Pakistan Economy - News & Updates - Archive

[Neo]

Sunday, December 03, 2006

Report shows meagre 5.9% industrial growth

KARACHI: The industrial growth during 2005-06 remained at 5.9 percent against its last year growth of 11.4 percent.

The central bank in its annual report released here on Saturday said the industrial growth estimates based on full year data is expected to be little higher than the provisional number.

In particular, the 9 percent growth in large-scale manufacturing (LSM) could reach 10.7 percent during 2005-06, but this could still remain below the annual target (for the first time during the last four years) and also lower than the 15.6 percent growth record in 2004-05.

This was mainly due to rise in unprecedented oil prices, poor cotton and sugar-cane harvests, capacity constraints in key industries as well as a tight monetary stance. Despite rising interest rates, the electronics and automobile industries kept benefiting from the continued availability of consumer financing. The only sub-group of industry to record negative growth during 2005-06 was electricity and oil distribution, with value addition declining by 8.4 percent during 2005-06 in contrast to the 3.5 percent rise registered in the preceding year.

 

[Neo]

Sunday, December 03, 2006

Investment-to-GDP ratio rose to 20% in 2005-06

KARACHI: The total nominal investment-to-GDP ratio rose to 20 percent during 2005-06 up from 18.1 percent in the preceding year and an average of 17.1 percent in the last five years.

Importantly, this is the highest level of the investment-to GDP ratio in over a decade.

The rise in this ratio is mainly attributed to (i) improved confidence of local as well as foreign investors on the back of good showing of the economy, (ii) a robust 22.3 percent growth in credit to the private sector despite increasing interest rates and (iii) rising public investment.

The State Ban Annual Report said both public and private investment contributed to the rise of total investment during 2005-06, but the increase in the latter was more pronounced. It is important to note that a significant rise in public investment in infrastructure during the past three years also resulted in a trend reversal in private investment. Specifically, the private investment-to-GDP ratio rose by 1.5 percentage points to 13.6 percent during 2006. Public investment also saw a rise of 0.6 percentage points to reach 4.8 percent of GDP in FY06 after having been bottomed out at four percent of GDP in FY03 and FY04.

In addition to investing in infrastructure, the government is taking various additional measures to enhance investor confidence and reduce the cost of doing business in the country. Some of these measures are (1) rationalization of tariffs (2) improvement in the tax refund process (3) removal of procedural bottlenecks (4) review of tax laws and tax machinery and (5) provision of efficient and reformed banking sector.

However, deliberate efforts are also needed to provide low cost and efficient energy with other utilities, amend regulation to make labor market more flexible and improve the law & order situation.

The importance of improved governance and effective contract enforcement with speedy settlement in case of dispute is very important to sustain the high growth in investment.

Real Fixed Investment: Growth in overall real fixed investment accelerated to 10.3 percent during FY06 compared with 9.3 percent in 2004-05. Although the real investment-to-GDP ratio rose from 13.8 percent in 2004-05 to 14.3 percent in 2005-06, it is still low relative to historical levels and the current growth momentum of the economy.

Agriculture: Real fixed investment in the agriculture sector witnessed a decline for the third year in a row. As a result, the share of real fixed agricultural investment in total real fixed investment fell to 6.3 percent in 2005-06 from 7.4 percent during 2004-05.

This decline is largely attributed to (1) rising interest rates, as well as (2) farmers tendency to utilize financial resources for production purposes, as evidenced by a declining share of development loans to total loans in recent years. Moreover, a large part of investment needs were probably met from farmers’ own (unreported) resources due to increased farm income during the last few years amidst better prices of most crops.

Mining and Quarrying: The trend of real investment in the mining & quarrying sector remained volatile in recent years. Real investment in this sector witnessed a growth of nine percent during 2005-06 compared with a fall of 22.2 percent for 2004-05; the fiscal year 2005-06 rise is entirely driven by private investment. Mining & quarrying sector is important for the economy, as it is the main supplier of key inputs and energy to industry. There is a need to exploit the natural resources of the country to sustain and diversify the growth momentum.

Manufacturing: A significant decline in private real investment under LSM more than offset the impact of increased public investment in the LSM sector and a rise in private investment in the small scale manufacturing during 2005-06. The decline in private investment is, in part, a function of the tight monetary stance of the SBP, as well as a slowdown in textile industry during the year. The deceleration in private sector credit growth was 24 percent in 2005-06 compared with a strong 34 percent rise in the preceding year.

