Pakistan economy

Flying away: Foreign investment falls 59% in five months

2011-12-26T03:25:00.000-08:00

Flying away: Foreign investment falls 59% in five months
Foreign investment in the country dropped 59 per cent to $305.4 million in the first five months (July-November) of fiscal year 2011-12 compared to investment of $748.7 million in the same period last year, State Bank of Pakistan (SBP) said on Friday.
According to breakdown, foreign portfolio investment fell significantly by 166 per cent to $114.5 million against $172.5 million in the previous year. On the other hand, foreign direct investment declined 27 per cent to $419.8 million compared to $576.2 million last year.
JS Global Capital Limited economist Muzammil Aslam said the decline in foreign direct investment (FDI) is certainly not good for the country. “What is disturbing is that there is no inflow of technology and knowledge that usually comes with FDI,” he said. “Similarly, it is also a bad sign for growth and employment opportunities.”
The decline in foreign investment from $5 billion in 2007 to the present level of $305 million is significant for a country that is now facing a current account deficit, he said.
Aslam said the government can overcome this challenge by reviving the privatisation programme and marketing viable sectors where foreign investment can come easily.
“The government has to move on and attract investors because the country’s image as an investment destination has been shattered. It can be achieved through continuous interaction with investors, which the government is not doing efficiently,” he added.
Though most analysts are attributing the continuous decline in foreign investment to the sluggish economy, some experts have divergent views as well.
AF Ferguson and Company partner SM Shabbar Zaidi said as far as FDI is concerned, the situation is not that bad as is being portrayed by some quarters.
It is a misperception that Pakistan got huge FDI in the good times of 2007 or before as around 70 per cent of foreign investment before 2007 comprised portfolio investment, which is usually considered “unreliable” in the world. Portfolio investment comes in stock markets and then quickly vanishes within months, he pointed out.
“As an investment adviser, I can tell you that huge investments, especially from South Korea and China, are coming. Most probably, the investments will come in 2013,” he said.
Compared to portfolio investment, investments are much more reliable in manufacturing, “but I do not see much investment in this area in the last two decades,” he noted.

Evading crisis or courting crisis?

2011-12-26T02:20:00.000-08:00

Evading crisis

The current economic management team has been sitting relaxed taking no real initiative to move the country out of its deep rooted economic problems.

The budget deficit is out of control and the political leadership is unwilling/unable to take fiscal measures to raise revenue and reduce expenditure. As a result, the economic management team has found an easy way out to finance the rising budget deficit through bank borrowing, the only tactical change being a shift from direct borrowing from the SBP last year to borrowing from commercial banks. This round about method of budget financing by the SBP is equally inflationary, highly hurtful for the private sector and increasingly risky for commercial banks.

The public reaction to the rising rate of inflation may not be strong enough to compel the government to reduce its excessive bank borrowing, but there is no doubt that it will steadily put pressure on the balance of payment leading to fast depletion of foreign exchange reserves. The real question is not whether or not reserves will continue to go down, but rather how long the reserves can last before the emergence of a foreign exchange crisis.The existing level of foreign exchange reserves, built with repayable borrowed funds, is providing false comfort and a sense of complacency to the economic team misleading it to believe that they can weather the storm beyond the forthcoming elections without policy reforms/foreign exchange crisis. However, the approach to continue to finance the budget deficit by borrowing from the banking system and to rely on the drawdown of foreign exchange reserves to finance the widening balance of payment deficit is both unwise and unsustainable.

In addition to the severe harm that such an approach will inflict on an already fragile economy, there is a real possibility that the government may get trapped in a foreign exchange crisis before the end of its current tenure.

The government will never run out of rupees as long as the State Bank of Pakistan is willing to accommodate it. But neither the SBP nor the government has the ability to print dollars, and the threat of exhaustion of foreign exchange reserves needs to be taken seriously.

When foreign exchange reserves fall below a critical threshold, say, below $10 billion, increasing speculative demand for foreign exchange will accelerate the process of depletion of reserves.While we do not have access to all the necessary information for a precise forecast, our back-of-the-envelope calculations based on published data make it clear that in the absence of economic reforms the government may face a foreign exchange crisis before the end of 2012.The foreign exchange reserves of the SBP stood at $12.9 billion on December 2, 2011. In October, the last month for which data are available, the country recorded an overall deficit of $635 million in its balance of payment. If it is taken as the average deficit per month up to December 2012, the reserves will decline to $4-5 billion by end-December, 2012 on that basis. Additionally, the SBP will have to repay $2.4 billion to the IMF before December 2012, reducing reserves to an alarmingly low level. Speculative purchase of dollars for imports and capital flight may expedite the timing of the foreign exchange crisis.Looking at the situation in another way, we arrive at the same conclusion. The current account deficit stood at $1.6 billion during the first four months of the current fiscal year, the latest period for which data are available. If the same trend continues up to end-December, 2012, there will be an additional current account deficit of $5-6 billion during November, 2011-December, 2012. Its financing, combined with the IMF repayment of $2.4 billion, will bring down reserves to less than $5 billion by end-December, 2012.Additional drawdown of reserves will depend on the extent of deficit in the other capital account items, which will most likely be in a large deficit both because of reduced disbursement of foreign loans and increased amortisation payments excluding those to the IMF. There may easily be an additional drain on reserves in the range of $1 billion to $2 billion up to December 2012, depending on the level of disbursement of new long term loans. According to these calculations, and if nothing unusual happens, SBP reserves will decline to $2-3 billion by the end of December, 2012.

The writer is a former governor of the State Bank of Pakistan

Mercenary for hire

2011-04-01T01:10:00.000-07:00

Unrest in the Arab world: Islamabad assures Riyadh of support
In the backdrop of the current political uprisings in the Arab world, Pakistan has decided to play a significant role in the region by supporting Saudi Arabia, sources told The Express Tribune.

The decision came following a string of meetings that Prince Bandar bin Sultan bin Abdulaziz, special emissary of the Saudi king, had with the Pakistani leadership over the weekend.
The Saudi royal family scion met the top political and military leaders, among them President Asif Ali Zardari, Prime Minister Yousaf Raza Gilani, Interior Minister Rehman Malik and Army chief General Ashfaq Parvez Kayani.

Prince Bandar’s whirlwind tour came as mass protests are sweeping across most of the Gulf and Middle
Eastern countries. Though there is no immediate threat of an uprising against the Saudi rulers, the situation in neighbouring Bahrain is a cause for serious concern.

In his interaction with Premier Gilani, the Saudi prince indicated that the oil-rich kingdom would extend meaningful support to Pakistan to improve its ailing economy, sources told The Express Tribune on Sunday.
Cash-strapped Islamabad has been asking Riyadh for oil on deferred payment for quite some time now. Prince Bandar is said to have assured Islamabad of its help to address its immediate oil needs. He also reaffirmed that the kingdom would always stand by Pakistan to confront any challenge and support any initiative to expand bilateral ties.

According to sources in the Foreign Office, the Saudi move to seek help from Pakistan had a tacit endorsement from the United States whose forces are stationed in Bahrain. The US 5th fleet is stationed in Bahrain under an agreement reached between the two countries 15 years ago.
“The United States does not consider Saudi security forces’ entry into Bahrain as an invasion,” the White House said on Monday. Riyadh sent about 1,000 troops into Bahrain to protect government facilities after protesters overran police and blocked roads.

Premier Gilani told Prince Bandar, who is also secretary-general of the Saudi National Security Council, that his country supports the Saudi stance in the Gulf and the Middle East and would stand by Riyadh for regional peace.

The prince briefed the prime minister on the Saudi perception of the situation in the Gulf and the Middle East.
Sources said that the main purpose of Prince Bandar’s visit was to evaluate Islamabad’s viewpoint on the rapidly changing political situation in the Arab world, particularly on the alarming situation in Bahrain, which borders Saudi Arabia.

In 1991, Riyadh was disappointed by Pakistan’s attitude towards the Gulf War when the then army chief Gen Aslam Beg had publicly opposed the then prime minister Nawaz Sharif’s decision of sending army and air force units to Saudi Arabia on the call of the kingdom.
Faced with the threat of a direct attack from Iraqi strongman Saddam Hussien’s forces, the Saudi authorities were further disappointed when Gen Beg agreed to send only 5,000 troops after a long delay and that too under strict conditions.
It took Islamabad several years to win back the trust of Riyadh. The Saudis kept referring to this ‘betrayal’ during their talks with Islamabad on all forums, a former diplomat, who has served in Riyadh, told The Express Tribune.

We are more concerned about Cricket!!

2011-03-31T01:23:00.000-07:00

PAKISTAN: Struggling to cope amid rising food prices

LAHORE, 30 March 2011 (IRIN) - The price of wheat in Pakistan has almost tripled since 2008, making people in places like the poorer suburbs of Lahore, capital of Punjab Province, wonder how they will feed their families, local residents say.

“A few years ago we paid just a little over Rs 200 [US$2.35] for a 20kg bag of wheat flour,” Saleem Yousaf, a father of four who works as a cook said. “Today, we pay over Rs 550 [$6.47] for the same amount, which lasts us less than a month, while the prices of vegetables, lentils, spices and everything else have also soared.”

Yousaf’s wife also works as a domestic help in Lahore, and together they earn Rs 12,000 [$142] per month. “Other families earn less, but we struggle hard to manage because all our four children are in school, and I really believe an education is vital to their future,” he told IRIN.

The minimum wage for workers was increased by the government from Rs 4,000 ($47) to Rs 6,000 ($70) in March 2008, but groups working for labour rights say implementation is poor.

Yousaf’s family spends Rs 4,000 each month to pay fees and buy books and stationery. Another 1,000 goes on utility bills. “Sometimes we barely manage to feed the children,” Yousaf added.

Javed Saleem, his 11-year-old son, told IRIN “We only eat at dinner time and have a mug of tea at breakfast. My parents cannot afford more.”

Other families in the impoverished Shadra area of Lahore, where Yousaf lives, face a similar situation - as do tens of thousands of others across the country.

Ironically, fields of wheat stand all around the Shadra, on the outskirts of Lahore, but the grain, which is the staple food in Punjab, is largely inaccessible to many because most of the crop is sold for export.

According to the Famine Early Warning System (FEWS NET), a combination of inflation and chronic food insecurity means many in Pakistan are vulnerable to price increases. Poverty and high food prices threaten food security, and in turn fuel inflation.

Malnutrition

“The high food prices have impacted people's ability to obtain required calories to live a healthy life,” Amjad Jamal of the UN World Food Programme Public Information Unit told IRIN from Islamabad. “The majority of Pakistanis spend half of their income on buying essential food items and are left with very little for health care and children’s education.

“This also leads to malnutrition in the longer run, which has been seen especially in the wake of recent floods, where Sindh is facing malnutrition problems,” he added.

Ghulam Nabi, a doctor in Shadra, said: “I see children brought in all the time who suffer malnutrition. They are simply not getting the calories they need and the families cannot manage to give them better food.”

The 2008 global financial and economic crisis, the displacement of about three million people in 2009 by fighting between militant groups and the Pakistani army, and the catastrophic floods in 2010 worsened the situation, he added.

According to Pakistan’s federal bureau of statistics, the consumer price index rose in February by 17.72 percent compared to the same period last year.

“My father-in-law is sick with hepatitis, but if we try to get medical care we will not be able to feed our family,” said Razia Bibi, a mother of five. She earns around Rs 6,000 ($70) a month stitching clothes. Her husband is unemployed. Since he lost his job seven months ago, the three daughters have not attended school.

The missing taxpayers

2011-03-30T23:35:00.000-07:00

The missing taxpayers
They travel abroad regularly, live in palatial homes and drive luxury vehicles. They are 2.3-million strong – they are the affluent Pakistanis who are also distinguished because they do not pay any taxes. They don’t even have a tax number, which suggests that these 2.3 million affluent Pakistanis have never paid taxes in Pakistan.

This is about to change, if one were to believe Salman Siddiqui, Chairman of the Pakistan’s Federal Bureau of Revenue (FBR). The FBR has issued notices to the 700,000 wealthiest of the 2.3 million affluent Pakistanis to pony up withheld taxes. Mr. Siddiqui did not elaborate on the penalties for those who would continue to evade taxes.

Tax evasion in Pakistan leaves the State with no option but to borrow money from lenders, such as the IMF. Consider this: in a nation of 180 million, fewer than two million are registered tax payers. Furthermore, tax revenue accounts for roughly 10 per cent of Pakistan’s GDP, which is extremely low even for Pakistan. The average among western European states is around 30-plus per cent. In neighbouring India, tax revenue accounts for 18 per cent of the GDP, which makes me wonder whether Indians have a better sense of citizenship than Pakistanis.

In the words of the famous Canadian-born economist, John K. Galbraith, this leads to the classic case of “private opulence and public squalor” where the desire and demand for private goods is enhanced while spending on public utilities such as schools and parks decreases. In fact, Pakistan’s society and economy epitomises private opulence and public squalor where the fortunes of the rich and wealthy keep growing, while the State of Pakistan gets buried deeper in domestic and international debt.

The FBR has to squeeze hard these bloated tax-evading lemons. I would argue that even the sovereignty of Pakistan rests on the unpaid taxes of these 2.3 million affluent citizens. Consider the following numbers: if the very rich tax evaders are charged a nominal annual tax of $2,500, and the remaining 1.6 million not-so-wealthy evaders are charged $1,500 annually, this would generate an additional $4.2 billion in tax revenue.
Remember that the US is offering Pakistan annually $1.5 billion (in aid) through the Kerry Lugar Bill, in exchange for drone attacks on its own people. The $4.2 billion from the wealthiest tax-evaders could buy Pakistan its freedom from the United States.

And what of the tax penalty for avoiding taxes in the past? May I recommend a one-time penalty, $5,000 for the very rich and $2,500 for the second-tier rich, which would generate a one-time revenue of $7.5 billion. This is exactly the amount that the Kerry-Lugar Bill has promised for Pakistan over 5 years. Again the very rich, by paying their back taxes as one-time penalty, can off-set Pakistan’s dependence on American assistance.

The amounts I have suggested in taxes are not excessive by any account. It was only last month when we learnt that renowned Pakistani singer, Rahat Fateh Ali Khan was caught with undeclared $124,000 in cash at the New Delhi airport. Rahat Fateh Ali Khan reportedly has no tax history in Pakistan. Would people like him find a few thousand dollars in taxes, burdensome?

Asking the very rich in Pakistan (who make several trips abroad for which the airfare of a single trip alone is around $1,500) to dole out $2,500 (or $1,500) in taxes is certainly not excessive. If you consider the equity they hold in their palatial homes or the luxury vehicles they drive, the amount I have suggested in taxes would appear insignificant for the very rich.

I live in a middle-class neighbourhood in Toronto, Canada, where I pay over $5,500 in property tax alone. My total tax bill (income and other consumption taxes) is an order of magnitude higher than my property tax bill. In fact, in Canada income taxes are the largest single line item in a household’s budget, followed by shelter and transport costs.

Canadians pay taxes even when they disagree with how the government spends their tax dollars. Consider the current right-wing government of Prime Minister Stephen Harper that has followed a more fear-laden agenda and has shifted towards spending on building prisons and buying fighter jets from the United States. Most Canadians abhor such spending decisions because Canada has experienced a significant decline in violent crime rate over the past decade and hence, does not need new prisons. Furthermore, Canada does not face any security threats from other countries for which it may need new fighter jets. Building prisons and buying fighter jets seems a huge waste of tax-payers’ dollars. Yet, I and other Canadians do not even for a second think of withholding taxes on the pretext that our tax dollars may be wasted on futile projects.

The relationship between the State and the citizen is defined by the citizen’s willingness to pay taxes. Withholding taxes weakens the State. A weakened State has no alternative but to compromise. In Pakistan’s case, it is not the politicians alone who have pushed the State to beg from the IMF or the United States. Instead, it is the citizens of Pakistan who refuse to buy a stake in the country’s future by paying taxes, have forced the State to borrow from IMF and other lenders.

All Pakistanis, irrespective of their political or religious persuasions, hate their country’s dependence on handouts from the United States, the IMF, the World Bank and other similar institutions. The easiest and surest way to break free of this economic dependency is for Pakistanis to pay their taxes.

Dil mange More!

2011-03-30T23:31:00.000-07:00

Govt plans for new IMF loan

ISLAMABAD: The federal government has decided in principle to enter into another International Monetary Fund (IMF) loan programme after concluding the fifth review of the $11.3 billion Standby Arrangement (SBA) in June 2011.
The negotiations for the next loan programme will start after announcement of the federal budget, said the sources.
Finance Minister Hafeez Shaikh would discuss the options for the new programme with IMF officials during his upcoming visit to Washington DC.
He is scheduled to visit the United States in April 2011.

WTF

2011-03-30T23:22:00.000-07:00

Petrol and diesel prices may go up again

ISLAMABAD: Petrol and diesel prices are estimated to increase by Rs7 and 10 per litre respectively if the government decides to pass on the full impact of international oil prices to consumers on March 31.

Sources close to the chairman of Oil and Gas Regulatory Authority (Ogra) told Dawn on Monday that a report on the international oil price situation had been submitted to the ministry of finance but had not been deliberated upon because Finance Minister Dr Abdul Hafeez Shaikh and Secretary Finance Dr Waqar Masood Khan were not in town.

