Pakistan Economy - News & Updates - Archive

[Neo]

ADB forecasts seven percent GDP growth for fiscal year 2007

ISLAMABAD (November 02 2006): The Asian Development Bank (ADB) on Wednesday forecast 7 percent GDP growth for FY 2006-07. Pinpointing the 'grey' areas of economy, it projected that the current account deficit would touch $8.5 billion (5.9 percent of GDP). However, it saw notable progress in curbing inflation.

Inflation is forecast to decline in FY2006-07 to average 6.5 percent. However, this moderation depends crucially on central bank's implementing a tighter monetary policy to keep domestic demand in check. Already, in July, SBP has tightened its stance by raising its policy rate (the 3-day repo rate, which is its rediscount rate) from nine percent to 9.5 percent, and adjusted upward both the bank's cash-reserve requirement ratio and their statutory liquidity requirement ratio.

The ADB in its 'Pakistan Economic Update (July 2005-June 2006)', an economic report issued on Wednesday by ADB resident mission in Pakistan, said that Pakistan's economy is advancing strongly, and forecast that main commodity producing sectors are expected to pick up and the services sector is likely to maintain its robust growth.

The projected high growth is underpinned by a substantial increase in investment last year and a further increase in investment forecast for the current year. Expected stabilisation of oil prices in the year will also help growth. Substantial public sector investment in irrigation in the last several years and a sharp increase in import of agricultural machinery last year is expected to boost agriculture output, as will the duty-free import of tractors, enhanced subsidy on fertilisers, and the new package of incentives for the livestock sub-sector, all announced in the 2006/07 budget.

Heavier than normal rains in the monsoon season are expected to help the water-intensive rice and sugarcane crops. Greater moisture in the soil will also improve the prospects of the wheat crop. However, the cotton crop could be adversely affected by greater moisture, which makes the crop more vulnerable to pest attacks. On balance, the agriculture sector is projected to grow by 4.5 percent in 2006-07.

The industry sector is expected to expand by 9 percent. The large-scale manufacturing, which accounts for almost half of the value-added in the industry sector, is expected to grow by 11.0 percent, supported by new investments in textiles, cement and fertiliser industries, and a number of incentives provided in the 2006-07 budget.

The projected higher sugarcane crop will boost the sugar industry. The two other important sub-sectors included in the industry sector, construction and electricity and gas are also projected to show robust growth.

It says, "The significantly enlarged size of the public sector development program, reconstruction of areas affected by last year's earthquake, and greater supply of cement due to its duty-free import from India permitted since April 2006, will all boost construction in 2006-07. Hydel generation, which has a relatively larger value-added component than thermal electricity, will get a boost from greater availability of water in the two main water reservoirs. Finally, substantial foreign investment in the past few years will boost the oil and gas sector".

In services, heavy foreign investment in telecoms in recent years will help the sub-sector maintain fast momentum in FY2006-07. Strengthened by reforms and Privatisation, the financial services industry will also maintain robust growth. Nevertheless, services sector growth as a whole is projected to slow to a more sustainable 7 percent in 2006-07, following the very rapid rises of last two years.

In the FY2006-07 budget, extension of the tax net to real estate transactions and raised tax rates on some financial services is expected to increase receipts at a very healthy double-digit rate, while non-tax receipts are likely to exceed the budget estimate. Current expenditure, however, may exceed the budget target for two main reasons: a likely overrun in defence expenditure due to ongoing operations against militants; and possibly, greater domestic debt servicing.

GRAY AREAS: While pinpointing the gray areas, the ADB identified potential threats to Pakistan's medium-term economic growth.

The ADB said that the growing current account deficit, continuing high inflation, and emerging power shortages are potential risks to the country's medium-term economic prospects and any deterioration in the law and order situation could add to adverse affect on medium-term economic growth.

More specifically, the end of China specific safeguards imposed by the USA and EU against textile and clothing (T and C) imports in 2008 may further weaken Pakistan's textile export prospects, it added.

However, the bank forecast that due to continued robust growth in global trade, the China-specific safeguards, and the lower anti-dumping duty on bed linen imports from Pakistan by EU will all boost exports, which are likely to increase by 13.0 percent in 2006-07.

The update further says that a possible further increase in the oil price, in case of sanctions against Iran for example, could also hurt Pakistan's economic prospects.

 

[Neo]

State Bank may ease interest rates: steady downtrend in core inflation

KARACHI (November 02 2006): With import growth reined in and a steady downward trend achieved in (non-food, non-energy) core inflation, the State Bank of Pakistan may be in a position to reverse its monetary policy stance and ease interest rates as early as first quarter of 2007, say economic experts.

