Pakistan Economy - News & Updates - Archive

[Owais]

Strategy being evolved to improve wire industry competitiveness



ISLAMABAD (September 24 2006): A strategy is being developed to improve the competitiveness of wire rod, wire manufacturers and downstream industry. This was stated by CEO Engineering Development Board (EDB) Imtiaz Rastgar during a meeting with industry's representatives on Saturday, says a statement.

He said that the stakeholders have to prepare recession proof plans as single market and product base will not result in required growth of the sector adding that the EDB would continue discussion with all stakeholders to develop a result-oriented strategy.

However, he said that the sector should not lobby for tariff protection alone as it would not improve its competitiveness in the world market. Tariffs protection is a marketing tool only for domestic market, he added.

The CEO said that the sector has to look inward to solve its problem of energy and production wastage as it could cut the production cost by 25 percent, which no measure of tariff protection could give.

Referring to pre-budget series of discussions with the stakeholder, he said at that time the steel sector was studied in total but how EDB has fascinated it into different segments to fulfil its special requirements.

He said the cottage industry was playing a vital role in developing the economy of the country but it was not getting correct type of raw material. EDB wants to solve this problem on priority basis, he added. Rastgar also referred to the tariff protection provided to the sector in the present budget and said that it should result in market expansion.

The representatives of the industry raised the issues of dumping, under-invoicing, raw material storage, quality, and improvement in business environment. They also underlined the need of new production technology, which could save energy at much larger scale.

 

[Owais]

CNG vehicles surpass one million mark: HDIP


KARACHI (September 24 2006): Over Rs 15 billion have so far been invested in CNG sector with establishment of 1,060 gas stations in more than 76 cities and towns of country while the number of vehicles converted to CNG has surpassed one million mark, said Hilal Raza, Director General, Hydrocarbon Development Institute of Pakistan (HDIP).

He was addressing at the concluding session of 3-day international CNG conference, organised by National Forum for Environment & Health in Karachi.

Hilal Raza told that federal government has approved a policy under which CNG buses would be introduced in eight big cities of country by the end of 2007. These cities include Lahore, Islamabad, Hyderabad, Faisalabad. The government would extend interest free loans for the purchase of buses and mini buses.

He said the provincial governments have been asked to take steps for setting up big CNG stations. "The local companies would also be encouraged for manufacturing CNG products besides transfer technology projects would be launched with assistance of foreign companies. A company from Italy would soon install a plant here," he told.

He vowed to ensure strict enforcement of the laws regarding use of CNG stations and cylinders, as nine fatal incidents had taken place during last six years of which five alone in 2005. The number of accidents owing to substandard cylinders was 17, he added.

Hilal Raza further told that four local companies have started manufacture and marketing of CNG kits while the Hinopak Motors have started manufacturing CNG buses locally.

Earlier, important presentations were made by local and foreign participants of the conference who presented the latest CNG technologies available and which are now being brought into Pakistan to meet the rapidly growing demand for CNG.

Cognisant of this demand, Executive Director PSO Kalim Siddiqui informed that PS0 is working extensively for the promotion of CNG culture and has more than 50 percent CNG stations out of total CNG stations throughout Pakistan. He told that 12,000 to 15,000 vehicles were being converted to CNG every month in the country.

Asma Khan, Manager Product Development of HinoPak gave details of the contribution of the company in providing the city with dedicated CNG 'green' buses and the expansion plans for the future.

The low price differential between diesel and CNG was also highlighted by speakers as well members of the audience and this was cited as one of the key reasons for the lack of interest in conversion of urban transport vehicles from diesel to CNG. The other major reason being the absence of large refuelling stations, for which it was recommended that the government should allocate land at convenient locations, with inlet pressure of gas be provided on priority basis and that too at more than 60 PSI.

In the speech given by Mujahid Anwar Sr. General Manager SNGPL he highlighted the plans for launching of mother daughter stations and support to the industry in providing better composition gas for CNG.

In the presentation given by Shoaib Warsi of SSGC he had highlighted the future plans for enhancing gas inlet pressure to the stations and discussed current and future gas distribution network. Presentation was given by Mohammed Ather EDO Transport CDGK regarding the poor quality fuel used in our transport system, which is a cause for damage to the environment and health. He added that sulphur contents present in diesel is harmful for health whereas CNG is harmless to the health and environment. He supported the earlier announcement from CDGK for induction of CNG buses in the next five years.

The conference concluded with a general consensus that the CNG industry, the government and regulatory bodies, as well as the consumers have to work together for the promotion of a safe CNG climate in the country.

