Pakistan Economy - News & Updates - Archive

[Owais]

Current economic situation impresses World Bank

ISLAMABAD (December 09 2006): The World Bank country director, John Wall on Friday said that Pakistan economy is growing very fast more than six percent a year in a row for the last four years. The high growth resulted in a sharp fall in poverty of 5-10 percentage points, increased investment and reduced public debt.

"Pakistan's economy will add another year of over 6 percent growth for the fourth year in a row. This is a remarkable achievement particularly given the major shocks of a big oil price hike and the October 2005 earthquake", Wall said at a press conference here.

Rapid economic growth has produced a sharp fall in poverty of 5-10 percentage points, an increase in investment from 18 percent to over 20 percent of GDP, a great acceleration in foreign trade and reduction in public debt from 85 percent of GDP in 1999-2000 to 55 percent at the start of 2006-07, he said.

John Wall said the problems of low growth, high poverty, high debt and stagnant foreign trade are things of the past decade, says a WB's news release issued at the press conference; now the problems are those to keep the monetary fiscal and foreign payment accounts in balance.

He also praised the government's sound framework for fiscal management, the "Fiscal Responsibility and Debt Limitation Bill." Pakistan's credit ratings have steadily improved, allowing the government to return to the capital markets to raise resources. Investor's confidence has been restored resulting in private capital inflows through remittances, privatisation proceeds and portfolio investment.

These positive developments have allowed private foreign saving to grow by six percentage points of GDP over the last four years. Official transfers have also increased as The World Bank, Asian Development Bank, and Islamic Development Bank; and Japan, the UK, the US and others countries all have made dramatically larger financial assistance available to Pakistan for its long-term development.

Inflation is in single digit and falling, from a spike of over 10 percent to 7.5 percent or less. Interest rates have risen and the growth of credit to the private sector is moderating, indicating tighter monetary policies. Further reductions in inflation may require even tighter credit policies.

Expenditure pressures, including coping with the earthquake reconstruction of over half a million houses and much higher development expenditures on much needed infrastructure, have increased. Tax revenues have grown faster than GPD over the past two years, although they are still low compared to the economy's expenditure needs. Nevertheless, the overall fiscal stance also has been tight and the deficits so far are close to their targets.

The rapid economic growth led to a very healthy growth in foreign trade, resulting in large trade and current account deficits. These have been financed with mostly non-debt creating capital inflows-official transfers, privatisation and foreign investment.

He said that foreign debt, as a percent of GDP, is falling rapidly. Foreign reserves have not fallen-they have even risen a bit, although not as fast as imports. Most recently, foreign trade has cooled off, with sharp reductions in the growth of both imports and exports. If exports pick up from their sudden and inexplicable slump, the trade gap will narrow.

 

[Neo]

Foreign investors seek security

ISLAMABAD, Dec 9: International mining companies operating in Balochistan are seeking adequate security cover and necessary infrastructure facilities in Chagai district to complete their over $1 billion copper projects.

Officials told Dawn on Saturday that the Balochistan government had been directed by the centre to ensure timely development and commissioning of mines by extending appropriate protection along with various facilities, especially electricity, gas and water to the international companies.

"In the next five years, Chagai district will be a hub for the metallic mineral mining industry and will contribute significantly to the national economy," says a latest document of the ministry of petroleum and natural resources.

However, it said that international companies should be provided required security and infrastructure facilities in the absence of which Pakistan would not be able to exploit the full potential of rich mineral resources in Balochistan.

Though rich in minerals, the document said, Chagai was faced with acute shortage of water. The area has no surface flow. Like the Saindak project, the expected mining operations in Reko Diq will depend on sub-surface water and it is, therefore, time to explore underground water potential of the region, a pre-requisite for any mining project.

The ministry of petroleum has finalised a plan that envisaged exploration and development of underground water potential for the expected mining projects so as to overcome the shortage of water. In case of finding adequate reserves of underground water, supply of water to the planned projects in the area will be initiated.

"More international mining companies would be attracted to the area, hosting a large deposit of copper ore. Through international investment, Pakistan would become a major copper-producing country in the world," the document said.

 

[Neo]

Operators for Gwadar Port selected

By Parvaiz Ishfaq Rana

KARACHI, Dec 9: The Port of Singapore Authority International (PSAI), with the consortium of AKD Securities, has been selected by the Gwadar Port Implementation Authority (GPIA) for holding negotiations with them as port operators for the Gwadar port.

A draft Letter of Interest (LoI) has been forwarded to the Ministry of Port and Shipping by the GPIA for their final approval.

Official sources in Islamabad told Dawn on telephone that the board meeting of GPIA held on Friday unanimously gave their consent for selection of PSAI and a committee has been set up to hold negotiations with the port operators after getting ministry’s approval.

However, a consortium of Pakistan International Container Terminal (PICT) and Jahangir Siddiqui has been declared runner-up. While two other participants – Dubai DP World and Globe Marine Services of Saudi Arabia -- did not participate in the bidding which took place on Dec 4.The selection has been made after evaluation of financial strength and strategic partnership of the consortiums which participated in the bidding process and submitted their offers to the GPIA.

