Pakistan Economy - News & Updates - Archive

[Owais]

Interest on one-day loans shoot up to its highest at 8.9% KARACHI: The liquidity crunch in the banking system here shot up the interest on one-day loans to its highest peaking at 8.9 percent.

The banks were expected to seek resort at the discounting facility of the Central Bank in the wake of the acute liquidity crunch prevailing.

Analyst Shahid Iqbal here predicted this situation prevailing for at least next two days, as an inflow of Rs62 billion was expected on July 20 and only after that any contraction in the interest of the short-term loans was likely, he said.

The Central Bank was also expected to seek bids for the sale of T-Bills for 3 months, six months and one-year duration during this week

 

[Owais]

'Preferential trade talks on with various countries'

ISLAMABAD (July 18 2006): Pakistan has initiated a series of preferential trade negotiations with different countries. Iran will soon offer tariff concessions on 309 items to Pakistan under the Preferential Trade Agreement (PTA) and Pakistan would sign an FTA framework agreement with the Mercosur countries (ie Brazil, Argentina, Paraguay and Uruguay) on July 20.

Moreover, Pakistan is in the process of multilateral negotiations with the Organisation of Islamic Conference (OIC) and Group of Developing Eight countries (D-8).

According to the Trade Policy (2006-07), Pakistan has recently concluded negotiations on a Preferential Trade Agreement (PTA) with Iran. Under the agreement, Iran has agreed to grant tariff concessions on 309 tariff lines, including seafood, fruits, vegetables, rice, marble and granite, textile machinery, wooden furniture, pharmaceuticals, minerals and certain textile items. This agreement is expected to become operational shortly.

"With Singapore and the Gulf Co-operation Council (GCC) countries, we expect to conclude our FTA negotiations by the end of the year. With the Mercosur countries ie Brazil, Argentina, Paraguay and Uruguay, I am scheduled to sign a framework agreement on July 20 in Buenos Aires, Argentina, on the occasion of the Mercosur Summit Meeting, said Commerce Minister Humayun Akhtar Khan.

The trade policy highlights that in recent years, the world trade scene has witnessed a proliferation of preferential trading arrangements, be they in the form of Regional Trading Arrangements (RTAs) Bilateral Free Trade Agreements (FTAs) or unilateral GSP type programmes.

As a consequence, Pakistani exporters were increasingly finding themselves at a disadvantage vis-a-vis their competitors, on account of the preferential access the latter enjoyed in certain markets.

The government has initiated a series of preferential trade negotiations designed to neutralise this disadvantage for Pakistani exporters. While negotiations with a number of countries are at various stages, some of them have either already begun to yield benefits or are on the verge of doing so.

The trade policy also specifies that Pakistan's first FTA is to become fully operational with Sri Lanka, and it has been effective since June 2005. As a result, Pakistani exports such as fruits, vegetables, footwear, engineering products, sanitary goods, chemicals, leather, rice and some textile items enjoy duty concessions in the Sri Lankan market.

Secondly, while negotiations for a full-fledged FTA with China are progressing well; an Early Harvest Program has already become effective since January 2006. As a result, Pakistani exports such as leather articles, some textile items, marble, sports goods, fruits, vegetables and mineral products will have reduced duties and all these items will be exported duty-free by January 2008.

Thirdly, while FTA negotiations with Malaysia are proceeding at a rapid pace, an early harvest program has become effective since January 2006. As a result, Malaysia has allowed export of Pakistani items such as fruits, vegetables, some textile items and jewellery at concessional rates of duty.

These negotiations will conclude by the end of this year. Moreover, the South Asia Free Trade Agreement (Safta) between Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka has been signed and ratified by all Saarc members. It has consequently become operational as of July 1, 2006.

Lastly, the government has initiated talks with several other countries for preferential market access arrangements. Bilateral negotiations in this regard are underway with Mauritius, Morocco, Russia, and Thailand.

Additionally, multilateral negotiations are taking place in the context of the Organisation of Islamic Conference (OIC), and Group of Developing Eight countries (D-8). Further a joint consultative study group for a potential PTA with Association of South East Asian Nations (Asean) has also been agreed.

While in recent years, there has been an intensification in trade diplomacy and preferential trade negotiations, our exporters need to be made more aware of the rapidly emerging new concessional opportunities.

The commerce ministry is taking a number of measures in this regard. These include the organising of informative seminars, dissemination of information through the ministry's website as well as through the print and electronic-media, Humayun Akhtar Khan added.