Earlier, Peter Crowe expert from UK, Dr Gerhard Koenig from Austria, Cohn Fountain Richard Castle from UK, Alessandro Varisco from Italy, Riaz Rashid Manager Engineering Development Board, Amir Hussain, Shehzad Manzoor, Naeem Qureshi, Malik Khuda Baksh and other also spoke on the occasion.

In the exhibition Axiom Engineering, Greaves Pakistan, Pakistan State Oil, Tesla Technologies, Khattak Sons, Morgan Technologies, Hino Pak Motors, Afzal Motors, Pak Suzuki, Allied Engineering, Global Pakistan & other companies displayed their CNG products.

CNG Owners Association chairman Malik Khuda Bux, forum president Naeem Qureshi and others also spoke. The conference concluded with a general consensus that the CNG industry, the government and regulatory bodies, as well as the consumers have to work together for the promotion of a safe CNG climate in the country.-PR

 

[Owais]

8.25pc interest rate on one-day loans in money market


KARACHI: Before the month of Ramazan, in the beginning of new banking week, the interest rate fell by 115 basis points to come at 8.25 percent.

Last day, the interest rate on one-day loans closed at a high level of 9.40 per cent owing to the shortage of money and reserve averaging. Banks had to take recourse to discount window of the central bank.

In the beginning of today’s market, the interest rate was nine per cent.

According to money market dealers, the forthcoming week on September 28th, a total of Rs52.20 billion is expected to inflow in banking system as the Rs50 billion through the maturity of T-bills and Rs2.20 billion through the maturity of Open Market Operations.

 

[Kaiser]

Pakistan needs to start investing in its IT and Biotech sector. India is currently by 2010 gonna have a 17 billion dollar IT industry and 5 billion dollar biotech industry, but Pakistan might only have a edge in the telecom industry. Pakistan needs to raise education to 5% from the current 2% then move on with spending 2-3% of the GDP in R & D developement in IT, telecommunications, and Biotech.

We cant just spend the rest of our lives growing fruits and cotton while the world moves on into the technological era

 

[Kaiser]

It would be seriously smart if the Pak govt made upto 10-20 science, technology, engineering university's per years. This way it could have a large engineering, and technology workforce to deal with future growth in Pakistans technology industry

Remember 50% of pakistan's population are childern and 1/3 of them dont go to school. We must atleast have hope for the million of childeren in pakistan that have the potential to be the next leader of microsoft or the next CEO of intel.

I havnt met 1 child in pakistan that doesnt spend his whole day studying for an exam or reading a book the whole day

 

[Owais]

Edible oil output at 32000 tons per annum expected


PESHAWAR: Pakistan would be able to achieve an output of 32000 tons of edible oil annually in the wake of large-scale olive cultivation in the Frontier province.

Pakistan Oilseed Development Board (PODB)’s NWFP Director, Ghulam Idrees told journalists here at the Tarnab Farm that Pakistan produces about 30 percent of its requirements of edible oil, which were being obtained from sunflower, canola and cotton seeds, while the rest 70 percent mostly constituted of palm oil and soybean were imported from abroad.

He told that PODB had started several projects for wild olive’s crossings and its cultivation in the year 2000 and 13000 plants blossomed into giving fruits in 2005.

Ghulam Idrees said that the country would be able to produce 32000 tons of edible oil per annum in the years to come in the wake of increased olive production.

 

[sigatoka]

1. Pakistan needs to raise education to 5% from the current 2% then move on with spending 2-3% of the GDP in R & D developement in IT, telecommunications, and Biotech.

2. We cant just spend the rest of our lives growing fruits and cotton while the world moves on into the technological era

1. I agree with raising the level of spending on education to 5% but I disagree that Pak. such a backward technological nation should spend so much on R&D development.

The reason is that unless a nation is operating at the frontier of knowledge (like most developed nations are) it can acquire technology simply by removing restrictions to FDI (and reductions in tarriffs and quotas).

2. When everyone moves to tech. era and you are the only one growing fruits, then the terms of trade will move such that your fruits will become valuable in that you can exchange many "techy" items for your small number of fruits.

 

[Owais]

PPL and OGDC gang up for sixth LPG price raise from October 16


ISLAMABAD (September 25 2006): Pakistan Petroleum Ltd (PPL) and Oil and Gas Development Co (OGDC) - two public sector gas companies - have ganged up for Sixth increase in liquefied petroleum gas (LPG) rates from Rs 28,235 to Rs 34,705 per ton from October 16. Both companies have conveyed their plan in writing to other LPG producers, it is learnt.

The Fifth increase was made on September 16, to fix LPG rate at Rs 28235. PPL and OGDC are extremely worried why LPG price in Pakistan is not at par with CP Aramco.