This is, however, contingent on continuation of current trend in data depicting a fairly marked cooling off in the economy's overheating.

INFLATION: September inflation (year-on-year) came in lower than expected (8.73 percent vs 8.93 percent in August), despite strengthening of pressure in food prices. While the momentum in food inflation is likely to continue over the next 2-3 months--due to the recent disruption in the supply chain as well as the (moderate) impact of the increase in the support price of wheat--the trend in non-food inflation may continue to counter it.

The largest item ex-food in the CPI basket, house rent, has depicted a continuous weakening trend since late 2005. This is expected to continue into 2007 on the back of lower input prices (cement, steel) and stable-to-lower house prices. Apart from the CPI, the other major inflation indicator--WPI--is also depicting softness.

More importantly, from a monetary policy perspective, the steady downward path of core inflation (non-food, non-energy) is well established, with September Y/Y core inflation (6.16 percent) at its lowest level since late 2004. Further, the pace of decline in core inflation appears to have accelerated since June this year.

MONETARY: Monetary data so far for FY07 is mixed, with M2 as well as reserve money (RM) growth significantly higher than corresponding period FY06, but utilisation of credit by private sector substantially slower. Expansion in M2 till October 7 has been recorded at 1.84 percent (vs -0.69 percent), while RM growth is at 9 percent (vs 2.1 percent). Credit to private sector is up 1.45 percent compared to 3.9 percent in the same period of FY06. Net government bank borrowing is up 7.5 percent and, combined with a lower drawdown of Fx reserves, accounts for the faster expansion in M2 to-date.

BALANCE OF PAYMENTS: Perhaps the most heartening bit of data from SBP's perspective are the July-September import numbers. According to FBS data, import growth has slowed to 13 percent for the first quarter, well below its rate of increase in FY06 (around 40 percent). A slide in world oil prices, combined with a decline in the value of machinery imports, has been major contributor.

At this pace, import growth for FY07 is likely to come in below the forecast of 15 percent. Together with inflation, reining in the import growth is a key target of central bank's policy. (It should be noted that while a simultaneous slowdown in exports is likely to translate into continued upward pressure on the current account, the operational target of monetary policy is more than likely limited to curtailing import growth).

All in all, while SBP is likely to miss the full year's target for consumer inflation (6.5 percent), a likely moderation in underlying economic conditions during FY07, combined with an entrenchment of the declining trend in inflation indices (particularly in non-food non-energy prices) is likely to lead to sufficient basis for a reversal of course in monetary policy by early 2007. This is contingent, however, on continuation of current trends in data.

While the overall outlook is more benign now than a few months earlier, say the economists, the risks posed by continued strong expansion in reserve money (M0) and the central bank's NDA need to be carefully monitored.

 

[Neo]

Gulftainer in Dh183m Pakistan joint venture

Sharjah: Sharjah-based port management firm Gulftainer has launched a Dh183.5-million joint venture in Pakistan to provide land cargo transport services amid an increase in the country's foreign trade.

Set up in equal partnership with Karachi-based logistics company Pak Shaheen Group, the joint venture will move cargo between Pakistani cities and ports.

Known as Gulftainer MTI, the company aims to become the largest logistics and transport firm in Pakistan.

Gulftainer general manager Peter Richards said the venture will benefit from an absence of strong competition in the fragmented logistics sector of Pakistan.

"The intention of this joint venture is to invest in new equipment and systems, with the aim of revamping and enhancing inland transportation within Pakistan," the partners said in a statement.

"Healthy economic environment in Pakistan has allowed for a much greater amount of import and export volume to pass through Karachi's terminals.

"This new joint venture aims to provide improved transportation alternatives," said Yusuf Farrukh, chief executive officer of Pak Shaheen Group.

Initially, 22 trucks equip-ped with global positioning system (GPS) will be deployed, but the fleet size will increase to 100 by the end of 2007, Richards said.

All the vehicles will be linked to an advanced information technology system, allowing shipping lines, importers and exporters to monitor their cargoes throughout Pakistan.

The company expects to move 2,000 TEUs (twenty-foot equivalent container unit) per month. It will hold talks with Pakistan car manufacturers on distributing their vehicles throughout the country.

The Pakistani venture is Gulftainer's first foreign road transport operation. It manages the container terminals of Sharjah and Khor Fakkan and operates a fleet of trucks in the UAE.

Richards said Gulftainer wants to use its UAE-gained experience of dealing with shipping lines and their customers in its overseas expansion.

Pak Shaheen Group and Gulftainer also plan to develop an inland container depot (ICD), container freight station, refrigeration parks and cold stores as part of the $183.5-million spending plan.