The report said the prices of petrol and diesel have increased by 10 per cent and 12.2 per cent respectively in the first 25 days of the current month as the benchmark crude prices hovered around $111.2 per barrel in the Gulf market.

The sources said the government would have to absorb an additional burden of Rs8 billion in case the prices were maintained at the present level but it was left with limited options to do so because of difficult financial position, although political pressure playing a role could not be ruled out.

The sources said the government was required under the finance bill 2010-11 to collect Rs10 and Rs8 per litre as petroleum levy on petrol and diesel respectively but it was charging only Rs3.16 and 44 paisa per litre respectively, following an agreement with the Muttahida Qaumi Movement.

Over the last five months, international oil prices have increased by up to 26 per cent but only 5 per cent impact was passed on to consumers.

The government is reported to have suffered a revenue loss of Rs25 billion during four months — December to March. Prime Minister Yousuf Raza Gilani who is holding the petroleum minister’s portfolio after the restructured federal cabinet, said these officials would take a decision about the price increase on Thursday, most probably after consulting the coalition partners and other political parties.

The sources said the government foresaw further rises in the international market because of expectations of fresh oil purchases by Japan and continued unrest in Libya and Bahrain.
Last month, the government initially increased petroleum prices by 9.9 per cent but had to reduce it to 5 per cent in line with the agreement with MQM.

More to come

2011-03-30T23:19:00.000-07:00

4,000 gas schemes add to shortfall

ISLAMABAD: With gas shortfalls extending first time into the summer months, about 4,000 new gas provision schemes on the instructions of the prime minister for party colleagues mostly in Punjab and Sindh are estimated to add another 10 per cent to the shortage.
Informed sources told Dawn that Prime Minister Yousuf Raza Gilani was told at a recent presentation that completion of gas connections schemes under his instructions would cause an additional gas shortage of 312 million cubic feet per day (mmcfd) in winter and 118 mmcfd in summer, from an existing gap of about 950 mmcfd.

The two Sui gas companies SNGPL and SSGCL and the ministry of petroleum had informed the prime minister that most of these schemes did not fit into the viable expansion plans of the two gas companies.
“This is not only forcing them (the gas companies) to borrow from the banks to fund such schemes but also depriving the government of dividends it had estimated to accrue from their profits”, a chief executive of the company said requesting not to be identified.

Already, the gas utilities are entangled in the chronic energy sector circular debt and struggling to clear their dues to the gas producers and other equipment suppliers. The Sui Northern Gas Pipelines Limited (SNGPL) has to recover about Rs8 billion from its consumers but was holding back payments of about Rs24 billion to its suppliers, further aggravating the circular debt position.

The federal government provides about 30 per cent of the cost of new connections while the remaining 70 per cent portion has to be funded by the gas utilities. The SNGPL had already started discussions with the banking sector to raise loans at an interest rate of more than 4 per cent.
The maximum political pressure was on SNGPL because of its network in Punjab mostly in Southern region, followed by SSGCL in Sindh and some parts of Khyber Pakhtunkhwa, the sources said.

Under the procedure, the prime minister approves different schemes on the recommendations of the parliamentarians and party workers and then sent these to the ministry of petroleum for cost estimation by the gas utilities.

On the basis of these estimates, the Prime Minister Secretariat issues directives to the finance ministry to release the amount to the cabinet division against federal government’s share for onward transfer to the gas companies through the Auditor General of Pakistan Revenue (AGPR).

An official said that an amount of Rs6 billion was set aside by the government in November 2010 asking various ministries and divisions to surrender their unspent allocations of last financial year.
Officials said the gas utilities were unwilling to fund most of these schemes because of their unviable returns to recover the cost of new pipelines as most of these projects were in far-flung areas.

The downside of the expansion is that the government will have to make additional cuts in gas supplies to fertilizer sector, CNG and commercial sectors in the coming years, the official said.
The overall share of CNG consumption has already dropped from about 7.2 per cent in overall supplies to about 6 per cent this year because of two-day weekly gas holiday while fertilizer sector has been unable to get its committed supplies almost throughout the just concluded winter.
As a result, the overall gas shortfall was expected to go beyond 1.6 bcfd (billion cubic feet per day) in next winter season. Currently, the two gas utilities supply about 4.2 bcfd of gas, with winter shortfall at about 950 mmcfd.

The gas shortfall has been estimated to remain throughout summer albeit with a lower impact.

Full of hot air

2011-03-30T23:06:00.000-07:00

PSO faces $30m loss on FAL Oil non-performance

ISLAMABAD: The cash-strapped Pakistan State Oil (PSO) management is seriously contemplating to encash the performance bond of M/S FAL Oil, which reportedly remained failed so far to sell cargoes of fuel oil to the company, TheNation learnt.

M/S FAL Oil has caused a huge loss to the national exchequer and PSO`s losses due to FAL non-performance of their contractual obligations has led to a loss of over $30 million, ?sources said adding that M/S FAL Oil contracted to sell PSO cargoes of fuel oil during Nov-Dec. 2010 and to date have not fulfilled their contractual obligations.

?According to PSO`s own tender if a supplier is over six days late in delivering the cargo they can cancel the cargo and encash their performance bond, however, M/S FAL Oil is five months late the performance bond of M/S FAL oil has not been encashed worth $7.8 million? they said adding that the amount of the performance bond held by PSO is expiring on March 31st, 2011.

Sources further informed that PSO wrote a letter to the Standard Chartered Bank in Karachi to en-cash M/S FAL Oil`s performance bond in March around the 18th of the month and then all of a sudden asked the bank not to do so. They also told that the Managing Director of PSO received a call from the government big wig warning him serious consequences for the PSO management if performance bond was encashed. They further added that MD PSO succumbed to the pressure and informed the Managing Committee of PSO which had approved the encashment of the performance bond that PSO would no longer go ahead with encashment

Jhootha hi sahi

2011-03-30T23:01:00.000-07:00

IMF loan raised to $11.3 billion on false premise of tax reforms?

ISLAMABAD: Pakistan?s former representative in the IMF?s Board, Dr Ehitsham Ahmad, has admitted that the augmentation of IMF loan from $7.6 bn to $11.3 bn was made on a false premise that the tax reforms in the country would be implemented by autumn 2009.

The email message of Dr Ehitsham has generated heated debate among the economists in which he reportedly regretted that he pleaded the case before the Fund?s executive board to raise the loan amount up to $11.3 billion from the earlier committed limit of $7.6 billion.

It is relevant to mention here that it was Dr Ashfaque Hassan Khan, who wrote on the opinion pages of this esteemed newspaper first under the title of ?Ten Blunders? of the PPP-led regime that also included augmentation of the IMF loan that was used to fill the gap of Tokyo pledges from Friends of Democratic Pakistan (FoDP).

Now in another message sent by Dr Ehitsham to explain his position, a copy of which is also available with our sources, states that the root of the crisis, as correctly identified by Sakib Sherani in one of his article, lay in the inaction during 2006 and 2007, the failed tax reforms, and in the credit expansion that preceded it for some years.

He stated that the argument then was that we needed the original program as a ?bridging loan? while we brought the stalled tax reforms back on track. In retrospect, a program that front-loads assistance, with back-loaded structural measures, may be more appropriate for countries in Latin America that have made considerable progress on structural reforms than for countries like ours.

On augmentation issue, he stated that it arose with the failure of the Tokyo FODP in April 2009 and expected inflows did not materialize - plus the Army action in Swat led to a large spending on the IDPs. Again, the outcome in the Board was not assured, and Pakistan had to lobby hard for the augmentation and the extraordinary permission from the IMF to use part of the tranche for budgetary purposes - a bridge to the FODP monies.

This would not have been possible without the personal credibility of Shaukat Tarin with IMF management, and especially the Board, and the assurances on my part that the tax reforms were on track.

Put bluntly, Dr Ehitsham says, the original programme itself is not credible without the tax reforms?the augmentation doubly so. ?The IMF staff are not fools, and will not allow us access to the augmentation given the unfavourable debt sustainability analysis and the absence of credible structural reforms,? he further stated.

So the argument about the augmentation issue is purely academic. ?We will not get funds that we have no chance of repaying,? he maintained.

The augmentation was made on a false premise?that the tax reforms would be implemented by autumn 2009. To give Shaukat Tarin (former finance minister) his due, Dr Ehitsham said, he thinks he really tried and it really does no good to blame others, who may be tempted to retaliate. The blame game is destructive and detracts from the issues and challenges that as we all agree, are dire.

He wrote to Dr Ashfaque Hassan Khan that he fully agreed with his viewpoint that we (Pakistan) should not seek to draw on the augmentation, and we will probably have to negotiate a debt restructuring agreement in short order to repay the amounts already drawn. As you pointed out in the article that I commended, the next IMF programme will not be a walk in Rock Creek Park, or Margallah Hills for that matter. On my part, he said, he had resigned IMF position in December 2009?there was no way that he was going to be able to face my friends on the Board, after the assurances that he had given in August. ?Concerted actions are needed in order to address the crisis. The politicians are confused and driven by short-term self interest?disastrous under the present circumstances,? he concluded.

The End is NEAR!!!

2011-03-28T05:20:00.000-07:00

Digging a deeper hole: The risky strategy of borrowing to pay off loans

The country is passing through one of its worst ever economic crises and the omens are not good as the government is seeking to borrow more from the internal and external resources to pay off foreign debts which have surged to $59 billion.

And sources in the finance ministry accept the fact that the economy is caught in the vicious cycle of having to borrow externally to pay off existing foreign debt.

Fast increasing public debts clearly indicate that the financial managers should look at the option of falling back on the internal resources for debt-servicing. The country’s total foreign and domestic debt at the beginning of 2011 has touched the dangerous mark of almost Rs 11 trillion. The debt-to-GDP ratio has gone up to 74 per cent from 64 per cent in January 2010. The government is continuously borrowing heavily to meet its burgeoning budgetary deficit. According to the State Bank of Pakistan, domestic debt increased to Rs4.958 trillion by September 2010, from 4.018 trillion in September 2009.

The external debt of the government increased to Rs3.864 trillion in September 2010 from Rs3.656 trillion in September 2009. By September 2010, the foreign debt was $58.41 billion as against $55.62 billion in June 2010, showing an increase of $2.79 billion in three months.

And this trend was echoed by domestic debt growth as well. By the end of 2010, our domestic debt went up to Rs5.50 trillion as a result of the government’s insatiable borrowing quest. In September 2010, domestic debt and liabilities were of Rs 5.191 trillion, which registered an increase of Rs306 billion in just three months. During 2009 to 2010, domestic debt showed an alarming growth of Rs1.05 trillion. In December 2009, domestic debt/liabilities stood at Rs4.447 trillion rupees, which increased to Rs5.5 trillion by December 2010.

In the first quarter of 2010-11, debt servicing amounted to 1.2 billion US dollars as per State Bank of Pakistan figures. Since then, the size of debt servicing has increased by about 49 per cent as compared to the same period last year. Pakistan had to pay 5.641 billion US dollars as debt servicing in fiscal 2009-10, which accounts for more than 33 per cent of the country’s total foreign exchange reserves. The total foreign debt and liabilities of Pakistan reached 58.512 billion US dollars, up from 47 billion US dollars two years ago.

‘PIA suffered Rs 32bn loss due to rupee devaluation’

2011-02-03T02:09:00.000-08:00

‘PIA suffered Rs 32bn loss due to rupee devaluation’

ISLAMABAD: The National Assembly was informed on Wednesday that the Pakistan International Airlines (PIA) has suffered a Rs 32 billion loss due to the devaluation of the Pakistan rupee against the US dollar in the last two years.

To a question, Federal Minister for Defence, Chaudhry Ahmad Mukhtar told the NA that the PIA had suffered a Rs 32 billion loss due to the rupee’s devaluation alone, while other losses of the airline were caused by additional factors. He added that an inquiry had been ordered against those PIA employees who had been receiving double salaries from the organisation.

The minister said that in order to make the national airline a profit-earning entity, a PIA business plan had been approved by its board of directors. “Measures have been suggested for revenue enhancement as well as route rationalisation in a way that would ensure optimal utilisation of resources,” he stated.

Mukhtar added that a study had been conducted for laying the groundwork of the PIA business plan and to identify causes for the airline’s losses.

To another question, he said that currently PIA was operating on 40 routes to European countries “which would increase to 140 after signing an agreement with the Turkish Airlines”. Talking about the aircraft Boeing 777, Mukhtar said the aircrafts were not only fuel-efficient but were also suitable for long-distance journeys.

To another question, the House was informed that Pakistan had set a new Guinness World Record by planting the maximum number of trees during 24 hours in Keti Bundar on July 15, 2009, a feat undertaken by the Sindh Forest Department. A total of 300 local fishermen planted 541,176 plants of mangrove on 796 acres in the Indus Delta. The event was organised by the Ministry of Environment in collaboration with the Sindh Forest Department and the National Bank of Pakistan.

Conference on doing business in Pakistan to be held on February 10

2011-02-03T01:54:00.000-08:00

Conference on doing business in Pakistan to be held on February 10

LONDON, Feb 3 (APP): A conference to identify opportunities for doing business in Pakistan is being jointly organised here on February 10 by the UK Trade and Investment and Pakistan High Commission. The event will take place at the Lancaster House where Pakistan’s Minister for Investment Saleem Mandiwala and British Minister for Trade and Investment Lord Green will be the key note speakers. High Commissioner for Pakistan to the UK Wajid Shamsul Hasan and his British counterpart in Islamabad Adam Thomson will also address the conference.

The event will highlight business opportunities in Pakistan for the UK companies. Over 100 UK companies are already operating successfully in Pakistan and the bilateral trade between the UK and Pakistan is worth over 1 billion pounds annually.

PHC spokesperson said Thursday the event aims to identify opportunities for business in Pakistan besides hearing views from the market of both government and business leaders.

“It will also help in creating understanding of the procurement process and aid funded business and infrastructure opportunities in Pakistan as well as support available to the UK companies seeking to do business in Pakistan,” the spokesperson added.

The event is significant in the context of Pakistan’s privatization programme. Other prominent speakers who will share their views from the market include Asian Development Bank’s Director General for Central and West Asia, Juan Miranda ,Chief Executive, Hubco Power Pakistan, Vince Harris and Chief Executive HSBC in Pakistan Lloyd Maddock.
A large number of British companies will also be participating in the day long event.

We have culture of corruption: Hafeez

2011-02-03T01:47:00.000-08:00

We have culture of corruption: Hafeez

Islamabad—Federal Minister for Finance and Revenues, Dr.Abdul Hafeez Sheikh has said Pakistan needs reforms in taxation system by replacing the weak taxation machinery with efficient and vibrant tax collecting machinery for the economic prosperity of the country.

“We have a weak tax collection machinery; we have a culture of corruption; we have limited incentives; we don’t have the technology; so it is a combination of things,” he told a private TV Channel in an interview.

The Finance Minister said that the country needs reforms in the tax collecting mechanism, adding in the coming budget people would see many proposals aimed at reforms in FBR in this regard.

He said the government is very serious in reforms in FBR, because ratio of taxes to GDP of our country is just 10 per cent that is not sustainable. He added that in order to overcome the issue the government is holding political dialogue with various political parties aimed at taking every body on board and steps should be taken to enhance that tax to GDP ratio for the benefit of the country.

Dr.Hafeez Sheikh said that the main aim and objective behind the introduction of Reformed General Sales Tax (RGST) was the documentation of the national economy and bring the tax evaders into tax net. “It is often argued that we are relying on indirect taxes, but in an economy both direct and indirect taxes are levied. For levying direct taxes the government needs complete data, which can be made available from documentation of the economy,” he said.

He said there isn’t any right estimate as to how much wealth or tax able amount remained out of tax net, adding that indeed big enough amount remains out of the tax net.

He said former finance minister Shaukat Tareen had put the figure at Rs.500 billion; but even if it is Rs.300 billion or so, it is a big enough amount”, he remarked.

Federal Minister for Finance and Revenues, Dr.Abdul Hafeez Sheikh also said that the recently entire bureaucracy in the Federal Board of Revenue (FBR) has been reshuffled and competent officers been placed on the key posts.

However, he said due to prudent economic policies of the government the foreign exchange reserves have increased to over $ 16 billion; fiscal deficit was reduced to 5.3 from 7.6 per cent. He said new programmes were initiated for the under privileged masses adding that important and unprecedented steps like introduction of capital gain tax were levied on the most affluent class of the country.

Similarly the minimum taxable income was increased from one hundred thousand to three hundred thousand rupees per annum. “So an effort was made to reduce the burden of tax on the lower middle class people and five million people are being given targeted subsidy.”, he remarked.

The Minister said, one should know that tussle between two major parties in the country in the 90’s gave rise to the corruption in the state run bodies. He said corruption is the problem of other countries too but we should be aggressive enough in checking this menace. He said for the first time in the history of the country the Public Accounts Committee is being headed by the Leader of the Opposition in the National Assembly.

He said the biggest critic of the government is heading the biggest body to counter corruption; this is also the first time that many news channels are freely criticizing the government and highlighting the corruption; so there are emerging forces which are countering corruption. “Did we witness in the past the way Supreme Court is taking cognizance of the corrupt practices,” he questioned.