They have also shown displeasure over private sector companies for not following in their footsteps to fleece the poor consumers by keeping on increasing LPG prices on monthly basis.

Sources said that PPL and OGDC have written separate letters to the private sector LPG producers to remind them that they were following the direction of Petroleum Secretary Ahmed Waqar, who had approved a formula on April 5 last to increase LPG price from Rs 17,000 per ton to Rs 34,705 a ton before Ramazan.

What a novel way to follow CP Aramco for 100 percent increase in LPG rates from April to September!

The letters showed that PPL and OGDC were extremely worried as to why LPG price in Pakistan was only Rs 28,235 against Rs 34,705 a ton. They should really be worried about it since they are still behind the target of Rs 34,705 per ton set by the Secretary who, being the 'principal accounting officer', is their boss.

PPL and OGDC's worry shows how strictly they follow Petroleum Secretary's orders. But neither PPL nor OGDC give the reason to target CP Aramco to fix its price for Pakistani consumers. They might have an idea that Pakistani LPG users, particularly dwelling in Northern Areas, Azad Kashmir and other far-flung areas are as rich as AP Aramco's clients.

One better might go through PPL and OGDC letters to get the right idea who says what. Let's start with PPL. In its letter dated September 20 it said: "LPG price of Rs 28,235 was still much lower to the base price of Rs 34,705 per ton, evaluated by LPAC subcommittee for LPG pricing in accordance with the applicable formula".

It said: "A meeting of LPAC producers to discuss LPG pricing policy may be worthwhile only when the government prescribes any new formula in accordance with production and distribution policy 2006". It would be unjustified not to give OGDC's point of view in its own words. It also wrote a letter on September 20.

It said: "The increase in LPG base price was done on the orders of Petroleum Secretary. Ahmed Waqar in a meeting held on April 5, last advised the producers to increase LPG price on monthly basis in three equal tranches to bring it at par with CP Aramco prior to holy month of Ramazan. Subsequently, LPAC meeting was held at Parco office Karachi on April 14, to review and fix LPG price in line with the directives given by the Petroleum Secretary and it decided to fix LPG price @ Rs 20,214 per metric ton from 16. Another LPAC meeting was held at PPL head office Karachi on May 15. LPAC agreed upon LPG price increase @ Rs23.147 per metric ton, but later on it withheld the notification.

During June last LPAC agreed to fix the price at Rs 23,147 per metric ton from June 16. However, OGDCL keeping in view the benefit of end consumer fixed the price at Rs 22,153 metric ton from June 16. Third meeting was held at OGDCL office, which unanimously fixed price at Rs 25,000 per metric ton from August 16.

It will be worthwhile to mention that the LPG price after the recent increase to Rs 28,235/per metric ton is still below CP Aramco price of Rs 34,705 per metric ton.

They said the meetings in DG(Gas)MP & NR, Office were held from time to time and attended by all LPAC members to devise a long-term pricing formula".

The same date of PPL and OGDC's letters is not a coincidence. It rather shows how co-ordinated efforts are being made on their part to follow Petroleum Secretary's directions, particularly when these are for increase in the prices of any petroleum product.

 

[Owais]

$7 billion FDI to be sought this year


KARACHI (September 25 2006): Pakistan is aiming to obtain $7 billion in foreign direct investment within the current financial year, it is reliably learnt. The government is planning road shows in Middle East and Europe to inform the investors of the opportunities for investment in the country in manufacturing as well as infrastructure projects.

Plans are also underway to raise at least one billion dollars through overseas global depository receipts (GDRs) offerings from the financial sector alone.

Over half a dozen investment banks have been invited for presentation to the Ministry of Finance between September 25 and 31st, 2006 for sequencing of GDR floatation of National Bank of Pakistan, United Bank Limited, Habib Bank and Kot Addu Power project.

Both NBP and UBL are locally listed and have a track record of market valuation, whereas HBL is yet to be listed. As such, GDR offering of HBL without local listing sounds difficult, say the experts.

Proposal to undertake a simultaneous IPO & GDR offering has its own difficulties. IPO offerings to domestic constituents are usually at a discount and GDR offering to overseas investors at the same price simultaneously would invite political criticism.

The whole exercise for raising forex investments is being undertaken by the Ministry of Finance, and the Privatisation Commission, thus far, has been kept out of the discussions.

The mandarins in Islamabad are said to be dissatisfied with the PCs handling of GDR issue of the Oil and Gas Development Corporation.

Not only has the issue been delayed from June but also the minimum price guarantee was not obtained at the time of finalisation of mandate. As a result, the OGDC's share price has dropped from Rs 165 in June to Rs 125 despite new discoveries by the Corporation.