 

[Neo]

China to help Pakistan drill oil, gas wells

ISLAMABAD: China will help Pakistan initiate an aggressive drive to explore oil and gas to meet the country’s energy requirement, a senior government official told The News.

Chinese companies have demanded 48 concessions to drill wells as part of efforts to explore oil and gas across the country.

The official said “Pakistan has limited drilling capacity as it has only 30 rigs that is why the country is unable to find oil and gas reserves at the required pace.”

At present, 19 companies have 53 drilling licences, including 14 foreign companies, which are exploring oil and gas in the country.

The official said Chinese Petroleum Chamber comprising 1,000 members had shown its desire to participate in the drive to drill oil and gas wells. “Chinese Petroleum Chamber has 2,000 rigs, of these 500 are capable of drilling more than 3,000 metres deep to explore oil and gas reserves.”

The official said Pakistan authorities have been asked to attract Chinese companies, urging them to bring in at least 200 rigs in the country for expediting the pace of drilling.

The official said a task force would be constituted to negotiate with Chinese companies. To a question, the official said Pakistan’s policies were not made specifically for China as these were open to others as well.

The official said Pakistan had made a plan to increase its capacity of drilling to 500 wells in 2005-10, 1,800 in 2010-20 and 3,000 wells in 2020-30.

 

[Neo]

Neelum-Jhelum hydropower project

Wapda selects Chinese consortium

ISLAMABAD: In the much-awaited, but positive development, WAPDA has finalised a Chinese consortium China Gezhouba (group) Co Ltd China and CMEC, China (CGGC-CMEC) for construction of the much delayed, but strategically most important project of 969 MW Neelum-Jhelum hydropower, The News has learnt.

“We have, to this effect, recommended to Government of Pakistan for formal approval of a Chinese consortium CGGC-CMEC out of 4 companies, which participated in the international competitive bidding for the project,” a WAPDA official said.

The Neelum-Jhelum hydropower project is so significant and its immediate completion is essential, otherwise India, in case of earlier completion of the Kishanganga hydropower project, will have the priority water rights over the Neelum river under the 1960 Waters Treaty.

The Neelum-Jhelum hydropower project is proposed on the Neelum river, which is called the Ganga river in held Kashmir and on the same river, India is building the Kishanganga hydropower project.

India is reported to have completed 60-65 per cent construction of Kishanganga hydropower project, but Pakistan’s authorities concerned so far have miserably failed to initiate the Neelum-Jhelum hydropower power project. “Pakistan now needs to embark up this project with speedy pace so that this mega project could be completed prior to the completion of Kishanganga project to ensure the priority water rights.

WAPDA argued in its recommendation that CGGC-CMEC has come up with the offer to complete the mega project at a cost which is reduced 17 per cent than the cost offered by runner up bidder China International Water & Electric Corporation, China (CWE) JV to complete the project.

He said that based on the prices in 2005, the cost of construction works of the project has been estimated at $1.1 billion and CGGC has come up with $1.3 billion bid while CWE has come up with the $1.8 billion.

The CGGC-CMEC will arrange funding of $800 million for the project while CWE JV had offered to arrange $700 million to complete the project.

“We have recommended to Ministry of Water and Power the name of CGGC-CMEC, a Chinese company to initiate construction of the project for approval,” a senior WAPDA official said. He said that after evaluating the four bidders terms sheets for the project, WAPDA made this recommendation to the government.

He said that four companies Frontier Works Organization, Pakistan (FWO); Synohydro Corporation, China-SHC-HPE (JV); China International Water & Electric Corporation, China (CWE) JV and China Gezhouba (group) Co Ltd, China and CMEC, China (CGGC-CMEC Consortium) participated in International Competitive Bidding (ICB) which was held in Lahore.

National Engineering Services of Pakistan (NESPAK) has already declared Frontier Works Organization supported by WAPDA and other government institutions such as Planning Commission as non-qualified, as FWO did not meet the minimum qualifying criteria.

He said that SHE-HPE joint venture did not submit the tender security and is considered as non-responsive.

 

[Neo]

Two more marble cities to be set up in Balochistan

QUETTA, Nov 1: Balochistan will have two more marble cities in Khuzdar and Dalbandin while three modal centres would be set up in the province at a cost of Rs270 million with funding from the federal government for the development of the mineral sector.

The decision to this effect was taken at a high-level meeting held here, which was attended by Chief Minister Jam Yousuf and Federal Minister for Industry and Production Jahangir Tareen.

The meeting reviewed the issues related to mineral development in the province and the progress made on the implementation of the programme for cementing the water tanks and drains.

