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Govt advised to cut fiscal deficit in 2007-08

KARACHI, June 17: The State Bank of Pakistan Governor Dr Shamshad Akhtar has emphasised upon the government to strictly adhere to the Fiscal Responsibility and Debt Limitation Act, 2005 and reduce its fiscal deficit and debt-GDP ratios during the next fiscal year.

For the central bank, too, she stressed the continuation of strong monetary management in 2007-08 to keep a check on demand pressures stemming from fiscal and external account deficits.

In her keynote presentation at a pre-budget seminar on Friday, where Prime Minister’s Adviser on Finance Dr Salman Shah did not turn up as announced by the organisers — the Press Information Department (PID) of the federal information ministry, the SBP governor said the government expects to reduce the debt-GDP ratio to 51.1 per cent by the end of 2007 and use privatisation proceeds for poverty alleviation.

Pakistan’s current year budget is under the impact of a fiscal deficit. Under the Fiscal Responsibility and Debt Limitation Act, 2005 the revenue deficit will be brought to zero by June 30, 2008. The government is also committed to reduce public debt to 60 per cent of the GDP by 2013.

She said that the SBP was working in house with the government to improve the monetary management and help in achieving the inflation target of 6.5 per cent. But she conceded that the progress in cutting inflation has been slower than original target but it is steady.

The State Bank’s monetary framework statement, she said, will be released by end July after the budget for 2008 has been finalised. However, there has been intensive consultation between the SBP and the government regarding the need for more consistency in the budget and monetary framework.

In line with the SBP Act 9(A), Dr Akhtar informed the audience - that included bankers, business leaders, agriculturists and media persons, the central bank has now institutionalised the process of determination of the level of government recourse to bank borrowing and its approval by the Central Board of the SBP.She informed the audience of the few understandings reached in the consultation between the government and the SBP. She said the first is the recognition of the need to formally impose a ceiling on government’s recourse to SBP borrowings. Secondly, there is a need to better manage the monthly and quarterly borrowings. Thirdly, the government and the SBP will work together towards reducing its stock of borrowings.

Fourthly, the government will continue to change its mix of domestic borrowings by relying on public and commercial bank borrowings rather than SBP borrowings. And finally, there will be a better planning for resource raising from the market to sequence the domestic and foreign borrowings more effectively.

The SBP governor disclosed that the government planned to raise the Public Sector Development Programme next fiscal to Rs724 billion, that includes the budget supported programme of Rs485 billion and Rs204 billion being financed outside the budget by a number of public entities.

“Private level investments for the year 2008 are assumed to grow to Rs1,651 billion, which translates into $27 billion and 16.5 per cent to the GDP,” she said. The private investments next year are expected to be 2.8 times of the level of public investments and once again three fourths the level of total investment.

Speaking about the financial scene, the governor said that the banks profitability exceeds $1 billion and the banking sector during last few years has attracted two $2 billion with $1 billion raised in 2007. The ratio of non-performing loans to net loans is all time low to 2 per cent and capital adequacy is around 13.5 per cent.

Mr Naveed Ahsan, the secretary general Finance, disclosed that Pakistan’s budget for 2007-08 will be of the order of Rs2 trillion and it will incorporate Rs500 billion plus public sector development budget. There will be no new tax in the budget but the tax collection will increase to more than Rs1 trillion in the year 2007-08.

http://www.dawn.com/2007/06/02/ebr1.htm
 
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Rs117bn loans for provinces, public units

ISLAMABAD, June 17: The government plans to extend over Rs117 billion loans to the provinces and public sector institutions next fiscal year, up by about 25 per cent over the current year’s revised estimates of Rs94 billion. These also include Rs19.4 billion equity investments.

Development loans and advances are made to the provinces, AJK, public sector institutions and local bodies to help them carry out development activities. Total development loans for the next fiscal year have been estimated at Rs87.6 billion, showing an increase of 17 per cent over the revised estimates of Rs74.8 billion in the current fiscal year, official documents suggest.

This will include cash development loans of Rs41.6 billion for the next year, about 5.6 per cent higher than the current year’s revised estimates of Rs39.4 billion. External development loans for the next year have been estimated at Rs46 billion, about 30 per cent higher than Rs35.4 billion for the current year.

The provincial governments and Wapda have been demanding of the federal government for about five years to allow them retire expensive cash development loans (CDLs) and replace them with cheaper loans available in the banking industry and international lenders.

Their demand has partially been accepted and the provinces have started taking development loans from international lenders such as the World Bank and the Asian Development Bank. The CDLs that increased in size over the last decade carry in some cases as much as 20

per cent interest rates.

The four provinces together owed Rs190 billion foreign loans and about Rs145 billion cash development loans until last year. Every year, the provinces have to take fresh CDLs to service the existing CDLs. Sindh’s liability for the payment of CDL amounts to Rs28 billion while the foreign loan burden has increased to Rs71 billion. Punjab carries a total debt burden of Rs143 billion that includes Rs73.61 billion CDLs and Rs69.78 billion foreign loans. The NWFP shows Rs22.26 billion CDL liabilities and more than Rs49 billion foreign loans. Balochistan carries more than Rs51 billion loans, but no figures are available for a break-up of foreign and domestic loans.

Besides the cash development loans, the government would be extending current loans of more than Rs10 billion mostly to various institutions to enable them to meet their loans and investment requirements. The estimate for the next year is about nine per cent higher than Rs9.3 billion for the current fiscal year.

Major chunk (Rs4.57 billion) of the current loan would go to the AJK government as ‘ways and means advances’ while another Rs3.4 billion would go Wapda to finance price differential between high and low sulphur fuel oil. Another Rs2 billion would be provided to the government servants. The government continues to provide one million rupees every year to finance loans payable to Junagarh and Kathiawar chiefs.

Federal government’s current investments for the next fiscal year have been estimated at Rs19.4 billion.

http://www.dawn.com/2007/06/18/top1.htm
 
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Real income rise stymied by low agricultural growth, high food inflation

The government frequently points to the increase in the number of mobile phone users as an evidence of progress. But this argument misses some crucial points.

The spread of technology, its tremendous benefits, and its ever-declining cost represent a global phenomenon that has made it possible for people to buy phones — sometimes on even borrowed money-as a long-term investment. Take Kenya’s example. In 2000 some 300,000 people used mobile phones; now, in that country of 35 million plus, nearly nine million do.

Statistics from other African countries like Nigeria, Ghana, Swaziland, Egypt, and Senegal reveal a similar trend. The efficiency gains from mobile phone usage, particularly savings in transportation costs, have made this a self-financing investment for hundreds of millions of low-income people around the developing world. It is therefore incorrect to present this as evidence of a significant change in living standards or of success of a government’s economic policies.

The only objective measure of a government’s performance is the improvement in real (or inflation-adjusted) incomes across all income classes. Now, how do we reconcile two seemingly contradictory facts that Pakistan has one of the lowest growth rates in real per capita (person) income in purchasing power terms despite having recorded one of the highest GDP growth rates among the Asian countries in the last four years? The fundamental reason is higher inflation compared to the rest of Asia. Pakistan’s current inflation rate is 7.8 compared with five per cent in India and about 1.50-2.4 per cent in Thailand, Malaysia, Korea and the Philippines and 3.40 per cent in China. Hence, it is important to measure progress and growth in real or inflation-adjusted terms.

The government cites the increase in per capita income from $586 in 2002-03 to $925 in 2006-07 as one of its principal achievements and its claim to a significant poverty reduction rests to a great degree on this argument. While it is true that Pakistan’s GDP growth since 1999-2000 has been higher than it was in the 1990s, real measure of the improvement in the wellbeing of the population compared to other economies is the GDP per capita in purchasing power parity terms.