Since the selection of the port operator is being made on Gross Revenue Sharing (GRS) formula and not on royalty basis as had been in the case of Karachi Port and Port Qasim, the concession winner will have to set up three different companies to look after various activities at the port.

Sources said there would be three major activities at the Gwadar port which include cargo operation, marine operation and free economic zone.

Despite the fact that four companies were pre-qualified by the GPIA, only two turned up on Dec 4, the final date fixed for submitting bids. However, the financial strength of the PS Authority International is beyond doubts, having $12 billion worth with a performance record of over 40 million boxes per annum.

The first multi-purpose terminal at Gwadar has been completed with a quay length of 600 meters and a depth of 14.5 meters, with a sizeable back-up area, and cranes, other terminal equipment and tugs have been acquired.

The government has already declared Gwadar port as petrochemical and POL storage field and is seeking $12.5 billion investment from China.

However, port and shipping experts are of a strong view that the Gwadar Port be handled very cautiously as it was a totally different ball game and unlike KPT and PQA who thrive on captive cargoes, it would have to totally depend on trans-shipment cargo which would mean to compete internationally.

The port will not only have to be efficient and well-equipped, but it would also have to be competitive to have its rightful share in the world cargo. The experts also suggested that the Gwadar port should also be made duty-free and all federal and provincial taxes be exempted for a long period of 20 to 25 years.

 

[Neo]

SBP rules out rupee de-valuation

KARACHI: The State Bank of Pakistan on Saturday ruling out de-valuation of Pak rupee said “SBP believes that stability in the exchange rate has proved to be and will remain important to ensure macroeconomic stability and to attract investment in the country.”

Without referring to newspapers’ speculations regarding this week issuance of International Monetary Fund, (IMF) country assessment report about Pakistan the central bank in its press note said SBP Computations indicate that there is no fundamental misalignment of real effective exchange rate of the (Pak) Rupee and therefore, consistent with recent trends the exchange rate will remain stable in the inter-bank market.

The 3-paragraph press release said this view (of central bank) is based on the substantial improvement in the country’s economic performance and better investment climate. This has boosted investor confidence, leading to higher non-debt creating flows into the economy, including remittances and Foreign Direct Investment as well as country’s ability to borrow from international markets at relatively favorable terms.

SBP predicted that Pakistan’s external financing prospects will remain favorable for several years. SBP said this (fact) is also acknowledged in recent IMF report released under Article 4 consultations with Pakistan in 2006.

Finally the central bank said consistent with its stance, the SBP believes that it is important for macroeconomic stability to contain excessive demand growth in the economy and therefore remains committed to maintain a tight monetary posture.

It said a decline in domestic inflation, consequent to the tight monetary policy, will be crucial in improving the competitiveness of Pakistan’s exports and reducing current imbalances.

 

[Neo]

Sunday, December 10, 2006

Overall external debt down by 1.44% in Q1

* Gross domestic debt up by 2.18%

By Arshad Hussain

KARACHI: The country’s total external debt liabilities have slightly increased by 1.23 percent or $459 million during July-Sept 2006-07 to $37.724 billion, but the overall external debt of the country declined by $517 million or 1.44 percent to $36.196 billion.

On June 30, 2006, the debt liabilities of the country stood at $37.265 billion, while the total external debt was at $35.679 billion.

During the whole fiscal 2005-06, the country’s overall debt has increased by 4.8 percent or $1.642 billion to $35.679 billion from $34.037billion 2004-05.

During the last three-month period, the medium and long-term loans of the country have gone up as the country is depending on it for the budgetary support and other development projects in the country, the market experts said. The medium and long-term loans increased to $32.897 billion in July-Sept this year from $32.407 billion on June 30, 2006.

The federal government has also borrowed an amount of $462 million from the multilateral donor agencies, which soared up to $16.989 billion in July-September compared to $16.527 billion on June 30, 2006.

During the period, the debt of Paris Club has gone down by $13 million or 0.10 percent to $12.818 billion, which was at $13.831 billion on June 30, 2006. However, the short-term loans (one year) of IDB enhanced to $256 million from $196 million in the last three months. Private Non-guaranteed Debt of the country went down to $1.565 million from $1.585 billion in three months.

The expensive debt of International Monetary Fund (IMF) persistently remained on the declining side at $13 million or 0.87 percent to $1.478 billion from $1.491 billion, the SBP said.

During the last three months, the foreign exchange liabilities of the country remained at $1.528 billion compared to $1.586 billion on June 30, 2006.

Domestic debt outstanding: The country’s total domestic debt is stood at Rs 2.342 trillion, up by Rs 50.108 billion or 2.18 percent in July-September 2006 compared to Rs 2.292 trillion on June 30, 2006.

The permanent debt of the country, during the said period, declined by Rs 5.586 billion or 1.11 percent to Rs 494.5 billion compared to Rs 500.14 billion on June 30, 2006.

The floating debt of the country stood at Rs 981.443 billion, up by Rs 41.210 billion or 4.38 percent. On June 30, 2006, the floating debt stood at Rs 940.233 billion.