The meeting was briefed on the plans for exploring minerals, especially marble, grained, onyx and other precious stones and their export to the international markets.

The meeting was informed that the government had set up Pakistan Stone Development Company with the collaboration of the private sector that would take steps for exploration and development of minerals in the country, especially in Balochistan, promoting investment in this sector and its access to the international markets.

The meeting was told that the federal government would establish a modern centre at Gadani Marble City at a cost of Rs140 million that would provide training and marble products manufacturing facilities in the area. The provincial government would provide land for the centre.

It was decided in the meeting that two more marble cities would be set up in the province while more facilities would be extended in Loralai for exploration and development of minerals with the financial help of the federal government.

It was further decided that the federal and provincial governments would jointly take steps for providing basic infrastructure, including supply of electricity in the mineral-rich areas of Balochistan and special arrangements would be made for providing power supply to the Chagai district.

The meeting also reviewed the pace of implementation on the president’s programme for cementing water tanks and drains in the province.

It was informed that during last one year 3,755 drains and water tanks were cemented in the province at a cost of Rs1 billion and up to June next year 4,000 more drains and water tanks would be cemented.

Federal Minister for Industry and Production Jahangir Tareen informed the meeting that the steps for the development of mineral resources in Balochistan would continue and the federal government would provide maximum financial resources and technical assistance to the province in this regard.

 

[Neo]

ADB warns Pakistan of economic risks

ISLAMABAD, Nov 1: The growing current account deficit, continuing high inflation and the emerging power shortages are potential risks to the country’s medium-term economic prospects, warns the Asian Development Bank (ADB).

“Any deterioration in the law and order situation could also adversely affect medium-term growth,” further says the latest ADB Economic Update finalised in late October 2006.

It added that the end of China specific safeguards imposed by the United States and European Union (EU) against textiles and clothing (T&C) imports in 2008 may further weaken Pakistan’s textile export prospects.

“The current account deficit is projected to increase to $8.5 billion, or 5.9 per cent of GDP”.

A possible further increase in oil prices, in case of sanctions against Iran for example, could also hurt Pakistan’s economic prospects, the report feared.

With pro-growth government policies, continuous increase in the public sector development programme, and projected increase in total investment, the medium-term outlook for the economy is positive and the growth target of 7-8 per cent looks feasible.

The real GDP growth in 2006-07, the update said, is projected at 7.0 per cent. The main commodity producing sectors are expected to pick up and the services sector is likely to maintain its robust growth.

The projected high growth is underpinned by a substantial increase in investment last year and further increase in investment forecast for the current financial year. Expected stabilisation of oil prices will also help growth.

Substantial public sector investment in irrigation in the last several years and a sharp increase in import of agricultural machinery last year is expected to boost agriculture output, as well the duty-free import of tractors, enhanced subsidy on fertiliser, and the new package of incentives for the livestock sector, all announced in the 2006-07 budget.

Heavier than normal rains in the monsoon season is expected to help the water-intensive rice and sugarcane crops. Greater moisture in the soil will also improve the prospects of wheat crop.

“However, the cotton crop could be adversely affected by greater moisture, which makes the crop more vulnerable to pest attacks. On balance, the agriculture sector is projected to growth by 4.5 percent in 2006-07,” the update believed.

The industry sector is expected to expand by 9.0 per cent. The large-scale manufacturing, which accounts for almost half of the value added in the industry sector, is expected to grow by 11.0 per cent, supported by new investment in textiles, cement and fertiliser industries, and a number of incentives provided in the 2006-07 budget.

With the projected high GDP growth, extension of tax net to real estate transactions, and increase in tax rates on some financial services, tax receipts are expected to maintain a robust double-digit growth in 2006-07. Non-tax receipts are expected to exceed the budget estimate, as the estimate of receipts from the USA for logistic support for the war in Afghanistan appears conservative.

Current expenditure is also expected to exceed the budget, mainly because of expected overrun in the interest payment on domestic debt. The budgeted decline in interest payment on domestic debt is not likely to be achieved, considering the increased domestic debt stock at the beginning of the year, the higher planned borrowing from the banking system for the financing the budget, and the expected further increase in interest rates. On the balance, the fiscal deficit is likely to increase to 5.0 per cent of the GDP in 2006-07,” the update said.

The target for fiscal deficit for the current financial year has been fixed at 4.5 per cent of the GDP.

Inflation is expected to decline in 2006-07, as monetary policy is further tightened, the supply of food is augmented by the projected higher growth in agriculture, and the oil price stabilises. The low monetary growth in 2005-06 relative to the growth of nominal GDP will also have a lagged dampening effect on inflation in 2006-07 is expected to decline to 5.6 per cent.