Pakistan’s GDP per capita (or per person) increased to $925 by an average of 9.3 per cent per annum during 1999-2007 when measured in nominal dollar terms but since the dollar has depreciated against euro, this growth rate falls to 5.59 per cent when measured in euros and to only 2.5 per cent when measured in real or purchasing power parity terms in 2000 constant dollars as shown in the graph.

In other words, the average real income of a Pakistani has increased by only 2.5 per cent per annum since 1990-2000 and as income inequalities have not improved according to the government’s own admission, it is but logical that the incomes of the upper and middle classes have risen more rapidly than the average. It therefore follows that the per capita real income growth for more than 80 per cent of the population has been less than 2.5 per cent. According to a World Bank report released on March 30, 2007, Pakistan’s agricultural GDP per capita growth rate during 1999-2000 to 2004-05 was only 0.3 per cent annually.

What has made it worse for the lower income groups is the well-established fact that the food inflation has been higher than the overall inflation. The food inflation accounts for about 40 per cent of overall inflation and is therefore critical to improvement or deterioration in the purchasing power. The current food inflation rate is four and half times as high as it was in 1999-2000 as shown in the graph.

The surge in food inflation to 10.24 per cent during July 2006-May 2007 followed a fall of 4.1 per cent in the major crops (wheat, rice, cotton, sugarcane) and a negligible increase of 0.4 per cent in minor crops (potatoes, pulses, other grains, etc.) during 2005-06 despite an overall GDP growth of 6.6 per cent in that year. Both crop groups staged a recovery during 2006-07 and it remains to be seen if the recent gains in their production would translate into lower food price inflation.

The last year’s GDP growth of seven per cent was helped by a five per cent growth in the agriculture sector, which accounted for 20.9 per cent of the GDP. However, the growth in the crops sub-sector (which accounts for only 47.9 per cent of the agriculture sector, the livestock’s share being 49.6 per cent) masks the fact that the (i) 7.5 per cent growth in major crops was from a low base as prior year’s growth was negative and (ii) the minor crops grew by only 1.1 per cent during 2006-07.

However, going beyond a single year’s production data, the last seven years’ record indicates more fundamental and structural problems with the growth trend of the agricultural crops. As shown in the table, the production of cotton, wheat, rice and sugarcane grew by a yearly average of 1.63, 1.23, 0.59 and 1.87 per cent respectively during the seven years from 1999-2000 to 2006-2007 and was below the estimated average population growth of 2.2 per cent or so during this period. An examination of a sample of the production of other agricultural produce reveals similarly low and volatile rates of growth.

The country witnessed unprecedented drought during the first two years of the decade, (that is, 2000-01 and 2001-02), which resulted in contraction of overall agricultural production or negative growth in these two years. However, the 7-year growth rates of agricultural crops compared with even the more normal levels in 1999-2000 are quite low and have failed to keep pace with the population annual growth rate of over 2.2 per cent..

The official statistics on fertiliser, water, and improved seeds distribution indicate some improvement. However, water availability has not materially changed during the past seven years not to mention the worsening power shortages and higher oil prices.

The Economic Survey for 2006-07 claims that this year’s wheat crop was higher due to a number of reasons including a more seed availability, greater subsidy on fertiliser, introduction of three new higher yielding wheat varieties, etc. This begs the question as to why these measures were not taken in the earlier years because wheat production remained stagnant during 2000-2004 and even in 2005-06, it just managed to recover to its 1999 level.

This underscores the need to undertake major reforms in the crops sector to bring the long-term growth rate to a level that is consistent with the population growth trends. However, improving growth rates in crops production alone will not be enough to bring the 74 per cent poor out of poverty; that is those who earn around or below $2 a day. Rural population accounts for 70 per cent of the total but 80 per cent of Pakistan’s poor live in the rural years. Agriculture (including both crop and livestock production) accounts for only about 40 per cent of rural household incomes and the poorest 40 per cent of rural households derive only about 30 per cent of their total income from agriculture.

According to the World Bank, a major reason for the large proportion of rural non-agriculture poor in Pakistan, as well as poverty levels among small farmers, is the prevailing “highly unequal distribution of land and access to water”. According to the 2000 Agricultural Census, only 37 per cent of rural households owned land, and 61 per cent of these land-owning households owned fewer than five acres, or 15 per cent of total land. Access to usable water is also quite unequal, a major cause of lower productivity in the dry lands (barani) relative to irrigated land, land at the tail end of watercourses relative to land at the head end, and areas with saline groundwater as compared with areas that have sweet groundwater.

“Because of this skewed distribution of ownership and access to productive assets, much of the direct gains in income from crop production, particularly irrigated agriculture, accrue to higher-income farmers” according to the World Bank study. This implies that much of the gains from the recent growth in the crop production in 2005-07 have accrued to the higher-income farmers. It is ironic that the same higher-income farmers pay little or no income taxes while the small farmers and the poor are regressively taxed in the form of higher inflation.

This reinforces the view that despite higher overall GDP growth, higher food inflation and inequitable distribution of resources have prevented the flow of benefits to the vast majority of the people and no amount of the so-called “trickle down” can have a significant impact on their incomes and living standards in the absence of radical reforms in the agriculture sector as well as about an estimated $17 billion in investments in large and smaller dams to ensure more water and electricity without which 7-8 per cent growth rate is likely to remain a dream in the long-term.

http://www.dawn.com/2007/06/18/ebr1.htm
 
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Achieving tax targets in an election year

“It may be difficult but not impossible” to mop up Rs1,025 billion tax revenue and attain a GDP growth of 7.2 per cent that translates into a cool Rs600--650 billion jump in the size of economy during the fiscal year 2007-08.

This is how the businessmen responded when asked to give their assessment on the budgetary roadmap for an election year.

Political temperature is already on the rise much before the formal launch of election campaign. No one knows how it is going to affect the economy and business environment. But the Chairman of Central Board of Revenue, Abdullah says that the CBR’ s collection for this year is well on target. He says he would have mopped up a few billion rupees more had there been no situation that exists now. Without being specific, he was referring to the situation created after March 9.(judicial crisis). These observations cast shadows on the tax collection efforts in the next fiscal year.

Industrial growth, particularly the large-scale manufacturing has not been up to the expectations this year Both the industrial and export growth have receded.. The seven per cent growth is mainly driven by the services and agriculture sectors. This creates doubts whether over seven per cent growth set for next year will be achieved and yield Rs1 trillion tax revenue.

The present assemblies may be asked to elect President General Pervez Musharraf sometimes in September or October. This is the time when three major kharif crops are harvested--cotton, rice and sugarcane. Any disturbance in harvesting of these crops will seriously impact the economy. Interrupted cotton supplies can affected the largest industry-- textiles. Then the general elections for new assemblies may be held in January or February 2008. October onwards is the period for sowing of wheat which is other vital crop. If electioneering affects wheat sowing, the country should be ready to pay for a huge import bill.

“Revenue collection and economic growth are two objectives which this government has been achieving almost every year since the last four years and there is no reason why it should not do next year too’’, says Majyd Aziz President of Karachi Chamber of Commerce and Industry. He agrees that business cannot remain insulated from the heat generated by political process. But the overall growth tempo is such that it will jump over these pitfalls.

