Pakistan Economy - News & Updates - Archive

[Neo]

Tuesday April 25, 2006

ISLAMABAD: The availability of high qualified human capital and reduced cost of doing business has made Pakistan an destination place for the IT software business, Prime Minister Shaukat Aziz said.
The Prime Minister was talking to Sir Terence Mathews, Chairman, Wesley Clover and Mitel and March Network who called on him at Prime Minister’s House on Monday.

The Prime Minister said that the government being cognizant of the vital role played by emerging technologies in the development process today has placed development of education sector among its highest priorities. He said government is investing in human capital to prepared a critical mass of highly qualified people in key areas of science and technology to lead the development process.

"We are gearing to take brain share along with muscle share of global economy by investing in education to build a knowledge economy in Pakistan", the Prime Minister said.

The Prime Minister said the government has opened all economic sectors for Foreign Direct Investigation (FID) and 100 percent equity is allowed. Remittance of royalty, technical and franchise fees, capital, profits dividends have been allowed and foreign investments are fully protected.

The Prime Minister said Pakistan has made good progress on the intellectual property rights (IPR) issues, and now Pakistan has been deleted from the international IPR watch list.

Sir Terence Matthews informed the Prime Minister that his company in partnership with a UAE based company will set up a software company in telecom applications for the next generation networks.

He said the company would use local experts. It will transfer technology and intellectual property rights of the software produced in Pakistan to its Pakistan based company.

The meeting was also attended among others by Minister for IT and Telecommunication Awais Ahmad Khan Leghari and senior officials.

 

[Neo]

Tuesday April 25, 2006

ISLAMABAD: All relevant factors including the current revenue collection trend clearly indicate that CBR will not only achieve the high target of Rs. 690 bn set for current financial year but likely to surpass it.
This was stated by Chairman, Central board of Revenue, Abdullah Yusuf while addressing the participants of the Quarterly Conference of Regional Commissioners of Income Tax, Director General of Large Taxpayers Units and Commissioners of Income Tax, held here on Monday.

Yusuf informed the conference that in the first nine months of 2005-06, the revenue collection stood at Rs. 490 bn which was 22 Percent more than the revenue collection of Rs 401.27 bn, achieved in the same period of the last financial year i.e. 2004-05.

Talking about the cleansing of National Tax Number, the Chairman told the Conference that out of total 2.4 million NTNs issued, 1.9 million have so far been cleaned up and henceforth this will be treated as Master Index.

The Chairman said, we are entering to a new phase of tax reforms in next financial year as all the 12 Regional Tax Offices and one more large Taxpayers Units will be put in place.

"All preparatory work in this regard should be completed well in time," the Chairman advised the Commissioners. All shortcomings needs to be plugged so that no hiccups are surfaced at the last moments, he directed the tax officers, he added.

The Chairman was the opinions that the reforms can only move forward if there is a total commitment at the top tax management level i.e. at the level of commissionerates and collectorates. "

You must ensure that the programme of the Government and the Board is executed as planned," he advised the participants.

Abdullah Yusuf called upon the Commissioners to remove the doubts and misgivings, if any, in the minds of the taxpayers and tax officials about reforms. For this purpose, Commissionerates are required to hold regular briefings, seminars, discussions etc. to tell the

people what are tax reforms about. A well thought out communication strategy is to be adopted for this purpose.

Talking about the revenue collection from different sectors, the Chairman expressed the need to conduct sectoral study to find out " who is paying what and what they were supposed to pay. For this purpose, we have to capture the reliable data to confront with the potential taxpayers, he remarked.

Yusuf asked the commissioners to come up with the issues confronting with the taxpayers and commissionerates and proposals to resolve them.

Management thinking require fundamental change because we ore looking for a system which is more productive and simplified, he added.

On liquidation of tax appeals, the Chairman said that although we have cleared the backlog but still we have some pendencies and issues. He hoped that judgments of the special benches of the Supreme Court would go a long way to clean up the litigation as they would serve as guiding principles for the lower courts and tribunals.

Member (Legal), who was also present on the occasion, told the conference that 90% of the cases, filed in the SC benches, have already been disposed of and the remaining are expected to be taken up this week.

Stressing on fulfillment of the training needs of CBR officials, the Chairman expressed the need to change the system for the better. ’ You have to train the people in accordance with the global standards.

We have to make our training institute modern, vibrant and one of the leading institute in the region at least. Board will provide all logistic support, help and infrastructure needed for this purpose, he added.

Talking about tax-to-GDP ratio, the Chairman expressed the confidence that existing 9 % ratio will be increased upto 9.4 % by the end of current financial year.

During the Conference, a number of agenda items came under consideration which included budget proposals, expansion of tax base, tax management system(IMS), weeding out of old record, strategy to achieve tax collection targets and to liquidate pendency, liquidation of refunds, real estate taxation, rationalization of withholding tax rates etc.

The conference also reviewed the performance of ADR system, e-filing of returns and revenue projection in banking sector.

Earlier, Member (DT), Mr. Salman Nabi, outlining the performance of commissionerates in first nine months of current financial year, informed that the direct tax collection was 28% more than the last financial year. He was confident that annual revenue collection target set for direct taxes will be achieved.

 

[Neo]

Tuesday, April 25, 2006

* Suggests Pakistan adopt Unilateral Trade Liberalisation Programme

By Sajid Chaudhry

ISLAMABAD: The World Bank has suggested that Pakistan adopt Unilateral Trade Liberalization Programme and has asked the government to reduce maximum import tariff from the existing 25% to 20% possibly in fiscal 2007 or in fiscal 2008.