According to informed sources, due diligence by the Citi group/Goldman Sachs consortium will be completed within the next few days. The delay is being attributed to preparation of accounts as required by investors abroad.

The government's offering of GDR's would need to be properly sequenced and not look like a 'fire-sale', said an expert from an investment institution, which has been invited to Islamabad to bid for a mandate. As such, the invitation for EOIs for four institutions shows lack of understanding about the market in Islamabad.

Secondly, with MCB's GDR floatation of $100 to 150 million by Merill Lynch already underway and plans for road-shows in Far East, Middle East, Europe and North America commencing from next month - a step by step cautious approach is advisable in order to obtain better pricing for the offerings from Pakistan.

After listing of MCB's GDR and enhancement of capital of the bank; the existing shareholders are expected to have a seven percent dilution of their holding.

According to knowledgeable sources there is a huge difference in floating bonds and GDR's in the international market. There are around 10 countries in Asia, which are tapping the bond market.

Whereas, there are over 7000 companies from this region in the bourses in the West. Also, the pool foreign investors already active on the Karachi Stock Exchange would need to be enlarged for GDR floatation.

 

[Owais]

ADB to provide $6.325 billion assistance in 4 years


ISLAMABAD (September 25 2006): The Asian Development Bank (ADB) will extend $6.325 billion financial assistance to Pakistan in four years from 2006 to 2009 for agriculture, natural resources, energy, finance, water supply, sanitation and waste management, transport and communications sectors.

Official sources told Business Recorder that funding for current fiscal year would be $1.466 billion, followed by $1.030 billion in 2007, $1.855 in 2008 and $1.975 billion in 2009.

Of the total, $5.5 billion would be given as 'Ordinary Capital Resources (OCR) loans' while the share of Asian Development Fund (ADF) is only $815 million and, interestingly, no soft loan would be available for energy sector in four years.

The Ministry of Water and Power has already conveyed to the concerned quarters that since no soft loan is available for energy sector, the government should finalise its strategy to arrange hard loans from the bank.

In 2006, the bank has agreed to provide funding for agricultural and natural resources sectors to the tune of $370 million, of which $200 million would be OCR and $170 million from ADF.

Sources said that of $370 million loan, $200 has been allocated to Punjab irrigated agriculture development sector project, which is commercial loan, while $38 million would be given for Sindh coastal and island community development project, $85 million for Balochistan rural development and drought mitigation $5 million for capacity building and project preparation for rural uplift and $42 million for FATA rural development which are soft loans.

In the energy sector, the bank would provide financing of $450 million for two projects ie renewable energy development and power transmission enhancement of which $200 million would be for renewable energy and $250 million for power transmission, which are commercial loans.

For development of micro-finance program, the bank would provide $40 million as OCR loan and $65 million soft loan, while $230 million would be for private participation in infrastructure of which $200 million would be OCR and $30 million from ADF.

The bank would provide $50 million for Sindh basic urban services and $10 million for mega city project as soft loan.

Funding for the transport and communications would be $230 million, of which $50 million would be for PPP initiatives for National Highway Development and $180 million for National Highway Sector Development Investment Project as hard loans.

In 2007, the bank would provide funding of $180 million of which $150 million has been fixed for community storage and irrigated agriculture development sector project, and $30 million Bahawalpur rural development project.

In the energy sector, the bank would give $250 million for power distribution enhancement.

The government would also get $150 million loan for law, economic management and public policy, of which $40 million would be for Punjab resource management program/subprogram, $60 million for Punjab justice support program and $5 million for FATA governance reform program.

To devolve social services in NWFP, the bank would provide $50 million and $215 million mega city project while $120 million for National Highway Sector Development Investment Project.

In 2008, the bank would lend $205 million for the development of agriculture and natural resources, of which $150 million would be for sector irrigated agricultural and water resources project and $55 million for rural modernisation. The bank would provide $200 million for renewable energy development project II.

Sources said that the bank would extend $205 million for capital market, insurance and contractual savings program.

Lending for law, economic management and public policy would be $325 million which includes $120 million for Balochistan resource management program and $205 million for private sector development program.

Financial assistance for Sindh DSSP II and mega city project II would be $100 million and $600 million, respectively. The bank would also extend 320 million for the transport and communication sectors, of which $150 million for provincial highways, $120 million for National Highways Sector Development Investment Project III and $50 million for PPP initiatives for National Highways Development III.

In 2009, lending for the agriculture and natural resources would be $180 million, which includes $150 million for water sector development and $30 million for agribusiness development project II.

Funding for energy sector would be $600 million of which $350 would be for power transmission enhancement II and $250 million for energy efficiency improvement.