 

[Owais]

MoC condition for temporary goods export withdrawn

ISLAMABAD (July 18 2006): The government has withdrawn the requirement of the Ministry of Commerce (MoC) 'sanction' for the temporary export of goods for exhibitions, repairs, testing and other business processes. The Trade Policy, 2006-07, reveals simplification of the temporary export procedure, establishment of modern border terminals at the Pak-Afghan border and implementation of the National Trade Corridor Improvement Program (NTCIP).

At present, specific sanction has to be obtained from the commerce ministry for temporary export and subsequent duty-free import of goods for exhibitions, repairs, testing and other business process requirements. The sanctioning process can sometimes be time-consuming and therefore onerous for exporters.

It has, therefore, been decided to dispense with the sanction requirement from the ministry, and instead temporary export-cum-import will be permissible on provision of an appropriate indemnity bond and undertaking to the customs authorities concerned.

To Improving the Border Infrastructure, the National Logistics Cell (NLC) will establish modern border terminals at Taftan, Chaman, Torkham and Wagah keeping in view the importance of the transit trade. These terminals will house all the required facilities like customs and immigration offices, quarantine facilities, warehouses and display centres, scanners and weighbridges. These terminals will also serve as hubs for multi-modal transport since railway and road transport modes will be integrated.

National Trade Corridor Improvement Program (NTCIP): Under this program, the commerce ministry is working on improving the cold chain infrastructure and has initiated feasibility studies for three projects to provide state-of-the-art cool chain facilities for fresh fruits and vegetables. Secondly, the ministry has initiated a feasibility study to ascertain new locations where facilities are needed for dispatch of exports via air cargo.

Thirdly, the ministry is working with other government agencies to arrange the early accession to the International Transport Carnet (TIR) and the ATA Carnet conventions, since this will greatly facilitate the achievement of benefits associated with developing this trade corridor.

 

[Owais]

MoC asked to relax condition for five years old cars import

ISLAMABAD (July 18 2006): The CBR has asked the Ministry of Commerce to give relaxation for import to vehicles of five years old or above under the transfer of residence (TR) scheme in cases where shipments were made on or before June 5, 2006.

In this connection, the board on Monday issued an 'official memorandum' to the Ministry of Commerce regarding applicability of SRO 696(I)/2006 on the import of old cars under the TR scheme.

According to CBR instructions, the concerned ministry should accommodate the delayed arrival of the ships carrying vehicles shipped before June 5, 2006. The ministry should check the relevant documents including 'carrier bill of lading' and export general manifest (EGM) to ensure clearance in genuine cases only.

Explaining the decision, the CBR said that the board has given relaxation on the recommendation of the Commerce Ministry. In this regard, a proposal for five years capping restriction was submitted to the 'special cabinet meeting' held on June 6, 2006.

The proposal said that, "the scheme (SRO 696(I)/2006) has been made effective from July 1, 2006. This will allow the import and clearance of vehicles by June 30, which are in the pipeline. Any sudden change will create difficulties, which are proposed to be avoided."

The above proposal was approved by the cabinet which has been implemented by the Ministry of Commerce vide SRO 696(I)/2006. The July 1 date was suggested consciously to allow the import and clearance of those vehicles, which were in the pipeline. The budget was announced on June 5, 2006.

Thus, June 5-30 (25 days) considered reasonable time for this purpose. Accordingly, the change in policy was announced at the Parliament on June 5, 2006, the CBR added.

 

[Neo]

Guys,

Kindly request everyone who posts here to avoid reporting insignificant microeconomic news to keep the standard of this thread high and interesting and worth reading.

Please refrain from posting daily KSE/LHE/ISE stands or Oil / US $ / Rupee fluctuations.

Thanks!

 

[Neo]

ISLAMABAD (July 18 2006): Under the modified freight subsidy scheme, the government has announced that export of all items, except those which will be notified separately, to Africa, Pacific Islands, Eastern European countries, which are not in the jurisdiction of EU and Central Asian Republics will avail of a 25 percent freight subsidy.

According to incentives announced on Monday under the new trade policy, export of products falling in the developmental category will be entitled to 25 percent freight subsidy even if they are going to one of the top 20 export destinations. Any individual exporter, firm or company will not be entitled to a freight subsidy in excess of Rs 5 million in a single year.

Exports of all items except those which will be notified separately will now be able to avail of a 25 percent freight subsidy, provided goods are being exported to Africa, Pacific Islands, Eastern European countries.

The government had announced 25 percent freight subsidy on exports of new products and to new markets with the objective of achieving geographic and product diversification in exports during 2002-03.