Foreign Direct Investment: The flow of foreign direct investment (FDI) is an important indicator of economic performance as well as the economic prospects of an economy. On the one hand, FDI reflects investor confidence in an economy and it provides the required funds to capital deficient economies on the other.

The transport sector attracted an FDI of $18.4 million against $10.6 million in the preceding year, while the communication sector attracted $1.9 billion of which $1.1 billion were received on account of privatization proceeds for the PTCL sale to a UAE-based company.

 

[Owais]

NASC clears Cotton Standardisation Bill


ISLAMABAD (updated on: December 02, 2006, 22:37 PST): National Assembly Standing Committee (NASC) on Textile Industry has passed Cotton Standardisation (Amendment) Bill 2006 after detailed discussion, told a press release issued here on Saturday.

The committee met here under the chairmanship of Chaudhry Nazir Ahmad Jatt. The members of the committee included Haroon Ihsan, Maulana Rehmat Ullah, Asiya Nasir, Nayyer Sultana, Ghalib Hussain and minister and secretary of Textile Industry and other officials.

The committee discussed the overall cotton position in the country and expressed great concern on old procedure and machinery installed in the ginning factories and recommended that it should be upgraded to the standard.

The committee also stressed upon the need for provision of uniform cotton seeds approved by the concerned department of agriculture to the growers for specific areas.

 

[Owais]

Fiscal deficit rises to 4.2 percent

KARACHI (December 03 2006): The country's fiscal deficit rose to 4.2 percent of GDP in financial year 2006 as compared with 3.3 percent of GDP in the preceding year. The State Bank of Pakistan (SBP) in its Annual Report 2005-06 has said that the fiscal deficit rose due to the expenditure incurred on account of relief and rehabilitation efforts following the October 2005 earthquake, in addition to rise in development expenditure.

The primary and revenue balances posted deficit in FY06 while these had shown surpluses in the preceding years. The SBP suggested to the government that fiscal management should be disciplined, especially when there remain structural weaknesses in the tax system, including a narrow tax base, over-reliance on import-related taxes, privatisation proceeds, and potentially non-recurring sources of non-tax revenue.

REVENUE: Total revenue stood at Rs 1076.6 billion with YoY increase of 19.6 percent as compared to the 11.7 percent increase seen in FY05. Though the revenue receipts slightly lagged behind their modified target, the growth in revenues was higher than the growth in nominal GDP. Therefore, the revenue-to-GDP ratio increased to 14.0 percent in FY06 as compared with 13.7 percent in FY05.

The SBP said, "Improvement does not seem to be sustainable in the coming years as the major impetus to this increase was from the non-tax revenue (a part of which may not be repeated in FY07) and surcharges (the latter is mainly from the Petroleum Development Levy, the government has not budgeted any revenue from this head in FY07)."

A break-up of the FY06 revenues showed that tax revenues rose by 19.1 percent YoY to Rs 753.0 billion during FY06. This was mainly due to CBR taxes, which contributed Rs 712.5 billion. The strong revenue growth led to an encouraging improvement in tax buoyancy (from 0.8 percent in FY05 to 1.2 percent in FY06), but this nonetheless remained quite low compared to those of the developing countries.

Non-tax revenue contributed Rs 272.9 billion in FY06, witnessing a rise of 13.4 percent. The non-tax-to-GDP ratio declined from 3.7 percent in FY05 to 3.5 percent in FY06 while the government was expecting it to be at 3.8 percent in FY06.

EXPENDUTURE: Total expenditure in FY06 rose to Rs 1,401.8 billion, showing an increase of 25.5 percent (the highest rise in past 31 years) compared with the growth of 18.8 percent in FY05.

However, it was encouraging to note that the jump in FY06 expenditure was mainly due to developmental outlays that rose from 3.5 percent of GDP in FY05 to 4.7 percent in FY06. Despite the fact that earthquake rehabilitation expenditure, amounting to Rs 65.8 billion in FY06, put pressure on current expenditure, the rise in the latter was relatively quite moderate.

Specifically, the current expenditure stood at Rs 1,121.0 billion, with a growth of 18.9 percent in FY06 as compared to the higher growth of 23.6 percent in FY05.