The bank would extend $210 million to develop capital market access to sub-sovereigns and $460 million for private participation in infrastructure development program II and strengthening risk management, income stability for rural economy while funding for Punjab Basic Urban Services would be $100 million.

Lending for social sector development project would also be $100 million, followed by provincial highways II, $175 million and National Highways sector Development Investment Project-V $160 million.

Sources said that financial assistance pipeline from 2006 to 2009 has been discussed with ADB mission which recently visited Pakistan.

 

[Owais]

Signs of slowdown in major economies and cut in oil, gold prices may keep cotton prices depressed


KARACHI (September 25 2006): During the last week, weather was quite favourable ie, hot and dry for cotton activities. Cotton picking operation was accelerated leading to large seed-cotton arrivals in gins and markets. More and more gins resumed ginning operation in the last week.

Spinner-buyers were seen active in cotton buying from gins. Good weather is heralding for some recovery of the cotton damaged by rains and floods. On the present position of the crop, fair estimates indicate production of some 13.0 million bales this season against our target of 13.8 million bales. However, rains have also damaged the quality of cotton.

Prices of seed-cotton touched the level of Rs1,400 per 40 Kg on higher prices of cottonseed and oilcake. Lint prices touched season's highest level of Rs2,750 in Punjab. During the last week, lint cotton prices remained firm and steady except last two days when the prices of cottonseed and lint cotton slipped down. Seed-cotton in lower Sindh is quoted at Rs1075 - 1100 in Sindh and up to 1,200 per maund of 37.324 Kg in Punjab. Lint cotton prices are reported to have eased down by some Rs50-75 per maund on lack of buying interest.

The spinners say that yarn off=take is not comfortable and liquidity position is very tight. As such, spinners resist any increase over and above the level of Rs2,700 per maund. This spinners version is supported by viability in going to import of cotton.

New York cotton prices appear to be in low sentiments and selling pressure resists any reliable increase in values. New crop December 06 contract could not make its headway over the level of US Cents 55.0/lb. The other day, one exporter asked my opinion to sell in export Pakistan cotton equivalent to T-1467 staple 1-3/32 around 49 fob Karachi. He appeared pessimistic about the cotton export prices on the grounds of slowdown of retail economies in US and European Union, easy trend in housing prices, drastic cut of 20 percent in world crude oil prices, some more than 30 percent decrease in world gold prices and delay in active buying by China.

Of course, the factors bear enough weight to impose a situation of decrease also in the cotton prices. China is reportedly issuing import quota of some 700,000 tonnes of cotton to its textile mills. Although, Chinese mills are running on low cotton inventories, China prefers to delay import. Some 500,000 tonnes of cotton is already lying in different warehouses in China on consignment basis, which would be taken by mills against the respective quotas.

The reports indicate that cotton end-use in China is increasing with the improvement in standard of living and increase in purchasing power and will. The report estimate amount of domestic end-use of cotton would be double in next five years.

This situation would lead to reduction in Chinese textile exports. Of course, increased spinning capacity would demand more cotton but any slowdown in textile products in prominent textile goods consuming countries would work against it.

If the recently developed situation of decrease in prices of oil, gold, housing, consumer economy and to some extent in stocks and pressure of US dollar continues further for a couple of months, there are reasons to understand that despite increasing spinning capacity of raw cotton, lint cotton prices may not cross the barrier of 60. Generally, US economy flourishes when abnormal conditions of turmoil are found in some parts of the world.

Iran crisis has slowed, war-like conditions in Afghanistan and Iraq have already saturated, Israel - Palestinian crisis has slowed down and the sentiments of war against terrorism appear fading down.

GM TECHNOLOGY (BT COTTON): In the meeting of International Cotton Advisory Committee held in Brazil on 11th September, 06, its executive director in his address disclosed that Bt Cotton area has gone up to 50 percent of Global cotton area, which benefited the farming community by good return and higher yield and less pest-attack.

ACCORDING TO A SURVEY REPORT OF COTLOOK POSITION OF BT COTTON SOWING IN SOME COUNTRIES IS:

China; Bt Cotton was sown on 60 percent of total cotton area in China in 2005-2006 season and in 2004-2005 the percentage was 55 percent. Indigenously, Chinese companies are producing 70 percent of Bt Cottonseed and 30 percent by foreign companies.

INDIA: In India as many as 20 GM cotton varieties are available for commercial sowing. Last season, Bt Cotton covered as area of about 2.5 - 2.7 million hectares out of 8.8 million hectares, which is 28.4 - 30.68 percent. In Indian State of Gujarat, Bt Cotton sowing covers 90 percent of its area, Maharshtra 65 percent and Punjab 40 percent. India has doubled its yield in last seven years. Great efforts are being made on the research for even better seed and recently, two Indian seed companies have introduced Bt Seed also in Extra Long Staple cotton.