THIS SUBSIDY WAS IN VOGUE DURING 2003-04 AND 2004-05 In 2005, a separate freight subsidy scheme was announced for leather garments up to December 31, 2005. The scheme has been overwhelmingly successful in attaining objectives of diversification in exports.

The scheme has now been continued in a modified form to cover products and countries for which the need for subsidy is pressing. Accordingly, certain changes are being made in this scheme to boost exports.

 

[Neo]

KARACHI, July 17: The business community on Monday offered a mixed reaction to the Trade Policy 2006-07. Some saw the export target of $18.6 billion positively within reach owing to the incentives announced for non-traditional sectors. Some others, however, were disappointed with rising cost of utilities (gas and power) and felt that the incentives announced were not attractive enough to neutralise the impact of the rising cost of doing business and, therefore, export target may prove to be too ambitious.

The new policy was considered to be carrying more incentives as compared to last year. The focus was also seemed to have changed from the textiles to agro-based non-traditional items.

President Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Chaudhry Mohammad Saeed thought that the direction of the policy was towards export-led-growth.

“The 13 per cent increase in export target for 2006-07 is quite achievable as the policy is studded with new measures and incentives for a number of sectors,” he said.

This year, the trade policy is not sector-specific but it has covered a large number of areas that needed urgent attention as compared to the last year’s trade policy. “I do not see any negative aspect of the trade policy so far,” Chaudhry Saeed said.

On the import policy, the FPCCI president said that the trade deficit of over $11 billion in 2005-06 might not swell in the new fiscal as the vacuum of demand and supply in some essential commodities had been filled or will be filled in coming months.

However, rising oil prices in world markets will make an impact on the country’s import bill depending on the situation prevailing in the Middle East. In case political situation improves in the Middle East, which looks a temporary phase, then chances of increasing trade deficit owing to rising oil prices will remain slim in the current fiscal.

The government estimates that the import would be around $28 billion in 2006-07 as compared to $25.6 billion in July-May 2005-06 and $18.4 billion in 2004-05. The bulk of this increase was due to higher prices paid for oil imports and the higher demand for machinery and raw materials stemming from increased economic activity, he added.

Chaudhry Saeed welcomed the initiatives like skill development programme in textile sector, facilitation to SME exports, warehouse city, incentives for boosting fruits and vegetables exports, border infrastructure, national trade corridor improvement programme, incentives for freight forwarding sectors, setting up a Trade Development Authority, carpet cities, dazzle park, expo centres in Islamabad, Quetta and Peshawar, freight subsidy schemes and promotion of meat exports.

President Karachi Chamber of Commerce and Industry (KCCI) Haroon Farouki termed the trade policy as export-oriented in view of the incentives offered to various sectors, which fall in the category of non- traditional items. “It is not a sector-specific trade policy but it covers other sectors that have the potential but were neglected for the past some years,” he said.

Besides, it looks that the government has finally realised the importance of those sectors and export-oriented industries that can contribute a lot in boosting country’s export.

However, he said that the export target was quite achievable but much depends on the power and gas rates as any further increase will give a severe jerk to the already increased cost of production and ultimately create problems in achieving the desired export target.

Haroon said that all the policies took few years to show results. The government should have changed the system and announce the trade policy for at least three years so that it could produce fruitful results as implementation of the policy eats up at least first six months and the remaining six months are not enough to get optimum results.

Former chairman Site Association of Industry Majyd Aziz described the policy loaded with too many long-term measures instead of any short-term measures. Like last year, there is a good vision in the policy but again a lot depends on the implementation which takes too much time. By the time the policy starts giving results the next policy becomes due.

He said that the new policy is “a non-textile policy” as some package was announced for the textile sector two days back. However the new policy has addressed those non-conventional sectors, which can do wonders in creating new markets abroad and enhance foreign exchange earnings.

He was of the view that the export target would not be achieved as the textile related sector is likely to remain under pressure for one more year owing to domestic and global problems. He said that rising oil prices would hit the economy very badly as increase in domestic oil prices has become due in coming months.

 

[Neo]

KARACHI, July 17: The apparel industry has rejected the textile package approved by the Economic Coordination Committee (ECC) of the cabinet. It feels that incentives announced in the form of research and development (R&D) are not supportive to the level and magnitude of the crisis being faced by the sector.

Talking to Dawn on Monday, textile industry leaders expressed their disappointment over the package and felt that it was too little to have any worth mentioning effect on the crisis-ridden industry where cost has gone as high as 28 to 30 per cent.

The textile industry after the quota-free era was inflicted on two accounts. It has lost per unit price up to 15-16 per cent and due to higher input cost its prices in the world market have gone up by 14-15 per cent, taking net impact to around 30 per cent.