The analysis of current expenditures showed that the ratio of interest payments to GDP declined sharply from the peak of 6.9 percent in FY00 to 3.1 percent in FY06.

The report said that defence expenditure, which historically absorbed a major part of resources, has declined steadily from 5.7 percent of GDP in FY90 to 3.1 percent of GDP in FY06 and seemed to have stabilised in the recent years. On the other hand, the share of current subsidies increased somewhat over the years, the report said.

 

[Owais]

Balochistan scenario kept energy sector growth in negative: SBP
KARACHI: Pakistan energy sector growth rate remained in negative in the wake of the losses inflicted on the gas companies’ networks in the province of turbulent Blaochistan.

State Bank of Pakistan (SBP) annual report said that the electricity and gas transmission to the ancillary sector of industries during 2006 declined by 8.4 percent, while this sector had recorded a growth of 3.5 percent in 2005.

Gas companies expanded their networks, but the losses to its installations inflicted in Balochistan offset its impacts.

Overall industrial growth rate in 2006 remained at 5.9 percent, trailing behind the target, while in the large-scale industrial sector, the growth rate despite recording 9 percent rise remained behind target for the first time in last four years.

Automobile industry, outpacing all other industries, surged by 15 percent. Besides, paper, hardboard, ghee oil and fertilizer industries also recorded growth.

 

[MIG_ACE]

Will the Iran-Pakistan-India Gas pipeline(if it materialises) pass through Balochistan??

 

[Owais]

Will the Iran-Pakistan-India Gas pipeline(if it materialises) pass through Balochistan??

yes ofcourse!
it will pass through Baluchistan and may go to china in future

 

[Owais]

World Bank blames government for power sector's difficulties

ISLAMABAD (December 04 2006): The World Bank has accused the government of putting power sector in a difficult situation due to lack of financial autonomy to the distribution companies, weak regulatory framework and freezing power tariffs for the last few years, sources in Finance Ministry told Business Recorder.

"Power sector has all but stalled during the last few years. The long delay in tariff notifications for Discos and in undertaking their financial autonomy and performance accountability issues have put the sector in a particularly difficult situation," the sources quoted the WB's power sector mission, which completed negotiations with the concerned government official two weeks ago.

The mission was of the view that end user tariff has not been adjusted for the last three years in spite of significant rise in input costs, which is clear sign of the weaknesses in the functioning of the current regulatory framework.

The sources said, WB had sought clear cut date for tariff notifications from the Finance Ministry, but the bank was told that every thing is ready and notifications would be issued after receiving green signal from the highest office.

Regarding tariffs, subsidies and revenues, the mission observed that power sector revenue requirements, as determined by Nepra through determination of end-user tariffs, need to be covered through the sum of: (a) revenues which electricity distribution companies are supposed to recover from consumers through applicable tariffs notified by the government; and (b) the subsidies from the government budget, which should be affordable to the budget and would compensate the companies for the differences between the cost-recovery tariffs determined by Nepra and the tariffs notified by the government ("tariff differential"), if such differences exists.

"This commitment should apply both to the current situation (with end-user tariffs notified in November 2003 in force) and to future tariff notifications," the sources quoted the mission as saying.

According to sources, the mission noted that the current budget provisions for FY07 of Rs 21 billion for tariffs differential is insufficient to cover the expected sector deficit at the prevailing tariffs.

The mission urged the government to notify end-user tariffs for each Wapda -successor distribution company as soon as possible, and to allocate adequate funds in the budget-both under the existing and under new end-user tariffs, once notified-to ensure that the revenue requirements of distribution are met, as described in the previous paragraph.

The structure of tariffs and budget subsidies should incentivise efficiency improvements and should ensure that poor households can afford electricity consumption at the level needed to satisfy the basic needs, the mission suggested.

The Chief Executive Iesco is scheduled to visit Mepco, Lesco, Hesco and National Transmission and Dispatch Company (NTDC) to discuss procurement procedure, ESA study, financial projections, institutional aspects, economic analysis and technical assistance requirements.

The sources further said, the mission also met the donors like the Asian Development Bank (ADB) and Japan Bank of International Cooperation (JBIC), which are active participants of the power sector development.