USA: 83 percent of national cotton area were covered by GM cotton varieties in 2005-2006 season while in 2004-2005 it was 80 percent. US have been making efforts for long to reduce area under cotton and increase yield and production. In 1926 USA produced 17.9 million 480-lb bales on area of 18.1 million hectares (yield = 215.32 Kg lint / hectare) while after 78 years in 2004, USA produced 23.2 million bales on 5.5 million hectares (Yield = 918.41 Kg of lint per hectare). Thus USA has maintained an average production level of 20.0 million bales but its domestic consumption, which was at 11.0 million bales some seven years back is estimated around 5.5 million bales in 2006-2007 season.

AUSTRALIA: Bt Cotton sowing is on 88 percent of its total area under cotton in 2005-2006.

MEXICO: 39 percent in 2004-2005 season.

COLUMBIA: 43 percent. Also Bt Cotton varieties are being cultivated commercially in Brazil, Argentina, South Africa. In countries like Burkino faso, Israel and Turkey it is at trial stage.

In Pakistan, the position of Bt Cotton is not known. However, some efforts are being made to evolve Bt Cotton varieties but resistance from seed companies is there. Some people speak against introduction of Bt Cotton on some grounds of damage to natural environments. All the prominent cotton producing countries are benefiting from the use of GM technology and this technology has greatly benefited the farming community and positively contributed to higher productivity and production ultimately boosting economies of the countries. Pakistan should take immediate steps to introduce Genetically Modified (GM) technology in cotton to increase its seasonal cotton production, which is lagging far behind its domestic requirements.

 

[Owais]

MONEY WEEK: private sector mainly responsible for monetary expansion of Rs 450 billion in fiscal year 2006



KARACHI (September 25 2006): Money supply in FY06 increased by Rs 450 billion compared with Rs 480 billion in FY05. The final monetary data, incorporating the end-June position of the banking system (SBP and scheduled banks), was released in an update by the State Bank on September 16.

Most of the increase was brought about by expansion in domestic credit (up Rs 399 billion compared with Rs 427 billion in FY05). Net Foreign Assets (NFA) also contributed some Rs 51 billion compared with Rs 54 billion in FY05. Expansion in domestic credit was largely the result of continuing private sector economic activity in the country besides, the undertaking of massive rehabilitation and reconstruction effort in the quake-hit Azad Kashmir and upper regions of the country.

The contribution in the form of increase in NFA was the result of increased inflow of remittances during FY06 ($4,600 million compared with $4,169 million in FY05). However, their overall impact on monetary expansion was lower than in FY05 because of the record increase in imports ($24,558 million compared with $18,753 million in FY05) compared with lesser expansion in exports ($16,374 million compared with $14,401 million in FY05) in FY06 affecting the overall quantum of NFA negatively.

The quake might have also affected the export sector negatively (more local goods needed domestically) and the import sector positively (more imported goods needed for both relief and reconstruction).

The private sector credit expanded by Rs 402 billion compared with Rs 438 billion in FY05. Expansion in the domestic credit in FY06 was entirely accounted for by commercial bank credit (up Rs 417 billion) while in FY05, the commercial bank credit contributed nearly Rs 428 billion of such credit. Bank credit to PSEs also expanded by Rs 8 billion compared with a retirement of Rs 13 billion in FY05.

On the other hand, specialised banks whose credit expanded by over Rs 10 billion in FY05, it contracted by nearly Rs 16 billion in FY06. Since distribution of specialised credit is not available, we cannot say for sure which sector (agriculture, industry, co-operatives or SME) was affected most by the squeeze in specialised credit. OINs (Other Items-Net) of the banking and SBP credit to NBFIs, on the other hand, contributed to contraction in domestic credit in the amounts of Rs 101 billion and Rs 1 billion, respectively.

The expansion impact of government borrowing during the year amounted to Rs 91 billion of which Rs 71 billion was borrowed to meet part of the budget deficit and Rs 20 billion for procurement of commodities, especially wheat - a crop whose harvest usually completes by the conclusion of the financial year.

MONETARY SUPPLY SQUEEZES IN FY07: In the meanwhile, another update made available on September 22 revealed that money supply in the first fortnight of FY07 (July 1 to 15, 2006) declined by Rs 57 billion. The cause was both a squeeze in domestic credit (down Rs 37 billion) and a drawdown of NFA (down Rs 20 billion). The squeeze in domestic credit was caused by a retirement of Rs 22.5 billion worth of commercial bank credit to the private sector and of Rs 1.2 billion to PSEs (partly offset by an expansion of Rs 2 billion in specialised bank credit), and a massive contraction amounting to Rs 57.5 billion in OINs of the banking system. Expansion in government borrowing from the banking system (SBP and scheduled banks) (up Rs 42 billion: Rs 40 billion for budgetary borrowing and Rs 2 bilion for commodity operations) largely offset the overall squeeze impact of the foregoing factors containing domestic credit contraction to Rs 37 billion only.