Pakistan Readymade Garments Manufacturers and Exporters Association (Prgmea) Chairman Bilal Mulla said the package carried nothing for the value-added garment industry, adding that the three per cent subsidy on fabric exports would result in an increase in prices in the domestic market.

“This will also be tantamount to give subsidy to our competitors in the world market and make Pakistan a raw material source for apparel industries of other countries, as they would get fabrics from Pakistan on three per cent reduced price,” Mr Mulla observed.

As a result, apparel industries of India and Bangladesh will have a further edge of three per cent in the world market over Pakistani textile goods. The Prgmea chief pointed out that the domestic price level was determined on the basis of international supply factors, as exporters of fabrics would charge an additional amount equivalent to the subsidy which would increase fabric prices in the domestic market.

Mr Mulla said due to negative travel advisory by the western world, exporters of garments and other made-ups had to travel abroad more frequently which further increased the cost of production by around six per cent. “Therefore, the garment exporters have been requesting the government to give a five per cent travel support fund to pull them out of the current crisis.” This suggestion, which was a part of the recommendations made by the Zubair Motiwala committee to the Federal Textile Board, was totally ignored by policymakers.

The Prgmea chief demanded of the government to provide the travel support fund to the garment exporters and put restriction on three per cent subsidy or R&D on export of fabrics to Saarc and those countries that had advantage of greater market access to the EU, US and Canadian markets over Pakistan.

Mr Mulla regretted that the most-affected readymade sector was totally ignored and the textile package in its present form would further bring the apparel industry under pressure and accelerate the process of closure of units. “It would make Pakistan a raw material supplying nation and discourage value-addition, as the sectors producing finished products have been totally rendered unviable and uncompetitive in the world market.”

Pakistan Hosiery Manufacturers’ Association (PHMA) Chairman Javed Bilwani has also rejected the textile package and said there was no new incentive for the apparel industry which was fast sinking and already a large number of units had been closed down.

He said had the six per cent R&D been sufficient, there would have been no large scale closures of knitwear units in the country. “The package has totally disappointed the industry.”

Mr Bilwani said many business houses involved in the knitwear industry were looking for other opportunities and soon there would be more closures. He added that the hosiery industry was recognised for its quality products but presently it had become unviable only because of high cost of inputs.

Iqbal Magarani, former chairman of the Pakistan Cloth Merchants’ Association (PCMA), said instead of giving three per cent R&D to the fabric exports, the government should provide more incentives to those sectors which were producing high quality goods.

He said there was a major flaw in the textile package that ensured a five per cent R&D on bedlinen exports but this could only be availed by those units which had their own dying, processing and printing facilities. “This means that 80 to 90 per cent exporters, particularly commercial, will be left out of this benefit.”

Shabir Ahmed, Chairman of the Pakistan Bedwear Exporters Association (PBEA), said had there been a proper representation at the policymaking level, such flaws would have never occurred. He said only big representative bodies were given representation whereas small and medium exporters were left out and added that the interest of SMEs was not protected.

Mr Shabir said the textile package would give little help in boosting exports and the textile industry might further lose ground. He said under such change joblessness would go up.

 

[Neo]

Tuesday, July 18, 2006

* Trade Development Authority of Pakistan set up
* Import of used machinery allowed
* Govt to set up ‘carpet cities’, export zones

By Sajid Chaudhry

ISLAMABAD: The government has announced its trade policy for fiscal year (FY) 2006-07 on Monday. Its main features are the setting up of the Trade Development Authority of Pakistan (TDAP) to enhance exports, and permission to local industry to import used machinery and equipment.

The trade policy sets an export target of $18.6 billion for FY 2006-07, 13% higher than Pakistan’s export performance in FY 2005-06. Projected imports for FY 2006-07 are estimated at $28 billion, with an estimated trade deficit of $9.4 billion.

The federal cabinet, chaired by Prime Minister Shaukat Aziz, approved the policy earlier in the day. Commerce Minister Humayun Akhtar Khan gave details in his trade policy speech.

Export measures: The TDAP will be established and replace the Export Promotion Bureau (EPB) in six to 12 months. The cabinet has approved a draft TDAP Act.

The government plans to set up “carpet cities” in Lahore and Karachi. An export processing zone called ‘Dazzle Park’ will be set up over 16 acres near Karachi airport to promote the export of gems and jewellery.

Expo centres will be set up in Islamabad, Quetta and Peshawar, with the latter two particularly to promote exports to Iran, Afghanistan and Central Asia.