The unfounded debt also enhanced to Rs 866.983 billion up by Rs 14.484 billion or 1.70 percent in July-September 2006 compared to Rs 852.499 billion of June 30, 2006.

The Bahbood Saving Certificate remained on the top list of the depositors, which rose by Rs 17.707 billion in last three months to Rs 160.6 billion compared to Rs 142.9 billion on June 30, 2006.

Major outflows were recorded in the Regular Income Certificates, which declined by Rs 3.795 billion to Rs 66.258 billion in last three months. The pensioners’ benefit accounts also went up by Rs 3.956 billion during the said period to Rs 61.455 billion.

 

[Neo]

Doubts expressed about economic growth paradigm

ISLAMABAD: A quarterly journal of the Pakistan Institute of Development Economics (PIDE), has said that Pakistan economic growth paradigm is based on government-centred planning and the growth is reliant on foreign resources, which have not worked so far.

Pakistan Development Review (PDR), which is a quarterly journal of the PIDE and its latest issue published on Wednesday, contained scholarly papers authored by the eminent development practitioners.

The lead article titled “Beyond Planning and Mercantilism: an Evaluation of Pakistan’s Growth Strategy” is authored by Dr Nadeem Ul Haque, Director PIDE. Besides comments containing productive discussions from renowned economists like Shahid Javaid Burki, Former Finance Minister, Pervez Hasan, Akmal Hussain and Khalid Ikram are also included.

In his paper, Dr Nadeem Ul Haque, Director PIDE says: “The economic growth paradigm in Pakistan, based on government-centred planning, reliance on foreign resources, and mercantilism (i.e. encourage exports and discourage imports), has not worked so far because the incentive structure resulting from this approach led to a neglect of governance, disregard for merit and the development of rent-seeking.”

The new growth paradigm, according to Haque, limits the role of government to building such institutions that preserve individual freedom, provide security, and facilitate market transaction, and then allow markets to determine economic-course on their own.

Dr Haque says in his paper that economic research has significantly changed over the years. New ideas and themes such as governance, institutions, globalisation and regulation have emerged. Technology has helped evolve newer methods of disseminating research. He promises that PDR will reflect these changes. He further commits that PDR will attempt to identify key thinkers to develop opinions, comments and debates on policies and issues that confront economic development.

For reforms to take hold, according to Dr Haque, first the public service will have to be modernised. The crux of these reforms, he says, will lie in the management of public service personnel that allows open competition of a professional kind to be established.

Shahid Javed Burki, a commentator on Dr Haque’s paper agrees with the suggestion that a new model should be put in place to address many economic and social problems but expresses his reservations that given country’s history of economic decision-making, public servants could be instruments of change.

 

[Neo]

Sunday, December 10, 2006

KSE Review: Foreign investment & GDR up KSE index by 173 points

KARACHI: Karachi stock market managed to maintain positive movement on the weekly basis on back of favourable developments on privatization front, while the enhanced sentiments helped the market to gain trading activity. Global Depository Receipts (GDR) of the exploration sector giant and acquisition of PICIC shares by foreign investment group remained major issues during the ended week.

However, on the negative side the suspension of share trade in Callmate by the regulating authority on the last trading day of the week kept the sentiments of the overall market unhurt, allowing the market to close the week with decent gains.

The benchmark KSE-100 Index gained 173 points 1.7 percent to close at 10,562 during the outgoing week. Average volumes in the ready market improved to 172 million shares as compared to 135million shares previously. After gaining 289 points in the first three sessions, the Index lost 115 points in the last two days of the week.

Farhan Aziz, analyst at Jehangir Siddiqui Capital Markets, said Oil and Gas Development Company (OGDC) share price recovery and PICIC acquisition news by NIB Bank, owned by Tamasek Group of Singapore were the two major developments that directed the bourses during the week.

The price of OGDC share, which went as low as Rs119 per share on Monday due to negative sentiments developed, amid lower than expected price of GDR, recovered during the week and closed at Rs121. This helped Index to improve from previous week’s steep decline of 4.4 percent.

Acquisition news of PICIC by NIB Bank at Rs82-83 per share generated investors’ interest in banking sector stocks that have exposure in NIT units. Since NIT holds 55mn shares of PICIC, disposal of PICIC lot would translate into a capital gain of Rs1.39-1.42 per unit of NIT. Besides, NIT would also have a cash inflow of Rs 4.5-4.6bn which enhances its dividend payout ability.

This would allow NIT to maintain its last year’s highest ever dividend payout of Rs5.8 per unit, thereby, benefiting Bank of Punjab (BOP), National Bank of Pakistan (NBP), Faysal Bank Limited (FABL) and Bank of Khyber (BOK).

Khurram Ghufran, analyst at KASB Securities Limited said, it was a mixed week at the bourses as the KSE-100 gained 173 points. Uncertainty clouded the beginning of the week amidst the new risk management regime was introduced and speculation over the price of OGDC share. However, no panic situation was witnessed and the market gained 262 points over the next two days as OGDC held firm and activity picked up in banking other sectors. The bull-charge in banks was driven by MCB, which found buyers due its attractive fundamentals. Interest was also witnessed in Pakistan State Oil (PSO) as the schedule for its privatization was announced. However, some profit taking was witnessed in the last two days as both oil and banks cooled off slightly. The week was rounded off with news that the Securities and Exchange Commission (SECP) had suspended trading in Callmate shares for 60 days.