Hafeez said in any civilized society all institutions including judiciary and media go hand in hand. He said it was the decision of the cabinet to freeze the level of expenditures to the level of last year adding that it is planning to reduce the expenses of the state bodies to 30 per cent. Dr.Hafeez Sheikh said that the government has to give Rs.160 billion to the flood victims and Rs.300 billion are to be given to the provinces; so an environment of social security is getting emerged.

State of the economy: SBP revises inflation forecast to 16%

2011-02-03T01:31:00.000-08:00

State of the economy: SBP revises inflation forecast to 16%

The State Bank of Pakistan (SBP) chided the government for “excessive budgetary borrowing, particularly from the central bank” because it is increasing overall demand and also diluting the effect of the measures to contain inflation, while revising its inflation estimate for the current fiscal year from 13.5-14.5 per cent to between 15 and 16 per cent.

The estimate, contained in the central bank’s State of the Economy report for the first quarter of the current fiscal, was released here on Wednesday.

High government expenses financed through borrowing from the central bank, a proposed reduction in energy subsidies and rising international prices of commodities have been cited as the reasons behind the higher rate of expected inflation.

All indices used for measuring price levels in the economy have registered increases in recent months. “Headline consumer price index (CPI) rose to a 17-month high of 15.7 per cent in September,” highlighted the report, adding: “Inflation measured by wholesale price index (WPI) and sensitive price index (SPI) also surged during the first four months of FY11.”

Major contributors to rising inflationary pressures in recent months include supply shortages of many perishable food commodities in the wake of recent floods, higher food and fuel prices and the reduction in energy subsidies.

Analysts have interpreted the report as a harbinger of further increases in the discount rate in the coming months.

Earlier on January 29, the central bank announced that the policy rate will remain at 14 per cent until the next review due in March. At that time, SBP Governor Shahid Kardar had warned that “the next policy decision will depend on the progress the government makes to cope with all the problems”.
The report said that in the context of rising inflation, “it becomes even more important for policy to ensure that demand-pull inflationary pressures are kept to a minimum”, hinting at a hike in policy rate in the upcoming policy announcement.

Pinning hopes on wheat harvest
Growth of gross domestic product (GDP) is expected to remain between two and three per cent in the current fiscal. However this, too, appears largely dependent on the upcoming wheat harvest.
The report also highlighted that of the total sown area of 9.7 million hectares, where Kharif crops were planted, 2.4 million hectares had been damaged by heavy rains and floods. “Expectations of a recovery in agriculture will depend crucially on the wheat harvest and the livestock sector”. While the overall economy will remain hostage to power outages and expensive fuel, increased water availability is expected to help the economy’s mainstay, agriculture, the report went on to say.

Current account deficit is expected to worsen in the second half of the current fiscal, it said.
The central bank also forecast a strong growth in imports “will more than offset increases in exports and worker remittances”.

The SBP encouraged the government to follow structural adjustment programme prescribed by the International Monetary Fund (IMF), warning that while economic imbalances “are still quite manageable, further delays in implementing critical structural changes will significantly increase long-term risks to the economy”.

Every Pakistani owes over Rs57,000 in debt

2011-02-03T01:24:00.000-08:00

Every Pakistani owes over Rs57,000 in debt

ISLAMABAD: Every Pakistani man, woman and child owes over Rs57,000 to foreign and domestic lenders, which is approximately Rs22,000 more than the per head level when the current government took over.

Only this year, almost Rs900 billion will be consumed to service the huge debt stock, which is five times more than the revised federal development budget.

According to the Debt Policy Statement, for the first time in Pakistan’s history, the country’s total debt and liabilities touched the Rs10 trillion-mark in September 2010. The federal government has borrowed over Rs5 trillion from domestic sources and approximately the same amount from international lenders. According to the Federal Bureau of Statistics’ “population clock” as of February 1, the country’s total registered population was 175 million, which means each individual owes up to Rs57,057.

“High public debt can adversely affect capital accumulation and growth via higher long-term interest rates, higher future distortionary taxation, inflation, and greater uncertainty about prospects and policies,” cautions the debt office.

As of June 30, 2008, Pakistan’s total public debt stood slightly over Rs6 trillion that amounted to Rs34,500 per Pakistani (at present population). But, during its two-and-a-half-year tenure, the Pakistan Peoples Party-led government has added Rs3.5 trillion (excluding liabilities) to the total debt stock. Including liabilities, the difference comes to Rs4 trillion, which is much more than this year’s total national budget, according to official papers.

“Sharp rupee depreciation and large budget deficits massively added to the debt stock,” said former debt director-general Dr Ashfaque H Khan.

In the last financial year, the current government has added another Rs1.3 trillion to the debt stock, excluding liabilities. As of June 2010, total public debt (excluding liabilities) stood at Rs8.9 trillion. The debt statement shows that the government borrowed Rs798 billion from domestic sources and Rs189 billion from external sources to finance fiscal operations in just one year. Additionally, the government borrowed Rs271 billion from the International Monetary Fund for balance of payments support and, because of the rupee-to-dollar depreciation, Rs200 billion were added to the debt stock without borrowing a dollar.

The Debt Office warns that inappropriate debt structure could become a source of vulnerability to the real economy and financial system of Pakistan. It cautions that low-cost foreign currency denominated debt is the biggest risk due to an unexpected currency shock. On the other hand, heavy reliance on domestic debt may crowd out private sector credit demand besides pumping inflationary expectations.

The government has also violated an act of the parliament while aggressively borrowing to meet its expenditures. The Fiscal Responsibility and Debt Limitation Act 2005 requires the federal government to reduce public debt and maintain it within prudent limits. But, the government has violated the act on various accounts. The legislation bounds the government to reduce revenue deficit to nil-zero gap between revenues and current expenditure and maintain it in surplus. However, according to the debt statement, instead of maintaining surplus, revenue deficit was approximately 2.1 per cent of the total size of the economy.

The government also violated the act on account of reducing the debt stock by 2.5 per cent of the total size of the economy and instead added almost another one per cent to the debt stock during the last financial year.

The third breach occurred on account of issuing sovereign guarantees. The act restricts the government from issuing new guarantees of more than two per cent of the total size of the economy in any given year. But, the statement reflects that the government issued total guarantees of 2.7 per cent of the Gross Domestic Product.

Also read http://pkr101.blogspot.com/2010/11/stop-smiling-each-of-us-owes-600-old.html

IMF sets terms for headway on $11.3bn loan

2011-02-03T01:11:00.000-08:00

IMF sets terms for headway on $11.3bn loan

ISLAMABAD: Welcoming wider political engagements on economic policies, the International Monetary Fund (IMF) has set three pre-conditions for tangible progress on its $11.3 billion standby programme with Pakistan that practically stands suspended since May 2010.

The IMF wants the authorities to move forward with a better macroeconomic framework and sustainable budget deficit, focus on structural items like introduction of reformed general sales tax within the current fiscal year coupled with addressing losses in the energy sector and strengthening central bank role in limiting government borrowing to start with. Mainly because of these issues, according to visiting IMF mission, the fiscal deficit remains very large more likely to be six per cent of GDP or even more than that as against 4.7 per cent agreed to by the two sides after devastating floods.

To overcome this challenge, the IMF has asked Pakistan leadership “to move quickly on both sides of the budget to increase revenues and contain expenditures”.

The government had started on introduction of the broad- based general sales tax or value added tax two years ago and had done a lot of preparations. The IMF believed it was a good tax measure proposed by the government, which should be implemented without further delay.

And given the additional role of the provinces in the aftermath of 18th constitutional amendment, the IMF wants provincial governments to show more fiscal responsibility. In this regard, the IMF delegation would hold a meeting with Chief Minister Punjab Shahbaz Sharif and former finance minister Ishaq Dar on Tuesday to touch the base on their support for the overall economic reforms and provincial finances.

“The efforts that have already started to build a cross-party consensus on fiscal and economic reforms are very positive and we would be happy to support authorities (in that process) and share our analysis with all stakeholders, Masood Ahmed, IMF`s director for Middle East and Central Asia told Dawn in an exclusive discussion.

After daylong interactions with President Asif Ali Zardari, Prime Minister Yousuf Raza Gilani and the government`s economic team led by Finance Minister Dr Hafeez Shaikh, Mr Ahmed said it was not for the first time or something new in Pakistan that IMF was contacting the political parties.

The IMF has appreciated challenging times across the world as well as in Pakistan because of big external shocks like floods that affected revenue and expenditures but has expressed its concern that measures projected on the revenue side `have not borne fruit`.

The IMF is also worried about rising expenditure, particularly subsidies and commodity expenditures that are eating up public finances.

The financing of a large fiscal deficit was leading the government to rely on local banks and the State Bank a move triggering inflation and squeezing both the public and private sector and raising rate of interest, according to the IMF.

Asked about the prospects of disbursement of IMF loan in the near future, the sources said the key to such discussions was not to have economic and fiscal measures in two months or so but for two years and a half from now, which should provide the basis for sustainable public finance and higher growth rates.
“The disbursements would depend on how quickly these measures come about”. Also, the IMF wants that the authorities to take steps for long-term tax measures like RGST to increase tax base supported by temporary taxes like flood tax and better coverage of income tax.

The Fund believed that Pakistan should take steps to increase economic growth rate and contain rising rate of inflation as the two factors were really hurting the common man.

In its initial round of discussions, the political leadership is reported to have shown their willingness to move ahead with economic reforms but the IMF believed the `recognition (for economic reforms) could not be substitute to real action on ground.

Good intentions alone are not enough to meet requirements of the economy and the Fund would like to see budget framework for the next year which should provide sustainable roadmap to reduce fiscal gap and a set of actions to address structural weaknesses.

The IMF mission is reported to have told the authorities that delaying or reversing a trend to pass on oil and electricity prices to consumers was adding to the size of the fiscal deficit. In the process, these subsidies were benefiting only the rich, seen by the IMF as a wasteful use of public money.

The IMF, said these sources, was strongly opposed to an upward revision in fiscal deficit target as the original target was enhanced from 4 per cent to 4.7 per cent of GDP because of additional pressure of floods but there has been no such external shock since then.

The IMF mission would stay in Islamabad until Wednesday to get a clear feedback from Pakistan authorities.

Pakistan seeks IMF’s economic support

Islamabad : Pakistani president and prime minister Tuesday urged the International Monitory Fund (IMF) to continue its economic support for the war ravaged and flood stricken economy of Pakistan.
The IMF team is in Pakistan for talks for a fifth review of Pakistan’s economic performance for provision of an instalment of $1.7 billion under the standby arrangement.

President Asif Ali Zardari while talking to Director, Middle East and Central Asia Department IMF, Masood Ahmed, said that due to war against terror and the worst-ever floods in the history, the country’s economy had to suffer major blows and it needed international assistance by way of creating economic opportunities for the people.

The IMF team will also review progress on its conditions which include a monthly increase in electricity tariffs, reduction in government borrowings from the State Bank of Pakistan and implementation of a 10 per cent income tax surcharge and the reformed general sales tax.

The IMF officials will hold formal talks with Finance Minister Dr Abdul Hafeez Shaikh and political leaders to convince them to stop opposition to the proposed Reformed General Sales Tax (RGST).
The visit of the delegation was originally scheduled for January 25 but the government’s inability to comply with IMF’s terms led to a change of plan. The government delayed decision on the RGST after allies and opposition parties strongly opposed it.

Pakistan's real GDP may grow up to 3pc in FY11: State Bank

2011-02-03T01:00:00.000-08:00

Pakistan's real GDP may grow up to 3pc in FY11: State Bank

Pakistan's real Gross Domestic Product (GDP) is likely to grow up to 3 percent in the current Fiscal Year (FY11) according to the First Quarterly Report of the state Bank on the state of the Pakistan's economy which was released on Wednesday.

According to the Report, performance of the commodity producing sectors of the economy is expected to improve in months ahead due to expected better contribution by the services sector, and improvement in the performance by the commodity producing sectors.

However, expectations of a recovery in agriculture will depend crucially on the wheat harvest (including increased production from the rain-fed - "barani"- areas), and the livestock sector. Similarly, large-scale manufacturing growth is expected to turn positive again in the months ahead, as strong agri-prices support demand, and with the additional capacities coming on-line in some industries including fertilizer, cement and steel, the Report added.

The SBP Report said that growing macroeconomic imbalances in the economy are still quite manageable but further delay in implementing critical structural adjustments risks significantly increasing the future costs to the economy.
The Report pointed out that inflationary pressures have strengthened more than anticipated during the first half of FY11.

The Report said that strong prices encourage farmers to invest in higher yields and support domestic demand.

`Therefore, the only sustainable way to protect low income groups from inflation is by targeted subsidies and the creation of ample employment opportunities', the Report added.

`In contrast to inflation, the Current Account Deficit (CAD) is likely to deteriorate in H2-FY11.

A significantly strong growth in imports is expected to more than offset the gains from rise in exports and workers' remittances. The financing of the CAD will be challenging as inflows under financial accounts are likely to be significantly lower.

In this perspective, the continuation of the structural adjustment program of IMF would be helpful in softening the external financial constraints, as well as to enhance the resilience and robustness of the economy', the Report added.

The SBP Report pointed out that the one bright spot in the economy, ironically helped somewhat by the floods, was the strength of the external sector.

"A jump in remittances and aid flows for flood relief, helped by robust growth in exports largely due to sharp increase in the prices of cotton overshadowed the growth in imports, turning the current account for July-December FY11 to a surplus," it added.

However, SBP Report said that uncertainty over the extent of damage to private and public infrastructure and the policy response to floods, direct and indirect impacts of supply disruptions, energy shortages and weak consumer & business confidence, took its toll on the domestic economy during the initial months of the fiscal year FY11.

The SBP Report opined that the fiscal performance remains a source of concern, given the outstanding issues with expenditure management as well as revenue shortfalls.

"The implementation of fiscal reforms and elimination of subsidies in the power sector are likely to broaden the tax net and reduce distortions in the economy.

While, these reforms will induce cost-push inflationary pressures in the economy, in the short run, but these will help sustain high growth in the long run," the Report added.

Widening budget deficit key challenge for Pakistan -IMF

2011-02-01T15:24:00.000-08:00

Widening budget deficit key challenge for Pakistan -IMF

Budget deficit likely to exceed 7 pct of GDP
* Tax reforms delayed due to political pressure
* Government tries to find consensus to implement reforms

ISLAMABAD, Feb 1 (Reuters) - Pakistan should act swiftly to reduce its widening budget deficit, a senior IMF official said on Tuesday, as the government struggles to hammer out a political consensus to revive an economy battered by militancy and floods.

Analysts say Pakistan's fiscal deficit is likely to exceed 7 percent of economic output -- as against the 4.7 percent target for fiscal 2010/11 -- partly due to delays in implementing key tax reforms encouraged by the International Monetary Fund.

"The challenges that the economy is now facing are essentially around the impact on the economy of the large budget deficit," the official told Reuters on condition of anonymity.

"At the moment the urgent task is to try and move forward on controlling both spending and also to take action to raise revenues (to reduce the deficit)."

The official said the IMF had not yet come up with its own estimate of the budget deficit.
In 2008, Pakistan agreed to crucial reforms, including an elimination of fuel subsidies and implementation of a Reformed General Sales Tax (RGST), under the terms of an $11 billion IMF bailout package to avert a balance of payments crisis.

But Prime Minister Yusuf Raza Gilani's government last month deferred plans to implement reforms and reversed an increase in fuel prices to appease opposition parties and defuse a political crisis.

A senior IMF official said the Fund supported the government's efforts to win political support for economic reforms.

But he said the government needed to take "urgent" measures to check rising inflation -- which hit 15.46 percent in December -- by cutting its budget deficit.
The government should cut subsidies to reduce spending and raise revenues by implementing tax reforms, he added.

The seven-tranche IMF programme has kept the U.S. ally's fragile economy afloat. Islamabad in December asked the IMF for a nine-month extension, ending in September, to give it more time to implement reforms.
International financial support is crucial for Pakistan, especially after devastating summer floods which inflicted $10 billion in losses. Pakistan is also waging a costly war against Taliban insurgents and needs to invest heavily in the energy industry to ease frustrations over power cuts.

The government is now holding talks with the main opposition party led by former prime minister Nawaz Sharif in an effort to strike a consensus to implement reforms.

The IMF official said the government had assured the Fund that it was committed to the reforms and that it was confident of reaching a political consensus before September.

"We support this step (of political dialogue) because we do believe that the kinds of economic decisions Pakistan has to make, of which fiscal tax policy is one, are decisions that can be best implemented when there is a broad national consensus," he added.

Pakistan - South Asia's sick man

2011-01-29T02:22:00.000-08:00

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

2011-01-29T02:17:00.000-08:00

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

2011-01-29T01:59:00.000-08:00

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

2011-01-29T01:50:00.000-08:00

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

2011-01-29T00:29:00.000-08:00

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

2011-01-29T00:19:00.000-08:00

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

2011-01-28T23:46:00.000-08:00

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

2011-01-27T22:10:00.000-08:00

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

2011-01-27T21:56:00.000-08:00

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

2011-01-26T11:38:00.000-08:00

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

2011-01-26T11:26:00.000-08:00

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

2011-01-16T04:27:00.000-08:00

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

2011-01-16T04:20:00.000-08:00

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

2011-01-16T04:09:00.000-08:00

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

2011-01-16T03:48:00.000-08:00

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

2011-01-16T03:36:00.000-08:00

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

2011-01-16T03:31:00.000-08:00

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

2011-01-16T03:28:00.000-08:00

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

2011-01-16T03:25:00.000-08:00

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

2011-01-15T05:18:00.000-08:00

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

2011-01-15T05:15:00.000-08:00

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’

2011-01-15T05:12:00.000-08:00

‘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

2011-01-15T04:21:00.000-08:00

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

2011-01-15T04:14:00.000-08:00

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.