The next year’s target of Rs1,025 billion is up from an expected collection of Rs835 billion plus for this fiscal—an increase of about Rs190 billion stipulated from an expected expansion of the economy byf Rs600--Rs650 billion.. A virtual blanket levy of one per cent surcharge on import will generate additional Rs120--125 billion A rough estimate shows that one per cent surcharge will be levied on about $20 billion import out of total $30 billion. At one per cent, $20 billion dollars import should $2 billion or Rs120 billion. Rationalisation and adjustments in rates of taxes and duties on various items are expected to give another Rs44--46 billion. The existing size of the economy at $146 billion (Rs8,760 billion) has the capacity to generate additional Rs3--4 billion. The remaining Rs30 to Rs40 billion will be obtained from the an expanded economy and streamlining of CBR management. This is how the roadmap for recovery of more than one trillion rupees tax is explained by those who are in touch with the CBR.

“But don’t forget that the government compromised on three big potential areas of tax generation’’, Asad Saeed, an economist said. The government was dropping hints of improving tax collection from the agriculturists by asking CBR to recover it. There were hints that unlimited exemption from capital gains on stock exchange transactions will come to an end. And finally, the real estate transactions will be documented and taxed.

President Pervez Musharraf was given a detailed briefing by the CBR in March this year. The CBR suggested that tax on agriculture incomes should be made a federal responsibility because less than Rs2 billion was collected and that too by only three of four provinces. It was claimed that after CBR is given responsibility, the collection would be anywhere up to Rs50--Rs60 billion a year and will show progressive rise in future. ``It was instantly made a provincial autonomy issue by politicians, bureaucrats and landlords’’, an observer said. For obvious reasons, the government dropped the idea.

The stock exchange is getting exemption from capital gains tax since 1974. Real estate business is the other area which remains under-taxed. That real estate transactions are being under-reported which is one of the main sources of black money generation , also recognised at the highest level. The 2007-08 budget announces tax exemption for three years on incomes from transaction with the real estate investment tust (REITS).

“In the initial stages , the proposed trust be a facilitator to convert black money into white but eventually stabilise prices of property and give an opportunity to small investors to be part of the big deals,” says Mr Akbar Sheikh, a leading representative of the textile industry. based in Lahore.

On taxation measures of 2007-08 budget, he said the spinning sector has been loaded with additional Rs6 billion burden, Rs3 billion burden coming from wage rise of the workers and Rs3 billion from one per cent surcharge levy on imports. Against this burden, the spinning sector has been given a relief of about Rs600 million by way of loan swapping. The spinning sector has now been brought in fold of concessional rate loans given to export-oriented industries. Akbar Sheikh estimates conversion of about Rs20 billion loans at concession rates. This swapping of loans will give a three per cent discount to the spinning mills.

In its own way, the government has responded to textile exporters demand on withholding tax on export proceeds. Since exporters complained harassment at the hands of tax collectors, the government enforced withholding tax at the rate of 0.75 to one per cent. But as export grew—almost $10 billion —exporters were uncomfortable on a virtual deduction at tax source. They were given a choice of normal assessment by the tax collectors. Textile exporters were divided. Some wanted filing of returns and assessment with provisions of scrutiny. Some wanted the old method of withholding tax but at reduced rate. The government opted for one per cent withholding tax that gives a minimum recovery of $1 billion.

But the government is also paying back about Rs35--40 billion as research and development rebate being offered at six per cent to readymade garments and knitwear, 3--5 per cent on fabric and other made -ups. More than Rs328 billion loans have been given on discount rate and a huge amount has been advanced as export refinance.

The government has put 398 items in zero rated duty import category which will cost more than Rs9 billion to the government by way of revenue loss. The benefit of this zero rated import will go to industry which however suffers from high utility rates, bad infrastructure and rising cost of doing business. ``This budget makes us pay more than relief given to us’,’ a local industrialist remarked.

http://www.dawn.com/2007/06/18/ebr2.htm
 
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Productivity and decent living

People are not destined to live a life devoid of basic needs that define decent living status.

People are hard working and the country is resourceful enough to afford better living standards for the multitude, if systems to improve productivity are put in place. Though the thrust of the current budget is populist, it does attempt to address some basic aspects of the issue.

Handouts and subsidies can at best be short-term stop gap remedies, sometimes entailing unjustifiably high costs in economies such as Pakistan. The long- term solution lies only in employing resources of the country more efficiently and avoidance of wastages that plague all sectors in the economy.

The argument of the government's economic wizard Dr Salman Shah that commodity prices in the country are the lowest looks baffling if the hidden costs and level of wastages in farm products are cited. It is senseless to compare prices in markets of any two countries without keeping in mind the poor consumer’s affordability. Yes, n Sweden a loaf of bread may cost three times its rate in Pakistan but there is not a single citizen in that country who cannot afford bread.

In the globalised world of inter-dependence, low productivity has hurt the country's exports, forcing the government to consider low productivity related issues more seriously. The lower ranking of Pakistan on the World Competitive Index prepared by the World Economic Forum has also exposed the gravity of the issue.

Majyd Aziz, President Karachi Chamber of Commerce and Industry when contacted by Dawn acknowledged the need but saw the roots of the problem embedded deeper in the economy that beg for consolidated supportive government policies. He saw productivity dependent on 3Ms_material, men and machines.

“In Pakistan there are problems in all three aspects of productivity. There are problems in attaining the required quality of raw material. There is a major mismatch in the quality of huge manpower pool available locally and requirement of the same by the industry. As for machines, the private sector is still shy to invest in modern machines that cost more for it feels threatened by its overseas competitors. There is need to ensure improvement in all three Ms to be able to achieve better productive levels.”

At the moment, Aziz felt that persistent power outage is the single biggest problem facing the manufacturing sector. The budget has not addressed the issue in a befitting manner. For uninterrupted operations of industry, businessmen found a way out in captive power generation plants but providing electricity in areas where workers reside is not possible for a private business entity.

"Frequent power breakdowns have rendered workers of Karachi not even half as productive as before. If a factory worker returns to work without resting owing to power failures in sizzling June how productive could he possibly be?" He said it would be apt to address the power issue before moving on to some specialised measures to improve productivity.

But some experts were excited over certain budgetary measures and expect these to impact productivity positively. They saw the measures for simplification of tariff regime and abolition of tax exemptions leading to better compliance and improved documentation in the economy. They also felt that certain tax incentives could reverse industrial sector fragmentation.

“Pakistan's industrial sector is entering the consolidation phase. The steps such as 'Group relief' in the tax regime will encourage corporate entities to consolidate that, in its turn, would improve scales and induct more professional management", Samir S. Amir, Director Research, Pakistan Business Council told Dawn.

Abolition of exemption clauses and simplification of the regime can reduce transactions costs that has been instrumental in pushing up the supply side inflation. In absence of sales tax invoices by suppliers of imported components, the assemblers end up paying 15 per cent sales tax at the final stage that is passed on to the consumers by increasing the price by the same rate.

The abolition of the clause of compulsory value addition of at least 10 per cent to qualify for sales tax exemption has been withdrawn as it failed to serve any purpose and encouraged people to mis-declare the value of their imports.

Some reservations were expressed on Custom Valuation Law and setting up Valuation Directorate in Customs. The Customs has been vested with discretionary powers that can provide opportunities for corruption. "There is a need for the valuation to be transparent, fair and verifiable so that it leads to more credible assessment of the value of our imports and fair collection of duties", Samir said.

A few businessmen criticised the government for raising the minimum wages that they said will swell the wage bill, a major component in the cost of exportable items. "This is not a wise decision. The government should have provided for the workers from Workers Welfare and Workers Profit Participation Fund which is under-utilised instead of asking the private sector to bear this additional burden" said a textile tycoon who wished not to be identified.