 

[Owais]

Faulty pricing mechanism filling oil-marketing companies' pockets

ISLAMABAD (December 04 2006): It is the faulty oil pricing mechanism that makes Pakistan an ideal place for oil marketing companies, which are fleecing customers and thriving their businesses without any fear and accountability. It's the only country in the world where oil pricing was left at oil-marketing companies' mercy for years and the new system was sugar coated as deregulated regime.

Pakistan's case is also unique in a sense that here a group of four - the government, oil marketing companies, dealers and retailers was being protected through a proportionate formula in fixing oil prices.

As per proportionate formula, the government, oil marketing companies, dealers and retailers get more money as long as oil prices remain on higher side. Higher profit/ margin is understandable when prices touch high level in the international market, but how one can get more tax or commission when the prices go down.

The pricing mechanism surprisingly safeguards the interests of oil marketing companies and totally ignores the consumers' interests.

High oil prices leaves the consumers screaming under an unbearable burden, which becomes more painful when the government announces that oil prices would be lowered as long as the government meets taxes target.

Sources said proportionate formula is focal point of the National Accountability Bureau (NAB) into oil pricing scam.

The investigators had questioned the officials who they believe were instrumental in introducing the proportionate formula for oil pricing at different stages. Sources said the NAB investigators are near to the conclusion of investigations, which established that the policy of fixing oil prices by oil marketing companies was meant to give them undue benefit.

NAB authorities have questioned a number of senior officials who hold key position in the Petroleum ministry since 2002 and now they are in the processing of identifying the role of each of them to establish that deregulation in oil pricing was actually meant for vested interests.

Sources said NAB chief will present the report of oil scam to President General Pervez Musharraf to seek his permission to take action against at least four senior officials who were believed to make money in deregulated regime and intentionally put in place a flawed system for fixing of oil prices.

 

[Owais]

Textile industry records minimal growth in fiscal year 2006

FAISALABAD (December 04 2006): The textile industry recorded a minimal growth of 4.3 percent during FY06 as against a strong growth of 27.1 percent in the preceding year.

According to official sources, this is partially due to high base effect, smaller cotton crop and disruption in gas supply particularly in December 2005 to 40-42 captive power plants (CPP) in the areas of Punjab where various textiles units are located.

This weak performance was the major factor for a fall in the contribution of textiles sub-sector in LSM sector to 13.7 percent in FY06 from 39.1 percent during FY05.

Within the textiles sector, production of the cotton ginning industry fell by 12.3 percent in FY06 as compared with the 45.3 percent robust growth during FY05.

Encouragingly however, textile exports continued to perform well in the current fiscal year with 16.1 percent rise as against a modest 5.7 percent growth in the previous year. It is interesting to note that this growth has been achieved despite rising financial cost, high energy prices, higher prices of cotton relative to FY05, a fall in exports prices amidst intense competition, loss of preferential access and disturbances in gas supply.

This raises hopes that with higher cotton output, increase in investment (both foreign as well as domestic investment), sufficient credit availability and expansion in capacity utilisation, the performance of the sector will improve in the coming year. However, competition pressures remain strong, as evident in the deceleration in growth of exports in recent months.

 

[Owais]

CFS investment down to Rs 34.95 billion

KARACHI (December 04 2006): The total investment under CFS decreased to Rs 34.95 billion during the week ended on December 1, 2006 as compared to Rs 35.89 billion a week earlier, while CFS rate closed the week at 15.52 percent.

On the futures counter, open interest in December's contract was recorded at Rs 9.1 billion - rising by 28 percent, whereas the cost of carry in futures stood at 9.13 percent at the end of the week. The highest CFS scrips were NBP, OGDC, PPL, BoP and CTTL.

 

[Owais]

Foreign investment improving in Karachi: Ibad

KARACHI (December 04 2006): Sindh Governor Dr Ishratul Ibad Khan on Sunday said that the metropolis had made tremendous progress with reference to infrastructure and foreign investment during the present regime.

Talking to the participants of junior level diplomatic course from various countries at the Governor House, he said that UAE had extended a hand of cooperation for Pakistan's coastal development and the policies of President Pervez Musharraf had steered the country on the path of economic and industrial progress. As a result of continuity of these policies, he noted that Pakistan would soon earn a significant role in the economic zone.