Mr Ghufran regarding the upcoming trend said the fertilizer sector is expected to remain in focus next week with the gas bidding for the new urea plant scheduled to take place on December 11, 2006.

Interest in the banking sector is also expected to persist given the trend seen in the past few weeks. Looking further into future, international oil prices, among other factors, will be important determining factor for market direction.

 

[Neo]

Govt losses Rs5-6 billion annually as sale of Iranian petrol in Pakistan soars

ISLAMABAD, Dec 10 (Online): Smuggling of petroleum products into Pakistan has boomed during the last two years, apparently because of an all-time increase in petroleum prices in the country’s history.

According to an estimate by the ministry of petroleum, the government looses Rs 5 to Rs 6 billion tax revenue per annum due to smuggled petroleum products. The World Bank has advised the government of Pakistan to develop a full proof system to stop this practice in the best interest of all the stakeholders of this sector.

According to a report of Weekly “Pulse”, smuggling of petroleum products from Iran has a long history. Balochistan and Sindh were the main markets for the smuggled products, but, during the last two years, the market for smuggled oil products has expended to Punjab and NWFP. A wide range of smuggled lubricant brands is found in every city of Pakistan.

The only advantage of Iranian oil products is the cheaper prices. For instance, one liter of Iranian petrol costs half of the market price of one liter petrol. Moreover, increased prices of petroleum products in the market have increased the demand for smuggled products.

A survey conducted by the weekly Pulse reveals some interesting facts as well as the connivance of concerned government agencies. Iranian petrol and diesel are openly available in several parts of Karachi, especially which touch the kachchi abadis. The Iranian petrol is much cheaper than the one sold at the petrol pumps. One liter of Iranian petrol is available at Rs 34 to Rs 38 in Lyari, North Nazimabad, New Karachi, Nusrat Bhutto Colony, SITE and Organi town areas, whereas a liter of Iranian diesel is being sold at Rs 28 to Rs 34 in respective localities.

In Hub, the vicinage Balochistan town of Karachi, one liter petrol and diesel are available at Rs 32 to Rs 36, and Rs 26 to Rs 32 respectively. The survey reveals that in Karachi, almost 50 per cent of public transporters use Iranian petrol and diesel, while rest have converted their vehicles into CNG or LPG.

The report quoted Security sources that there are different routes of oil smuggling from Iran to different parts of Pakistan. For Pushtun belt of Balochistan, the oil products enter Taftan area of Pakistan, which borders with Zahidan province of Iran. From Taftan, the smuggled products proceed to Dalbadin, Noshki, and then Quetta.

Iranian petrol and diesel are being sold in Quetta at every corner and street with impunity. One liter of smuggled petrol and diesel are available in Quetta at Rs 30 to Rs 33, and Rs 32 to Rs 33 respectively. Smuggled petroleum products also enter Pakistan via Afghanistan i.e. from Kandahar to Chaman. From Chaman, they proceed to Quetta, Loralai, Qila Abdullah and other Pushtun dominated districts of this rugged province.

In rest of Balochistan, Iranian petroleum products reach via Panjgoor, Kaitch, Mand, and Gawadar areas.

In Gawadar, one liter of petrol and diesel are being sold at Rs 25 to Rs 30 and Rs 24 to Rs 28 respectively. In bordering areas of Taftan, Kharan and Kaitch, the prices are much lower. One liter of petrol and diesel in these areas are available at Rs 20 only.

It quoted sources that the security agencies deployed at the bordering routes are fully involved in smuggling of Iranian petrol Petroleum products are usually smuggled in the wee hours raising the possibilities of major accidents.

The most horrible fact of this business is the dumping and unloading of smuggled petroleum products. Petrol and diesel are dumped in open space by shopkeepers without taking any safety measures, and supplied through canes.

“Everybody knows where this petrol or diesel comes from”, a security official said. “We can’t do anything to stop it as big fish are involved in this mess”, he maintained.

The smuggled petroleum products have made inroads into NWFP and Punjab too. A few weeks ago, officials of the Sarhad Petroleum Cartage and the Dealers Association warned that they would start selling substandard smuggled petroleum if the government did not stop its sale in the province.

According to sources, petrol sold in Peshawar, Swat, Mardan, Kohat and other cities of the province is smuggled from Iran, Iraq and Central Asia via Afghanistan decreasing the sales at most of the gas stations has decreased to less than 50 liters per day.

Owners of gas stations have to face a lengthy procedure to install gas stations. They have to get no-objection certificates from a number of provincial departments. On the other hand, the seller of smuggled oil products just needs to buy some small containers and grease the palms of local police.

But, irrespective of the fact that the smuggling of oil products have been causing heavy losses to the national exchequer, the growing inflation, and exorbitant increase in petroleum prices have compelled the people to go in the wrong way.