The WB has also recommended eliminating the existing tariff exemptions and concession in near term, in 2-3 years, with a firm announcement in advance, a government official told the Daily Times on Monday.

In a draft report on “Pakistan Growth and Export Competitiveness” that is being finalized by incorporating views from ministries and divisions and will be handed over to the ministry of finance at the time of Pakistan Development Forum scheduled in May at Islamabad, include the suggestions, the official added.

The WB has said that India has already lowered its normal maximum tariff rate to 15% in the budget for the current fiscal and there are plans to further reduce the tariff to 10% in the next fiscal year.

The draft report suggests that regardless of the pace of the multilateral or regional trade negotiations, it is in the best interest of Pakistan to continue with trade reforms to reduce the existing anti-export bias by pushing export-led growth. Towards this ultimate target, in the meantime, the key interim reform steps will need to aim at reducing the average level, and particularly, the dispersion of normal protection. Obviously, it is preferable to pre-announce the schedule of tariff reductions as India has done recently.

The key components of this pre-announced tariff rationalization programme would need to include: (a) Gradual reduction of tariff peaks towards the normal maximum tariff rates and further reduction of normal maximum rate. (B) The elimination of existing deletion programmes in the automotive industry and gradual but speedy elimination of tariff exemptions, concessions.

The World Bank, while reviewing Pakistan’s trade regime, has highlighted that since 1998, in a major departure from previous strongly protectionist, inward-oriented import substitution policies, the government has significantly liberalized the trade regime through tariff cuts and rationalization as well as by removing import quotas, import surcharges and regulatory duties.

The un-weighted average statutory tariff has fallen from 47.1% in 1997-98 to 14.4% in 2005-06 with most recent changes announced under budget for fiscal year 2005-06. Considerable progress has been achieved in simplifying the tariff structure as well as in compressing tariffs. These actions have reduced significantly the anti-export bias of trade regime.

On the negative side, however, tariff dispersion has increased, rising from about 45% of simple average tariff in 1997-98 to over 76% following the 2005-06 changes. Despite recent cuts in tariffs on cars, their duty rates are still 2-3 times higher than the normal maximum tariff rate of 25%. Some face even higher rates (tariff peaks). The resulting tariff escalation means that higher rates apply generally to final consumer products and that effective protection rates (ERPs) are probably even more skewed in favour of domestic production of final consumer goods than before 2005.

The other trade barriers that adversely affect resource allocation include the domestic content requirements in the highly protected automobile industry and the income withholding taxes that are higher when applied on imports than domestic sales. With the budget 2005-06, five new import tariff slabs have been introduced applying mostly to inputs for the textile apparels sector. This new measure constitutes a backward step away from much simpler system of the previous four tariff slabs.

 

[Neo]

Tuesday, April 25, 2006

By Arshad Hussain

KARACHI: The commercial banks have registered a growth of 45 percent in opening new online branches in the second quarter of the current fiscal year, State Bank of Pakistan data said on Monday.

During this quarter retail payment transaction (paper based and electronic) registered a growth of 5.05 percent in numbers, whereas the value of transactions increased by 4.91 percent over the first quarter of 2005-06.

Quarterly growth on the basis of previous quarter showed growth at the rate of 5.45 percent and growth in value of transactions by 2.98 percent, whereas the growth rate was 23.46 percent and 12.20 percent in case of number of transactions and amount, respectively, in the previous quarter.

Electronic banking: The central bank data said electronic transactions have posted a growth of 3.05 percent in the number of transactions and the amount showed a growth of 66.20 percent during the current quarter. The main contributor to growth in the value is real time online funds transfer by online bank branches that posted a 73 percent increase.

During the last six quarters the transactions from paper-based banking to e-banking has increased in terms of number of transactions. However, the value has achieved a remarkable growth, which has been driven by B2B through online branch network.

Online Branch Network and Automated Teller Machines (ATMs): Online branch network is expanding to meet the funds movement needs of customers. This quarter witnessed the addition of 235 new branches in the online network. The coverage of online branches as a percentage of total branches has also increased from 41 percent in

the previous quarter to 45 percent in the current quarter. As such, the total number of online branches reached 3,265 out of total branch network of 7,245 reported by banks.

Similarly, during the second quarter of fiscal year 2005-06 banks have added 75 new ATMs in their network, bringing the total to 1,217, registering a growth of 6.6 percent as compared with 11 percent in the last quarter.

As such, 189 new machines were added in the first half of the current financial year as compared with 110 new machines added during the same period last year.

Number of (credit/ debit/smart)cardholders: At the end of second quarter of the current fiscal the number of credit, debit, smart and ATM cardholders increased from 3.664 million to 4.072 million, showing a growth rate of 11 percent as compared with eight percent during the previous quarter. The total number of credit cards reached to 1.257 million from 1.181 million and registered a growth of six percent as compared with 13 percent in the preceding quarter.

The total number of debit cards increased from the previous quarter figure of 2.197 million to 2.556 million in the current quarter, showing a growth rate of 16 percent as compared with a 14 percent growth rate in the preceding quarter. The total number of ATM cards is 0.137 million in the current quarter as compared with 0.175 million in the previous quarter, showing a decline of 21 percent and it is because of convergence of ATM cards into debit or smart cards. The total number of smart cards, which offer a high level of security, has reached 0.122 million at the end of 2nd quarter as compared with 0.111 million at the end of the last quarter, showing a growth of 10 percent over the last quarter.