The competitiveness cannot be achieved by rhetoric and economic inefficiencies cannot be wished away. It is a huge challenge that could only be met by synchronised efforts of both public and private sector. The government needs to be more forthright in providing the right environment and removing infrastructural bottlenecks for the industry to improve labour productivity and face the fierce competition internationally.

http://www.dawn.com/2007/06/18/ebr3.htm
 
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Why cotton is a problematic crop?

Muhammad Amjad Ali & Dr Iftikhar Ahmad Khan

COTTON, which is also known as ‘white gold’, is an important crop in many developing countries. The yield of the crop is dependent upon the environment in which it is grown and the management practices of the cropping system.

Cotton yields are stagnant for the last several years. Factors responsible for the stagnant cotton production include: excessive rain at the time of sowing, high temperature at flowering stage, late wheat harvesting resulting in decline of area under the crop, leaf curl virus incidence, soil system, weather adversaries, pest attack and improper production technology in major cotton growing areas of Punjab and Sindh. There are many social as well as economic problems facing cotton production including, illiterate farming community, high cost of inputs, small landholdings, less adoptability of innovations by the farmers, lack of guidance to farmers, high cost of production and insecurity in the market, the cost of production being the most significant among them.

In recent past two major factors had a significant impact on the economics of cotton production. They are extensive use of agrochemicals and yield stagnation. Among all agrochemicals, fertilisers and insecticides are of utmost importance. There are no efficient alternatives to synthetic fertilisers and cotton production has to bear the use of nutrient supplements in the form of inorganic fertilisers. Among pesticides, insecticides are group of agrochemicals which is extensively used on cotton.

Insects, being living organisms, have adjusted with the injurious chemicals and learned to survive with insecticides. Consequently, insecticide use kept increasing causing a serious impact on the economics of cotton production. Currently, there is a greater need for new developments in production research but more and more researchers are confronted with maintaining the current status of yields in their countries. The cost of production has increased to unacceptable levels in many countries that threaten the economics of cotton production.

Cultural Problems: There are also many aspects which can affect fibre quality and yield. Agronomic practices affecting the yield include sowing time, low quality and adulterated seed, timing of harvest, irrigation, use of plant growth regulators, soil fertility, tillage, and cultivar selection.

Currently cottonseed must be delinted to be used in modern planting equipment. The two most common methods are wet acid delinting using sulphuric acid and gas delinting using hydrogen chloride. There are several possible problems associated with acid delinting including damage to seed quality by improper procedures during the acid delinting process, damage to the seed by ammonia during the neutralisation process, worker safety concerns, and disposal issues.

Seed germination: Seed dormancy is a significant factor involved in germination of cotton crop. Additionally, some forms of cotton may produce ‘hard seeds’ that, upon drying, become impermeable to water and suffer delayed germination. Priming improved emergence and early growth of maize and cotton in drying soils in the laboratory. On-farm seed priming can partly compensate for the negative effects of low soil water potential and large aggregate sizes on crop establishment. Some studies have shown that conservation-tillage systems can also decrease cotton yields by increasing soil compaction and reducing water availability.

Pests: Cotton is a pest-loving plant and due to this habit it has become a problematic crop for the farmers. More than 1326 species of insects have been reported in commercial cotton fields worldwide but only small proportions are pests. Of the 30 pests of cultivated cotton the most important are the caterpillars of pink, spotted and American bollworms, aphids, whitefly, jassids, mealy bugs and the spider mite.

The bollworm/budworm complex is a primary insect pest problem with larvae attacking squares and bolls causing significant yield losses if left uncontrolled. The cotton whitefly is a pest of primary importance for fibre, horticultural and ornamental crops worldwide. It can cause extensive damage through direct feeding, honeydew production and as a viral vector.

Pink hibiscus mealy bug is an emerging threat to the cotton crop. Its host records extend to 76 families and over 200 genera, with some preference for Fabaceae, Malvaceae and Moraceae. Growing points infested with cotton mealy bug become stunted and swollen. This varies according to the susceptibility of each host species. Plant protection products are of limited effectiveness against the bug because of its habit of hiding in crevices, and the waxy covering of its body.

Poor spraying techniques and over-use of chemicals has led to the pest becoming resistant to most of the available insecticides. Seeing their crops devastated by bollworms, and desperate to salvage something from their losses, farmers have continued to buy more toxic (and expensive) chemicals and to spray more frequently, but with decreasing effectiveness.

Diseases: Never has a single pathogen or insect pest threatened Pakistan's cotton culture, as has the cotton leaf curl virus (CLCuV). In 1993-94, about 0.89 million hectares were badly damaged resulting about two million bales loss in production due to CLCuV. In economic term, the country had suffered a loss of about 7.6 million bales, which costs to the tune of Rs71 billion since 1988 due to the infestation of CLCuV. Yield decreased from1.938 million metric tons in 1991 to 1.445 million metric ton in 1992 and fell further to 1.105 million metric ton in 1993.

Recently, cotton leaf curl virus has again emerged as a key disease in the province of the Punjab in general and Burewala area in particular. The re-emergence of virus commonly called as Burewala Strain of Cotton Virus (BSCV) has dangerous version and could develop into a serious problem.

The continued use of CLCuV-susceptible varieties without any programme of their replacement constitutes a major risk for cotton production in Pakistan. So a premier focus should be given to eliminate the CLCuV disease and a well-planned programme of evolution and introduction of CLCuV-resistant varieties of desired characteristics must be in place to gradually replace the existing CLCuV-susceptible varieties. This is only the sole and the most promising and least expensive method of disease suppression.

Other important diseases are seedling diseases caused by the fungi Pythium and Rhizoctonia, Black root rot, Fusarium wilt and Verticillium wilt, Alternaria Leaf spots and Bacterial blight.

Abiotic stresses: Water deficit, in conjunction with high temperatures and incident radiation, poses the most important constraint to plant survival and crop productivity. Cotton crop was affected by drought and there was yield reduction of 1.1per cent during the year 2003. Drought stress causes severe shedding of small squares, resulting in a decrease in flowering. An understanding of the response of plants to water deficits is important in efforts to model cotton growth, estimate irrigation needs, and breed drought-resistant cultivars.

Although the cotton plant is a “sun-loving” plant, an excessively higher temperature at reproductive phase (above 36oC) decreases its production significantly. According to an estimate, cotton plant sheds about 65–70 per cent of its fruiting points due to heat-induced sterility, spotted bollworm attack and increased humidity during monsoon. High temperature disrupts the movement of water, ion, and inorganic solutes across the plant membrane, which interferes with photosynthesis and respiration. Clearly, an increase in high temperature at the reproductive phase is the major factor of low productivity of cotton varieties grown in the cotton belt of Pakistan.

Soil and fertility: Several soil conditions and farming practices in Pakistan are perceived as being likely to induce micronutrient deficiencies, including high soil pH, calcareousness of soils, low soil organic matter and use of fertilisers poor in micronutrients. Boron contents of soils and plants from light and medium textured soils were less than the critical levels. High soil pH, calcareousness and low organic matter in such soils might be rendering the B less available to the plants.

There may be less availability of phosphorus (P) in a rapidly drying soil due to reduced P diffusion and poor uptake by roots. This may result in inadequate P nutrition for cotton plants.

Nutrient-poor, degraded, and often acidic, soils limit crop production in many tropical regions. Limiting amounts of phosphorous and excessive levels of aluminium are characteristic problems of acidic soils.

Saline soils are found naturally in many locales and have been created in others by poorly managed irrigation. Both the timing and method of application of fertiliser are important, though some evidence suggests that one method may be better than the other under particular circumstances, most of the literature suggests that timing of applications of fertilizer is a much more important determinant of yield response than method of application.