Ironically, the so-called people-friendly government is not ready to slash the petroleum prices in spite of the fact the prices are registering a constant decline in the international markets.

 

[Neo]

Pakistan to sustain $26.2b CA deficit in five years

JAVED MAHMOOD
LAHORE - Pakistan would sustain a huge current account deficit of 26.20 billion dollars in five years.

The country is expected to brave 5.6 billion dollars current account deficit in 2006-07; 5.6 billion dollars in 2007-08; 5.2 billion dollars in 2008-09; 5.2 billion dollars in 2009-10 and 4.6 billion dollars in 2010-11.

International Monetary Fund has disclosed this in its assessment of the economy of Pakistan under the Pakistan 2006 Article IV Consultation.
International Monetary Fund has observed that by the year 2010-2011 the foreign exchange reserves of Pakistan would increase to 21 billion dollars.
IMF said the foreign exchange reserves of Pakistan would settle at 12.10 billion dollars in 2006-2007; 14 billion dollars in 2007-2008; 15.90 billion dollars in 2008-2009 and 21 billion dollars in 2010-2011.

The Fund, however, disclosed that the 21 billion dollars reserves in 2010-11 would be equal to 4.1 months imports of the country as imports are growing rapidly.

The Fund has projected 6.5 to 7 per cent growth in the real GDP at cost factor and 6.5 per cent to 5 per cent increase in consumer prices from 2006-07 to 2011.

In their assessment of the economy of Pakistan the IMF directors stressed that, beyond 2006/07, Pakistan’s macroeconomic policies should aim at ensuring that the external current account deficit-to-GDP ratio remains on a declining path with a steady build up of reserves.

In this regard, the fund directors encouraged the authorities to adopt a policy stance that maintains real interest rates at positive levels accompanied by a close monitoring of credit growth, and a fiscal consolidation program that lowers the overall fiscal deficit to a sustainable level over the medium term.

Similarly, the directors viewed the favorable prospects for sizable FDI inflows as important for future gains in productivity and investment, but also as presenting challenges for macroeconomic policy in the years ahead.

They highlighted that continued reliance on FDI inflows of uncertain size and timing would require a large degree of flexibility in economic policymaking. In this connection, Directors stressed the need to improve the government’s capacity to generate timely policy responses to shortfalls of external financing arising from negative balance of payments shocks.

The IMF directors were of the view that those shocks should generally require monetary policy and exchange rate responses, but also envisaged a role for fiscal tightening in cases where the shocks are large, or more permanent in nature. Directors cautioned that the option of resorting to the use of international reserves to cover shortfalls of external financing (especially those stemming from delays in FDI-related flows) ought to be used sparingly.

Directors viewed structural reforms conducive to higher saving and investment, an improved business climate, and well-targeted poverty-related spending as critical for sustaining growth and poverty reduction over the medium term. They encouraged the authorities to quickly complete the reform of the regulatory and tariff framework for the power sector, and step up efforts to broaden the tax base and further curtail tax exemptions.

Directors also saw scope for improving the government’s debt management strategy, including by increasing the issuance of long-term marketable securities and reducing its reliance on treasury bills and the National Savings Schemes (NSS) to finance the fiscal deficit.

The IMF directors welcomed the initiatives underway to modernize the NSS and reform the system of broker-financing of stock trading, but noted that these should be followed quickly with measures that enable the integration of the NSS with local financial markets.

Directors welcomed the authorities’ commitment to maintaining a liberal trade regime and their determination to contribute to the success of the Doha round of trade talks. They called on the authorities to resist pressures to reinstate ad-hoc tariff and nontariff measures and broaden export subsidy schemes. They also encouraged the authorities to further improve the quality and timeliness of data, including by reporting fiscal data on an economic classification. They also urged the authorities to expedite the process of subscribing to the Special Data Dissemination Standard.

Meanwhile, the IMF also observed that Pakistan’s recent economic performance has been very impressive. Fund said the Growth has accelerated, improvements in public spending and wide-ranging structural reforms have reduced the debt burden and increased efficiency, and pro-poor policies have helped lower poverty rates.
IMF said the devastating earthquake of October 2005 left a heavy toll in terms of human lives and physical and social infrastructure, but had relatively minor effects on macroeconomic indicators (except for an increase in government spending) owing mainly to the small share of the affected areas in the overall economy.

Fund observed that the economic developments during the fiscal year ending in June 2006 were favorable, with buoyant real GDP growth and inflation declining to 7.6 percent.

http://nation.com.pk/daily/dec-2006/10/bnews1.php

 

[Neo]

Livestock contributes 38pc to agri GDP, 12pc of exports

ISLAMABAD (APP) - Livestock plays an important role in national economy as it contributes 38% to agriculture GDP and makes up 12% of the total exports of the country.

Livestock has been raised mainly by small and landless farmers and more than 35 million people in Pakistan are involved in livestock related activities in Pakistan.

Thus livestock production provides the best opportunity to alleviate poverty in the country, official sources told APP here on Saturday.
Pakistan is endowed with a large livestock population, well-adopted to the local environmental conditions We have some of the best dairy breeds of the tropics.