Volume on e-banking channels: During the second quarter the number of transactions increased from 2.848 million to 3.475 million, showing growth in transactions of 22 percent and the amount by 73 percent over the last quarter, as against the 1st quarter’s growth of 24 percent and 11 percent, respectively.

Internet Banking: Internet banking is getting momentum and during the second quarter the number of transactions was 0.094 million and the amount involved was Rs 4.321 billion as compared with 0.059 million transactions involving an amount of Rs 3.635 billion in the first quarter of the same fiscal, showing a growth of 59.32 percent in number and 18.87 percent in amount over the last quarter. The transfer pertains to intra- bank account to account transfer only.

 

[Neo]

Tuesday, April 25, 2006

LAHORE: Energy consumption in South Asia has increased to 52 percent between 1993 and 2003, said a report of the Energy Information Administration (EIA).

The EIA energy statistics include only “commercial” energy sources and not animal waste, wood, or other biomass, which account for more than half of South Asia’s total final energy consumption.

In 2003, South Asia accounted for approximately four percent of world commercial energy consumption, up from 3.1 percent in 1993. Despite this growth in energy demand, South Asia continues to average among the lowest levels of per capita energy consumption in the world, but among the highest levels of energy consumption per unit of GDP.

Discounting “non-commercial” sources of energy, including animal waste, wood, and other biomass, South Asia's commercial energy mix in 2003 was 44 percent coal, 35 percent petroleum, 13 percent natural gas, six percent hydroelectricity, one percent nuclear and 0.3 percent “other.” There are significant variations within the region.

Bangladesh’s energy mix, for example, is dominated by natural gas (67 percent in 2003), whereas India relies heavily on coal (52 percent in 2003). Sri Lanka and the Maldives are overwhelmingly dependent on petroleum (84 percent and 100 percent, respectively). Pakistan is diversified among petroleum (38 percent), natural gas (41 percent), and hydroelectricity (14 percent).

The Himalayan countries of Bhutan and Nepal had the highest shares of hydroelectric power in their energy consumption mix at 82 percent and 37 percent, respectively, in 2003.

South Asian nations are faced with rapidly rising energy demand coupled with increasingly insufficient energy supplies. Most of South Asia is already grappling with energy shortfalls, typically in the form of recurrent, costly and widespread electricity outages.

Because of the economic and political ramifications arising from such shortfalls, improving the supply of energy, particularly the supply of electricity, is an important priority of national and local governments. The countries of South Asia are looking to diversify their traditional energy supplies, promote additional foreign investment for energy infrastructure development, improve energy efficiency, reform and privatize energy sectors and promote and expand regional energy trade and investment.

Another implication of rising energy demand in South Asia is its impact on the region’s level of carbon dioxide emissions.

As of 2003, South Asia accounted for 4.7 percent of global carbon dioxide emissions. With the demand for coal in India projected to increase rapidly in the coming years (from 431 million short tons (Mmst) in 2003 to 544 million short tons (Mmst) in 2010) and the recent introduction of coal into the fuel mix of other countries in the region, a significant increase in emissions in the future is expected.

The South Asian region is notable for its large and rapidly growing population (more than one-fifth of the world total). However, despite rapid economic growth during the 1990s, the nations in the region have among the lowest per capita incomes in the world.

 

[Neo]

The current financial year will be complete in just a little over two months. The economic performance over the last ten months reveals that while a high rate of growth will be sustained this year, a number of challenges are still there that require some extra effort to meet them more effectively. The issue of price hike, which was recently debated in the National Assembly for three days, needs continued closer attention at the highest policy-making level ensuring that the burden on the consumer caused by inflation and increase in prices is reduced, as far as possible, through suitable policy initiatives. Tight monetary policy, stricter watch on prices, increase in domestic production, and supply of essential items to the market, with an expansion in the chain of utility stores are some of the measures that could help stabilise the prices.

Employment generation and poverty alleviation are also highly important issues that have already been given priority on the government's development agenda. The need to create more jobs on a regular basis remains pressing and larger investment in various sectors of the economy is vitally important in this respect. The development of agro-based industries in the rural areas is also quite important and the availability of micro-finance for the development of such new areas can play an important role. In order to remain self-sufficient in food, more land should be brought under cultivation. The production and growth of vegetables, livestock and dairy products should be encouraged.

It is also quite obvious that the government will need to further improve the infrastructure, increase the availability of irrigation water and meet the energy needs of the economy in order to maintain the momentum of economic growth. Social sector development should get larger allocation of funds. Full utilisation of development funds during the financial year for which they were allocated should be ensured. The economy has to face growing competition in world markets and it should be ready to face it through production of cost-effective and quality goods. Liberalisation and deregulation have brought new opportunities for the economy to grow and bring prosperity to the people.

 

[Owais]

World Bank demand to phase out gas subsidy turned down

ISLAMABAD (April 25 2006): The government has turned down the World Bank's demand to phase out subsidy for the first slab of domestic consumers, saying it was not practicable.

The exiting formula provides gas to the low-income group at concessional rates and the World Bank is demanding its withdrawal in phases.

An official of the petroleum ministry told Business Recorder phasing out of the subsidy from the first slab of domestic consumers was a longstanding demand of the World Bank, but it is in conflict with the government policy. He said the government was not considering any change in gas pricing mechanism.