Import growth is likely to decelerate in 2006-07 because of expected stabilisation of oil prices and lower demand for consumer durables because of higher interest rates. However, the projected high economic growth and substantial increase forecast in investment will sustain high growth of imports, which is expected to remain at about 15.0 per cent.

 

[Neo]

Pakistan, Russia cooperate in rail sector

MOSCOW, Nov. 2 (UPI) -- Russia and Pakistan plan to cooperate in rail projects that include linking Pakistan with Iran and Afghanistan.

Pakistan's Railways Minister Sheik Rashid Ahmed, who is visiting Russia, met with his counterpart Vladimir Yakunin and Transportation Minister Alexander Misharin to discuss cooperation, reports the Pakistan Times.

Ahmed said Pakistan's current projects include laying tracks to connect Quetta in Baluchistan and the port city of Gwadar, purchase of 1,000 to 2,000 freight cars, locomotives and the installation of modern signal system.

Yakunin said Russian Railways was interested in taking part in all projects of expansion and modernization of Pakistan's railways network and initiate joint ventures, the report said.

 

[Owais]

SBP to maintain tight monetary stance

KARACHI (November 03 2006): The State Bank of Pakistan (SBP) has said that it will continue to maintain its tight monetary stance in order to bring down inflation to the FY07 annual target of 6.5 percent.

According to SBP economic assessment, the underlying excess demand pressures in the economy have been curbed substantially with a lagged effect following sequential upward adjustments in reserve requirements and policy rate (SBP three-day Repo Rate) supplemented by proactive open market operations.

Early results for first quarter of FY07 confirm that there has been visible, albeit lagged impact of monetary tightening on core inflation which has been brought down to 6.2 percent in September 2006 from 7.6 percent in September 2005. However, there are a number of factors, which require SBP to maintain its current monetary stance.

First, the year-on-year monetary expansion was 18 percent in mid-October FY07 compared with the Credit Plan FY07 target of 13.5 percent. The monetary expansion is higher than envisaged due to higher level of government borrowing, which also seems to be squeezing the private sector credit.

There are concerns from certain quarters that the private sector credit growth has slowed down excessively and that this will stifle economic growth. However, the latest trends indicate that private credit growth is growing at 20.4 percent year-on-year basis, which is above the Credit Plan FY07 target of 18.4 percent. This trend indicates that the private sector credit growth is consistent with real GDP growth target of 7 percent for FY07.

Secondly, while the tight monetary policy has certainly helped significantly reduce inflation in the country, CPI inflation nonetheless remains high.

THE FOLLOWING RISKS TO THE DOMESTIC INFLATION OUTLOOK ARE WORTH NOTING:

(1) While core inflation measured by non-food non-energy eased in September 2006, core inflation measured by trimmed mean moved up in September 2006. More importantly, the levels of core inflation measured by both methodologies are above 6 percent, and lower levels are clearly more desirable.

(2) Also, while non-food inflation has declined, it remains high at around 7 percent in September 2006.

(3) Similarly, the volatility in food inflation is another concern. The inflation in food prices has been in double-digits since August. While these prices are less sensitive to monetary policy, it should be kept in mind that the impact of rising food prices will certainly affect inflationary expectations in the country with a lag.

(4) It must also be kept in mind that there is little evidence that the recent decline in international energy prices will substantially reduce inflationary pressures in the economy, as domestic prices of key fuels remains unchanged, and

(5) Finally, international prices of non-fuel commodities, including metal remain strong, which could add to domestic price pressure. In particular, this could weaken (or even reverse) the deceleration in the House Rent Index.

Moreover, in modulating monetary policy the State Bank also considers other macroeconomic factors such as strength in aggregate demand and indicators of fiscal and external sector performance.

 

[Owais]

World Bank approves new water action plan for Pakistan

ISLAMABAD (November 03 2006): The World Bank has approved a new water management action plan to benefit poor farmers, who are tailenders of River Indus. For decades, thousand of poor families have suffered because of this lacuna.

The action plan comes in response to the panel investigation requested by the residents of Badin. The residents claimed they were adversely affected by the World Bank's failure to comply with certain operational policies in connection with the World Bank-financed Pakistan National Drainage Program (NDP) project and earlier Left-Bank Outfall Drain (LBOD) project.

In its investigation, the panel found that the design of the LBOD project underestimated prevailing conditions and the risk of extreme meteorological events. This contributed to the breakdown of the LBOD system and suffering of the local people in lower Badin district, and to significant adverse impacts to important fisheries and wetland habitats known as "dhands".

The panel found instances of non-compliance with provisions of several bank policies, including environmental assessment, natural habitats, indigenous people and cultural property.