Pakistan has 2 buffalo breeds, 1 cattle breeds, 24 sheep breeds and 28 goat breeds. This wide genetic potential provides a lot of challenges but at the same time, great opportunities for the improvement of production potentials of these animals, adding he said, with world attention being focussed on utilization and conservation of indigenous genetic resources.

Improvement in genetic potential of the local breeds is the key to enhance livestock productivity in Pakistan. Unlike nutrition and disease control, improvement in genetic potential is permanent change which is transmitted from one generation to the next. Thus the research in breeding and improving genetic potential of the animal will be real service to the poor.

National Agricultural Research System in Pakistan is very complex consisting of federal, provincial and academic institutions and coordination is the key to success avoiding duplications and learning from each other’s experience.
PARC is currently operating 14 coordinated research projects, 8 in crops, 4 in fruits and vegetables and 2 in animal sciences. Coordinated programmes in crop sciences are very well established and have yielded excellent results.
Every programme carries out an annual planning meeting and travelling seminars to assess the crop situation in the fields.

 

[Neo]

The IMF’s advice

HOT on the heels of the World Bank’s annual report on Pakistan, the IMF, that other horseman of the apocalypse, has come out with its own report. The report has expressed concern over Pakistan’s large current account deficit. The Fund has warned that if the widening current account deficit is not checked, the country’s external debt sustainability would be hurt.

The report was otherwise in praise for the country’s economic performance. “Pakistan’s economy has withstood well the impact of large negative shocks, including the earthquake, a sharp increase in international oil prices and unfavourable weather conditions.” The Fund went on to say that the outlook of the economy for sustainable growth was favourable provided inflation is curbed. The IMF advised that there is need to get political support to broaden the tax base. This is sound advice. The revenue collection system, whether it is provincial land revenue or federal income tax, is riddled with corruption; a general culture of evasion exists amongst the taxpaying public. This has got to change if our swelling budget deficit is to be taken care of.

The controversial advice in the whole report is the suggestion to devalue the rupee. This is where the government and the Fund are said to have had disagreements when the two were having extensive consultations in August. The government sees the current value as not incorrect and argued that the recent depreciation of the rupee did not have an adverse effect on the nation’s exports. The proposed devaluation (of 10 percent, according to the IMF’s estimate) is bound to bring with it, inflation. Inflation which the IMF warns about in the very same report. It would do the government good to stick to its guns on the issue.

The government is right in its assertion that even the devaluation of the 1990s was not good policy. The country is already suffering from the inflationary effects of the liberal monetary policy that the State Bank had been following for over a year. Though the State Bank had taken a decision to tighten belts and remove the excess liquidity of the market, there is going to be a lag time between the policy and its effect. We shouldn’t ruin the process by devaluation.

Pick up any economics textbook and you will read about trade-offs, between inflation and unemployment; growth and inflation; between exports and currency value. The trick in all these cases is striking a balance. We all want exports and growth, but there comes a time when the common man has to be taken care of. The harms of a large current account deficit aside, this is one such time. Our galloping inflation has to be reigned in. Now that the advice of the IMF is not binding on us, we should measure any and all advice carefully.

 

[Neo]

Strategy developed to achieve $500 million horticulture exports target

LAHORE: December 10, 2006: Pakistan Horticulture Development and Export Board (PHDEB) has developed a five-year strategy to enhance the exports of fruit, vegetable and flowers to the level of US$500 million by the year 2011-12.

Pakistan's horticulture exports presently stand at US$142 million mark.

"To achieve this goal, we are preparing specific export maximisation strategies for each and every major fruit and vegetable grown in the country," Chairman PHDEB, Saadat Eijaz Qureshi said in an interview with APP.

He said plans were also afoot to focus on three major horticultural commodities- Peach, Potato and Onion in addition to Citrus and Mango.

About Kinno, the PHDEB Chairman said Pakistan had set a target of exporting 250,000 tonnes of this fruit. "Russia, Ukrain and Iran have emerged as the new major markets for our citrus fruit in addition to the traditional markets of Middle East and Far East," he said.

He added that the board was now focusing on Germany, Czech Republic and Poland to enter the lucrative markets of Central and Eastern Europe.

Qureshi said PHDEB had plans to enhance Pak citrus exports to the level of 300,000 tonnes by next year.

To check post harvest losses and to promote value addition in the horticulture sector, he said, the multinational companies were being encouraged to set up plants in the country for the processing of fruit and vegetable.

The preparation of mango pulp, citrus concentrate, tomato paste and potato chips could bring more foreign exchange to the country as compared to the fruits and vegetables itself.

He said PHDEB was taking care of pathological problems of the fruit and vegetable plants. In collaboration with University of Agriculture, Faisalabad and international agriculture research institutions, the issue of plant diseases and pests would be addressed, he added.

Saadat Qureshi said awareness was being created among the farmers about the quarantine related issues especially the Sanitary and Phyto-Sanitary (PSP).

 

[Neo]

NSS deposits rise to over Rs 1 trillion

ISLAMABAD (December 11 2006): The total deposits of National Saving Centre have risen to over Rs 1 trillion against Rs 2.8 trillion collective deposits of all the commercial banks in Pakistan.