He said: "It is our policy to protect the low-income group by giving subsidy on gas rates and the same policy will remain in vogue in future."

The World Bank had demanded of the government to cut down the size of the fist slab of consumers to do away with its subsidy-based gas pricing system.

The bank said the existing gas pricing system was causing domestic fuel disparity and hurting the low-income gas consumers.

It estimated gas subsidy at Rs 9 billion annually and cautioned that continuation of the exiting gas pricing system could disturb the economy.

Sources said the bank's mission, recently visited Islamabad, raised the issue and suggested various measures to curtail large volume of subsidy that was being given to consumers. The mission also demanded more powers for Ogra.

The mission was of the view the Oil & Gas Regulatory Authority (Ogra) does not have the authority to determine retail tariffs. It sets prescribed rates, which represent the price of gas.

It added the difference between retail tariffs for each category of consumers and prescribed rates accrues to the government as gas development surcharge (GDS).

It said commercial, industrial and power consumers, subsidise households and fertiliser producers, and subsidised tariffs do not even cover the cost of gas as a commodity.

The economic cost of subsidies to households is estimated at about Rs 9 billion annually. The subsidy is largely due to the first two slabs of the retail tariffs. The first slab accounts for some 54 percent of the consumers in the winter, and 82 percent in other months.

Given also the increasing block structure, consumers in higher slabs still benefit from subsidised first slab, as a result, two-third of the gas is sold under the first slab rate and 90 percent under the first two slabs.

The first slab quantity is also very substantial, representing about six bottles of LPG. Natural gas is by far the cheapest source of modern fuels, and its first block tariff represented only 13 percent of the kerosene-parity price in early 2003.

Fewer than 20 percent of Pakistani households use natural gas, and they belong largely to middle and upper income groups in urban areas.

According to the bank, as such, gas price subsidy to households benefits higher income urban families disproportionately, creating pro-rich subsidy inequalities.

It noted, in addition the cost of alternative hydrocarbon fuels is considerably higher. The bank strongly recommended reduction size of the first slab would help the SSGC and SNGPL get out of problematic pricing system.

It recommended the reduction-based formula. It maintained social protection would earmark about 30 percent of the consumers, among whom the majority of poor gas-users are likely to be found.

Eliminating the subsidy would require an increase in the average gas tariff of about 65 percent. If 70 percent of consumers cross-subsidise the bottom 30 percent and the subsidy for the household sector as a whole is eliminated, these users will face an average increase of about 70 percent.

While such an increase could be perceived as high, it could be made gradually and gas would still remain considerably cheaper for these households than the next best alternative.

 

[Owais]

CSD refused same facility enjoyed by USC

ISLAMABAD (April 25 2006): The government has refused to give similar financial back-up to military's Canteen Stores Department (CSD) as being extended to Utility Stores Corporation (USC).

Official sources told Business Recorder that the Defence Ministry had approached the Economic Co-ordination Committee (ECC) of the Cabinet to seek same facilities for CSD as being given to USC, but the proposal was not entertained because of strong opposition by some Committee members.

The Defence Ministry said that since the government was making efforts to stabilise sugar prices in the market by allowing Trading Corporation Pakistan (TCP) to issue sugar to USC at reduced rates, why CSD was being deprived of this facility.

It may be noted that the Commerce Ministry had already allocated 300 tons sugar to CSD on ex-factory purchase rate in March, and 3000 tons in June 2005 on instructions from Prime Minister Shaukat Aziz.

The Defence Ministry said that CSD was selling sugar on reduced rate without earning profit, irrespective of the fact that subsidy was available to USC and not to CSD. It said that to sell atta at reduced rates to the personnel of Armed Forces and civilians residing in cantonment areas in CSD's 100 outlets spread all over the country it would be appropriate to extend subsidy so that it could also sell it at reduced rates.

"Finance Ministry was asked to treat CSD at par with USC and provide subsidy of Rs 200 million during the current fiscal year but it did not entertain the proposal, saying that subsidy to any organisation is allowed on directions of the ECC," sources added.

Defence Ministry, in its arguments, said that CSD and USC have been purchasing atta from the flour mills at the same rates, but the latter was selling the product at subsidised rates because of subsidy being granted by the ECC, whereas the former was not in a position to provide atta on the same rate because of non-availability of the same facility.

"Non-availability of subsidy to CSD has not only deprived the men in uniform and general public in and around the cantonments but also those residing in far-flung areas," sources quoted Defence Ministry as further pleading its case.

It may be mentioned here that CSD net profit ranges from one to two percent only, and the last three years' profit came to 1.66 percent.

 

[Owais]

THE RUPEE: all round decline on currency market
RECORDER REPORT KARACHI (April 25 2006): The rupee shed two paisa against the dollar in the interbank market on Monday at 60.02 and 60.04 amid higher demand for the greenback, dealers said.

According the market sources, the rupee was unable to maintain its firmness due to tight supply of dollar due to international markets' closure.

They hope the rupee will recover its ground as pressure eases from the supply side. In the meantime, the rupee may come under pressure on heavy dollar buying to meet the year-end payments.

In the world markets, the dollar tumbled to a three-month low against the yen, coming under pressure after Group of Seven countries singled out China in their call for more flexibility in exchange rates.

Finance ministers of the world's biggest economies called for China's yuan and the currencies of other emerging market economies to rise against the dollar to help remove imbalances in the global economy.