The export subsidy scheme is being modified so exporters of all items, except those which are notified separately, will be eligible for a 25 % freight subsidy, provided they are exporting to Africa, Pacific Islands or Eastern European countries that are not in the EU or Central Asia. Exported products in the developmental category will be entitled to a 25% freight subsidy even if they are going to one of the top 20 export destinations. Any individual exporter, firm or company will not be entitled to freight subsidy in excess of Rs 5 million a year.

The Textile Skill Development Board will train workers producing terry towels and bed linen. The textile sector will continue to get a research and development support rebate until the end of June 2007 at the rate of 6%, and at 3% until end June 2008. The rebate will also be extended to the footwear sector.

The government will give 50% subsidy for the cost of obtaining four additional kinds of certifications: ISO-22000, Eco-labeling, Conformity Europea, and Organic Food Product certificate.

Ministry of Commerce sanction will not be required for temporary export or import of goods sent abroad for exhibitions, repairs, testing and other business process requirements.

Exhibitions showcasing Pakistani products will be organised in countries that are good potential markets during official visits by the president and prime minister.

The government will establish a specialised SME Export House as a corporate entity in a public-private partnership and run by professional management.

The possibility of a “warehouse city” in Karachi rub by a corporate entity in a public-private partnership and run by professional management will be explored. The government plans a specialised coal, clinker and cement terminal at Port Qasim to facilitate the export of 10 million tonnes of surplus cement.

Halal meat export zones will be set up in Karachi, Lahore, Peshawar and Quetta to encourage meat exports. Similarly, specialised poultry export zones will be set up in Karachi, Faisalabad and Hazara.

The first 6 percent of interest on credit obtained by export-oriented companies to set up cool chains and cold storages will be paid by the Export Development Fund (EDF).

Long term financing for export-oriented projects has been modified, so banks will be entitled to a maximum spread of 2% instead of 3%, thereby reducing the cost of borrowing by 1%.

Import measures: The government has allowed the import of used machinery and parts for the construction, mining and petroleum sectors provided it is not older than 10 years.

Used cargo handling equipment for airports, seaports, land border stations or inland container depots; used electroplating, electrolysis and electrophoresis equipment; used mobile cranes; used spare parts for industrial units where production of new spare parts is no longer taking place; used equipment needed by call centres; used waste disposal trucks and fire engines for municipal bodies; used mobile clinics and medical equipment; used security and surveillance equipment; and used refrigeration lorries can also be imported.

The policy will be reviewed next year.

 

[Owais]

SBP revise CRR by 7% Karachi: State Bank of Pakistan Tuesday decided to revise Cash Reserve Requirement (CRR) of 5% on weekly average basis (subject to daily minimum of 4%) and Statutory Liquidity Requirement (SLR) of 15% of their time and demand liabilities which banks are presently required to meet CRR.

Both CRR & SLR are calculated on basis of total Time and Demand Liabilities, without making any distinction on basis of tenor of liabilities.

In exercise of powers conferred on SBP under Section 36 of SBP Act, 1956 and Section 29 of Banking Companies Ordinance, 1962, central bank has decided to revise reserve requirements with effect from July 22, 2006 as under:-

CRR a) Weekly average of 7% (subject to daily minimum of 4%) of total Demand Liabilities (including Time Deposits with tenor of less than 6 months); and b) Weekly average of 3% (subject to daily minimum of 1%) of total Time Liabilities (including Time Deposits with tenor of 6 months and above).

SLR 18% (excluding CRR) of total Time and Demand Liabilities. (In the event of premature withdrawal of Time Deposits of over 6 months, banks would be required to maintain, from date of withdrawal and for period for which they have availed benefit of lower CRR, an additional CRR equivalent to 4% of the amount of such pre-mature withdrawal).

Further, all Time & Demand Liabilities, except borrowings from SBP and interbank borrowings, shall be accounted for in calculation of Time and Demand Liabilities for purpose of CRR and SLR.

The break-up of Time & Demand Liabilities to be used for calculating required CRR and SLR is given in enclosed annexure-A.

Moreover, separate CRA and SCRA in US$ against FE-25 Deposits would continue to be maintained at prescribed rate.

All other instructions contained in above-mentioned Circulars shall, however, remain unchanged, a SBP circular said.

 

[Owais]

Trade deficit widens to $12.11 billion in 2005-06
ISLAMABAD (updated on: July 19, 2006, 04:17 PST): Pakistan's trade deficit widened to a provisional $1.47 billion in June from $1.16 billion in May and $697 million in June 2005, official data showed on Tuesday.