In the past, the country's coastal areas were ignored, but the present government had infused a new life into them, he asserted. Besides China, local investors had come forward and at present development projects worth millions of rupees were in progress, the governor.

In the past, the industrialists had no feelings of security and protection but the situation had totally changed and now the industrialists were now making continuous demands with the government for providing them land for industrial zone expansion and setting up of new industries, Ibad claimed.

He said the government had made all-out efforts and extended its full cooperation to industrialists for industrial promotion and added people from all parts of the country were coming to the metropolis for jobs and better future, which testified its development and prosperity.

The governor said that the government was committed to creating employment opportunities and providing basic facilities to the people at their doorsteps.

He informed the course participants that law and order situation had not been so much good in the past as it was today.

For promotion of education, the government had set up a network of educational institutions and at present a number of universities were functioning in public and private sectors in harmony with present day requirements, Ibad said. The governor asked the visitors to highlight the bold stance taken by Pakistan while looking into the international scenario.

 

[Owais]

Pak-Korea trade volume crosses $1 billion

KARACHI (December 04 2006): The trade volume between the Republic of Korea and Pakistan has crossed almost one billion dollar. This was stated in a communication of the Karachi Office of the Embassy of the Republic of Korea.

It said that the co-operative and friendly ties between Pakistan and Korea have rapidly strengthened and expanded in various sectors.

The communication further pointed out that in order to enhance further the existing bilateral relations between the two countries, a business delegation from the Republic of Korea will be visiting Karachi from December 6 to 8.

 

[Neo]

Will the Iran-Pakistan-India Gas pipeline(if it materialises) pass through Balochistan??

Yes, it will run thru southern Balochistan and via Gwadar and Bela and Sindh to Rajhastan and possible to Gujrat.
If linked to China, the most logical route is via Kalat in Central Balochistan to Bannu, Peshawar and Chitral in NWFP.

 

[Neo]

$1 billion KCR revival programme approved

KARACHI: December 04, 2006: A high level meeting held under the chairmanship of Sindh Governor, Dr Ishrat-ul-Ebad Khan here on Monday approved in principle the revival of long pending Karachi Circular Railway and developing it on modern lines.

The project will cost an estimated one billion dollars which includes a Japanese loan of 872 million dollars.

The meeting was attended by Federal Railway Minister, Sheikh Rasheed Ahmed, Chief Secretary Fazlur Rehman, Chairman Railway, Nazim Karachi, Syed Mustafa Kamal, Principal Secretary, Mohammed Saleem Khan, D.S. Railway Mir Mohammed Khaskheli and other officials.

The feasibility of the project will be presented by JETRO and work will start after project approval by ECNEC and Planning Commission.

The governor urged the authorities to finalise all the phases expeditiously and said implementation of the project must start by the beginning of new year because already a lot of time has passed and there should be no further delay now.

He said steps should be taken to complete the project in three years.

The governor said it is also the desire of President Pervez Musharraf to get this project completed at the earliest.

He pointed out that with KCR becoming operational, the urban transport system will witness a revolutionary change and people will have better transport facilities.

It was pointed out that Japanese loan will be payable in a period of 40 years with 10 years grace period.

The governor said the expertise, experience and resource available with Pakistan Railway would prove a great assistance for completion of project which would then be transferred to Karachi Urban Transport Corporation.

It was informed that constitution of Karachi Urban Transport Corporation has finalised and its stake holders include the Provincial and City governments and Pakistan Railway.

The circular railways system will have 22 under-passes and over-head bridges to ensure unhindered service.

The governor called for laying standard railway track and having light train for fast movement which the passengers too will prefer its use.

He said Circular Railway will be linked with the City Government's mass corridor schemes and all bus terminals.

He said transport sector in Karachi is a big market for investors having an estimated 12 percent rate of profit which is a good rate.

Ebad also had an appraisal from Railway Minister about operation of Thar Express. Sheikh Rasheed Ahmed informed that all efforts in this regard are being made while foreign ministry is also striving for this.

At Khokhrapar, he informed, Pakistan railways is constructing a modern railway station and it would be the first project of its kind to be completed under Pakistan Railway.

The governor also inquired from federal Minister about the establishment of National Mass Transit Authority, who said the prime minister has given approval in principle while all required stages have been fulfilled and now only Prime Minister's signature are awaited where after it will start functioning.