OPEN MARKET RATES: The rupee continued its weekend's slide versus the dollar as it was sharply lower on rising demand for the US currency, dealers said.

The rupee lost 12 paisa in terms of the dollar for buying and selling at 60.30 and 60.35, they said.

On the euro's appreciation in the world markets the rupee crossed the barrier of Rs 74 in process of trading, shedding 35 paisa for buying and selling at 74.05 and Rs 74.15, they said.
================================Buying Rs 60.30Selling Rs 60.35================================

 

[Owais]

Rice exports reach record $1 billion
KARACHI (updated on: April 26, 2006, 18:29 PST): The country sold a record 2.8 million tonnes of rice in the year to April 22, up more than 27 percent from last year, a senior industry official said on Wednesday. "The rice export revenues have crossed $1 billion this year, beating the previous all-time high of $933 million in the last season," Abdul Majid, chairman of Rice Exporters Association of Pakistan (REAP), told Reuters.

"We would be able to export rice worth of $1.20 billion this year because we still have three more months to complete the season and around 300,000 tonnes of exportable rice is also available."

Majid said the record overseas sales were made after a big harvest last season, when the rice crop was 5.5 million tonnes against 4.8 million in 2004/05. Pakistan's crop year runs from April to November.

Annual domestic consumption is about 2.3 million tonnes.

According to REAP data, private traders had exported 1.3 million tonnes of various varieties of aromatic basmati and 1.5 million tonnes of IRRI-6 rice as of April 22.

The main buyers of Pakistani rice were Iraq, Iran, Afghanistan and the Philippines.

Majid said the country plans to increase rice exports in fiscal 2006/07 (July-June) following reports of another big harvest despite fierce competition from Southeast Asia.

"If the crop situation remains as expected, we would see at least 10 to 15 percent increase in overseas sales next year," he added.

Pakistan's agriculture ministry officials expect the 2006/07 rice crop to exceed 5.7 million tonnes.

Rice production has risen in the past few years, backed by a government drive to boost production and as farmers switched to rice due to better availability of irrigation water.

Thailand, Vietnam, China, India and Myanmar are Pakistan's main competitors.

"Our target is to export $2 billion worth of rice by 2010 and we are exploring new markets in Africa and the Middle East," Majid said.

He said traders expected increased sales to the traditional African and Saudi markets and also more direct sales to Iran.

Pakistani exporters see Iran as a potential market, where the government imports at least 900,000 tonnes of superior quality rice a year to help meet domestic demand of 2.8 million tonnes.

Last month Pakistani exporters signed contracts for the sale of 40,000 tonne of superior quality rice to Iran, resuming bilateral rice trade after a gap of seven years.

Iran halted purchases from its eastern neighbour over quality issues in 1999.

 

[Owais]

Pakistan cautioned over Mexican-style crisis

WASHINGTON (April 26 2006): A former finance minister of Pakistan and a retired World Bank official Shahid Javed Burki on Monday warned that Pakistan was facing symptoms that preceded the Mexican financial crisis more than 10 years ago.

Burki, who was incharge of the bank's Latin American division when Mexico was hit by the crisis in 1994, cited the South Asian nation's large current account deficit and what he called excessive speculative business activity and weak banking system.

"When I look at all these things (that preceded the Mexican crisis), I can see all of them present in Pakistan today," he said while talking to State Bank of Pakistan (SBP) Governor Shamshad Akhtar at a Washington forum on Monday.

"But I'm not saying it is likely to happen in Pakistan," he said.

"So, essentially what I am saying to you is it would be, I think, prudent on your part to worry about the worst case scenario," Burki told the SBP chief.

Shamshad Akhtar said that she was aware of the "downside risks" mentioned by Burki as well as the threat posed by inflationary pressures and escalating crude oil prices that could worsen the country's trade deficit.

She said the country was already under a "monetary tightening phase" and that the central bank and the national economic management teams were monitoring the situation very closely.

"Further escalation in oil prices could endanger the fragile balance that currently prevails between budget management and trade deficit. We have to walk a very tight rope," she said.

Akhtar, a former senior official of the Asian Development Bank, said the overall medium-term outlook for the Pakistani economy "is on track" based on an average economic growth of around 6.5 percent.

"I like to believe we do have the opportunity to make a difference along with my economic management team. The general view we have in the team is we would like to closely watch the situation almost on a week to week, and month to month basis and see what policy responses we can take," she said.

Burki, citing what he called a "casino culture" prevailing in Pakistan which, he said, was fuelled by easy credit extended by banks, disputed an assessment by Akhtar that Pakistani banks were in a reasonably good shape.

He said: "One particular bank gave me some numbers which I find them horrifying in terms of their exposure to weak assets."

He hoped it was "not representative of the entire banking sector."

Burki said after the forum that speculative business activity in Pakistan was "being financed by the banks, which are doing it on the basis of not enough reflection on their long-term health - which is what I saw in Mexico.

"If these things go sour, then it will be a very quick snowballing effect," he said, adding that Pakistan's relatively fixed exchange rate system was also under pressure.

State Bank has cut its year to June 2006 economic growth forecast to 6.0-6.6 percent, saying it was due to a sharp tail off in manufacturing and agriculture.

Inflation is likely to remain at the projected eight percent target, the bank said in December.