The trade deficit for fiscal year 2005/06 that ended on June 30 widened to a provisional $12.11 billion from $6.21 billion in 2004/05.

 

[Owais]

Banks CRR and SLR enhanced by 5 percent: Rs 120 billion to be drained, lending rates set to rise by 2 percent

KARACHI (July 19 2006): The State Bank of Pakistan (SBP) tightened its monetary stance and enhanced the Cash Reserve Requirement (CRR) and Statutory Liquidity Ratio (SLR) by five percent, thereby, reducing the lending ability of the banking system by around Rs 120 billion.

In a significant move, the SBP on Tuesday raised the CRR from five to seven percent and the SLR from 15 to 18 percent of the deposits with effect from July 22, 2006. With Rs 70 billion in Treasury Bills maturing in this week, banks will have to quickly raise another Rs 50 billion to meet the new requirements by Saturday.

According to informed sources, the rise in CRR would mean depositing additional Rs 40 billion with the SBP, in cash, on zero percent rate of return. And, enhancement of SLR would force banks to shift Rs 80 billion of T-bills towards the SLR, thereby, restricting their usage for borrowing and conducting repo deals on the interbank market.

As an incentive to banks to mobilise long-term deposits, the SBP has lowered the weekly CRR to three percent on time and demand deposits exceeding six months tenor. At present 13 percent of bank deposits exceed six months tenor, while 18 percent of deposits are kept in the government securities.

Business Recorder understands the SBP had discussed raising of SLR and CRR with key banks without getting into specific details. At present lending to deposit ratio of the banking system is around 72 percent. However, some banks have reportedly advanced 79/80 percent of their deposits.

By enhancing the SLR, the SBP is trying to force banks to invest more in T-bills. It will help the SBP to offload some of its own T-bills holding and also check banks from asking a premium on fresh purchase of short-term government paper. And, at the same time it will force banks to mobilise deposits by raising the return paid to depositors.

What is perplexing some bankers are conflicting signals emanating from the central bank. Since April 2005, the SBP has kept the discount rate at nine percent.

Through its daily OMO operations, the SBP has been draining out liquidity and consistently closing the gap between the T-bills yields and the discount rate. In the National Credit Plan, the SBP on July 3 kept monetary expansion target at 13.5 percent, equivalent to the nominal rise in the GDP.

Just last week, the SBP lowered the export refinance rate by 1.5 percent. All these moves amounted to an accommodative monetary policy to support government's growth objectives, whereas Tuesday's announcement signifies monetary tightening.

It is aimed at reducing expansion of private sector borrowings. This will definitely push the average lending rates (Kibor) by at least 100 to 200 basis points. Weak banks will also be forced to borrow at call rates on the interbank market by 2 to 4 percent more.

The arbitrage opportunity for exporters will also increase by five percent or more. Therefore, the SBP will have to be more vigilant to ensure that credit lines under ERR scheme are not misused by exporters for investing in real estate and the stock market.

The SBP's action is also expected to raise lending rates for consumer financing. At present, 23 percent of the bank advances constitute consumer portfolio.

According to an accountant's view, the SBP's cost on lowering of export refinance rate is around Rs 2 to 2.5 billion. The SBP's earning on enhancement of CRR is around Rs 3.6 billion.

With the SBP holding T-bills stock of around Rs 500 billion, the rise in T-bill yields along with a possible downward movement in rupee-dollar parity will enable the central bank to easily make the Rs 35 billion contribution pledged to the federal budget 2007.

Discounting the accountant view, economists feel the SBP has taken this decision after looking at all monetary aggregates and implications in feeding inflation.

July-August is normally a retirement period for bank advances. Hiking of CRR and SLR was a timely move and banks can halt further advances.

However, the time frame given by the SBP of four days to adjust CLR and SLR is too short. Banks would require at least two to three months to raise deposits by Rs 120 billion.

According to the SBP's web site, as of end of May 2006, total scheduled banks deposits are Rs 2.733 trillion; loans (Rs 2.115 trillion); and investment (Rs 821 billion). The end of June figures are expected to be Rs 50 billion higher. Thus far, June 30 data has not been posted since the SBP takes time to finalise its year-end balance sheet.

The SBP circular issued on the Tuesday says:"Presently banks are required to meet Cash Reserve Requirement (CRR) of 5% on weekly average basis (subject to daily minimum of 4%) and Statutory Liquidity Requirement (SLR) of 15% of their time and demand liabilities. Both CRR & SLR are calculated on the basis of total Time and Demand Liabilities, without making any distinction on the basis of tenor of liabilities.