Fuel shortage: PSO restores oil supply to railways

2011-01-15T04:11:00.000-08:00

Fuel shortage: PSO restores oil supply to railways

LAHORE: Pakistan State Oil (PSO) has decided to restore the fuel supply to Pakistan Railways despite a pending payment of Rs750 million, The Express Tribune learnt on good authority on Thursday.
Sources in PSO said that cheques given by PR have consistently been dishonoured.

Karakoram passenger train on Thursday, which left Lahore for Karachi was delayed by an hour at the Faisalabad railway station because it was not refilled at the Lahore station.
Pakistan Railways had already shut down 39 freight trains because of fuel shortage.
Sources from PR said that due to the financial crunch, an estimated budget of Rs613 billion is unlikely to be met as after six months of the present fiscal year, it has just received Rs21 billion.

PSO’s Public relations officer Mariam Shah told The Express Tribune that her company had asked Pakistan Railways to enter into a “fuel supply agreement” with them to ensure the payment of their dues. In case of a delay, the government would make the payment on behalf of PR.

She added that PSO restored the fuel supply taking into consideration the suspension of passenger train services.

Will Dawood Ibrahim save Pakistan Railways?

Mumbai: India's most wanted gangster Dawood Ibrahim's henchmen in the city are bragging that the don has been approached to bail out Pakistan Railways, which is facing a serious financial crunch.

The buzz among underworld sources are that some Pakistani politicians and senior Inter-Services Intelligence officers (ISI) have asked Dawood to divert money to the smooth functioning of the railways.

The request to Dawood comes at a time when over 20-odd freight trains with loaded goods ran out of fuel in his backyard in Karachi, the hotbed of crime in Pakistan.

According to sources, the slowdown (confirmed by a Pakistani paper 30 freight trains with 4,085 rakes loaded with goods are stranded across Pakistan) has also affected Dawood's business as many believe that the goods on the stranded trains belong to his front companies.

Oil prices: Government could face monthly losses of Rs15b

2011-01-15T04:06:00.000-08:00

Oil prices: Government could face monthly losses of Rs15b

At a time when the fiscal deficit is breaching all records, the government is resisting any increase in local oil prices and electricity rates on political grounds.
However, by doing this the cash-starved exchequer is bound to face serious repercussions given the fact that international oil prices are on a continuous rise, warned a research report released by Topline Securities on Friday.

In January this year, the price of Saudi light crude oil – the benchmark for local exploration and production (E&P) companies – has increased eight per cent to $96 a barrel.
If this trend continues, the Oil and Gas Regulatory Authority (Ogra) meeting at the end of the month to decide local oil prices for February will be crucial in determining the effect on the government budget, according to Farhan Mahmood from Topline Securities.

If the government retains the current price level, it is expected to forgo its Petroleum Levy (PL) – a tax currently levied on oil products, which stands at Rs4.4 per litre on petrol and diesel. The government will take a hit of up to Rs10 billion per month.

According to National Electric Power Regulatory Authority (Nepra) officials, the government has been providing a subsidy of Rs2.8 to Rs3 per kilowatt hour (kwh), which amounts to Rs20 billion a month.
With news coming in that the government might not be able to increase electricity rates every month, it could be difficult for it to cope with such huge subsidies.

Since the government is relying more on furnace oil-based power generation due to the unavailability of gas and hydel generation, a four per cent rise in international furnace oil prices will increase power cost by Rs0.5 per kwh.

This means the government will take a hit of almost Rs4.5 billion a month, which could lead to the monthly electricity subsidy touching Rs25 billion. However, the impact could vary depending upon the availability of gas and hydel power.

With no major external inflows expected, the government will once again rely on local borrowing to bridge the likely fiscal gap of six to seven per cent of gross domestic product (GDP), which amounts to between Rs1 and Rs1.2 trillion.

15.4 percent drop in foreign investment

2011-01-15T03:51:00.000-08:00

15.4 percent drop in foreign investment

KARACHI (January 15, 2011) : Foreign investment in the country slumped by 15.4 percent during the first half of current fiscal year 2010-11 because of economic slowdown. "Although the net foreign investment is in negative position, yet it crossed $1 billion mark, which is an encouraging figure. The first half year's investment is also much better than first five months' statistics, which were depicting a decline of 28.4 percent during July-November 2010", an economist said.

He said that some improvement on foreign investment front was a positive sign for the country's economy and it was expected that if the upward trend continued then it would surpass last fiscal year's figure.

The State Bank of Pakistan (SBP) on Friday said that net foreign investment had dropped by 15.4 percent during the first half (July-Dec) during of current fiscal year. Net inflows of foreign investment in Pakistan reached $1.05 billion mark in first half of fiscal year 2010-11 against $1.241 billion in corresponding period of fiscal year 2009-10, depicting a decline of $164 million.

Foreign direct investment (FDI) posted a decline of 14.5 percent during the first half of current fiscal year 2010-11. According to SBP, FDI slumped by $140.4 million to $828.5 million in July-December of current fiscal year as compared to $968.9 million in same period of last fiscal year.

Although the country's equity market is continually on positive side and KSE-100 index has crossed 12,000 points mark, the portfolio investment was still on decline and registered a decrease of 18.6 percent in July-December 2010.

Overall portfolio investment stood at $221.5 million in first half of fiscal year 2010-11 relative to $272.1 million in corresponding period of fiscal year 2009-10, depicting a decline of $50.6 million.

Economists said that after global economic meltdown multinational investors across the world adopted wait and see policy, due to which foreign investment and FDI are on decline. "Although the global economic meltdown is also a reason of slow growth in FDI, the domestic shocks are major contributors in the declining trend of foreign investment," they said.

Ghee, cooking oil prices go further up

2011-01-15T03:47:00.000-08:00

Ghee, cooking oil prices go further up

LAHORE: The prices of cooking oil and ghee have shot up by Rs 9 per kg amidst regular increase in power tariff in the country and constant upward trend in global palm oil rates.

According to market sources, the price of 5 kg pack of cooking oil and ghee has risen by Rs 45 to reach Rs 940, translating into a hike of Rs 9 per kg.

Dealers said the prices of 12kg box of normal quality cooking oil have risen to Rs 1,950 from Rs 1,830 within a week, while one kg pack is available for Rs 165, showing a jump of Rs 9 from earlier rate of Rs 156 per kg.

Market sources said the prices of 16 kilogram tin of ghee surged to Rs 2,650 from Rs 2,500, showing a rise of Rs 150, while the rates of branded cooking oil and ghee in one kilogram packing have been constant during this period. The average quality ghee and cooking oil like Punjab and Shan brands is presently available for Rs 165 per kg while the high standard ghee and cooking oil rate like that of Dalda, Sufi and Habib are being sold in the range of Rs 172-175 per kg. Market sources said that the companies have raised the wholesale price of high quality branded ghee in one kg packing to Rs 169 per kg. Resultantly its price at retail level will also go up, they added.

PM Gilani seeks joint action plan to tackle economic challenges

2011-01-15T03:43:00.000-08:00

PM Gilani seeks joint action plan to tackle economic challenges

ISLAMABAD: The economic managers of the government painted a gloomy picture of the state of economy while sketching it as ìtight rope walkingî and warned that if harsh economic measures were not taken to put the fiscal discipline on the right track, then it would fall down just like a house of cards.

The picture of the countryís state of economy was presented to Prime Minister Syed Yousuf Raza Gilani in a meeting at the Prime Minister’s House in which the mid-term economic situation was reviewed.

According to sources, during the meeting, the economic team, led by Finance Minister Dr Abdul Hafeez Sheikh, briefed the participants on the state of national economy and the economic challenges being faced by the country in wake of the devastating floods, the war against terrorism, national security needs and global recession.

The sources said the finance minister told the meeting if the subsidies continued, then the economic conditions would worsen and the fiscal deficit may reach 7.5 per cent to 8 per cent of the GDP.

Sources said all the economic indicators were in the negative except exports and remittances. The impact of freezing of petroleum prices at the previous level was also discussed in the meeting.

Sensing the grave economic conditions of the country, the prime minister directed the economic team to share the economic challenges with all the political leadership of parliament to seek their proposals for resolving the financial difficulties of the country. “The objective behind the reconciliatory process and consultation with the political leadership is to develop a consensus and take decisions in the larger national interest,” said the prime minister.

He said since the budget was passed unanimously by parliament, the financial challenges of the country also needed to be shared to find a solution through collective wisdom.

The prime minister directed that the five-member committee formed for dialogue with all the parliamentary parties should immediately contact the leadership of the parties to ascertain their availability for consultation on national economic challenges.

The secretary finance, in his presentation, apprised the participants of the meeting about the budgetary position and probabilities at the close of the financial year. He also briefed the meeting about the impact of floods, the war against terror, energy shortage and the international price hike on the economy in general and the budget in particular.

Gas shortage is at its worst: Sui Southern MD

2011-01-15T03:39:00.000-08:00

Gas shortage is at its worst: Sui Southern MD

KARACHI: The problem of gas shortage is going from bad to worse as the shortfall has touched 300 million cubic feet per day (mmcfd), leading to low pressure in Sindh and Balochistan, said Managing Director Sui Southern Gas Company (SSGC), Dr Faizullah Abbasi.

Speaking at a press conference organised at the SSGC head office on Monday, he said: “We are walking on a very tight rope and despite grave problems, our managers are managing gas operations effectively.” He said, “We have few options like either to have no gas or expensive gas.” Explaining, he said some of the new production projects would generate expensive gas which would cost four times more than present gas rates.

Replying to a question, he said the shortage would be more severe in coming years owing to the increasing demand of the commodity.

The situation demanded that all stakeholders including industrialists, compressed natural gas (CNG) station owners, SSGC and the Karachi Electric Supply Company (KESC) should meet once a week to share each other’s problems, Abbasi suggested.

The management of SSGC said that this year the demand of gas has increased by 65 mmcfd compared to last year while supplies from major gas fields have gone down by 72 mmcfd.

Abbasi said that outstanding dues of KESC, which the power supplier has to pay to SSGC, have reached an unbearable Rs23.6 billion. “However despite that, we are trying to provide gas to KESC on priority basis.”

KESC has paid December dues of over Rs2.07 billion, he said. The SSGC MD said that the KESC management has asked them to provide 110 mmcfd of gas, which was extremely difficult due to the shortage, but despite that the gas company would try to provide the required quantity.

SSGC had been supplying 65 mmcfd of gas, sometimes 90 mmcfd, to KESC, but later it curtailed supplies to 35 mmcfd after gas pressure dropped. Prompted by this, he said, the KESC has announced 16 hours of power outages in industrial areas of Karachi. However, Abbasi hoped that the situation would stabilise by Tuesday.

Budget deficit likely to rise to 6% of GDP

2011-01-15T03:34:00.000-08:00

Budget deficit likely to rise to 6% of GDP

ISLAMABAD: The budget deficit of the current financial year depicted a bleak picture in the midterm economic review meeting on Friday when it was informed that the deficits could reach Rs 1 trillion or around 6 percent of the Gross National Product (GDP).

The finance secretary, in his presentation, apprised the meeting of the budgetary position and probabilities at the close of the financial year. He also elaborated the impact of floods, war against terrorism, energy shortage and international price hike on the economy in general and the budget in particular.

The excessive defence expenditures due to the regional security environment, power sector subsidies and less than expected revenues and increase in international prices of commodities and oil were the main cause of increase in the budget deficit during the first half of the current fiscal year, the meeting was informed.

Earlier, the upward revised target of the budget deficit was Rs 852 billion or 4.7 percent of the GDP for 2010-11 subject to 1 percent budget surplus to be created by the provinces.

Chairing the meeting, Prime Minister Yousaf Raza Gilani ordered starting of an economic reconciliatory process with parliamentary leaders of various political parties to develop consensus on economic challenges, official sources said on Friday.

He said the economic challenges would be shared with all the political leadership of parliament to seek their proposals. “The objective behind the reconciliatory process and consultation with political leadership is to develop consensus and take decisions in the larger national interest,” he said.

The economic review meetings are held regularly every month so as to keep political leadership aware of the economic situation.

The prime minister approved a five-member committee, headed by the finance minister, to discuss the economic situation with all parliamentary parties. The committee has been directed to immediately contact the leadership of the parties to ascertain their availability for consultation on national economic challenges.

The finance minister also briefed the participants on the state of national economy and the economic challenges in wake of the devastating floods, war against terrorism, national security needs and international

recession.

The main objective of the economic reconciliatory process would be to bring on board and develop consensus among all the political parties on the tax reforms, including Reformed General Sales Tax, to steer the economy out of the financial difficulties.

The fast approaching visit of the International Monetary Fund (IMF) to negotiate the revised performance benchmarks under the stalled $11.3 billion IMF Stand-By-Arrangement requires the country to agree with a road map for resource mobilisation and reduced dependence on local and foreign borrowing, the sources said.

Cement sector to feel heat as coal prices soar

2011-01-15T03:11:00.000-08:00

Cement sector to feel heat as coal prices soar

KARACHI: Not as much now because of previous inventory build up, the country`s cement sector is likely to feel the heat of the soaring international prices of coal (the black gold), going forward.

Global coal prices continue to climb, already 34 per cent up since June last year. The two major reasons listed by market watchers were: Temporary supply shocks from Australia and a higher demand in China.
”Floods in Australia have somewhat caused a chaos in the world coal market”, says Farhan Bashir Khan, analyst at InvestCap.

Analyst maintains that the carryover inventories of coal would delay the hit on cement industry for the present because most of the concrete producers had switched from costlier furnace oil to coal in the past, when crude price was making new highs.
The country boasts large deposits of coal, but due to its inferior heating value and higher sulphur content, cement players mainly rely on imported supplies.

The cement sector has been plagued by reduced dispatches (both local and export), leading to low capacity utilisation–66 per cent during first six months of financial year 2011. “However, this also enabled concrete producers to accumulate coal inventories, which were carried over at relatively low price of $115 per ton, which would keep the profitability of the sector intact partly during ongoing winter season”, says analyst at InvestCap.

As cement demand climbs post winter, fresh imported coal would likely to cost a good deal more and exert pressure on profitability of domestic cement producers. In such a scenario, the price, which a bag of cement could fetch in the local and export markets, would determine the fate of manufacturer`s profitability.

Historically, higher dispatches in spring season have led to bloom in cement prices. This time around, gas shortages and higher coal price, nonetheless, will continue to turn up the heat on cement sector.

Rs20bn GST proceeds stuck with power firms

2011-01-15T03:01:00.000-08:00

Rs20bn GST proceeds stuck with power firms

ISLAMABAD: As the government struggles to introduce new taxes, more than Rs20 billion proceeds of General Sales Tax are held up with power distribution companies across the country because of a rift within the taxation machinery.

Sources in the Federal Board of Revenue told Dawn on Friday that a well-coordinated effort was under way to forestall a detailed audit and investigation into the matter because beneficiaries had taken the matter to the court on the basis of weak interpretations by tax authorities.

The sources said that a group of officials who had unearthed tax liabilities against power distribution companies and were pursuing a detailed audit of the subject for actual assessment of the held-up amount might soon be sidelined.

Under a special procedure for collection of sales tax on steel products, the previous government had decided to collect Rs6 as General Sales Tax on each unit of electricity consumed by steel rolling mills which produce products like iron bars and beams.

The distribution companies were required to collect the tax from the mills on behalf of FBR and deposit it in the treasury under a specialised input and output adjustment procedure, but most of the power companies did not pay the tax in full and utilised it by treating such collections as input adjustment.

A team of tax officials in Karachi built up a case of Rs750 million against Karachi Electric Supply Company for the period starting from financial year 2007-08, arguing that KESC had wrongly adjusted the amount in its accounts and asked the power utility to deposit the amount in the government treasury.

The KESC management contested the assessment and requested top officials of FBR to withdraw the assessment. Although the relevant authorities in Islamabad did not agree to KESC’s arguments, but held that the regional offices in Karachi should not have issued notices to the company for clearing the tax liability. Therefore, the FBR headquarters decided to set aside the liability for the time being and remanded the case for a re-hearing.

However, letters issued to the KESC set aside the assessment but did not mention orders regarding re-hearing.

The total amount payable by the distribution companies of Wapda, informed sources said, stood at more than Rs20 billion, but in the absence of a detailed audit and investigation, the amount stood held up.
The sources said that some FBR authorities were resisting a number of requests by Member Audit
of FBR to go through the entire record on the subject and conclude the case.

Pakistan Facing a "Convergence of Risks"

2011-01-11T12:09:00.000-08:00

Pakistan Facing a "Convergence of Risks"

Capital raising efforts to aid Pakistan's economic development could be curtailed in the wake of the latest political crisis.

The latest political crisis in Pakistan could hurt the country’s chances of securing IMF loans, resulting in a tough capital raising climate over the next few years, according to Standard Chartered Bank's country economist in Pakistan.

“While the PPP-led government is likely to survive the latest political crisis, it no longer has sufficient support in parliament to pass the tax reforms committed to under the IMF stand-by arrangement,” said Sayem Ali, Standard Chartered Bank’s country economist in Pakistan, in an interview with Suite 101.