The 1994 economic crisis in Mexico was triggered by the sudden devaluation of the peso. A week or so of intense currency crisis was stabilised when US President Bill Clinton decided to grant Mexico a loan to bail the country out, to the tune of 50 billion dollars.

 

[Owais]

Citigroup/Goldman Sachs to lead manage OGDC global depository receipts

ISLAMABAD (April 26 2006): The Citigroup/ Goldman Sachs consortium has been awarded the contract for Oil and Gas Development Company (OGDC) global depository receipts (GDRs) as it agreed to take the job as lead manager for Rs 833 million transaction fee and cost.

OGDC GDRs is Pakistan's second (PTCL first) transaction in the world market and its good response can encourage it for many more such offerings in the future.

The Privatisation Commission had conceived the idea of floating OGDC GDRs in the international stock market in 2004. The idea is basically a case to test worth of the organisation in the international market to decide whether or not it should be privatised.

After completing legwork, the Privatisation Commission sought bids from the reputed international banks and consortiums to appoint lead manager for the offering. Its response was encouraging. Finally, this process led to short-listing of four globally reputed banks and consortiums.

The Privatisation Commission evaluated the bids of the interested consortiums and banks to pick one as the lead manager for the transaction. It set two criterions - based on technical and financial bids - carrying 85 and 15 marks respectively.

Deutsche Bank got 15 marks for its lowest financial bid of Rs 833 million. The Citigroup/Goldman Sachs consortium beat all the others in the race by getting 85 marks for its technical bid.

Sources said the Privatisation Commission referred the bidders' evaluation report to the Cabinet Committee on Privatisation (CCoP) for its guidance.

The committee discussed the issue in detail in its one of the meetings and directed the Privatisation Commission to ask the Citigroup/Goldman Sachs to match Deutsche Bank's lowest financial offer to qualify for the job.

As per CCoP directions, the Citigroup/Goldman Sachs consortium was asked to match the lowest bid and its response was positive. However, after issuance of mandate to Citigroup/Goldman Sachs, the Privatisation Commission received an unsolicited offer from Merill Lynch/ABN Amro to undertake the GDR offering for Rs 750 million.

Sources said the Citigroup/Goldman Sachs has suggested the government to undertake GDRs offering by September 2006 for getting a better response from the international market. However, the government of Pakistan would like the process to be completed before the end of the financial year in order to reduce the current account deficit and retire government borrowing for budgetary support from the State Bank of Pakistan. As per government decision, Citigroup/Goldman Sachs has expressed their willingness to expedite the floatation by June 2006.

As lead manager, Citigroup/Goldman Sachs will have multiple role to make the offering a success. It will suggest Islamabad for picking up any world stock market for listing of GDRs besides deciding its size.

Sources said the lead manager will also be responsible of promoting Pakistan's image in the world market, besides reporting and maintaining the books of the offering on behalf of OGDC.

 

[Owais]

SBP gives up forex buy and sell swap

RECORDER REPORT

KARACHI (April 26 2006): Despite injection of liquidity through reverse repo, not allowing the market to borrow at lower than cost, and by raising its cut-off yield, the SBP's intention seems quite obvious.

It worries about inflation and does not want to risk leaving enough liquidity in the market, unless it has the evidence that the economy is not heating up anymore.

Last injection was seen on Saturday, April 22, when the central bank injected Rs 14 billion at 8.72 percent, but liquidity crunch persists in the interbank market. The central bank did not succumb to the market demand to lower its purchase of T/bills.

Latest SBP data suggest that the private sector credit soared to Rs 353 billion, against FY06 target of Rs 330 billion, and there are still two more months to go, which also indicates that there could be a repeat of last fiscal year's credit number for the second successive year.

Though April's inflation data may once again show a drop in the inflation, this would be due to point-to-point measuring, which would be misleading due to a higher base for the preceding year. This may not reflect the true picture. SBP, it seems, wants to wait for more evidence, as it fears that the real impact could be otherwise in the coming months.

Another factor that has more to do with the liquidity crunch is ambitious overbidding for Treasury bills by banks in the last two auctions rather than any inflationary concern. Banks in their bidding tested the SBP's resolve for T/bills.

The central bank was not willing to send a wrong signal by lowering the yield or leaving any surplus liquidity in the market. Against an auction target of Rs 2 billion, the banks offered Rs 14.65 billion at last cut-off yield of 8.7907 percent, anticipating an easing of the yield due to softer March inflation data, that was 6.9 percent, though there is no indication of major Rupee inflow in April or May.

The Chief dealer of a private commercial bank says: "The Rupee market is too tight, with no sign of inflow of funds, and the current borrowing cost is very high. Since SBP is lending money at a very high price, the bidding in three-month and six-month is not attractive. Interest in 12-month may see the last cut-off yield for a small amount."

Meanwhile, foreign exchange dealers have confirmed that the SBP had not been seen in the interbank FX market doing buy/sell swaps since last month. SBP's latest website update of its International Reserves and Foreign Currency liquidity position as of March 31 shows outstanding swap figure of $235 million.

FX dealers are of the view that SBP does not carry forward anymore swap outstanding position in its books and should square its long position. Dealers say that for the past few months the central bank had been doing only short dated swaps. Banks are comfortable in Nostro's and forward premiums are gradually on the rise. This also indicates that the SBP has successfully retired its forward position.

The Interbank foreign exchange market has been demanding that SBP should dispense with the swap transactions, and let the market decide the real rate, based on interest rate differential. Though the country's trade volume has doubled in a short span of time, the daily volumes in the interbank FX market, which was between $150 million to $200 million, fell to $75 to $100 in the last couple of years.