Salinity affects large areas of irrigated land, and is a particular problem in NW India and in Pakistan, where it is often combined with water-logging. The two stresses together have far more severe effects than either alone: root ability to screen out salt is much reduced, and lack of O2 leads to metabolic problems.

In Pakistan, about 6.3 million hectare was affected by salinity, and groundwater in most of these saline areas is brackish and thus unfit for irrigation. So current cropping intensities and groundwater usage in irrigated agriculture are not sustainable due the problem of salinity.

Environmental and health hazards: During July-March, 2005-06, 17,900 and 36,000 tons of agricultural pesticides were imported and locally formulated and most of them were applied on cotton. Chemical pesticides affect human health as well as biological diversity and surface and groundwater quality. Some pesticides leave persistent residues in soil, groundwater, and the food chain, thus exposing human population to slow and cumulative poisoning (WTO).

Pesticides also affect wildlife, domestic animals, and biological diversity. Pesticide poisoning remains a daily reality among agricultural workers in developing countries, where up to 14 per cent of all occupational injuries in the agricultural sector and 10 per cent of all fatal injuries can be attributed to pesticides.

Marketing: Between 1960–64 and 1999–2003 real cotton prices fell by 55 per cent, quite similar to the 50 per cent decline in the broad agriculture price index of 22 commodities. The grower-to-market links are usually absent, and the research-extension-grower links essential to the transfer of technology are often weak.

It is found that the incidence of poverty among cotton growers could rise in the short run from 37 per cent to 59 per cent while the average incidence of rural poverty could rise from 40 per cent to 48 per cent. So it appears that cotton growers are heavily taxed both directly, through the lower prices received by the state company which purchases cotton and indirectly through the (likely misaligned) exchange-rate regime. This assessment is shared by a recent report which concluded that only one third of the world price of cotton reaches the producers.

Strategies and prospects: Considering such a high importance of the cotton crop in the national economy, the problems and issues pertaining to this crop should be very carefully evaluated and monitored.

The main objectives of government are overcoming the scarcity of water through augmentation and conservation means i.e. by construction of medium and large dams and by efficient utilisation of irrigation water, restoring the productivity of agricultural land through control of water logging, salinity and floods.

The government should also provide farmers with the credit facilities that they might be able to purchase good quality inputs to raise high yielding stands of the crop. Threshold-based sprays against the main pests, the use of a cotton growth regulator, and earliness of cotton cultivar and seed treatment are accountable for savings in pesticide sprays. Bt cotton varieties should be locally developed and distributed among the farmers to avoid the high incidence of bollworms.

There are various management practices that should be followed to help mitigate some of the environmental risks associated with growing cotton. They include selection of adapted cultivars, planting within the recommended range of favourable planting dates and environmental conditions, use of seed and seedling protectants to avoid stress or early season diseases and insects, use of effective pest management tactics to avoid competition and damage by weeds and insects, management for optimal soil moisture, proper fertility management, and management for maturity and readiness for harvest at optimum times.

One of the tools used in reducing environmental risks and increasing the possibilities of a profitable yield is cultivar development through breeding and genetics. Breeding for heat, salinity and water logging tolerance accompanied with higher percentage of seedlings will emerge to produce even and uniform plant stands. Grower-to-market and the research-extension-grower links are essential to avoid farmer against the clutches of middleman and to the transfer of technology.

http://www.dawn.com/2007/06/18/ebr4.htm
 
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Neelum-Jhelum hydropower project in doldrums

By Engr Hussain Ahmad Siddiqui

In his budget speech, the Minister of State for Finance Mr Omar Ayub Khan said: "Today, I hereby announce the construction of Neelum-Jhelum Project, which will cost Rs84.50 billion.”

Unfortunately, the minister’s statement is not supported by ground realities, as the award for project contract as well as foreign exchange funding have not yet been finalised. The strategically vital Neelum-Jhelum hydropower project is not yet in a take-off position.

The Chinese consortium selected for the award of contract has failed to arrange required foreign exchange cost of the project. The government has not been able to line up financial resources for Wapda to meet the local currency cost.

While allocations for the project under the Public Sector Development Programme (PSDP) were Rs4 billion in 2005-06 and Rs6 billion in 2006-07, only Rs2.50 billion could be made available to Wapda and that too through re-appropriation of other allocations. Wapda spent Rs184 million on preparatory work undertaken as on June 30 2005.

The Neelum-Jhelum project has been allocated Rs10 billion for the next year. There is, however, no likelihood of requisite funds being released in near future, as the PSDP allocation of Rs62 billion of the last quarter 2006-07 has been withheld due to paucity of funds.

The hydropower project with a total maximum capacity of 969 MW - is to be located in Muzaffarabad district, Azad Jammu and Kashmir (AJK). It envisages the diversion of River Neelum waters at Nouseri and outfalling in the Jhelum River near Chattar Kalas-at a distance of 22 km south -- where the underground power station will be built as part of an integrated project. Comprehensive feasibility studies, conducted in the 1980s and revised in the 90s, confirmed the economic and technical viability of the project, whereas detailed engineering design was completed in 1997.

The Executive Committee of the National Economic Council (ECNEC) approved the revised scheme in February 2002, as a high priority project. Bidding process, though initiated in June 2002, had a number of rounds that remained inconclusive until recently, mainly due to bureaucratic snags and lack of planning. In response to the final tender issued in April 2006, the Wapda received only two bids for completing the project on a turnkey basis.

The consortium of China National Machinery & Equipment Import & Export Corporation (CMEC) and China Gezhouba (Group) Co. Ltd (CGGC) emerged as the lowest bidder at $1.30 billion. Instead of offering supplier's credit as per tender conditions, the bidder proposed buyer's credit amounting to $800 million covering foreign exchange cost against government's sovereign guarantee. The other bidder, China International Water & Electric Corporation (CWE), quoted $1.80 billion having offered similar conditions for financing.

Wapda has considered the lowest offer acceptable, and the government agreed to provide sovereign guarantee, as a very special case, for the repayment of the buyer's credit as demanded by the bidder. However, the Chinese consortium is said to have been unsuccessful in providing confirmation letter from China Impex Bank. There is no further development though Wapda is keen to conclude the deal with the lowest Chinese bidder.

Meanwhile, the government is making hectic efforts to arrange for foreign assistance through other sources. Initially there was positive response from Qatar, Kuwait and Saudi Arabia. But, in such a case, the procedural bottlenecks would not allow either of the two Chinese bidders to get the contract since basic parameters of the tender would change, once again. For the reasons of transparency, this may also necessitate another round of bidding, which the government can ill-afford.

PC-1 of the project, as approved in February 2002, estimates total cost of the project at Rs84,503 million with a foreign exchange component of Rs46,668 million ($777.80 million). The civil works account for over 86 per cent of the project cost, whereas the balance 14 per cent share is of electrical and mechanical works. There are already reports about escalation of the project cost since the PC-1 estimates were valid until the year 2002.

Strategically, the project is of great significance. On completion, the project will protect Pakistan's rights as provided by the Indus Waters Treaty. The project is located further downstream on the Neelum River, a tributary of the Jhelum River, which enters from the Indian held Kashmir where it is known as the Kishanganga River. As per provisions of the Indus Waters Treaty, if Pakistan manages to complete the Neelum-Jhelum project first, India would not have the right to divert the river flow, as it plans to do at present. Likewise, if India completes its project on the Kishanganga first, it would have priority rights on the use of Neelum/Kishanganga waters.