"The National Savings Schemes (NSS) are presently holding the major share in the domestic savings and for providing a truly competitive environment, the government has now allowed institutions to invest in all National Savings Schemes except those which are meant for special segments with immediate effect", Director General NSS, Awais Ahmed Pirzada told APP.

He said with the advent of technological revolution in the financial market, the financial institutions are offering better consumer friendly products every day.

Pirzada said that the NSS rates which remained a major factor in the deposit collection in the past are now narrowly linked with market. Therefore, he said innovative measures are required for deposit mobilisation.

"The wider distribution network is also being geared up to do business in a more effective and professional way and a number of measures have been taken to achieve this objective", he added.

In the light of changed environment, he also highlighted the following measures for promotion of national savings.

Pirzada said that for providing a truly competitive environment, the government has now allowed institutions to invest in all National Savings Schemes except those which are meant for special segments of the society with immediate effect.

He said that the non-profit bodies, Registered Charities, Public Sector Enterprises excluding banks, private educational and health institution, Employees Old Age Benefit Institution (EOBI), private corporate sector excluding banks and Non-Bank Financial Institutions (NBFIs) excluding insurance companies, are entitled to invest.

To facilitate the investors and avoid long queues, the Central Directorate of National Savings (CDNS) has decided to extend the facility for automatic transfer of monthly profit into the Savings Account of the same centers, he added.

This way, the DG National Savings said, the client would not have to wait in long queues to get his profit first calculated and then encash. Therefore, he said, they would be encouraged to save from within the profit as they would be entitled for additional profit at the Savings Account's rate.

To meet the travelling demands of the depositors, he said, the CDNS has decided to introduce the facility of encashment all over Pakistan at the designated National Savings Centres.

The facility will be provided at the important stations keeping in view the demand of the public, he remarked.

To meet the day to day needs of the investors, he said, the limit of two withdrawals within a week's time have been increased to three times a week.

He said there was a mandatory lock-up period of one month in case of Defence Savings Certificates and Special Savings Certificates, which have now been removed to meet the emergent need of the investors.

Pirzada further said that measures are also being taken to facilitate the investment from abroad and several proposals are being considered, which will be finalised shortly.

 

[Neo]

No pressure on Pakistan for 10 percent devaluation

KARACHI (December 11 2006): The International Monetary Fund (IMF) would like Pakistan to meet all of its oil import requirements from the forex flows into the banking system and not dip into the reserves.

The State Bank of Pakistan (SBP), since November 2004, arranges the pay-out from its reserves and then gradually replenish the reserves from daily inflows, in order to keep the rupee stable and protect it from wild fluctuations on account of large import payments on a particular day. According to informed source, last year, the SBP provided $6.5 billion from its forex reserves but then it also augmented the reserves by $5.5 billion from the trade flows.

The Fund staff is basically using the all-time high of Rs 64.46 to a dollar in the second half of 2004 as a reference point when the SBP was told to keep the reserves above $10 billion at all costs by the government and meet all import obligations through export proceeds.

The rupee's weakness in 2004 was compounded by the erroneous hasty and ill-planned decision to pre-pay the Asian Development Bank (ADB) on the loan provided to Parco.

The Fund's own graph of Pakistan's REER given below shows that the rupee since January 2006 was over-valued by three percent.

GRAPH:

Since then the rupee has depreciated by 1.90 percent. With the monthly inflation data, coming with a time lag, the Pakistani currency is being adjusted in accordance with the methodology for exchange rate adjustment provided by the Fund, said the source. "It is not important what the nominal parity is on a particular day. What is more important is to maintain the REER equilibrium over a period of time, ie base year of 2000," he added.

The second issue where the Fund staff and the Pakistani authorities disagree is said to be currency volatility. The Fund has categorised 120 countries into a group, which includes Pakistan. The Fund advocates a two percent movement on an annualised basis (which can be both ways) to avoid a fixed parity regime.

In FY 2004, the volatility of the Pak rupee was around 2.5 percent. In FY 2006, it was 4.6 percent, and this year, it is 1.46 percent on annualised basis.

There can be no disagreement regarding the necessity for Pakistan to keep the trade and current account gaps in check, in order to avoid pressure on the exchange rate. But to equate the parity with a particular level on a particular date amounts to cherry picking, said the source.

The movement of the Pak rupee versus relevant currencies shows that the rupee has depreciated against all currencies other than Bangladeshi taka and the Sri Lankan rupee. Both currencies are under added pressure due to political instability.

BARGRAPH

INTEREST RATE: The real interest rates in Pakistan are three percent in the positive, ie nominal rate less CPI. While accepting the adjustment done in FY06/07 has played a significant role (with a time lag) to reduce the inflation, the Fund staff feels that more needs to be done by further raising the yields on Treasury Bills by one to two percent to curtail the demand side pressure.

Pakistani authorities point out that non-food core inflation is firmly on downward path. And, the reasons for CPI upward movement are primarily due to pressure emanating from the supply side and from distributional problem. The Fund staff thinks that the government needs to make hoarding of food staff more difficult by raising the interest rates, while the Pakistani authorities point out that commodity traders necessarily do not use bank funds and (arthis) middlemen in the food chain are moneylenders themselves, operating in the grey market.