In exercise of the powers conferred upon the State Bank of Pakistan under Section 36 of the State Bank of Pakistan Act, 1956 and Section 29 of the Banking Companies Ordinance, 1962, SBP has decided to revise the reserve requirements with effect from 22nd July, 2005 as under:

CASH RESERVE REQUIREMENT (CRR) Weekly average of 7% (subject to daily minimum of 4%) of total Demand Liabilities (including Time Deposits with tenor of less than 6 months); and

Weekly average of 3% (subject to daily minimum of 1%) of total Time Liabilities (including Time Deposits with tenor of 6 months and above).

STATUTORY LIQUIDITY REQUIREMENT (SLR) 18% (excluding CRR) of total Time and Demand Liabilities.

(In the event of premature withdrawal of Time Deposits of over 6 months, banks would be required to maintain, from the date of withdrawal and for the period for which they have availed the benefit of lower CRR, an additional CRR equivalent to 4% of the amount of such pre-mature withdrawal).

Further, all Time and Demand Liabilities, except borrowings from SBP and interbank borrowings, shall be accounted for in the calculation of Time and Demand Liabilities for the purpose of CRR and SLR. The break-up of Time and Demand Liabilities to be used for calculating the required CRR and SLR is given in the enclosed annexure-A. Moreover, the separate CRA and SCRA in US dollar against FE-25 Deposits would continue to be maintained at the prescribed rate."

 

[Owais]

$261 million rise in fiscal year 2006 FCDs

KARACHI (July 19 2006): Foreign Currency Deposits (FCDs) under FE-25 arrangement, which hit a record level of $3,567 million on January 30, 2006, closed the year with a figure closer to it, even though, on year-on-year basis, the figure itself also represented a record amount.

According to the latest SBP update, these deposits reached the level of $3,543 million (residents $3,174 million; non-residents $369 million) on June 30, 2006 with outstanding balances averaging about $3,505 million in the second half, and $3,327 million in the first half of the year, indicating an overall increase of $261 million over FY05.

Simultaneously, the competing home remittances also reached an all time record of $4.6 billion by the end of June 2006, averaging some $351 million per month during the first eight months, and $449 million in the last four months, including $507 million received in May 2006 alone.

Earlier on, balances under FE-25 scheme had reached $2,671 million (resident $1,954 million; non-resident $343 million) at the end of FY04, and $2,296 million (resident $2,340 million; and non-resident $331 million) at the end of FY03.

It is worth recalling that deposits under FE-25 Scheme, introduced under FE Circular No 25 of June 20, 1998, are outside the State Bank's forward cover scheme and are not required to be surrendered to the State Bank, except under reserve requirements. The Authorised Dealers (ADs), who are free to decide the return on such deposits, are also free to lend, invest and place such funds on deposit in Pakistan, or abroad, subject to observance of the prescribed rules.

During FY06, $1,186 million of these deposits were used for financing foreign trade, including exports, both under pre- and post-shipment arrangements ($864 million) and imports ($322 million), while $1,659 million were placed under various arrangements including those with SBP ($181 million under CRR and $532 million under SCRR), banks within Pakistan ($30 million) and abroad ($916 million).

An amount totalling $544 million was held as balances abroad ($358 million), cash in hand ($83 million) and as 'others' ($103 million).

Balances in the old FC accounts, in the meanwhile, reduced to only $103 million (resident $75 million, non-resident $28 million) on June 30, 2006. Three years ago, in June 2003, these balances stood higher at $293 million (resident $232 million; non-resident $62 million).

 

[Owais]

OGDC to open technical bids of six short-listed parties

ISLAMABAD (July 19 2006): The Oil & Gas Development Company (OGDC) is going to open technical bids of the parties short-listed for Qadirpur compression project through selected inquiries, a process questioned by its two important departments--Projects and Supply Chain Management (SCM).

The reports of these two departments have been made available to Business Recorder, which indicate that they had recommended to the management to avoid a faulty process and issue press tender to ensure transparency in the award of contract.

OGDC deviated from the rules and regulations for selection of the parties for its $200 million Qadirpur compression project and issuance of tender inquiry to CPECC's against the rules and regulations was its ample proof. CPECC's entry into the process through backdoor channel endorsed internal departments' point of view.

Only five parties were in the race for the project. This number could have been much bigger if OGDC had followed a transparent process for short-listing the parties for the job.

OGDC hired IFL, a German consultant, for preparing bid document. It floated an international press tender to pick up the consultant, but did not follow the same routine of issuing press tender to get a right party for the project through a healthy process of competition.