 

[Owais]

Rs50 billion target set for the sale of T-Bills


KARACHI: State Bank of Pakistan (SBP) has set Rs50 billion target for the biddings of 3, 6 and 12 months Treasury Bills.

Money market dealers told that the maturity of over Rs52 billion T-Bills was expected by Thursday, therefore, it was being hoped that the target would be achieved easily.

Invest Capital’s Head of Treasury, Naeemul Hassan told that the old cut off rate remaining firm for the 3, 6 and 12 months’ treasury bills was likely. The cut off rate on September 13 biddings for 3 months T-Bills was 8.64 percent, for 6 months 8.81 percent and for the 12 months T-Bills 9 percent

 

[Neo]

MOSCOW (updated on: September 25, 2006, 15:25 PST): A Russian company is in talks to supply electricity to Pakistan over a 30-year period in a deal worth up to 90 billion dollars (70 billion euros), business daily Kommersant reported on Monday.

Electricity would be supplied by Russian export monopoly Inter-RAO from plants under construction in Tajikistan and Kazakhstan, the company's deputy general director Alisher Kalanov told the newspaper following negotiations with the Pakistani government last week.

Exports could begin within six years and would require investment of several hundred million dollars, he told the paper.

The deal would be worth between 2.5 billion and three billion dollars per year over 30 years, supplying 50-60 billion kilowatt-hours per year to Pakistan, whose current annual production is 82 billion kilowatt-hours, the paper said.

Last year Russian electricity monopoly Unified Energy Systems, which controls 60 percent of Inter-RAO, said it was looking into the export of electricity from two hydro-electric plants under construction in Tajikistan and a thermal power plant being built in Kazakhstan, all due to come on line in 2009, the paper said.

However, exporting electricity from the plants to Pakistan in a cost effective manner would require the building of electricity cables across Afghanistan, a geopoliticial complication that could undermine the viability of the project, local experts told the newspaper.

The delegation also discussed the possibility that Inter-RAO could help build an electricity plant in Pakistan, Kalanov said.

 

[Neo]

THERE is a world of fantasy attached to hidden informal economy, as it exists in reality in Pakistan and almost all other countries. It is a story of a mix of reality and fiction, mystery and investigation. A number of economists keep trying to unearth its roots, size and impact on the overall national economy, politics and on social fabric. It is an endless pursuit. Meanwhile, the informal economy continues to prosper.

In Pakistan, the estimates of “black economy” vary. It is from 100 per cent-more than Rs7.5 trillion-as assessed by Majyd Aziz, the President-elect of the Karachi Chamber of Commerce and Industry to 50 per cent plus -Rs3.5—4 trillion—as indicated by Ahsan Iqbal, a senior Pakistan Muslim League (Nawaz group) leader and Professor Khurshid Ahmad a Jamat Islami senator. Taj Haider, a former PPP senator is of the view that black money hides itself in different forms such as “unaccountable assets” is spread in all over.

Going by a single yardstick, the stagnant and low tax-GDP ratio in an environment of high of economic growth, averaging seven per cent for the last four years, indicates that the informal economy is gaining strength.

Retired General Khalid Maqbool, a former chairman of the much feared National Accountability Bureau (NAB), now the Governor of Punjab, has called the burgeoning underground economy and smuggling on big scale as a symptom of widespread corruption in the public sector. According to him, the underground economy is estimated to have expanded at an annual rate of 26 per cent over the last 23 years as compared to average annual growth of 17 per cent in nominal GDP.

The general as NAB Chief read a paper on, “Strategy for combating corruption in Pakistan” at an international gathering in Korean capital city Seoul in the year 2000. His assessment was that underground economy expanded at the rate of nine per cent more in last 23 years—1977 to 2000.

Huzaima Bokhari and Dr Ikramul Haq in their analysis of 2006 Finance Bill put the estimate of black economy at Rs1.8 trillion and termed the taxation system as retrogressive.

Black economy goes along with corruption, speed money, smuggling, crime, drugs, highly inflated government contracts and tax evasion. It is all-pervasive, at least in Pakistan and most the citizens are its victims.

A sudden spurt in street crimes these days in Lahore and Karachi is said to be manifestation of total collapse of social, economic and political order as educated and uneducated young men have adopted money spinners as their role models.