Estimates are that activity in the interbank market has once again regained its lost confidence. The SBP has recently extended swap trading cut-off time up to 1630 hours for interbank transactions. But it has not allowed banks to carry on with outright transactions after 1400 hours.

In May 2003, SBP was holding a plus $540 million position, but it has been carrying a perpetually negative swap position since April 30, 2004. In November 2004, SBP was carrying $590 million negative position, created by a Buy/Sell swap to show high foreign exchange reserves.

FX dealers say that allowing a wider Rupee/Dollar band has given both importers and exporters an ample opportunity to transact at a suitable price. Dealers also confirm increase in FX activity due to the widening band. On Tuesday, interbank FX market closed at 60.03/04.

FX forward premium is up due to liquidity crunch, as Rupee offers better return versus Dollar. One-month was dealt at 20 paisa, two-month traded at 38 paisa, three-month was at 55 paisa and six-month was at 104 paisa. In the absence of SBP from interbank FX swap market, dealers were targeting six-month for 120 to 130 paisa

 

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DIAMIR (updated on: April 26, 2006, 20:20 PST): President General Pervez Musharraf on Wednesday performed the ground-breaking of $6.5 billion Diamir-Bhasha dam and declared that all dams including Kalabagh will be built under the '2016 Water Vision' to meet the country's growing water and energy requirements.

"Water and energy are matters of life and death for us. We have to build all dams," he said at the ceremony to mark the start of construction work of the first dam in 30 years.

"We have lagged far behind and have to work at a fast pace to catch up with the rest of the world," the President said.

The Diamir-Bhasha project is part of President Musharraf's "water vision" that also envisages construction of Kalabagh, Akori, Munda and Kuram Tangi dams by the year 2016.

Referring to the construction of dozens of dams in other countries every year, the President regretted that the past leadership lacked vision and interest to construct big water reservoirs for meeting future requirements.

He said if there were any controversy on other dams, the work on Bhasha dam could have been started in 1990s and the dam would have been completed by now.

Emphasising the urgent need of constructing major reservoirs the President said water and energy were needed for agricultural and industrial development and to catch up with the world.

"We need water to develop our agriculture while cheap energy is needed for the industrial development," he added.

The President, however, regretted the fact that Pakistan was producing a mere 6000 mw electricity through hydropower against the available capacity of generating 40,000 mw.

He alluded to the setting up of 14 IPPs (Independent Power Producers) in 1994 which were selling Rs.7 per unit of electricity as against Rs. 1 per unit, generated through hydro-power.

"The entire nation is suffering from this," the President said and vowed to convert the destruction caused by expensive electricity into a success by constructing major water reservoirs.

President Musharraf said soon after taking over, he gave top priority to the building of water reservoirs and initiated feasibility study of Bhasha dam in 2001.

"The work on Bhasha dam has now started and we will build all dams, we will build Kalabagh and Akori dams," he said while adding that all guarantees would be provided to the NWFP and Sindh province.

The President pointed out to the fact that 35 million acre feet (MAF) of water is wasted every year that is equivalent to capacity of six Bhasha dams.

"This is despite the fact that the country is currently facing 9 maf of water shortage which will grow to 15-20 maf by 2020," he said.

Similarly, the President said that the country needed inexpensive electricity to meet the energy demand and sustain the current rate of economic and industrial growth.

"I will not let Pakistan commit suicide because of water and energy shortage," the President said.

The President, in this regard, referred to the "2016 Water Vision" that gives a whole concept of meeting future demand by water conservation, saving wastage and building new water reservoirs.

He said the work is already underway on raising the capacity of Mangla dam that will help save 2.9 maf of additional water and help produce cheap electricity.

The government is also giving Rs.21 billion in compensation for those being affected by the raising of Mangla dam.

President Musharraf also announced an attractive compensation package for those who would be displaced by the construction of Diamir-Bhasha dam.

He said the government will provide 15 per cent more than the present value in case of land and 10 per cent extra in the case of a house in compensation.

Besides, Rs. 300,000 would be given in compensation for land that will be flooded by the dam water.

Five-marla and one-Kanal residential plots will also be given to the would-be affectees to build their houses in at least nine model villages.

The President also announced to provide vocational training facilities and said construction of Bhasha dam would create more job opportunities for them.

The President said the construction of Bhasha lake will create new economic opportunities for the people of the area as it will promote fishing.

In view of the construction of Bhasha dam, the existing Karakorum Highway will be further broadened and in turn will help increase more trade with China and generating more employment opportunities.

The government has planned nine re-settlement colonies to provide accommodation to the affected population while a net work of infrastructure including electricity, roads, water supply, schools and health centers would be provided for the people of the area.

The country's biggest reservoir, Diamir-Bhasha Dam would generate 4500 MW of electricity with a gross storage capacity of 7.3 Million Acre Feet of water, and located on Indus River about 315 km upstream of Tarbela Dam 165 km downstream of Northern Area Capital Gilgit and 40 km west of Chilas and 210 km north of capital Islamabad.

The Dam would have maximum height of 270 m and impend a reservoir of about 7.4 million acre feet (MAF), with live storage of more than 6.4 MAF.

The Dam will preserve 15 per cent of annual flow of the River Indus, covering an area of 110 square km and extend 100 km upstream of the dam site upto Raiko Bridge on Karakoram High Way (KKH).