Over the course of last week tensions between the ruling government and other parties have intensified after the assassination of Salman Taseer, a key aide of current President Asif Ali Zardari of the PPP. Taseer was governor of Punjab, Pakistan’s largest and most populous province.

Meanwhile, the country is still recovering from devastating floods in September 2010 that left 20 million people displaced and over 6 million people in immediate need of aid. The disaster pushed Pakistan’s economic agenda back, making it more difficult to kick-start growth and create employment opportunities.
Ali says there is an entirely different story on the ground in Pakistan, one about the opportunity for businesses in the country.

Last month, the London Stock Exchange (LSE) hosted its first Pakistan Privatisation and Capital Markets Forum, highlighting the investment opportunities available in Pakistani public and private sector companies to London-based investors.

Ibukun Adebayo, Head of Business Development in South Asia for the LSE said that the exchange, as the world’s most international equity market, was uniquely placed to facilitate investor meetings for some of Pakistan’s leading companies and a chance for London-based investors to see the potential for high growth and returns in Pakistan.
€Attending companies included Pakistan Petroleum, Pakistan Steel, United Bank and others.

Pakistan's government pushes through reforms but loses political capital

If the government cannot push unpopular tax reforms through, the IMF may end the programme prematurely, not releasing a $3.4 billion tranche of the $11.3 billion stand-by arrangement loan. There has been no distribution of funds from the IMF since May 2010.
Ali says the government deserves credit for some of the fiscal reforms passed in the last three years. A domestic power tax was increased by close to 95 percent and petroleum product subsidies were terminated under conditions of the IMF loan agreed to in 2008. As well, exchange rate reforms were passed to stabilise Pakistan’s currency.
“We have seen the government running out of time, the IMF has given until September this year to comply with remaining performance targets, but time is passing for them to push through some difficult reforms,” said Ali.
Economic reforms over the last three years have caused inflation to sky-rocket to 66 percent which in turn has created political instability. Anger over a fuel price hike forced the ruling government in retreat last week and Pakistan’s Prime Minister, Yusuf Raza Gilani, reversed the rise to save a shaky government, bringing allies back into the fold.
Reversal of the fuel hike further increased tensions with the US and various media reports state that Secretary of State Hillary Clinton called the move a “mistake”. US Vice President Joe Biden is expected to visit Pakistan this week.

Funding for Pakistan missing in action

Promised funds from other agencies have been slow in arriving, says Ali, adding that the government of Pakistan says they are owed $2.5 billion dollars under the coalition support fund. This funding was for military services provided by the Pakistani army that were rendered in 2010.
Economic aid in the form of the Kerry-Lugar bill included a pledge of $1.5 billion annual economic assistance, but in the last year since legislation was passed by the US congress, only $500 million has been dispersed, of which $200 million was released just last week and through the UN flood aid appeal.
“I am not really sure what the issues are, but it’s been slow and its made things more complicated for the government for sure,” said Sayem Ali.

He forecasts the slowdown in currency inflows to test the strength of the rupee as major creditors suspend disbursements due to the deteriorating fiscal position, but points to inflation as the immediate
risk.

Energy crisis in Pakistan and its ‘fallout’

2011-01-11T12:04:00.000-08:00

Energy crisis in Pakistan and its ‘fallout’

Crisis” is one word which has become part of ordinary Pakistani’s vocabulary like nothing else. 1st we have sugar crisis, then wheat followed by electricity and to add more fuel to the fire now we are going through the worst gas shortage in our history. In Punjab this crisis has hurt the most with every person suffering its consequences.

Thousands of daily waged workers have become job less in industrial areas like Faisalabad, in homes women folk is suffering to feed their children’s, passengers wait for hours as the public transport has no cng while those having personal transport wait for hours in order to obtain much required cng refilling.

Our innocent executives like their predecessor have a bucket full of excuses in order to justify this mismanagement. For price hike and declining economy they have the common tagline of “market mechanism” and” global slow down” to justify this phenomena. In case of electricity and gas load shedding they can find no good reason but to curse increasing demand. The reality which they never accept is the fact that this shortfall is depriving our state from billions of rupees by not availing this opportunity of earning revenue, instead of wasting time on IMF imposed RGST and much more. Some conspiracy theories have floated for quite sometime blaming this shortfall as a dirty mean to maximize their benefits. Like in electricity crisis they have managed to pull out the much debated Rental Power Projects while in case of gas shortage they are earning billions from taxes imposed on petroleum products and LPG.

In short this recklessness can only be justified by only one reason, which is that our plans on day to day basis rather than planning in years as done in the developed countries.
Since Grade-1 we have learned from our text books that Pakistan is self sufficient and blessed with vast untapped resources of natural gas.

The argument remained correct for much of our history, but mismanagement and personnel greed has landed us in this situation. Its on record that still many wells are not operational in Baluchistan and other parts of the country. Even if we ignore it, there is no account of unexplored reserves awaiting discovery.
Like in many other cases, soon we will hear that most of them have been leased to some smoky foreign party in suspicious circumstances. To make it short, common man in Pakistan will keep on suffering while those in corridors of power will keep behaving like “imperialists from history”.

Shakespeare has been proven wrong in his assessment of worldly matters by the capable leadership of Pakistan. He had the opinion that “this world is a stage and we are mere actors playing our part”. In Pakistan its nearly the opposite. Every executive and their respective machinery enter the system with a new drama which they plan to execute in their 5 year term. The 180 million citizens of Pakistan are like extras playing characters of helpless masses being ruled, exploited and fooled by the Czars.
The pipeline projects like IPI, TAPI and the Qatar gas pipeline projects are still a far cry. Some recent initiatives have been taken but it will take years for them to become practical. The CNG sector has been intentionally destroyed by the government due to ignorance.

Having been started as an indigenous, environmental friendly and economical fuel source, it seems that these 3 attributes have not gone down well with the ruling class. In less than a decade the prices have been increased nearly 500% which today stand at approximately 57rs per kg. Due to the above mentioned attributes, the common man turned to cng and today it runs nearly 75% of the transport.
Having said this its worth mentioning that traditional transport system also converted from diesel to cng in a very short time but it seems this pleasure of affordable energy is something harmful for IMF and our respected government.

The shortage is due to the mismanagement and there is no second argument about it( but it remains unclear if there is shortage in the 1st place or its artificial). Even in this condition, the government policy of 2 consecutive days of load shedding is a crime. Its clear that 1 refilling can last for 1 day in normal circumstances and on the 2nd day every one has to turn to petrol in order to please our honorable executives.

They could have done a better job by having load shedding on every alternate day but after ensuring that the gas supply remains up to the mark and available on the proposed day.
But my apologies for mentioning something under the domain of “public welfare” as it’s a sin mentioned in the drama we 180 million inhabitants have been hired to act in. May Allah give our executives a heart which cares for those who are suffering every day and night! Ameen……

Affairs of economy: business community shows utter desperation

2011-01-11T11:55:00.000-08:00

Affairs of economy: business community shows utter desperation
The business community sent a strong but disturbing signal to the government during JUI chief Maulana Fazal-ur-Rehman, chairman Kashmir committee's visit to the Federation of Chambers of Commerce and Industry (FPCCI) head office. Majority of FPCCI leaders who spoke on the occasion showed utter desperation over the government was managing the affairs of the economy.

FPCCI leaders were of the view that shortage of power gas and other key raw material was hampering industrial growth in the country. They were of view that if immediate correction were not made the impact of serious issues like shortage of gas, electricity will make thing worse in coming days. FPCCI president Senator Haji Ghulam Ali urged upon Maulana Fazalur Rehman to take up the agenda of Pakistan first to the government and involve the private sector in economic policy making.

He said the business community was concerned, over deteriorating economic condition of the country and wanted an early solution to all related problems. He said the continuity of existing policies will give more problems to the people besides weakening the industrial base of the country. Tariq Sayeed told Maulana Fazal-ur-Rehman that traders and industrialists of the country were seriously worried over existing economic situation and he on their behalf want to inform the government at federal and provincial level that business community wants immediate solution to their problems.

"Maulana Sahib please convey to the government on our behalf that traders and industrialists are not in a position to carry on their commercial activities in the given situation when there was no electricity and gas for two third of the day," Tariq Sayeed gave this message to Fazal-ur-Rehman and he wanted that his message should be clearly heard by the rulers.

Iftikhar Ali Malik second his fellow Tariq Sayeed and demanded of the government improvement in three key areas for helping business community play its role in making corrections in the down sliding economy. He also referred to worsening law and order situation terming it a nightmare for traders and industrialists who in his opinion were finding it difficult to keep the mills and businesses running. He suggested that the government should immediately form a think tank comprising notable economists, former policy makers, private sector representatives and experts in economic strategies and planning. He said Pakistan an agriculture country could do better provided the government ensures good economic policies. Iftikhar Ali Malik said that FPCCI was ready to provide the government input for forming think tank.

Loadshedding in industrial areas: massive closure of industries feared

2011-01-11T11:41:00.000-08:00

Loadshedding in industrial areas: massive closure of industries feared

The industrialists have feared massive closure of industries in Karachi if Karachi Electric Supply Company (KESC) continued the 16 hours load shedding to industrial areas, which will not only result in mass scale unemployment but also failure in delivery of export orders.
The load shedding has created enormous problems for industries to keep the their commitment regarding exports orders, they added. The industrialists expressed the fear that if they once lost their hard-earned export markets the competitors would replace them forever.
Gas supply to the power utility was suspended on Sunday afternoon completely by Sui Southern Gas Company (SSGC) that caused huge shortfall in power generation. Due to the suspension of gas supply, the utility had to shift to furnace oil for power generation.

However, all its generation plants could not be run on furnace oil, as most of the units are gas-fired. Consequently, the utility has been compelled to resort to load shedding in industrial areas for about 16 hours daily. Industrialists said that the massive load shedding by KESC would result in closure of many industries, while production in many factories would be badly affected due to which they would not be able to pay the bills to any of the utilities.

They said that small industries usually run during daytime but due to 16-hour load shedding these were now forced to cut their production. They feared that the alarming situation might lead to collapse of industries in Karachi. Vice Chairman, KATI, Javed Qureshi said that power supply to industrial areas was discontinued at 6:00pm on Sunday and it was restored at 10:00am on Monday. Criticising KESC, he said that the utility was resorting to 4-hours load shedding after every four hours.

He said once a units went off it took almost half-hour to restart production. No units can operate in such a situation, he added. Chairman Federal B. Area Association of Trade and Industry (FBAATI), Mohammad Irfan said that KESC had not issued any schedule or power shut down notice regarding the load shedding in industrial areas. However, almost 10 hours load shedding was carried out in F. B Industrial area on Monday with a hint that the duration might be increased on Tuesday.

Referring to the contract of KESC with consumers for power supply, he said that under the contract KESC was bound to supply uninterrupted power to its consumers. He said that more than 99 percent industries were paying KESC bills on time and KESC was duty bound to provide uninterrupted electricity to them.
He said the SSGC and KESC should approach the government to settle their issue and government should direct KESC to ensure electricity supply to its consumers, whether its is using oil and gas for power generation. Chairman, Pakistan Tanners Association (S.Z) Aziz Ahmed said that the tanneries had to face massive loss of production due to the massive load shedding.

He said as the industry was in mid of peak leather processing season after Eidul Azha, if the load shedding was not stopped, the industry would suffer losses to the tune of billions of rupees. He said that a major part of the leather industry of Pakistan was located in Karachi, wherein about 70 percent of the exportable commodity of finished leather was processed from raw hides and skins.
The uninterrupted electricity supply was necessary for processing of leathers and if the massive load shedding was continued with the leather industry of the city would ruin. Chairman, Site Association of Industry (SAI), Abdul Wahab Lakhani in a statement criticised the power utility for restoring to massive load shedding in industrial areas.

600 industrial units remain closed for fourth consecutive day

More than 600 industrial units remained closed on fourth consecutive day on Monday and industrialists fear that the ongoing gas schedule would continue till Wednesday (tomorrow) due to drastic drop of gas pressure. In Faisalabad region, a large number of CNG station also remained closed on second consecutive day after concluding of two days (Friday and Saturday) gas loadshedding due to low gas pressure.
Furthermore, hundreds of industrial workers took out protest procession against growing unemployment and prolonged gas and electricity loadshedding, which is disturbing their lives. Protesters blocked the traffic on by-pass Jhang road for several hours. The major protest rally of labour union was taken out from Sidhar and all processions gathered at by-pass Chowk on Jhang road.

Addressing the protest rally, the labour leaders demanded of that the government to end gas and electricity loadshedding. All cases against more than 162 industrial workers registered at Thikrewala police station should be withdrawn immediately as per promises made by the district administration to end tension between industrialists and labourers, they added.

Talking to newsmen, Chaudhry Salamat Ali, Chairman, Pakistan Hosiery Manufacturers & Exporters Association (PHMEA) North Zone expressed grave concern over the severe and prolonged gas loadshedding and said that the closures of the textile units were facing severe financial crunch, while the federal government did not fulfil its single commitment it made with the industrialists.

Industrialists expressed apprehension saying that SNGPL was planning to extend duration of gas loadhedding schedule upto January 12, six days off in a week, which was a serious step against the industrialisation of Punjab. Machinery of billion of rupees converting into scrape due to mysterious conspiracy against Punjab, where export oriented and labour intensive textile industry was closing permanently and unemployment was spreading.
He also expressed grave concern over power outages, which is adding fuel to fire. The chairman PHMEA said that Punjab government should resolve this matter on priority basis as it was included in their "Ultimatum" for saving the Punjab industrial sector. He said that the new unseen gas suspension plan of SNGPL would have a very negative impact on textile industry as well as national economy.

Gas supply to industries, CNG stations in Punjab halted

2011-01-11T11:34:00.000-08:00

Gas supply to industries, CNG stations in Punjab halted

RAWALPINDI: Due to the increasing gas crisis in the country, the government has temporarily halted the supply of Sui gas to all industries and CNG stations across the Punjab province. However, the move failed to lessen the pressure for domestic consumers, who saw no respite from the low gas pressure. On the other hand, the step pushed the transporters against the wall. Long queues of vehicles were seen on Sunday at a few CNG stations where gas supply was available.

Our Lahore correspondent adds: Closure of industries and filling stations has not proved effective for providing uninterrupted natural gas to the domestic sector as people continued to complain about the low pressure on Sunday.

However, there has been little improvement in the gas pressure in certain localities following the closure of CNG stations and suspension of gas supply to the industry. The SNGPL officials are confident that supply to the domestic and commercial consumers would stabilise in a day or so.

Various domestic consumers complained about gas loadshedding while talking to our sources on Sunday. “My family is unable to cook food properly,” said Muhammad Amer, a resident of Iqbal Town. Life has badly been affected as gas is not available for heating water, he maintained. He said the closure of CNG stations was also costing him dearly as he had to run his car on petrol.

Meanwhile, sources said the SNGPL had decided in principle to restore gas supply to CNG stations after gas supply to domestic and commercial consumers became normal. It is hoped that CNG stations in Lahore will be allowed to run from Wednesday while filling stations in Islamabad may be allowed to operate even earlier, sources added.

The SNGPL has decided to stick to the gas selling agreement signed with industries for the supply of gas for nine months, excluding winter. On the other hand, domestic, commercial and CNG consumers will be provided gas uninterruptedly keeping in view their respective selling agreements that ensured 12-month constant supply of gas.

Earlier, CNG filling station owners said the SNGPL had issued a notice to keep CNG stations closed in Islamabad/Rawalpindi and Lahore for an indefinite period. The Chairman of the All Pakistan CNG Association (APCNGA) Supreme Council, Ghiyas Abdullah Paracha, termed the step unfair and an injustice to the CNG sector. He demanded that gas supply to industries and bulk gas consumers should be immediately suspended to improve gas availability for domestic sector. “It is evident that CNG stations are not responsible for the gas crisis. Instead, bulk gas users are responsible for this problem as they use heavy amount of gas and leave very little in the network, which hardly reaches the urban areas,” he added.

He warned that continuation of the present gas management policy would further aggravate the situation. He said people would come on the roads and it will force the CNG filling station owners to come on the roads with the public. Paracha said if the government did not end gas loadshedding and restore the supply to the domestic and CNG sectors, a complete strike would be observed.

Pakistanis are tax evaders

2011-01-11T11:31:00.000-08:00

Study says majority of high earners do not pay tax

Majority of Pakistanis who never paid a single penny as taxes throughout their life are highly qualified, live in the most expensive locations like the DHAs in Karachi and Lahore, have their accounts in foreign banks and make frequent travelling abroad, disclosed a study.

The research carried out by the National Database and Registration Authority (Nadra) has unfolded another most alarming fact that the segment of population under question does not possess the National Tax Numbers (NTNs) in the first place. And individuals falling in this category are more than half-a-million, according to a conservative estimate.

If each one of them is taxed at the rate of Rs75,000 annually, that is bare minimum as compared to their income, it will fetch revenue to the tune of Rs40 billion, a target that the government instead wants to achieve through the imposition of Reformed General Sales Tax (RGST).

This non-tax paying elitekeeps their wealth in foreign accounts. Of them, more than 33 per cent individuals have two or more accounts in foreign banks like American Express Bank, Bank of Tokyo, HSBC, Barclays, Standard Chartered, RBS, Citi Bank and others. There are a sizeable number of females also marked in this

category and 75 per cent of them have accounts in foreign banks.