After about five decades of bank's support in water sector, it has been realised the weaknesses in its old water management plan. Inspection panel chairperson Edith Brown Weiss said: "The panel has heard the voices of poor people suffering at the tailend of the drainage system in southern Sindh, and seen the coastal environment's degradation. We appreciate the importance of the bank involvement in the water sector in Pakistan. Our report, however, highlights the need to take a holistic view of water and drainage systems to ensure risks are identified and assessed and harm to people and the natural environment minimised. We trust that the bank's action plan will be implemented in close consultation with the affected people."

The panel also found non-compliance in the area of bank supervision, determining that it had been less than adequate in respect to the LBOD system, and that people in southern Badin "fell outside the field of vision of those, who designed and appraised the project".

The bank's board of executive directors heard details of bank management's action plan to address extreme poverty, impacts on the affected population and environment and help manage the severe flooding risks in the lower Indus Basin, particularly in Badin and Thatta districts, says a press statement released by the bank.

World Bank president Paul Wolfowitz said: "While these older bank-supported projects did succeed in creating opportunities for poor people in Sindh by expanding agriculture dramatically, the inspection panel has shown that the World Bank and everyone involved in projects could have done a better job of mitigating risks and impact of natural disasters on the poor within and outside the project areas."

"The inspection panel has recognised the importance of the bank remaining committed to helping Pakistan improve its water resource management, and our future work will be strengthened by lessons learned from the LBOD and NDP projects."

In its investigation, the panel found that the design of the LBOD project underestimated prevailing conditions and the risk of extreme meteorological events.

The bank's action plan is designed to address with urgency the plight of the poorest people of the lower Badin and Thatta districts and help them deal with the risks inherent in living on this exposed and low-lying plain.

The bank-supported Pakistan Poverty Alleviation Fund, which works according to development choices made by the affected communities themselves, is already at work in the area with $18 million for community projects to build livelihoods and small-scale infrastructure. The program will focus special attention on those people close to the LBOD for whom the panel found that the LBOD was a contributing factor to flood damage.

In addition, a flood response plan will be worked out with local officials to ensure better management of this risk, including early warning, evacuation plans and flood refuge structures. The bank will report on progress before the next monsoon season in June 2007.

In the medium and longer terms, coastal zone and River Indus management will be a priority focus. The board also emphasised importance of the World Bank remaining engaged in Pakistan's challenging water sector and managing risks associated with large complex projects.

In recent years, a number of severe meteorological events have affected Sindh, including the heavy cyclone in 1999, which caused extensive damage to components of the LBOD system, the Tidal Link canal and the Cholri Weir. In 2003, the largest rainstorm on record struck southern Sindh, causing widespread flooding and loss of life across the area as far as Karachi.

"At the time the project was designed, the emphasis was on getting the biggest benefit for farmers by reducing salinity and water-logging to expand irrigated areas," said John Wall, World Bank country director for Pakistan.

 

[Owais]

Chinese firm finalises plan to set up power plant in Thatta

KARACHI (November 03 2006): A China-based company has finalised its plan to set up 250MW coal-fired power plant with the estimated cost of 400 million dollars at Sonda-Jherruk in Thatta district.

Sources told Business Recorder that China National Machinery Import and Export Corporation (CMC) had completed feasibility work for setting up 250MW coal-fired power plant with the cost of $400 million and soon strike a deal with the government for the purpose.

The deal would be another breakthrough following the Shenhua Group of Companies, a China state run company, which had restarted negotiations with the government for setting up 1000MW coal-fired power plant in Thar with the investment of one billion dollars.

A CMC delegation recently visited coal identified areas in Sindh, including Sonda-Jherruk in district Thatta. The main purpose of the visit was the collection of investment framework for coal field and power house on basis of build, operate and transfer (BOT), and investigation of coal-field site in Sonda-Jherruk. The delegation after the visit had held meetings with several government officials about the facility provided at the site.

The reserves at Sonda-Jherruk, the second largest in Sindh, comprising more than seven billion tonnes coal, is located at a distance of around 150-kilometre in north-east of Karachi and about 30-kilometre in south-east of Hyderabad, where all required infrastructure have been made provided by the provincial government.

The company had signed a memorandum of understanding (MoU) in July this year with the Sindh Coal Authority to conduct detailed feasibility study for the development of a coal mine of one million tons annual production capacity.

According to the MoU, the CMC had to arrange investment and ensure availability of coal deposits on long-term basis like 30-40 years to meet the requirements and establishment of 250 MW indigenous coal-fired power plant at Sonda-Jherruk field. The project would generate 2,000 to 3,000 jobs for local people, sources said.