India has started construction on the Kishanganga hydropower project of 330 MW capacity, which was approved in June 2004, to be located near Bandipura in Baramula. The project involves a 103-meter dam across the river before it crosses the line of control (LOC) and a channel along with a 27-km long tunnel to divert water from the river to the Wullar Lake. It is reported that 75 per cent of the construction of the tunnel work has been completed. Last week Pakistan reiterated its stand on India's plans.

This development has resulted in conflict of interest between India and Pakistan and the matter may eventually be referred to a neutral expert (as in the case of the Baglihar Dam project), jeopardizing the project. The government is alive to the situation, taking up the matter of violation of the Treaty with the Indian authorities, but without any positive results. In the very real possibility that India completes its Kishanganga project first, Pakistan would not have the required flow at full capacity for its Neelum-Jhelum project - estimated to be reduced by 30 per cent in the Neelum River - that would adversely affect the viability of the project too.

The current power shortage is restricting Pakistan's development and progress as the demand for electricity is increasing exponentially.

There will be a definite shortfall, particularly in hydro power generation, which is expected to add 1,260 MW by 2009-10.There is only one project of 84 MW (New Bong hydropower project) in private sector that may come on stream by then, besides the completion of Wapda’s on-going hydroelectric power schemes. Thus, the power deficit in 2009-10 will put more demand on electricity in coming years.

More emphasis needs to be on hydro power generation with the objective of achieving sufficient and low-cost electricity, which has an identified potential of additional 40,000 MW. It is planned to increase present installed hydro generation capacity to 7,570 MW by 2015, in the second phase, and the Neelum-Jhelum hydropower is an important project of the plan period.

The project inherits a number of constraints, impediments and challenges. Given the fact that the project is located on a long stretch of hilly terrain in the AJK and that the site is near the LOC, major international engineering, procurement and construction (EPC) contractors, primarily from the western sources, are not willing to engage in the project construction. This has been demonstrated in poor response to the project tenders issued by the Wapda from time to time.

Second, for same reason, it has been difficult to get support of international lending agencies to finance the project. Lastly, the project is large and of a complex nature, first of its kind in Pakistan considering the underground layout. Almost 98 per cent of the project structure would be underground, including a 32-1/2 km long tunnel and the powerhouse. The tunnel will be constructed about 300 meters below the riverbed.

There are a number of other special features of the project that makes it attractive for investment. Jhelum River and its tributaries are 'early risers' as compared to Indus. The project, on completion, will thus generate power even during March-June period, when other hydropower stations, like Tarbela, operate at minimum capacity due to limited availability of water. The proposed power station will thus help to meet peak demand of electricity during the summer season.

The project is run-of-the-river type demanding relatively short gestation period, instead of a large multi-purpose storage project, like Tarbela and Mangla, which also cater to irrigation, water supply and flood control. The project is vital for the socio-economic uplift of the AJK area. The power station will be connected to the national grid through two 500-KV transmission lines of Wapda system up to Rawat. This scheme was approved by the ECNEC in December 2005 at a total cost of over Rs11 billion that Wapda is implementing currently.

The Neelum-Jhelum hydropower project was scheduled to commence in July 2002 and to be completed in June 2010. It has already been delayed for almost five years, and the government can ill-afford any further delay. There is no other option with the government, at this belated stage, but to salvage the project through total financing at its own.

Minister for Water and Power Liaqat Jatoi promised stated in February 2006 that if foreign funding would not be available the government would construct the project at its own.

Alternatively, it shall be prudent for the government to consider private sector investment in the project.

http://www.dawn.com/2007/06/18/ebr7.htm
 
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Lowering debt-to-GDP ratio

The government wants to reduce the national debt to GDP ratio to 20 per cent from about 50 per cent now over a period of 10 years, says Dr Salman Shah, advisor to the prime minister on finance. It translates into a rate reduction of 2.5 per cent of the debt per annum. This is a very desirable goal that would be helpful to the economy.

The debt reduction will help increase the investment and accelerate the rate of growth as more resources are diverted towards development to provide employment to the over 100 million people under the age of 25.

Lower national debt means less financial resources devoted to debt servicing and more funds diverted to development and social welfare. The total national debt has come down from an untenable over 100 per cent of GDP to 50 per cent.

Privatisation minister Zahid Hamid says that privatisation has so far brought $7 billion which has been used largely for debt reduction. The budgeted privatisation proceed for next year is Rs75 billion, 90 percent of which will go towards debt servicing as committed by the government.

As the major assets of the country like PTCL, Pakistan Steel and the refineries are privatised, the liabilities of the government should also be simultaneously liquidated. To set up such public sector projects, large loans, foreign and domestic were raised. And when these projects are sold off, the proceeds should be used to pay off debts and that should not been done through taxation.

In fact heavy foreign borrowings are a risk because, in case of devaluation of the rupee, they raise the rupee cost of the loans substantially. Already the rupee has come down from 3.33 to a dollar in 1953 to 60.62 for a dollar now. As the rupee gets devalued, the rupee value of the debt goes up and strains the governments resources.

Though rising in absolute numbers, external debt-to-GDP ratio is coming down gradually. But the domestic debt is increasing and along with it the cost of debt servicing The domestic borrowing is too heavy as the governments monetary needs are rising.

The domestic debt servicing cost is rising despite lower interest rate for official borrowing. For example ,the government has borrowed overRs90 billion from the national savings organisation at low interest. In spite of the clamour for higher interest rates on National Savings Schemes, the government has not increased the rates to help the small savers in the face of a surging food and consumer price inflation.

Servicing of foreign debt this year will cost Rs48.417 billion and the foreign loan repayment will be Rs54 billion-Rs2 billion less than the budgeted. Next year it will be Rs62.88 billion. The figure is rising.

The level of foreign debt was reduced after 9/11 when donors wrote off their small loans following 9/11 as Pakistan joined the coalition against terrorism. Some of the loans from Britain and the European countries were converted into contributions for education and social welfare. Some of the donors came up with other forms of relief and reduced the interest rates. In the case of the US, repayment of the small loans were suspended forsix years, where new loans were given. Now is the time to resume such repayments.

The budgeted figure for next year for borrowings from the central bank is Rs130 billion. Such bank borrowing through printing of extra currency has upset the governor of the State bank Dr Shamshad Akhtar as it adds to the money in circulation and aggravates the inflation. But the government finds it a handy process as, while it pays the interest on bank borrowing through one hand, it collects the same as dividend by the other hand as the State Bank’s sole shareholder. The StatBank wants the government to borrow money from the public including banks and reduce inflation.

The government is resorting to such heavy bank borrowing despite of the large tax receipts it will collect next year to the extent of Rs1.03 trillion. This is an election year and the government prefers to seek votes by making various gestures and offers and relying on bank borrowing to fund that.

The government should stick to the target of bringing down the national debt to 20 per cent of the GDP which will be truly helpful to the government and the country.

http://www.dawn.com/2007/06/18/ebr11.htm
 
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Computing manufacturing growth

IN 10 months of this fiscal year, the overall manufacturing sector grew by 8.45 per cent and the large-scale manufacturing sector (LSM) by 8.75 per cent.

In the entire last fiscal year, overall manufacturing had recorded a growth of 9.9 per cent and the LSM 10.68 per cent. The LSM constitutes roughly 70 per cent of overall manufacturing.

The government released these numbers in the Economic Survey, ahead of the federal budget. Till last fiscal year, the Federal Bureau of Statistics used to post monthly data on the LSM on its website. But the latest data for this fiscal covers the first quarter only.