The study further notes that majority of the non-taxpayers in this category are the young entrepreneurs of rich background as being the scions of wealthy parents, falling in the age bracket of 25 to 45 years. Pakistan’s adult population is 86 million and only 2.5 million are in the tax net with its major portion, 1.8 million, constituted by the salaried class. Pakistan’s tax-to-GDP ratio is 9.6 per cent, the lowest in the world where there are only 1.2 million active taxpayers and the remaining either have their tax deducted from salaries or evade taxes.

Among the 10 largest cities, Karachi hosts the highest number of wealthy people who are not registered with the tax authorities, thus, they never paid tax, followed in order by Lahore, Rawalpindi, Islamabad, Faisalabad, Peshawar, Hyderabad, Multan, Quetta and Gujranwala.

Nadra Chairman Ali Arshad Hakeem was not available for comments. However, well placed Nadra officials verified the contents of this study that, they said, was aimed at helping the Federal Board of Revenue to bring more people into the tax net.

Previously, Nadra had spotted the tax evaders providing a list of E-7 residents whose majority does not pay taxes. These non-taxpayers were found out through Nadra’s data mines by examining the areas such folks reside, their accounts in foreign banks, nature of business/profession, travelling patterns and relations abroad. Through this exercise, Nadra found out 565,953 such individuals who never paid income tax. Of them, 79 per cent were male and 21 per cent female.

The study found out that Karachi has the largest number of such non-taxpayers (154,479) living in DHA, Clifton and at other posh locations. Lahore followed by 77,568 such non-taxpayers residing in DHA and other expensive places. Rawalpindi has been ranked third with 33,381 such individuals, followed by Islamabad (18,233), Faisalabad (16,118), Peshawar (13,698), Hyderabad (13,622), Multan (12,696), Quetta (8,613), and Gujranwala (8,610).

Majority of these non-taxpayers are graduates (244,396), followed by post-graduates (192,953) and then below matriculation (37,047). Regarding the age brackets, the majority of non-tax paying individuals range between 35-45 years (220,932) followed by 25-35 years (185,749), 45-55 years (91,201), 55-65 years (44,641) and 18-25 (23,430).

Trade deficit slightly over $8b in first half

2011-01-11T11:26:00.000-08:00

Trade deficit slightly over $8b in first half

ISLAMABAD: The country’s trade deficit remained restricted to slightly over $8 billion during the six months ended December 31, despite surging oil prices in the international market and a significant increase in the import of machinery.

The unexpected growth in exports exceeding 20 per cent kept the double-digit growth in imports under check.

The gap between imports and exports stood at $8.2 billion during the first half (July-December) of fiscal 2011, according to Federal Bureau of Statistics (FBS) officials. The deficit is $1.4 billion, or around 18 per cent, higher than the deficit in the corresponding period of the preceding financial year.

Had there been sluggish growth in exports, the deficit could have surpassed the $9 billion mark, say the officials.

Exports in the period under review touched almost $11 billion – $1.8 billion, or 20.6 per cent, more than last year’s exports in the corresponding period. Meanwhile, imports stood at $19.2 billion, marking a growth of 19.6 per cent, or $3.2 billion, in the first half.

Despite the double-digit growth in imports, Pakistan may not face significant problems on the external front because of a matching growth in exports and continuous increase in remittances. Had there been less power outages, exports would have increased by another $500 million in the first half, assert representatives of the All Pakistan Textile Mills Association (Aptma).

Remittances depict a healthy trend. July through November, remittances stood at $4.5 billion – about $700 million more than the corresponding period of 2009. In November alone, remittances were recorded at $927 million.

In five months, the current account deficit – the gap between external receipts and payments – stood at $504 million or 0.7 per cent of total size of economy, show central bank statistics. With a healthy growth in exports, officials are expecting a current account surplus of almost $100 million.

Interestingly, the government does not have a trade policy in place for the current financial year. Unofficial estimates show that exports may remain above $21 billion and imports around $39 billion by end-June 2011 – a gap of $18 billion.

On a month-on-month basis, a near 30 per cent growth in imports was outpaced by 36 per cent growth in exports. The exports grew in dollar terms due to better return on cotton and rice in the international market.

Officials said in December the trade deficit stood at almost $1.63 billion, which was $298 million or 16 per cent more than the figure for December 2009.

Pakistan exported goods worth $2.2 billion during December, compared with $1.6 billion in December 2009 – an increase of $546 million or 36 per cent. Imports in December were recorded at $3.8 billion, an increase of $844 million or 29 per cent over December 2009 statistics.

Gas shortage is at its worst: Sui Southern MD

2011-01-11T11:22:00.000-08:00

Gas shortage is at its worst: Sui Southern MD

KARACHI: The problem of gas shortage is going from bad to worse as the shortfall has touched 300 million cubic feet per day (mmcfd), leading to low pressure in Sindh and Balochistan, said Managing Director Sui Southern Gas Company (SSGC), Dr Faizullah Abbasi.

Speaking at a press conference organised at the SSGC head office on Monday, he said: “We are walking on a very tight rope and despite grave problems, our managers are managing gas operations effectively.”

He said, “We have few options like either to have no gas or expensive gas.” Explaining, he said some of the new production projects would generate expensive gas which would cost four times more than present gas rates.

Replying to a question, he said the shortage would be more severe in coming years owing to the increasing demand of the commodity.

The management of SSGC said that this year the demand of gas has increased by 65 mmcfd compared to last year while supplies from major gas fields have gone down by 72 mmcfd.

Extravagance in the provinces

2011-01-11T11:11:00.000-08:00

Extravagance in the provinces

WITH the budgetary deficit becoming unmanageable for the second year running, the focus of policy debate is shifting from federal to provincial fiscal responsibility as a consequence of 18th Constitutional Amendment and 7th National Finance Commission Award.

Many economists warn that the failure of the federal government to rein in provincial extravagance could worsen the macroeconomic imbalances and impact on economic sovereignty.

On the national level, the fundamental structural weakness in the economy remain unaddressed, contributing to rising fiscal deficit that is forecast to cross 7.6 per cent (Rs1285 billion) of GDP this year. The erratic and expensive power supplies have emerged as the biggest challenge for the policy makers resulting in heavy production losses and falling productivity countrywide.

At the end of the last fiscal year on June 30, the country’s consolidated fiscal deficit stood at 6.3 per cent, up 1.1 percentage points over the previous year’s 5.2 per cent. This was 1.4 percentage points higher than the target of 4.9 per cent of GDP set in the budget 2009-10.

The slippage was attributed to higher than targeted expenditure on security and power sector losses at the federal level and non-observance of provincial expenditure ceilings. The provinces did not honour their commitment to provide a surplus savings of about 1.3 per cent of GDP.

At the start of this year, the government set a fiscal deficit limit of four per cent which was revised after devastating floods to 4.7 per cent. This is already reported to have touched 3.5 per cent at the end of first half of the year i.e. December 31.

This year too, there was an understanding given by the provinces that they would provide a surplus of one per cent of GDP to achieve a consolidated deficit of four per cent, revised to 4.7 per cent. As it turned out, the provinces announced deficit budgets.

The general impression among the economic managers is that the provinces have been able to manage the large part of a shift of the consolidated revenue – more than 10 per cent in just one year – than their previous share but are reluctant to take over proportionate responsibilities or absorb employees of the devolved federal ministries. In the process, however, they have raised their own spending without striving for their own revenue mobilisation.

In a sense, the new NFC award has taken away their incentive to generate provincial taxes given the fact they stand to get much higher shares from federal divisible pool without putting in their own efforts.
As a result, independent economists are against irresponsible fiscal stance of provincial governments, who are not part of negotiations with international lending agencies, but could fail the federal government in meeting its international obligations.

With a minor change in the famous comment of American analyst P.J O’Rourke, a World Bank economist Anwar Shah said last week that, “giving money and power to provinces is like giving whiskey and car keys to teenage drivers”. In his view, the provinces or sub-national governments always demand more grants to demonstrate that “they are the champions of wasteful expenditure” because empowered provinces were more likely to undermine even the good local governance.

In his opinion, with the devolution of fiscal and social responsibilities, the provinces were generally expected to be more responsive and having better results because of decision-making going somewhat closer to the people for local transportation and communication networks, better local common markets and reduced intra-regional spill-over and inequalities. However this was possible only if the governments are not run by feudal, industrial and military elites.

This was reinforced by Dr Ehtisham Ahmed, the ministry of finance’s adviser and a central figure advising the government on introduction of RGST. In his view, the 18th Constitutional Amendment and the new National Finance Commission award would collapse in case the government failed to introduce reformed general sales (RGST) as agreed to with the IMF.

He said, the 18th amendment and NFC award had Transferred on paper a lot of resources to the provinces who went on a spending spree on anticipation of increased share, but in reality the revenue collection without RGST was not going to increase and hence their share would remain less than expected and create further fiscal gap. He said the initial transactional cost of fiscal devolution is always high.

Dr Hafiz A Pasha, a seasoned economist and a former adviser on finance, said he never heard of an arrangement where the centre could give 36 per cent share out of its own kitty to the provinces for making them agree on sharing RGST on services where the federation was not going to get anything.
This was not prudent given the fact that the centre was to give away 56 per cent share of the Federal Consolidated Fund to the provinces.

With the fiscal devolution introduced through 18th amendment and NFC award, he said, some structural difficulties have arisen. In his view, the federal government has to give 56 paisa out of every rupee of tax collection, which has eroded its willingness to impose more taxes because the political cost of doing such a thing was too high. Also, because the provinces got higher share out of federal resources, they lacked incentive to raise more revenue.

As a result, according to his conservative estimates, there would be at least three per cent higher fiscal deficit than targeted by the government at 4.7 per cent. He said the problem lay with government’s failure to mobilise revenues, to move forward on the reform agenda and an extravagance showed by the government in increasing salaries by 50 per cent when the country was passing through difficult economic conditions and the impact of floods.

In Dr Pasha’s view, there was a lagged response in development expenditure at the provincial level because of utilisation and absorption capacity. As a result, the share of provincial expenditure could rise from existing 29 to 35 per cent this year.

He said, the original revenue collection target for the current year was estimated at Rs1552 billion but the government announced it at Rs1667 billion, which was a challenging task to begin with.
He said he was concerned over higher provincial expenditures and the fact that fiscal effort was enumerated but there was not much evidence to suggest policy action. As a result, there were significant challenges in introducing new taxes and reforms measures which had not been anticipated and would have medium and long- term serious implications.

Pakistan December CPI seen up 16 per cent

2011-01-11T11:00:00.000-08:00

Pakistan December CPI seen up 16 per cent

KARACHI: Pakistan’s consumer price index probably rose 16 per cent year-on-year in December due to rising food prices, almost the same pace of inflation as in the previous month, a Reuters poll shows.

The index rose 15.48 per cent in November.
“The main reason for the rise in inflation year-on-year is the low base effect along with the increase in food prices, which rose around 10.9 per cent in December 2009 year-on-year, and expected to rise around 20 percent in December 2010,” said Asif Ali Qureshi, director at Invisor Securities.

Food prices have been increasing following summer floods, which are estimated to have cost Pakistan’s economy nearly $10 billion. Analysts, however, said food prices may have declined month-on-month and inflation could have peaked in December.

The central bank is due to announce its monetary policy for the subsequent two months in January and analysts said it could increase its key policy rate on concerns of increasing government borrowing from the State Bank of Pakistan.

The State Bank of Pakistan in November increased its key policy rate by 50 basis points to 14 per cent, its third consecutive rate rise in the past six months as it seeks to curb persistent inflation.
“Money supply growth is already on route to double digits and has been depicting a sharper increase in the second quarter of fiscal year 2010/11, with government borrowing being a prime driver, taking no heed despite continuous monetary tightening,” said Farhan Bashir Khan, an analyst at Invest Capital Investment Bank Ltd.

“We expect further tightening through discount rate hike as imminent in upcoming monetary policy.”

Pakistan Dec trade deficit widens to $1.62 bln

2011-01-11T10:53:00.000-08:00

Pakistan Dec trade deficit widens to $1.62 bln

ISLAMABAD: Pakistan’s trade deficit widened to $1.62 billion in December, from $1.34 billion a year earlier and also $1.34 billion in November, the Federal Bureau of Statistics said on Tuesday.

The country’s trade deficit for the first six months of the 2010/11 fiscal year (July-June) was $8.14 billion, compared with a $6.89 billion deficit a year earlier.

Gas supply cut led to closer of 600 industrial units

2011-01-08T05:15:00.000-08:00

Gas supply cut led to closer of 600 industrial units

FAISALABAD (January 08, 2011) : More than 600 Industrial Units including Textile Processing, Printing, Sizing, Dyeing, Finishing, Chemicals and Washing Soap manufacturing industries have been closed for next 84 hours here on Friday morning at 06:00 AM, due to suspension of gas supply by Sui Northern Gas Pipelines Limited (SNGPL).

More than 380 CNG stations have also been closed for two days, while 100,000 powerlooms remained closed on third consecutive week, because sizing industry not in position to supply sized yarn to the Powerlooms Industry on regular basis. Furthermore, 10 to 12 hour load-shedding of electricity in industrial areas adding fuel to fire, while 400,000 workers most of them daily wagers are facing severe problems, who have no alternative livelihood.
Residents in different parts of the industrial city were remained complained about the low gas pressure affecting cooking and other domestic chores. The affected peoples strongly demanded immediate restore of gas supply of the city areas, where routine life of every home affecting due to non-availability of gas. In a press statement, Salamat Ali, Chairman, Pakistan Hosiery Manufacturers & Exporters Association (PHMA) North Zone said that the gas suspension plan would have a very negative impact on entire Industrial sector that was already passing through very challenging times due to acute shortage of electricity and bad law and order situation.

Salamat Ali lamented over the high handedness of the SNGPL officials violating the PM directive and announcements in media. The present gas shedding schedule would push the export oriented and labour intensive value added textile industry towards total collapse, he added.

All Pakistan Textile Processing Mills Association (APTPMA) has rejected the four days gas-shedding schedule announced by SNGPL and termed it detrimental to the National Economy and Exports. Commenting over the prevailing situation, Muhammad Saeed Sheikh, Regional Chairman APTPMA said that the textile sector was one of the major employment-generating sector in the country, while it was also earning more than 60 percent of the foreign exchange.

He lamented that despite of importance of this value-added sector, the government was subjecting it to victimisation, which would not only foment large-scale un-employment but also deprive it from precious and direly needed foreign exchange.

He said that during last meeting of the APTPMA Office-Bearers with Prime Minister, Yousuf Raza Gilani, it was decided that that the gas will be supplied continuously to the Textile Processing Industry and only two days in a week will be closure of the gas for value-addition Industry in Faisalabad and other centres of the Punjab but the SGNPL authorities have again flouted the order of Prime Minister for the 3rd time after this meeting in which Minister for Petroleum and Natural Resources, Naveed Qamar, Minister for Water and Power, Raja Muhammad Ashraf and Federal Textile Minister, Rana Farooq Saeed had participated.

He said that on our pressing demand that the government should follow equilibrium in distribution of gas to industrial units of the country and that the fertiliser factories should also be brought under this gas suspension programme, the government has now decided to suspend the gas supply to 4 fertiliser factories w.e.f. 7th January for a period of 15 days but it would not make any impact to improve the supply of gas to Textile Processing Industry, as this vital sector of the economy would be clamped with gas shedding for 4 continuous days from 7th January 2011.

Mian Ajmal Farooq, Vice Chairman, Khurrianwala Industrial Estate Association disclosed that over 565 big Textile Industrial Units and value-added sector would severely be hit by 4 days gas suspension in a week. This unwise step of the government would not only render thousands of workers and daily-wagers jobless but would also inflict a colossal financial loss to the textile sector and its ancillary industries and badly hit the country's exports as well.

He appealed to Prime Minister, Yousuf Raza Gilani to intervene in this crucial plight and order the SNGPL to suspend its latest schedule for gas closure Khuwaja Shahid Razzaq Sikka, President, Mehmood Alam Jatt, Secretary, Anjuman-e-Tajran and other Trade organisations have expressed concern over the load-shedding of electricity & gas and termed all the statements of the Federal Government pertaining to ending energy shortage for textile industry as rhetoric.

Abdul Haq, Chairman, and Muhammad Akram Ghouri, Vice Chairman, All Pakistan Cotton Powerlooms Association (APCPA) also expressed grave concern over the load-shedding of electricity & gas and demanded to the government to save the industry and exports in the best interest of the country.

Domestic debt, defence spending make 2011 a difficult year

2011-01-08T05:10:00.000-08:00

Domestic debt, defence spending make 2011 a difficult year

KARACHI: The year 2011 will be another difficult year for the country as there are a host of structural issues facing Pakistan, including one of the lowest tax collection, highest domestic debt servicing and one of the highest defence spending in the world.
“If a serious and concentrated effort is made to start addressing these issues, the investors will take it as a positive signal and start investing in Pakistan again,” said Dr Amjad Waheed, Chief Executive Officer, NBP Fullerton Asset Management (NAFA).

In 2011, government borrowing is expected to remain excessive, thus, inflation and interest rates are expected to rise further.