Sources said the present government was keen to utilise natural resources to overcome energy shortages in the future. On the directive of President Pervez Musharraf, the government had accelerated the efforts to plug the power gap through coal reserves.

 

[Owais]

Shaukat welcomes investment from Kuwait and GCC

ISLAMABAD (November 03 2006): Prime Minister Shaukat Aziz on Thursday said Pakistan is a growing economy with attractive opportunities for investors and welcomes investment from Kuwait and other Gulf Co-operation Council (GCC) countries.

He was talking to deputy chairman and managing-director of Noor Financial Investment Company of Kuwait, Naser Al Marri, who called on him at the Prime Minister house here. The Prime Minister said investment opportunities in the country are greater than ever before. Naser Al Marri informed the Prime Minister the group is considering several projects.

 

[Owais]

'Pakistan's six percent annual growth result of micro-finance'

ISLAMABAD (November 03 2006): Chief Executive Pakistan Poverty Alleviation Fund (PPAF) Kamal Hyat has claimed that six percent annual growth of Pakistan is the result of micro-finance and there is an increase of active borrowers by 85 percent.

The size of micro-finance sector in Pakistan is estimated at about Rs nine billion, and Rs five billion savings reaching around 800,000 clients, announcing PPAF as the premier financier of micro-finance in Pakistan today driving its growth and expansion.

This was disclosed at the Micro-entrepreneurship Award 2006 programme jointly organised by PPAF and Citigroup Foundation launched by Citigroup here on Thursday.

While speaking at the contribution in alleviating poverty, Hyat said, "issues relating to the poor and under-privileged are central to the nation's progress.

The Micro-entrepreneurship awards programme is a key effort in the quest for generating awareness of the significance of micro-finance particularly in a country like Pakistan." Out of one billion poor population of the world ten percent has access to micro-finance facility, he said.

Success of any programme lies in the support from the government, which he said, remained immense and sponsored by, while World Bank is the main financier with Rs 432 million out of total Rs 600 million. In addition, free market conditions play vital role, he added.

Kamal Hyat said, PPAF has managed to raise Rs 250 million during the last five years in micro-financing with major ratio of 80 percent going to the rural community.

Responding to another question, he said that PPAF is responsible for petty loans averaging Rs 12 - 15,000 to a maximum limit of Rs 30,000 targeting agriculture and dairy farms of the poor community so they could improve their living and become independent, he added.

He claimed that interest rate on these loans is the lowest in the world with 16-18 percent mark-up in Pakistan. Giving example, he said that the interest on loans is 30 and 60 percent in Bangladesh and Latin America respectively. Elaborating further, he said that apart from offering loan PPAF is also responsible for capacity building of the people and providing water facility free of charge, which he speculated to have brought the interest rate as low as 3-4 percent in real terms.

According to him, PPAF has reached 22,000 villages out of 40,000 in 108 districts of Pakistan where it is functioning actively. The rest of the villages are also availing of the facility but no proper offices of PPAF exist there. This constraint is mainly due to financial resources, he added.

He said, we have achieved 100 percent recovery. On the question of auditing of accounts, he said, proper internal and external auditing is carried out by the World Bank itself twice a year and monthly internal auditing is a routine feature of the organisation, he added.

 

[Owais]

Pakistani and Iranian ministers meet on margins of ECO moot


TEHRAN (November 03 2006): Iran's Interior Minister Mostafa Pour Mohammadi in talks with visiting Pakistani State Minister of Interior Zafar Iqbal Warraich said giving attention to regional security was "strong point" in meeting of interior ministers of Economic Co-operation Organisation (ECO) member states here dubbed "Security, Stability and Sustainable Development".

Zafar Warriach, along with three other ECO member states and five deputy ministers as well as Uzbekistan's ambassador to Tehran attended meeting, which ended on Thursday.

Promotion of economic co-operation among ECO members, money laundering, organised crime and illegal immigration are major issues discussed. ECO comprises Iran, Pakistan, Turkey, Kyrgyzstan, Kazakhstan, Uzbekistan, Azerbaijan, Afghanistan, Tajikistan and Turkmenistan.

Pour Mohammadi said promotion of Tehran and Islamabad economic co-operation, particularly in energy, would help deepen their bilateral ties. Exchange of mutual experiences in security will help strengthen Tehran and Islamabad campaign against drugs and terrorism.

 

[Owais]

Spending on electrification, social security and welfare declines: ADB

ISLAMABAD (November 03 2006): The Asian Development Bank (ADB) has noted that though the government's pro-poor public expenditure under its poverty reduction strategy during 2005-06 has increased, yet spending on village electrification, social security and welfare and food support programme have declined substantially.