It will be the highest Roller Compacted Concrete type in the world, with an estimated lifespan of 100 years, owing to its design, that prevents silting.

It is estimated that by 2012, the present 5 MAF lost of Tarbela, Mangla and Chashma reservoirs would be increased to 6 MAF.

The Diamir Bhasha dam will provide about 6.4 MAF of annual surface water storage for irrigation supplies during low flow periods.

The present demand of electricity in the country is above 17,000 MW which is estimated to cross 22,000 MW by year 2010. A large scale injection of power thus becomes inevitable and hydropower will provide the required electricity at affordable price.

Average hydel general unit costs for new projets is Rs. 1.00 per kilo watt hour against Rs. 5 per KWH for new oil based thermal generation. Pakistan's electricity demand is increasing by 7 per cent per annum.

Contribution of 4500 MW power from Diamer Bhasha Dam will go a long way in alleviating the situation.

The dam would also reduce the dependence on thermal power, thus saving foreign exchange.

 

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Energy Forum inaugurated

ISLAMABAD (April 26 2006): Prime Minister Shaukat Aziz on Tuesday called for strong and vibrant Pakistan-China economic partnership and promoting comprehensive cooperation between the two countries in the field of energy including nuclear power generation.

"The government and the people of Pakistan attach highest importance to further strengthening our age-old ties of friendship and cooperation and to add greater content, substance and vigor to our strategic partnership," he said while inaugurating the three-day Pakistan-China Energy Forum here.

"Time has come to reinforce our traditional friendship with a strong and vibrant economic partnership," he told the forum being attended by some 150 Chinese delegates and more than 300 Pakistani energy, financial experts and entrepreneurs.

This is the first meeting of the forum that is taking place after the two countries signed the Framework Agreement on Cooperation in Energy during President General Pervez Musharraf's visit to China in February.

Hu Deping, Minister and Vice Chairman All China Federation for Industry and Commerce also attended the forum.

Prime Minister Aziz said the government's policies of liberalisation, deregulation and privatisation, coupled with deep and wide-ranging structural reforms had set Pakistan on high growth path. However, he described water and energy security as critical to sustaining the accelerated growth within a band of six to eight percent.

He shared with the participants the government's strategic direction for development of the energy sector and to ensure sustainable supply of energy at competitive to all sectors of the economy. This included increasing emphasis on nuclear energy as the Prime Minister expressed the hope to generating 8800 MW through the source in the next 25 years.

The strategic direction also include enhancing exploitation of hydropower to make industry more competitive by reducing cost of inputs; developing and encouraging use of renewable energy resources, developing coal reserves, accelerating exploration and production of indigenous oil and gas, options to import gas and encouraging use of CNG, LPG and import of LNG to meet short-term gas requirements.

Prime Minister Aziz underlined Pakistan's geo-strategic location at the confluence of three vital regions South Asia, Central Asia and West Asia' providing the shortest access to the sea for all landlocked countries of Central Asia as well as Western China.

Pakistan, he added, was also fast emerging as the junction for multiple corridors of cooperation between all three regions involving energy, trade, transportation and tourism.

In this regard, the Prime Minister mentioned the building of deepwater port at Gwadar with the Chinese assistance and construction of road and rail links to facilitate and operationalise accesses among the three regions.

"We are interested in developing Gwadar not only as a transshipment port but also as an 'energy port' by establishing mega refineries, building storage capacity and laying pipeline ensuring secure and reliable supplies to Western China," he added.

Prime Minister Aziz said the Framework Agreement on Energy Cooperation reflected the determination of the Pakistan and Chinese government to promote comprehensive cooperation in the field of energy. That included nuclear power, fossil fuels, renewable resources, coal as well as realise the concept of building energy corridor between Pakistan and China, he added.

The Prime Minister urged the Forum to develop comprehensive agenda as well as mechanism to institutionalise energy cooperation between Pakistan and China.

He specifically asked the participants to focus on enhancing cooperation in nuclear power generation, increasing oil and gas exploration activity, building energy corridor to China, increasing oil refining, storage capacity and laying oil pipelines and ensuring secure supplies.

The Prime Minister also urged the forum to initiate studies for energy corridor to China, transportation networks from Pakistani ports overland to China and promote cooperation between private sectors of the two countries.

Chinese Minister Hu Deping recalled the all-weather Pakistan-China friendship, saying the two countries shared all-dimensional friendly ties.

He said China had 10 neighbours but its friendship with Pakistan was the most "loyal friendship" and the strong ties between the two trusted allies had withstood all changes at the global and regional level.

While the two countries enjoyed excellent political and diplomatic ties, Minister Hu Deping, however, called for more cooperation in trade and economic fields.

He recalled that during President Musharraf's visit to Beijing, the two countries signed 13 agreements and memorandum of understanding (MoUs) that will further boost their time-tested friendship.

Minister for Petroleum and Natural Resources Amanullah Khan Jadoon in his address highlighted Pakistan's energy requirements, which had grown by over nine percent last year.

He said Pakistan needed to make an investment of US 150 billion dollars in the next 25 years to meet its growing energy requirements and to fuel its economic and social development in a sustainable manner.

Pakistan's energy mix is highly dependent on fossil fuels - natural gas contributes 51 per cent, oil contributes 29 per cent, coal provides eight per cent, hydroelectricity meets 11 percent and nuclear energy makes up for one per cent of the total demand.