He said that some segments of the economy remained outside the tax ambit such as agriculture, services and real estate, thus, tax collection was under 10 percent of the GDP, one of the lowest in the world.

Domestic debt servicing was eating up around 44 percent of the government tax revenues, while defence spending was around 33 percent of the government tax revenues, which was among the highest in the world.
About structural issues, he said that the development spending, including education, healthcare, population planning, flood protection and infrastructure, etc, was substantially lower relative to other emerging markets.

“Government-owned organisations are incurring losses of around Rs300 billion per annum and excessive government borrowing during the last three years has crowded out the private sector, which is the more efficient sector.”

Private sector borrowing has come down from Rs366 billion during FY2007 to Rs71 billion during FY 2011 (July-December, 2010), whereas government borrowing during the same time has risen from Rs164 billion to Rs450 billion and no focused effort has been made by successive governments to develop alternative sources of energy, such as coal, hydel, wind, etc.

In 2010, foreign portfolio investment in the Pakistani stock market stood at around $500 million. In the same year, around $30 billion has been invested by foreign investors in the Indian stock market.

India’s economy is 10 times larger than that of Pakistan. On this basis, if $30 billion is invested in the Indian stock market, than around $3 billion should have been invested in the Pakistani stock market instead of $500 million.

“Concrete progress to redress the abovementioned structural issues can help increase foreign investment in Pakistan several fold, improving job creation and government tax collection

Pakistan Steel Mills: Government decides to back Rs7b loan bid

2011-01-08T05:04:00.000-08:00

Pakistan Steel Mills: Government decides to back Rs7b loan bid

ISLAMABAD: The government has decided to provide sovereign guarantees to back Pakistan Steel Mills’ bid for obtaining loans totalling over Rs7 billion from a consortium of banks required to restructure the once profitable entity that has recently incurred losses of Rs38 billion.

Sources from within the ministry of industries and production said that once the audited accounts of PSM are finalised, the management will enter into negotiations with a consortium of banks – led by National Bank of Pakistan. The accounts are expected to be settled by mid-January.

The federal government has recently extended a short-term loan of Rs3 billion to the entity with an aim of ensuring maximum utilisation of production capacity, which has dipped to a new low of 30 per cent.
Currently the value of PSM’s assets is less than its liabilities. Under the State Bank’s prudency regulations, banks cannot entertain loan requests from an entity with negative equity. However, officials who have seen the unaudited accounts expect the book value of PSM to once again become positive.

The government will extend the sovereign guarantees as part of a plan approved by the cabinet’s committee on restructuring public sector enterprises. It is vital to note, however, that under the law the value of guarantees extended by the government cannot exceed two per cent of the total size of the economy in any given financial year.

Finance ministry figures show as of December 31, outstanding guarantees had risen to Rs563.4 billion – more than three per cent of the total economy size. Of the total, guarantees worth Rs322.8 billion have been given in the local currency, while Rs240.6 billion are in foreign currencies.
If PSM fails to pay back the amount, it will become the federal government’s obligation to service the debt, similar to what happened with the power sector.

Though formal negotiations are yet to start, PSM management expects that the minimum cost of debt in excess of Rs7 billion will be 13 per cent per annum, according to the officials. At present, PSM pays Rs1 billion in interest annually.

The government constituted the cabinet body to overhaul eight bleeding public sector entities which result in annual losses of Rs243 billion. Minister of State for Finance Hina Rabbani Khar recently said that PSM’s restructuring plan will be tabled in the next cabinet meeting for final approval. The opposition has demanded that the government restructure bleeding entities instead of levying new taxes since a significant part of revenues is spent to pick up losses of these organisations.

The officials said the government is likely to announce a new chief executive officer for the entity by the end of this month. As per the new arrangement, the offices of CEO and the chairman of the board of directors will be separateAfter the appointment is finalised, acting CEO Imtiaz Ahmad Lodhi will revert back to his position of finance director.

Pakistan Steel Mills remained a profitable entity till the end of Musharraf regime and officials attribute its downfall to political appointments at the top-level management. PSM suffered a loss of Rs26 billion in 2008-09 and another Rs11.5 billion during last financial year. During the current financial year the gap between its revenues and spending is at an average of Rs3.5 billion per month.

It should be noted that one of the former CEOs of the mammoth organisation is under custody on allegations of corruption.
“If the PSM runs on full capacity it will take at least four years to pay off the Rs38 billion losses,” said Lodhi while talking to The Express Tribune.

The government has shelved the plan to sell 20 per cent stake in PSM. The management has decided the entity will first be turned profitable and then, if required, shares will be floated in the stock market.
The management is also working on a plan to expand production capacity, currently at one million tons. Though Privatisation Minister Senator Waqar has given a slogan of adding another six million tons, the ministry officials termed this ‘impractical’. Enhancing capacity to six million tons requires an investment of at least $5 billion and no party is willing to make such a huge investment at this point in time, said the official.

Pakistan to defer IMF-backed tax reform

2011-01-08T04:59:00.000-08:00

Pakistan to defer IMF-backed tax reform

Pakistan’s prime minister, Yusuf Raza Gilani, announced the deferral of an IMF-backed tax reform on Friday.

The reformed general sales tax, which Pakistan has been discussing with the IMF for more than a year, was supposed to be introduced in July last year to boost tax revenues.

“We will not go forward [with the RGST] until consensus is evolved,” said Mr Gilani during a visit to the southern port city of Karachi, where he visited the headquarters of the Muttahida Qaumi Movement.

Mr Gilani reversed a plan to increase oil prices on Thursday to win back the support of MQM, after the party withdrew from the ruling coalition in a move that denied the government parliamentary majority.
MQM confirmed on Friday that it would rejoin the coalition.
Analysts warned that the decision to delay the RGST would further intensify concerns over the government’s ability to reform Pakistan’s troubled economy.

“This is a near fatal blow to the reform process,” warned Sakib Sherani, a former adviser to the finance ministry. “The RGST was meant to finally begin documenting the vast informal economy in a country with an alarmingly low tax to GDP ratio.”

A finance ministry official in Islamabad conceded that Mr Gilani’s decision “will only cause more problems with the IMF”, adding that “Pakistan does not have much to show in the form of successful reforms being undertaken currently”.

The RGST is a key part of Pakistan’s agreement with the IMF and its postponement could put the $11bn loan package in jeopardy.
The IMF said that raising the ratio of government revenue to national income was essential to returning Pakistan’s public finances towards sustainability and the sales tax was an indispensable component in this effort.

US' worst fears realised as Pak Govt stalls economic reforms to stay in power

2011-01-08T04:56:00.000-08:00

US' worst fears realised as Pak Govt stalls economic reforms to stay in power

"The extension will provide time to the Pakistani authorities to complete the reform of the General Sales Tax, implement measures to correct the course of fiscal policy, and amend the legislative framework for the financial sector," the IMF said through its press office on Friday.

The Pakistani government appears to have calculated that the country is too strategically important for the US and the IMF, and that even though Pakistan has balked on reforms, the international community would come through with support, the report said.

"Nobody realizes that the government of President Zardari is essentially performing a juggling act," said a senior Pakistani government official, referring to President Asif Ali Zardari. (ANI)

The country has received 7.6 billion dollars so far, but the fund has extended the time for its next payment and has not given Pakistan any further instalments since May.

The bargain underscored an increasingly urgent problem for both Pakistan and its international backers, especially the United States, which has pushed the government to improve its tax collection and make hard economic choices to ensure the nation's solvency, the New York Times reported.

This week's turmoil indicated that if the coalition government wants to survive, that path might be impossible, it added.

The Obama administration did not publicly criticise Pakistani officials for the deal on Friday, apparently deciding that a worse outcome would have been a collapse of the government when the US was depending on it for help in fighting the war in Afghanistan, said the report.

For the time being, then, Pakistan may remain dependent on international assistance, including billions of dollars in military and civilian aid from the US, even as fewer than two per cent of Pakistanis pay income tax, with many wealthy members of government among those who pay nothing, it added.

"The message international donors have received is that if the government cannot absorb the pressure on petrol prices, then how can it take up major economic reforms?" Ashfaque Hasan Khan, dean of the business school at the National University of Sciences and Technology in Islamabad, told the local news media.

The increase in fuel prices was deeply unpopular, hitting the poor hardest, and fraught with political risks of its own.

"All the political parties saw this as an opportunity to show they are on the side of the people," said Marvin Weinbaum, a scholar in residence at the Middle East Institute in Washington and a former State Department analyst on Pakistan.

But the deal is sure to ruffle the International Monetary Fund, which has promised Pakistan more than 11 billion dollars in loans to tide the government over, said the report.

PIA inks deal to sell US, Europe routes

2011-01-08T04:35:00.000-08:00

PIA inks deal to sell US, Europe routes

NEW YORK: Pakistan International Airlines (PIA) has signed deal to sell its routes to US and Europe, apparently due to shortage of airplanes, Geo News reported.

Sources were of the view that as per agreement, PIA airbuses, on all incoming and outgoing routes, will fly as far as Turkey, from where, Turkish airplanes will fly till US and Europe with PIA passengers on board.

The deal will be effective from March 2011 while the agreement will be made public within some weeks.

Sources also said that new PIA flights will be started for Houston, US, in order to send people message that PIA is still in operation on US routes.

PIA airbuses being used for US routes now, will then be operated on routes to Beijing and Sydney, sources claimed.

Even PIA’s MD Captain Haroon flew on Turkish airline for US journey, sources claimed further.

Pakistan fuel price U-turn 'a mistake'

2011-01-08T04:25:00.000-08:00

Pakistan fuel price U-turn 'a mistake'

The US and the International Monetary Fund have criticised the Pakistani government's decision to reverse a recent fuel price rise. US Secretary of State Hillary Clinton said she had warned Pakistan's ambassador on Tuesday that the move would be a mistake.

The climbdown was an apparent concession to the opposition after the government lost its majority.
Pakistan has been struggling to push through tough IMF economic reforms.

Mrs Clinton said: "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 made to provide a stronger economic base for Pakistan."
Prime Minister Yousuf Raza Gilani received a warm welcome as he met Muttahida Qaumi Movement (MQM) party leaders on Friday to see if his fuel price reversal could entice the party back into government.

The MQM quit the coalition on Sunday, condemning last month's 9% rise in the price of petrol and kerosene.
MQM workers showered Mr Gilani's car with rose petals as it arrived at the party's headquarters in the southern Sindh province capital of Karachi.

The prime minister was joined by Interior Minister Rehman Malik and Sindh Governor Dr Ishratul Ibad, who is an MQM member. Mr Malik and Mr Ibad have been working to reunited the estranged party allies.
In a speech to the National Assembly on Thursday, Mr Gilani said fuel prices would be restored to the levels they were on 31 December.
'Inefficient'
The prime minister had been warned there could be a no-confidence vote if he did not lower fuel prices.
But the IMF has already put on hold a $3.5bn payment of its $11bn loan to Islamabad, and there are fears Pakistan could be heading for hyper-inflation.
Pakistan's government has delayed a reformed general sales tax, which the IMF set as a condition for the next tranche of the loan, agreed in 2008.

Together with the loss of an estimated $58m a month in taxes because of the fuel price cut, this means Pakistan is likely to miss its budget targets and could forfeit the rest of the IMF loan, say analysts.
IMF spokeswoman Caroline Atkinson said of the fuel prices: "They're inefficient and untargeted so that the bulk of the benefit from the energy subsidy goes to higher income individuals and large companies."
She did not say if the rest of the loan would now be cancelled.

The price cut had also been demanded by former Prime Minister Nawaz Sharif's Pakistan Muslim League when it held emergency talks with Mr Gilani's Pakistan People's Party this week.
The prime minister could continue to rule with a minority coalition, but would have to step down if he lost a confidence motion. MPs would then either have to vote on another candidate or request an election.

Traders voice concern over political turmoil

2011-01-08T04:17:00.000-08:00

Traders voice concern over political turmoil

ISLAMABAD (January 08, 2011) : Traders here has expressed grave concern over the increasing political 'instability' in the country, saying that it has created chaos and confusion among the traders as well as masses. They said this during a meeting here on Friday, which was attended by Chairman Blue Area Malik Sagheer, Liaquat Ali Noon, Haji Muhammad Naeem, Shahid Alam, Syed Amin Pirzada, Yousuf Rajput, and Abdul Hameed Abbasi and other representatives of the traders.

"We request our political parties to help end instability and insecurity, which is taking its toll on the economy, said Malik Sohail Hussain, Vice President National Traders Alliance.

Opposition parties headquartered in Punjab are in the majority in the parliament with no desire to topple or join government, he added. They said that printing of excessive currency notes would increase hyperinflation. The government should avoid this move as the masses were already facing tough time due to ever-increasing inflation.

This carelessness of the government tantamount to pushing millions below poverty line, which will have severe political consequences, he warned. The US should play its due role to help government, which has undergone a dramatic status change - from a majority coalition government to a minority government, Malik Sohail said. The situation merits an urgent visit of US Secretary of State Hillary Clinton to hammer out important matters which cannot be kept pending, he added.

The US has always helped Pakistan and saved us from defaults. Now it should help secure interests of its major ally in war on terror, he said. US Ambassador to Pakistan Cameron Phelps Munter also needs to play his role in defusing political tensions in an amicable way, Sohail said. Removal of present government will plunge the country into chaos as another coalition government will not be able to resolve the issues of business community as well as masses, he said.

Lack of tax reforms: fiscal deficit to go up to six percent of GDP: World Bank report

2011-01-08T04:13:00.000-08:00

Lack of tax reforms: fiscal deficit to go up to six percent of GDP: World Bank report

KARACHI (January 08, 2011) : The delay in tax reforms deteriorated the financial condition of the country in 2010 and international donor agencies stopped funding, a World Bank report said. Aaj News while quoting the report said that due to lack of tax reforms, the fiscal deficit likely to go up to 6 percent of the GDP against the target of 4.7 percent, which would compel the government to borrow excessively from the banks.

In view of the given scenario, the State Bank would further tighten the monetary policy. However, the report pointed out that through broadening tax net by bringing services sector into tax net and abolishing tax exemptions to various sectors, additional revenue equal to 3.5 percent of GDP could be collected. These measures would help carry forward the second round of tax reforms to tax agriculture income and property transaction.

Urea fertiliser stock almost exhausted

2011-01-08T04:01:00.000-08:00

Urea fertiliser stock almost exhausted

ISLAMABAD: Fertiliser Price Review Committee (FPRC) was informed Wednesday that stock of urea fertiliser in the country was about to exhaust and if urea producing units are not provided with proper gas supply immediately, the country might confront several crises, sources told our sources.

The FPRC meeting recommended to Prime Minister that Gas Load Management might be curtailed to 30 days instead of 45 days as per practice of previous years. Furthermore, decision of gas diversion to Fertiliser Manufacturing Companies from Mari Gas Station, already taken by FPRC and ECC, may get implemented immediately.

The meeting expressed dissatisfaction over delay on gas pipeline by Ministry of Water and Power for an IPP project, from which gas supply would be given to urea fertiliser producing unit.

Under the directives of Chairman of FPRC Mir Hazar Khan Bijarani, a summary regarding curtailment of gas to 30 days and supply of gas to fertiliser producing unit has been prepared and sent to Prime Minister for approval. With the approval and implementation on both recommendations, about 0.2 million tonnes of urea would be produced locally within 15 days. Moreover, a two-member delegation comprising Federal

Secretary Industries & Production and Federal Secretary Food & Agriculture has been tasked to negotiate summarily with the concerned Saudi Authorities for an immediate import of 225,000 tonnes of urea through SABIC facility. The delegation is going to negotiate with them in a day or two.

Forex reserves reach record $17.197bn

2011-01-08T03:59:00.000-08:00

Forex reserves reach record $17.197bn

KARACHI: Pakistan’s foreign exchange reserves have touched record $17.197 billion in the week ending on January 1st, 2011 as compared to $16.424 billion in last week, the State Bank of Pakistan (SBP) said Thursday.

Reserves held by the SBP increased to $13.527 billion as compared to $12.709 last week, however reserves held by banks other than SBP declined to $3.669 billion as compared to $3.715 billion last week.

Pakistan’s reserves hit a record high of $17.10 billion on October 15 due to an increase in remittances from overseas Pakistanis and a narrowing trade deficit. Earlier, the reserves got a boost in September after the IMF sent Pakistan $450 million and said the money would go toward the budget to help with additional spending for flood relief and immediate foreign exchange needs.

This was separate from the $11 billion IMF bailout programme, agreed in 2008. In May, Pakistan received $1.13 billion, the fifth tranche of the programme. The IMF is likely to further delay the possible release of the sixth tranche because of the slow implementation of fiscal reforms.

Power outages increase upto 12 hours

2011-01-08T03:52:00.000-08:00

Power outages increase upto 12 hours

LAHORE: Power outages across the country, particularly in Sindh, increased by three to four hours on Thursday after three plants of the Pakistan Electric Power Company developed weather-related faults causing an additional shortfall of 1,500MW.

The company was already carrying out six to eight hours of loadshedding because of a 3,000MW shortfall which has now gone up by 50 per cent.

According to Pepco officials, Engro Power based in Daharki (220MW), Liberty Power (200MW) of Faisalabad and Guddu Power (1,000MW) partially went out of operation in the morning.
Because of weather-related factors some transmission lines in Sindh tripped and took the plants down.
Insiders say that apart from bad weather fuel supply problems also affected generation. “The three plants together created an additional shortfall of only 520MW,” said a Pepco official.