How, then, the government worked out 8.75 per cent growth in the LSM for July-April FY07? And how it calculated the growth in overall manufacturing? The Economic Survey does not answer this. It only gives production data of 21 industries besides making some remarks on a few other industries not in the list of 21. Traditionally the Federal Bureau of Statistics compiles and makes public the large-scale manufacturing data of 100 items.

Table(below) lists the industries whose production data are given in the survey along with their year-on-year growth rates in July-April FY07. The industries shown in the table represent less than 40 per cent of the LSM. How the remaining 60 per cent fared in FY07 is not known. Some left-outs include the industries producing value-added textiles, steel, leather, agricultural machinery, footwear, food and beverages and pharmaceuticals.

The third quarterly report of the State Bank offers data on the performance of the petroleum industry in July-March FY07. The data shows that aggregate production of 10 items in this industry declined by 5.7 per cent. Since petroleum industry makes up 7.8 per cent of the LSM, this decline also affected the overall LSM growth, and consequently raised the import bill of POL products.

With the LSM growth slowing down to 8.75 per cent in July-April FY07, it is obvious that the growth target of 13 per cent set for this sector for this fiscal year would be missed.

There are many reasons for this slippage. These include shortage of power; higher interest rates; a decline in cotton production; lack of innovative modes of capacity utilisation, dwindling investment in capacity enhancement and a surge in international prices of fuel oil, iron and steel and palm oil etc.

For the next fiscal year, the government has set 12.5 per cent growth target for the LSM. Meeting this target requires a clear identification of the factors impeding growth of the LSM and a practical approach towards addressing them.

“Power shortage across Pakistan is the number one reason for a slowdown in industrial production,” says Mr S. M. Muneer, an industrialist and ex-president of the Federation of Pakistan Chambers of Commerce & Industry (FPCC&I).

“Secondly, many industries are compelled to scale down their production levels due to very high interest rates. And most importantly, industrial activity is suffering in the absence of a one-window facility where all issues related to the utilities can be addressed timely.”

Industrialists say that the current power crisis has forced hundreds of industries to lower production volumes. Owner of a pet bottle manufacturing company in Karachi told Dawn that from the start of the summer, he is using generators to maintain a baseline production.

“But our generator collapsed one day and it took us three working days to get it repaired because the repairing company had to attend to hundreds of generators. They charged us Rs300,000, almost three times more than normal.”

That high interest rates are hurting industrial growth is not a misnomer. However, the reality is that industries across the world sometime live in high interest rates environment. How an industry becomes cost-efficient and remains so is something that many companies in Pakistan need to learn to survive in this competitive era.

But it is also true that depending upon a constant tightening of monetary policy and consequent raise in interest rates should not be considered the only effective tool to curb inflationary pressure. Hoarding, over-charging, cartel making and other bad business practices coupled with food supply shocks and bad governance in state-run institutions have a big hand in boosting inflation. So, if the policy makers continue to tackle inflation more through curbing demand pressures, it would, of course, lower production levels.

Practically, the budget for FY2007-08 is so much inflationary that extra efforts would be required to contain inflation without causing a slowdown in the output. The one per cent surcharge on all imports, minus essential items, is sure to push up prices of imported items, including raw materials for industries. And because of multi-layered supply chain in operation, the actual increase in imported items would be much higher than the rate of surcharge imposed.

Immediately after the announcement of the budget, prices of steel and paper rose sharply due to the five per cent increase in sales tax. Businessmen say that the increase in the minimum wages would also add to the cost of production, but observes point out that in majority of cases, industrial workers are hired on contractual basis and paid much lower wages than the official benchmark. Unskilled labourers working at factories normally get Rs80-Rs100 a day.

However, the fact that the prices of raw materials would rise in FY08 and interest rates would remain high in the fight against inflation poses a big challenge for the industrial sector.

The budget does offer some relief for textile-spinning sector, but it does not envisage a big change in supporting infrastructure for the industries to grow. Manager of a Karachi-based multinational consumer products’ company told Dawn that he spent three months in vain to get an additional water connection officially. “At last, we greased the palms of some officials and instantly got the connection. Now we are paying Rs1,000 per month and the arrangement is working well."

This and other such instances—and the fact that most industries nowadays purchase water from tankers, get power through generators and pay for the carpeting of the roads from their coffers—points to the government’s failure to provide a supportive environment for industrial production.

Similarly, there is a need for both the government and the private sector to work on ways for increasing capacity utilisation of large-scale manufacturing. Overall capacity utilisation was 66.3 per cent in the last fiscal year, which leaves enough scope for a continual increase every year. Automobiles, cement and fertiliser industries were good exceptions whose capacity utilisation rates were about 98 per cent, 88 per cent and 108.5 per cent respectively.

But textiles, the biggest industry, showed capacity utilisation of 59 per cent only. Worse were edible oil/ghee and sugar industries with capacity utilisation of 52 and 46 per cent only.

Clearly, these and other industries need to think of ways for boosting production for their own survival. And the government needs to provide them the required enabling environment —and not financial subsidies that make them overly dependent on the state support.

http://www.dawn.com/2007/06/18/ebr15.htm
 
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Pro-poor measures: a mere trickle

Tossing a few coins to get rid of pestering beggars is a pro-poor act but does it help in their poverty alleviation? Does it impact all the beggars there are in the market place? Is this act in proportion to one’s ability to help the poor?

Clearly, if the purpose is to address poverty, the act is most inadequate and out of proportion with the wealth possessed by the one who is giving a mere trickle.

For, the giver is merely getting the beggar off the back. The only lesson learnt thus far is not to show outrage at the one stretching out his hand and pestering while the giver is busy in personal wealth maximisation pursuits. It is now understood by many that the beggar should be accommodated and the best way to do that is to throw a coin or two on the begging palms.

It is this attitude that is reflected at the macro level too. Poverty issue is more of a nuisance and a distraction away from GNP growth rate and per capita income maximisation obsession of neo-liberals promoted in the country by the international lending agencies. So, the poor have to be accommodated as neglecting them visibly is not a wise politico-economic move. The more visibly they are accommodated the easier it is for the policy makers to defend their position on the poverty front, not that it might make a tangible dent in poverty in the country. Let us see how federal budget 2007-08 attempts to accommodate the concerns of the poor.

A closer examination reveals hardly anything significantly new. That government employees’ salaries are to go up by 15 per cent is nothing out of the ordinary. Since the current prime minister was inducted, government employees’ salaries increase has been a routine phenomenon. What has been the impact though? It is only the salaries of government employees’ that go up. Private sector organisations or autonomous units may or may not follow suit. In many cases, they do not. Private sector employees and those working for autonomous units are left high and dry as their annual pay increase is not even adjusted for inflation in many cases

As for government employees’ pay increase of 15 per cent, it may only account for inflation or may not as actual inflation rate is usually higher than the officially stated rate of inflation. So, in both these cases, even the government employees may not be experiencing real gains. Same goes for pensions’ increase. The policy makers, however, have a claim of 15 per cent salaries’ increase to make, however inadequate and limited it may be.

For private sector workers, old-age pension, old-age benefits, disability benefits, workers welfare fund have all been revised. Crucial question is the extent to which workers already benefit from these facilities, the numbers that benefit, and the extent to which employers contribute to some of these funds with ease. If there are schemes, they must work promptly for the benefit of all in the target group with active contribution of all the actors.

Up-gradation of government employees in BPS 5, 7, and 11 to BPS 7, 9, and 14 respectively is also limited to not just a few grades but to government employees. Employees of autonomous units do not usually benefit from these decisions even if they are in BPS. Budget announcements usually assume that what is true for a part is also true for the whole. They, therefore, commit fallacy of composition. And their claims need to be discounted.