The Pakistan Economic Update (July 2005-June 2006) released on Wednesday by ADB Pakistan resident mission states that Pakistan's PRSP expenditure continued rapid increase in FY 2006, when it touched Rs 258.5 billion compared to Rs 192.5 billion in FY 2005.

As a percentage of GDP, PRSP expenditure increased from 2.9 to 3.4 percent and the government share of poverty-related expenditure in total public expenditure also increased from 25.1 percent to 27.6 percent.

However, the bank noted that expenditures on village electrification which plays an important role in boosting economy of rural areas where the bulk of the poor lives has enormously declined by 52.4 percent to one billion rupees. Expenditures on social security & welfare and food support programme have also declined by 28.1 percent to Rs 2.3 billion and 22.2 percent to Rs 2.1 billion respectively during the period under review as compared to last fiscal year.

THE UPDATE STATES PRO-POOR EXPENDITURE HAS BEEN GROUPED UNDER THE FOLLOWING HEADS: improving access of the poor to market and community services, fostering human development, accelerating development of rural areas, improving governance, and providing safety nets.

Expenditures under all these heads recorded increase in FY 2006, with the sharpest increase being in expenditures on social safety net (133.4 percent) due to unplanned relief and rehabilitation operations in areas affected by the 8 October 2005, earthquake which resulted in sharp increase in expenditure on natural calamities (included in safety nets) to Rs 12.1 billion in the first three quarters of 2005/06 from Rs 408 million in the same period of 2004/05.

On development of rural areas, expenditures grew by 42.3 percent to Rs 48.8 billion, on human development it increased by 29.7 percent to Rs 124.8 billion, access to market and community services increased by 29.5 percent to Rs 25.9 billion and expenditure on governance increased by 19.5 percent to Rs 41 billion during the period as compared to last fiscal year.

Of the 17 sectors identified for pro-poor expenditure, education, health, population planning, social security and social welfare, water supply and sanitation (WSS), and rural development, including village electrification, may be considered as core areas. Almost three-fifths of the total poverty-related expenditure is incurred on these sectors.

However, total expenditure on these core areas, at Rs 143 billion, represented an increase of 25.7 percent compared with first three quarters of 2004-05, which was much lower than the overall increase in PRSP expenditure. This does not reflect well on priorities assigned among sectors identified for poverty reduction.

Expenditure on education, which accounts for 37.4 percent of the total pro-poor expenditure, increased by 30.1 percent to Rs 96.8 billion in the first three-quarters of 2005/06. As a percentage of GDP, it increased from 1.1 to 1.3. More than one-third (37.2 percent) of the increase in expenditure on education was due to sharp increases in development expenditure on secondary and higher education (college and university education).

Development expenditure on general college and university education increased sharply to Rs 8.9 billion from Rs 558 million in the corresponding period of the preceding year, reflecting the high priority given to higher education by the Government.

Expenditure on health increased by 19.2 percent to Rs 23 billion. Expenditure on hospitals and preventive health measures, which together account for the bulk (87.3 percent) of the expenditure on health, recorded increases of 17.4 percent and 22.4 percent, respectively. Mother and child health expenditure more than tripled to Rs 155 million.

The shift in emphasis from curative to preventive health care facilities is a positive development. Both current and development expenditure on rural water supply and sanitation, which play a significant role in improving the health of the population, also recorded a sharp increase in the first three quarters of 2005-06.

Expenditure on irrigation and roads and highways continued to increase at a rapid pace. However, expenditure on rural calamities (included in safety nets) to Rs 12.1 billion in the first three quarters of 2005/06, electrification declined to less than half of the amount spent in the corresponding period of 2004/05.

In addition to pro-poor budgetary expenditure, the government provides safety nets for the poor through transfers from the Zakat (an Islamic welfare fund) and Employees Old age Benefits Institution (EOBI), as well as microcredit disbursed by the Pakistan Poverty Alleviation Fund (PPAF) through non-government organisations, Khushali Bank (KB), and Zarai Taraqqiati Bank Limited (ZTBL).

Disbursement of microcredit, which had more than doubled in the preceding two years, slowed down significantly, increasing by only 4.7 percent in the first three-quarters of 2005-06.

Microcredit disbursed through partner organisations of PPAF, which accounts for 70.1 percent of total microcredit, declined by 6.6 percent. Disbursement by KB, however, increased by 31.5 percent. The number of female recipients of microcredit increased by 35.1 percent, while that of male recipients declined by 9.6 percent. Female recipients, at 50,244, constituted 38.4 percent of the total beneficiaries of the various microcredit programmes.