Pakistan to resume onion export to India

2011-01-08T03:51:00.000-08:00

Pakistan to resume onion export to India

Pakistan, which had banned export of onions to India a few days ago, will resume export, the office of External Affairs Minister SM Krishna has said.

It said the Indian embassy was in touch with Pakistani authorities and more onion would be sent by both ship and rail to India.

There were reports of Pakistan banning the export of onions to India via the Wagah border to curb rising prices of the commodity in that country.

Pakistan bans road, rail onion exports to India

ISLAMABAD: Pakistan this week banned overland onion exports to India in a bid to control rising prices at home for the South Asian food staple, the commerce ministry said Friday.

“The exports triggered a shortage of onions in our domestic market,” a ministry spokesman told AFP.
“I can confirm the restriction has been imposed on exports of the commodity through the Wagah border,” he said, in reference to the land crossing between India and Pakistan.

Exports of onions to India by sea, however, were not restricted, he said.
The clampdown was aimed at discouraging ordinary traders from trucking onions to India, currently facing a shortage of the vegetable, after consumers complained that costs have more than doubled in Pakistan in recent weeks.

Prices in Islamabad, where food items are generally more expensive than elsewhere, have risen from 40 Pakistani rupees last month to up to 90 rupees a kilo ($0.47 to $1.05).
In India, prices reached 80-85 Indian rupees ($1.75-$1.87) last month and are currently around 70 rupees a kilo, way above the “normal” retail price of 20-25 rupees.

“We have urged them (the authorities in Pakistan) that the contracted quantities, which were to come via the land route, should be released,” The Economic Times quoted Indian Commerce Minister Anand Sharma as saying Friday.

Talveer Hussain, a Paksitani customs official at Wagah confirmed to AFP that trucks had been stranded since the ban order was received on Wednesday.
“The government has banned onion exports by road and rail,” he said.

Sluggish economy may trigger banking crisis

2011-01-06T01:47:00.000-08:00

Sluggish economy may trigger banking crisis

SINGAPORE: The flare-up in political turmoil in Pakistan following assassination of Punjab Governor Salman Taseer Tuesday won’t have an immediate impact on the nation’s credit ratings, Moody’s Investors Service said Wednesday, but it warned that prolonged political instability and economic stagnation could lead to a banking crisis in that country.
“The prolonged stagnation of Pakistan’s economic growth and high political risk will be large risks for Pakistan over next 12 to 18 months,” said Aninda Mitra, Vice President & Senior Analyst at Moody’s Sovereign Risk Group. If economic stagnation and political instability continue, “it could either cause a sovereign debt restructuring or a banking crisis to occur in Pakistan,” Mitra told Dow Jones Newswires in a telephone interview.
“The staying power (of the government) for implementing tough economic reforms is currently under pressure,” Mitra said. The assassination was “symptomatic of high political risk in Pakistan” but wouldn’t impact the country’s sovereign credit ratings just yet. “These kind of events are already factored into our B3 rating. The event (assassination) itself comes as a shock to the political system but by itself, it doesn’t raise the risk (of a downgrade),” he said.

Pakistan, plagued with budget deficit approaching 6% of gross domestic product compared with 4.7% budgeted this year has been dependent on foreign financial aid to keep its economy afloat. International Monetary Fund provided $7.4 billion in assistance under $11.3 billion emergency loan package set in 2008.
Attached to IMF programme are conditions requiring Pakistan to carry out reforms that include changes to its tax structure and step up economic growth. But Pakistan’s failure to tackle its budget deficit by taking steps to boost revenue and slash spending has frustrated IMF and other foreign donors. United States called on Pakistan to push harder on reforms. ppi

Economic reforms in serious trouble

2011-01-05T23:55:00.001-08:00

ISLAMABAD: With the government facing a battle for survival, the federal budget and economic reforms are in serious trouble.

Although officials of the finance ministry insist there is no stepping back from economic reforms given the international commitments and rapidly growing fiscal deficit and inflation, independent analysts believe the reform agenda may already have been shelved.

In this background, Prime Minister Yousuf Raza Gilani has convened a meeting of all parliamentary party leaders on Thursday so that his economic team could present before them facts and figures on the precarious economic situation and send home a strong message of economic meltdown in case of political expediencies.

Officials said that the government would have to resort to extra borrowing from the State Bank to finance a fiscal deficit that could cross 7.6 per cent of the GDP (Rs1285 billion) against a revised target of 4.7 per cent.

“The more you borrow for budgetary support, the more you contribute to inflation that is already touching the roof,” an official said. The situation was no different when the PPP came to power three years ago.

Government officials said that they would fight till the end for going ahead with the reform programme, which included introduction of additional tax measures worth Rs62 billion.

“We are not in a position to escape the reforms programme. We cannot dodge the international community anymore,” a senior government official told Dawn on Tuesday.

He said the finance ministry had not only opposed delaying taxation measures but also proposals to reverse the hike in prices of petroleum products announced last week.

“We will have to resort to currency printing and snowball inflation if oil prices are curtailed.” But this determination had no buyers outside.

“A lame duck government cannot pursue any economic reform programme. All economic reforms, including introduction of Reformed General Sales Tax, are either already shelved or being shelved,” said Dr Ashfaque Hassan Khan, a former economic adviser in the Musharraf administration and the Dean of the Business School of National University of Science and Technology.

He said the government was currently fighting for its own survival and although it was not serious in implementing reform programme in the first place, chances for such reforms are now negligible.

“There will be a serious budgetary crisis in the near future,” he said. These views were reinforced by Sakib Sherani, who until recently worked as the government’s principal economic adviser.

“All bets are off because of political instability,” he said after Punjab Governor Salman Taseer’s murder. This will have a negative impact on investments and markets.

He said the recent political events and the murder of Mr Taseer would have two or three major casualties, including more uncertainties in the immediate future and reform programme in the long term.

“The unfolding events will make it more difficult for the government to push through reforms.”

Mr Sherani said that the government had not focused on tax administration, a factor critical to the success of RGST.

“Now the government will have to rely heavily on the State Bank of Pakistan for financing 60-70 per cent of fiscal deficit.”

BALANCE OF PAYMENTS
Both Mr Sherani and Dr Ashfaque agreed that there would be no immediate balance of payment crisis.

“There is no immediate threat on the balance of payment front because a couple of buffers are still there,” said Mr Sherani.

He said the precarious balance of payment position that confronted the government in 2008 was not an issue at present.

He said that the country’s foreign exchange reserves were reasonable, repayments to the IMF were to be made after two years and the current account had been in surplus for three consecutive months starting from September this year. Moreover remittances are flowing in.

Mr Sherani, however, warned that the current instability could put pressure on foreign exchange reserves because of the flight of capital and dollarisation of economy as uncertainties grow.

The weak fiscal situation always had a negative impact on current account, although with a lag effect, he said.

Dr Ashfaque Hassan said that foreign inflows were still there on the back of better remittances from overseas Pakistanis and exports, resulting in a narrow current account deficit but if oil prices maintain a rising trend in the international market, then balance of payment problems could arise in six to 12 months.

To top it all, the power sector remains the biggest challenge for policy makers.

Consuming over Rs225 billion per annum through losses, the power sector has emerged as the biggest non-productive drain on the budget.

In contrast, the development programme that should trigger investments and public service programmes for employment and economic activities, has been curtailed by more than half to about Rs175 billion.

RGST In The Balance Amid Pakistan Crisis

2011-01-05T12:25:00.000-08:00

RGST In The Balance Amid Pakistan Crisis

The implementation of a Reformed Goods and Service Tax (RGST) in Pakistan was unsurprisingly the main topic under discussion at a recent conference of the Pakistan Institute of Development Economics (PIDE), but with recent events sending the government into chaos, the chances of the tax being introduced any time soon appear remote.

Experts at the conference agreed that implementation of the RGST needs to be carried out as soon as possible to ensure the country’s economic health. Dr Hafeez Pasha, a leading economist told the conference that the country’s fiscal future would experience a strong downward spiral unless RGST was set in place soon. He warned that, without the revenues generated by the RGST, the central government's budget deficit would widen, potentially plunging the country into a fiscal crisis whereby the government would have few options but to increase money supply, risking inflation in the process.

Other speakers voiced concern over the ability of Pakistan's administrative system to cope with such a reform, while others questioned the potential revenue yield from the tax. Asad Omer, President, Engro Corporation, also expressed fears that the complex nature of the tax may create loopholes and opportunities for corruption.

The government's determination to force through the RGST seems to have taken a hammer blow, however, after a coalition partner of President Asif Ali Zardari's government in the National Assembly defected to the opposition recently, leaving the ruling party as a minority government. Political tension was also ratcheted up another few notches on January 4 when the governor of Punjab, a key ally of President Zadarni, was assassinated by a member of his own security. With the current administration potentially losing its ability to govern, fears are growing that the country could enter a prolonged economic and political turmoil.

The RGST, approved by the government in November, extends the scope of the existing general sales tax (GST) by abolishing certain of its exemptions, while replacing the current multiple rates of between 17% and 25% with a new flat rate of 15%.

Pakistan has operated under a commitment to the IMF to broaden the country’s tax base, which was, originally, to have been fulfilled by the introduction of a value added tax (VAT), by the beginning of the 2010-11 financial year in July. Following the government’s failure to implement a VAT, it was proposed instead to expand the base of the existing GST.

However, until now, deadlines in reforming the GST have been missed, largely because of vociferous opposition from provincial governments over the services sector, and consequent delays to implementing legislation.

Confirming the seriousness of the situation in Pakistan the International Monetary Fund has recently issued a stern warning to Pakistan to take steps to cut its spiraling budget deficit, said a senior Pakistani government official. In an official letter to the government, the IMF warned that the state of the nation's economy is far worse than previously realized and urged immediate fiscal belt-tightening measures, according to the official, who had seen the correspondence.

The IMF withheld USD3.5bn in 2010 from its total USD11.3bn loan package for Pakistan in a bid to pressure the country to take action

Economy remains in hot waters

2011-01-05T12:19:00.000-08:00

Economy remains in hot waters

ISLAMABAD: Pakistan’s economy remained under dark clouds as both the agriculture and industrial sectors recorded negative growth during the first quarter of 2010-11 and inflation escalated due to heavy government borrowing, said central bank governor Shahid Kardar.

Painting a bleak picture of the economy, the State Bank of Pakistan governor said budget deficit – the gap between government’s income and expenditure, will touch six per cent of gross domestic product (GDP) or Rs1.032 trillion by the end of June and debt will rise to new highs.

He was speaking during a meeting of the Senate Standing Committee on Finance and Revenue on Tuesday.
Kardar said “economic and financial positions have weakened further” as growth in large-scale manufacturing and agriculture sectors remained negative during the first quarter (July-September) of the current financial year.

He said public debt has already reached 62.5 per cent of GDP, breaching the ceiling of 60 per cent set under the Fiscal Responsibility and Debt Limitation Act 2005. “Continuous borrowing will take the public debt to 64 per cent by June,” he added.

“The economic situation is not only bad but alarming. Nonetheless, the real question remains what is the way forward,” said Senator Professor Khurshid Ahmed of Jamaat-e-Islami.
In his testimony to the committee, Secretary Finance Dr Waqar Masood said GDP growth is likely to remain at 2.5 per cent, two per cent lower than earlier projection and inflation will go up to 14.5 per cent, three per cent more than the target.

Masood said latest data suggested that the economy was slowing down while inflation is rising. “With a decrease in petroleum refining, cotton yarn production, steel and cement output, the large-scale manufacturing sector contracted 2.6 per cent in September, the first negative data since September 2009,” he said.

He said the budget deficit during the first half of the fiscal year touched 2.9 per cent of GDP (Rs496 billion). “Energy subsidies and excessive security spending caused more than the targeted budget deficit,” he added.
Masood said the revised budget deficit target would be 4.9 per cent of GDP, contesting the central bank’s projection of a six per cent gap. He said the price pressure has been the strongest since the 1970s.

Owing to floods, sugarcane production is likely to shrink to 44.5 million tons, a dip of 10 per cent over pre-flood estimates. Cotton production will remain 2.6 million bales or 10.1 per cent short of target while paddy crop was the worst affected, facing almost a 50 per cent contraction.
SBP Governor Shahid Kardar said the government borrowed Rs416.9 billion from July to December 11 to bridge the budget gap. Of that, Rs328.6 billion was borrowed from the central bank and Rs88.3 billion from scheduled banks.

He said the government will have to take certain measures to reverse the trend as it has large deposits in commercial banks and is earning a nominal interest. He said this huge sum of money could be used for productive purposes.

He said the total federal government budget financing debt stock has crossed Rs1.2 trillion. On top of that, Rs368 billion was borrowed for covering losses of public sector enterprises and Rs366 billion for commodity financing. “In total, the government has borrowed Rs1.94 trillion, which is 55 per cent of total bank deposits,” he added.

The currency in circulation has increased 21 per cent to Rs1.6 trillion due to massive government borrowing, which slashed private sector’s credit that grew nominally by 4 per cent during the first half of the current financial year, said the governor.
Kardar said increase in international commodity prices and higher remittances pumped more money into rural economy which also contributed to soaring inflation.

He said the external financial account has improved but “if the IMF programme is discontinued then that account will deteriorate too.”
“In South Asia, Pakistan is at the lowest ebb on growth trajectory and at the highest in terms of inflation,” said Senator Haroon Akhtar.

Economic growth target to fall to 2.5% of GDP, Senate told

2011-01-05T12:00:00.000-08:00

Economic growth target to fall to 2.5% of GDP, Senate told

ISLAMABAD: The Senate Standing Committee on Finance was informed here on Tuesday that the economic growth target of 4.5 percent of the gross domestic product (GDP) would be missed and the estimated growth during the ongoing fiscal year 2010-11 is expected to come down to 2.5 percent of the GDP.

Secretary Finance Dr Waqar Masood Khan informed the committee which met at the Parliament House with Senator Ahmed Ali in the chair, that the GDP growth target was fixed at 4.5 percent, however, due to the floods, power and gas shortages and less than expected performance of the agriculture sector, the GDP would grow by 2.5 percent of the GDP.

The secretary informed that due to the floods rice and cotton crops have been damaged to a large extent and the only hope would be the wheat crop target, which has been fixed at 25 million tonnes, prospects of which are showing improvement after the recent rains

Rising budget deficit, revenue shortfall: Federal government borrowed Rs 482 billion in six months

2011-01-05T11:57:00.000-08:00

Rising budget deficit, revenue shortfall: Federal government borrowed Rs 482 billion in six months

KARACHI (January 05, 2011) : The federal government has borrowed Rs 482 billion from banking system for budgetary support during the first half of current fiscal year because of rising current expenditure and less than target collection.
Sources in banking industry told Business Recorder that in contrast with first half of last fiscal year, the federal government budgetary borrowing is increasing continuously and has posted an increase of 123 percent or Rs 266 billion to Rs 482.045 billion during first half of fiscal year 2010-11 (July 1, 2010 to December 24, 2010) as compared to Rs 215.801 billion in same period of last fiscal year.

The federal government's major budgetary borrowing has witnessed from the central bank and with an increased of 368 percent the federal government budgetary borrowing from SBP has climbed to Rs 272.324 billion in first half of current fiscal year relative to a borrowing of Rs 58.076 billion during same period of last fiscal year.

Over 368 percent increase in government budgetary borrowing reflects that federal government is still relying on the State Bank to meet its budget deficit despite the central bank request to reduce the borrowing and retire the already taken borrowing, they said.

"Due to uncertainty and delays in external financing of the budget, government is borrowing substantially from banking system specially form the central bank," sources said. Adding, that continued government borrowings from the banking system for budgetary support put further pressure on the banking system resources.

The State Bank has already asked the government that rising budgetary borrowing is the major contributor in expansion of net domestic assets and monetary growth. "SBP had also clearly indicated that the high level of government borrowing from the SBP is diluting the effectiveness of monetary policy in containing excessive monetary expansion and thus inflation," they said.

For the provinces side the State Bank's board in its last meeting for MPS had principally decided to strictly implement the revised limits on borrowings of the provinces from the SBP, even if it involves stopping payments to the provincial governments. According to the SBP statistics federal and provincial government's borrowing for budgetary support from the banking system has surged by 100 percent or Rs 228.497 billion to Rs 459.037 billion during the first half as compared to Rs 230.54 billion in corresponding period of last fiscal year.

During the period borrowing of three provinces including has Balochistan, Khyber Pakhtunkhwa and Sindh was in negative position, while Punjab-the most effected province from flood, has borrowed some Rs 3 billion from central bank. Rising current spending and less than target revenue collection has enhanced government reliance on SBP, therefore despite the IMF condition the government is compelled to more borrow from baanking system, economist said. "We believed that borrowing will increase in the future if funding was not released by the international financial institutions," they added.

"The central bank has asked the federal government to minimise borrowing from the bank, however the increasing flood expenditures have compelled the government to borrow from SBP to met financial requirements," economists said. It is expected that this year overall government's borrowing for budgetary support would be higher than the last fiscal year, they added. Similarly, as per latest statistics Broad Money (M2) has registered a healthy growth of 7.90 percent during the July-December of the current fiscal year 2011 as compared to a growth of 4.54 percent in corresponding period of the last fiscal.