Politicians, businessmen and teachers all agree that black money plays havoc in elections. “Black money plays its role in general elections and those of the local bodies”, Asad Saeed, a practicing economist said. “Politicians thrive on black money” a business leader said while pointing towards the life style of the top leaders of the three mainstream political parties.

Professor Khurshid believes that black money has created wide income disparities, a social upheaval and market distortions. Ahsan Iqbal endorses this view but adds hastily that black economy “had been a social cushion during the decade of nineties when white economy was on downslide and it helped in employment generation”.

Some supporters of PPP and PML (N) remain convinced that black money helps in consolidation of military rule. In return, a military government provides a far more fertile ground for generation of black money. “Look at stock exchange, commodity prices escalation with support of bank loans, real estate and growing services sector” an economics teacher of a local college pointed out to substantiate his claim.

“Tax evasion and income concealment are the expression of a no-confidence on the system”, argues Ahsan Iqbal of PML (N) as according to him, when the state does not deliver services-health, education, utilities, roads and transport and even security, why should people pay tax?”.

Since 9/11, Pakistan received $55 billion plus as remittances, loans, privatisation and other capital inflows. Ahsan’s point is that infusion of such a massive foreign inflow revived the economies of the countries like Somalia. “But in Pakistan, this money was literally squandered away”. It has generated a big part of the black economy.

Smuggling is an answer to growing demand of certain goods and services in the market that the state arbitrarily denies to its citizens”, remarked Shakoor Ahmad, an owner of a shop in Rainbow Center (Saddar, Karachi) which is considered to be the biggest bazaar in Asia of pirated videos and CDs.

Multinational companies estimate Rs10 billion revenue loss from violation of the copyright law. “But these multinationals too generate black money from transfer pricing”—a counter-argument from Shakoor Ahmad.

A glimpse of how black money generates was offered by the former NAB chairman Khalid Maqbool in his paper as referred earlier. Based on certain figures, the general estimated a leak of Rs333 billion that 10.4 per cent of the GDP from a total of Rs1.36 trillion government transactions.

A sum of Rs47 billion were pilfered away from Rs470 billion loans offered by the government controlled banks when appointments were politically motivated. His estimate was that 50 per cent tax was evaded because of discretionary powers of tax officers which at that time was Rs218 billion as against total collection of Rs436 billion.

Some 25 per cent amounting to Rs29 billion was siphoned off from Rs116.3 billion development programme. Another five per cent amounting to Rs4 billion was kickbacks as a reward of Rs67 billion oil import contract. A sum of Rs9 billion or 10 per cent of the government’s current expenditure was “outright pilferage of public funds” amounting to Rs94 billion.

The general obviously did not include defence allocation which remains immune from any discussion in the legislature and according to Ahsan Iqbal, a nominee of Accountant General carries out the audit that is never made public. Another amount of Rs26 billion or 15 per cent of Rs175 billion for public utilities that included subsidies was squandered away by collusion of corrupt staff and consumers. The general does mention about extortion by law enforcement agencies and their collusion with criminals but has not quantified the amount.

While the former NAB chief estimated only 50 per cent evasion in tax, a study conducted by Lahore University of Management Sciences in a survey in 2003 found that out of Rs100, the government receives only Rs38 and Rs62 is pocketed by the tax payer, tax collector and tax practitioner. It means that Rs720 billion tax collection in 2005-06 is only 38 per cent of about Rs2 trillion which should have been collected by the Central Board of Revenue.

Taxes continue to be evaded and businessmen’s under-invoicing is proved by the CBR Chairman, Mr Abdullah Yousuf in an interview about a month ago. He said that Pakistan’s import to China in 05-06 based on the invoices has been assessed at $1.5 billion. But the Chinese export department has sent them documents which reveals that actual import from China was $2.5 billion. A difference of $1 billion means about Rs60 billion. It means revenue loss for the government and generation of about Rs70-80 billion from the sale of these goods in the market. Leaders of Pakistan-China Business Council say goods worth more than $3-3.5 billion arrive from China every year.

Majyd Aziz says that one should safely add $15 billion to $44 billion officially declared import and export figures in 2005-06. Businessmen say that the entire jewellery market, alcohol, entertainment industry, video and CDs market and a big part of consumer goods market remains undocumented.

Corruption and black money has assumed a new dimension after Transparency International in its 2006 survey found that an overwhelming majority of its 4,000 respondent consider the government of Musharaf-Shaukat Aziz more corrupt than those of Benazir and Nawaz Sharif.

This survey addressed, “petty corruption issues” and in its report suggested for a study based on at least 10,000 households to find out how black money is being generated and what are its impact on politics, economy and the nation’s moral fabric.

http://www.dawn.com/2006/09/25/ebr1.htm