situation. “I think we all have warned that the circular debt is a big issue. It has been more than two years but problems are only growing.”

“Who will invest in the country just to suffer losses,” Siddiqui said when asked about the new refinery his company has planned to start this month, adding, “it will take six to seven months for the new refinery to come on stream.”

“Our Rs6.5 billion is stuck in circular debt and we are trying to manage. No private company can run with this much money blocked in the system,” he added.