Food demand cannot be suppressed in a poor country through interest rates but effective administrative intervention and timely imports and removal of distributional obstacles by the government.

Obviously, it is sound economics to reduce inflation otherwise the exporters will lose their competitive edge and ultimately the pressure would come for exchange rate adjustment, said a knowledgeable source. But the impression being created that Pakistan is being pressurised to devalue its currency by 10 percent or will be doing it soon is entirely baseless, the source confided.

 

[Neo]

MONEY WEEK: surging other liabilities, declining reserves dictate money supply growth

KARACHI (December 11 2006): Monetary expansion during FY07 up to November 25 amounted to Rs 112 billion despite an increase of Rs 125.4 billion in private sector credit and a rise of Rs 59.3 billion in government borrowing. Continuing build-up of banking system's other liabilities and increased draw-down of its net foreign assets (NFA) provided the explanation.

Between July 1 and November 25, 2006, the negative change in Other Items (Net) (OINs) amounted to Rs 26 billion and the draw-down of NFA amounted to Rs 41 billion. Together, the two items added up to Rs 67 billion, neutralising thereby the expansion effect of government and private sector borrowings on money supply to a large extent.

The two factors had already neutralised nearly 44 percent of the expansion effect of domestic credit in the last about five months, Other details showed that increase in money supply during the year so far occurred mainly in 'currency in circulation', as deposit money increased only moderately. While 'currency in circulation' increased by nearly Rs 75.5 billion, deposit money increased by Rs 36.3 billion only. Within deposit money, demand deposits increased by Rs 1,125.4 billion while time deposits showed an equally big decline of Rs 1,086.8 billion.

Two other components, viz, other deposits with SBP and resident foreign currency deposits also declined by Rs 0.1 billion and Rs 2.3 billion, respectively, limiting the overall increase in deposit money so far in the year to just Rs 36.3 billion.

The exodus of time deposits from the banking system (mainly the commercial banks) appears to be the twin effect of low return paid by banks on money deposited with them and an increase in return rates paid on CDNS instruments--a non-bank borrowing window for the government.

It may be recalled that in the corresponding period of last year, money supply had increased by Rs 84 billion, or 2.8 percent, mainly because of a massive draw-down of NFA which amounted to nearly Rs 91 billion between July 1 and November 26, 2005, and a huge increase of Rs 69 billion in other liabilities of the banking system which helped reduce the impact of the increase of Rs 61 billion in government borrowing and of Rs 186 billion in private sector credit to a net domestic credit expansion of Rs 174.5 billion.

The increase in money supply of Rs 84 billion during FY06 was shared by 'currency in circulation', which accounted for Rs 77 billion of it, while deposit money accounted for the remaining Rs 7 billion, although, as against the current year, these were time deposits, which provided the main fillip to increase in deposit money last year.

According to available information, increase in government borrowings during the year so far has been concentrated entirely in government's budgetary borrowing as borrowing for procurement of commodities, and other credit expansion actually declined by Rs 3.3 billion and Rs 1.2 billion, respectively.

Break-up of government borrowing of Rs 63.7 billion for budgetary support revealed that Rs 34 billion was borrowed by the Federal Government while another Rs 30 billion was obtained by the provincial governments. These borrowings had amounted to Rs 73.9 billion and Rs 3.5 billion, respectively, in the corresponding period of last year when total such borrowings had amounted to Rs 77.4 billion. Hoswever, in both years, the borrowing was concentrated in the State Bank, not in the scheduled banks, indicating that institution-wise strategy of policy makers tended to be more inflationary.

Although expansion of private sector credit during the year so far has been slow it was nevertheless steady and reached Rs 125.4 billion by November 25 at which level it was nearly Rs 60 billion short of the level reached in the corresponding period of FY06.

As much as Rs 121.6 billion of it was extended by commercial banks compared with Rs 185.4 billion in the corresponding period of last year.

Specialised banks, however, appeared more active in meeting the credit requirements of specified priority sectors this year as they extended credit in the amount of some Rs 4 billion between July 1 and November 25, 2006 whereas they lent only Rs 0.4 billion between July 1 and November 26 last year.

Bank credit to PSEs showed larger retirement this year (minus Rs 6.2 billion) than in the previous year (minus Rs 1.6 billion) while SBP credit to NBFIs showed net additional lending of Rs 0.2 billion as compared to a net retirement of Rs 1.5 billion last year.

In line with continuing the draw-down of NFA which in rupees amounted to over Rs 41 billion on November25, the country's liquid foreign exchange reserves also continued declining and stood at $12,478.4 million ($10,239.7 million with SBP and $2,238.7 million with scheduled banks) as on that date.

As indicated in previous review, this trend would not only distort the true picture of monetary expansion but would also expose the rupee to increased market pressures. It has already crossed Rs 61 per dollar barrier on December 9, a day before the preparation of this review. (For comments and suggestions research.dept@aaj.tv).