This raised the question that if the selection of the consultant was the only problem, OGDC should have issued press tender to invite the parties for the project. It was the responsibility of OGDC to create competition and get the right party at competitive cost to ensure that national interest was fully protected. It left the responsibility on the consultant, which, instead of floating the international press tender, issued selected inquiries. This could not ensure competition among the parties.

An OGDC report indicated that CPECC made its entry into the process due to the blessing of the former Managing Director. He ordered issuance of tender inquiry by setting aside all norms for a development work, involving millions of dollars of public money.

CPECC's out of the box entry becomes more serious question to the OGDC management as it was facing serious charges of making cartel and offering co-operation fee to its competitor in Tando Allahyar and Singoro development contact. Now its entry in Qadirpur compression project case, against the rules, is enough to expose the weak working of OGDC.

OGDC is a public sector organisation, and its violation of rules and procedure to grant development works contract, is a serious question. Its procedure of granting contracts through selected inquiries ended up at cartel marking in many cases.

Legal Department's report in LPG plant relocation of LPG plant from Gari Hussu to Sadiq plant established formation of cartel by the parties. The report should have been taken seriously to work out a strategy to offer contracts for development works through prescribed rules and regulations, but it remained unnoticed.

It may be noted that $31 million was cost of relocation of the plant when the new plant would cost only $32 million. This is funny enough to expose that who was protecting whose interests.

The Public Procurement Regulatory Authority (PPRA) had made a serious attempt to ask OGDC to follow a transparent process in award of contracts to make sure that public money, which it spends on any project, does not go waste.

OGDC management held a series of meetings to discuss the project. One meeting was held on June 23. This was followed by another on June 27. But the report of Project Department was not placed before the meetings.

The Project Department had pinpointed a number of flaws in the process being followed for Qadirpur development project and recommended the management for the press tender for the project to ensure transparency in its award.

Sources said OGDC made the joint venture partners' demand an excuse to go ahead with a faulty process to award the contract. It claimed that the partners for the joint venture - PPL and Premier - demanded to carry on the process, arguing that tendering through the press may delay the project.

OGDC's point of view carried very little weightage for two reasons - the joint venture partners can not force the majority share holder with 75 percent stakes and operator for a faulty process for award of a big project.

PPL, again a public sector company like OGDC, is required to follow a transparent process and good governance in contracts award since they spend public money for the projects.

PPL protest over six parties' inclusion contradicted OGDC claims that it was following the IFL process to meet the joint venture partner's demand. The document made available to Business Recorder clearly mentioned that PPL had strongly protested over CPECC's inclusion and demanded its expulsion from the process. It had also shown its concern over addition of the sixth party and that, too, by the former OGDC managing director against the rules of the contract.

Another dark side of the story is that OGDC took the case with PPRA for its guideline, but later on questioned its jurisdiction through the Ministry of Petroleum. The document indicated that PPRA had advised OGDC to tender the project through the press to ensure transparency in its working.

Sources said OGDC issued selected tender inquiries for Qadirpur compression project in April this year. The nature of the project does not allow the management to call selective inquiry.

The departmental report indicated that a former MD, OGDC sought the advice of Public Procurement Regulatory Authority (PPRA) regarding pre-qualification of turnkey contractors either through press advertisement or through Consultant/OGDC, experience/ international publication. The report said the matter was discussed with Director (PPRA) on May 25, who directed OGDC to follow a transparent process of advertising the tender in the press to have healthy competition among bidders.

The report indicated that 6 LSTK contractors, who have already been pre-qualified and issued tender documents, need not go through the pre-qualification process again.

OGDC put aside all these instructions and opinions of different internal and external departments and preferred to go for opening of the bid documents of the parties picked up through a faulty process.

 

[Owais]

China terms Gwadar as easy route to Middle East BEIJING: Chinese Vice Foreign Minister Wu Dawei said his country was giving active consideration to the idea of using Pakistan as energy corridor and strengthening their communication links for common socio-economic uplift.

Talking to a visiting Pakistani delegation at the Chinese Ministry Foreign Affairs, he hoped that Gwadar deep seaport could provide an easy communication link to China for transportation of crude oil from Middle East and other regions.

"We will make their best efforts developing and promoting the Gwadar port as a hub of economic activities between the two countries," he said.

Leader of Pakistani delegation, Secretary Ministry of Youth Affairs Saleem Mahmood Saleem thanked the Chinese leadership and the people for their consistent support to Pakistan for various projects.

He also appreciated China's active role in Pakistan's socio-economic development