Minimum wage increase from Rs4000 to Rs4600 per month may make newspaper headlines. The real marginal impact for a poor wage earner needs to be known. Another Rs500 per month may amount to another about 29.4 kg of good quality flour. But flour is not what one can go on consuming. If it was to be combined with other nutritious foods for a family of five or six, another Rs500 will vitiate in thin air in much less than a week leave alone housing, education, transportation, and healthcare, all of which are luxury expenditures for a wage earner of Rs4500 per month. So, while it may be a 12.5 per cent increase in minimum wage, by itself, it is not significant in these inflationary times. Its real impact is even less significant.

However face-saving a 12.5 per cent minimum wage increase may be for the policy makers, no country can boast of a minimum wage that amounts to only about 8-9 days of nutritious food for a family of six. Unless this threshold is breached, poverty will remain unaddressed. All nominal measures will tantamount to tossing a few coins in the hat of an earner who is reduced to a beggar as he is not compensated adequately for his/her toil.

As we lament over this minimum wage, it needs to be noted that even this minimum wage is not paid by many in various sectors. These include factory workers, informal sector, and domestic help. Factories have a tendency to run with contract labour in violation of many labour laws. While the government may increase minimum wage and be about the only one to feel content about it, does it try to ensure that, at least, this bare minimum wage is complied with by all employers who all have a tendency to pay as low as they possibly can?

Prices of pulses, sugar, and tea would be reduced at the Utility Stores whose numbers are planned to increase from 1000 to 5000 in a country of over 152 million. Out of this, at least, 60 per cent that is over 91 million would want to avail the lower prices at the USCs’. A total of 5000 utility stores would mean about 18,200 people per utility store if they are accessible. A family size of six would mean over 3000 families per store. Is it a feasible proposition to provide access to all those who need to buy subsidized food and now medicines too from the utility stores?

So, in terms of percentage and if implemented, there would be an increase in utility stores by 400 per cent that is a good defence tool but the real impact would be as in the preceding paragraph. Further, solution to price hike is not in increasing the utility stores and providing more subsidy. Greater subsidy indicates not just a rise in the number of needy or continued unmet needs, it is also a sign of market failure. Market failures require effective government intervention otherwise it is also a sign of government failure.

That market prices of food items do not reflect their true scarcity value but are hiked indicates a market that is not free but that is being manipulated. If this goes on unabated, it shows the weakness of the government that cannot touch the manipulators as these are big power groups. These vested interests if touched can cause political harm to the incumbents. That market players distort but go scot-free and cannot be reined in by the government is its huge all-time political consideration based on expediency. An attempt is then made to compensate for this injustice by showing improvement on crucial scores in the federal budget that may end up in only face-saving percentage increases with little or no real impact on the financial crunch that people experience routinely before and after the budget.

http://www.dawn.com/2007/06/18/ebr16.htm
 
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Manufactured exports stand still for 25 years

WASHINGTON: Pakistan’s market share in the world’s manufactured exports in 2005 was only 0.18 percent against India’s 0.95 percent and Bangladesh’s 0.10 percent, according to international economic consultant Dr Parvez Hasan. Quoting World Trade Organisation figures, he told the Woodrow Wilson conference on Pakistan’s economy on Friday that Pakistan’s share of world manufactured exports had shown little improvement in the last 25 years, being 0.12 percent in 1980. Dr Hasan told the conference that Pakistan’s total exports in 2005 were $13 billion. India’s total exports, however, were $69.7 billion and Bangladesh had total exports of $7.3 billion.

http://www.dailytimes.com.pk/default.asp?page=2007\06\18\story_18-6-2007_pg1_6
 
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‘Pakistan’s economic reforms ended in 2003’

WASHINGTON: Pakistan’s economic reform process came to a halt in 2003, which may be responsible for the country’s slow economic growth, according to Ambassador Manzoor Ahmad, Pakistan’s permanent representative to the World Trade Organisation.

He told a conference on Pakistan’s economy organised by the Woodrow Wilson Centre and the Fellowship Fund for Pakistan that if Pakistan desires progress, it would have to resume the reform process. He cited Pakistan’s 2007 exports at $17 billion, which Pakistan expected to increase to $45 billion in six years, requiring a growth rate that did not at present seem likely. He was of the opinion that if Pakistan entirely eliminated tariffs, its exports could instantly increase by 16 percent. Experience shows, he added, that free economies do better than managed ones, adding that the free market access given to Pakistani exports by the European Commission (EC) has since been curtailed. Consequently, Pakistan’s exports to Europe have gone down. In addition, the EC has ordered an investigation into dumping allegations against Pakistan. He stressed that Pakistan has a great deal of export potential cotton, milk, rice, wheat and sugarcane that is not being properly utilised. He said Pakistan is also a major exporter of high-quality ethanol, providing 20 percent of European demand.

Mirza Qamar Beg, Pakistan’s ambassador to Italy, said that Pakistan has no national export strategy. He said “market access” has become a “buzz word” for policymakers and may not have all the answers. He said perhaps it is the “audacity of hope” that makes Pakistan keep trying for the conclusion of Free Trade Agreements with the US and the EC. On the US’s continued reluctance to give Pakistani textiles free market access, Beg said, Pakistan does not want concessions, it wants equity. He said Pakistan has several positives including Sindh’s export potential and Balochistan’s largely unexplored mineral wealth. What Pakistan needs is “skilled development” and an improvement in the quality of its human resources, he added.

http://www.dailytimes.com.pk/default.asp?page=2007\06\18\story_18-6-2007_pg1_5
 
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Govt doesn’t have funds to end power crisis: official

KARACHI: The power crisis can not be eliminated by government resources alone, because the costs are huge, amounting to US$16 billion by 2010 and US$40 billion by 2015. Also, the crisis will become worse in 2008 before it becomes better in 2009 and 2010, Advisor to the Prime Minister on Energy Engineer Mukhtar Ahmad has said.

There is, however, a relationship that clearly indicates the link between human development and power consumption, Ahmad said. He was speaking at the inaugural session of an international symposium about the “Looming Power Crisis in Pakistan,” organized by the Institute of Electrical and Electronics Engineers of Pakistan.

Other speakers said that the technical losses due to theft and other reasons were also one of the reasons for the crisis. If losses can be reduced from 12 percent to six percent in Sui Gas, the power sector could do the same too, they maintained. Speakers also called for a policy of conservation.

Ahmad outlined the future strategy of the government to deal with the present crisis, which he said, started in 2006. He claimed that by 2010 Pakistan would have enough power to meet its demands. Environmental considerations have to be taken into account before we venture into coal-produced power, Ahmad said. He gave the example of China and said environment there has become so polluted that you cannot see from one building to the other in Beijing. A test pit would be built at the Thar coal reserves (at a cost of US$30 million) to undertake studies to be provided to investors.

The gas pipeline from Iran was in its final stages and one part is already being built at a place 200 km from the border in Iran, Ahmad said. Earlier Engineer Munawwar Baseer Ahmad in his keynote address said that addition to power generation in the country has practically been zero in the past ten years. There was also a lack of coordination between Hydel, Thermal, Oil and Gas power production by the planners.

Baseer Ahmad said that Pakistan has the second largest coal reserves in the world after the US, but the country has not bothered to use coal to produce energy.

http://www.dailytimes.com.pk/default.asp?page=2007\06\18\story_18-6-2007_pg7_1
 
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KESC to get gas to generate additional 105 megawatts power

KARACHI (June 19 2007): The federal government would provide 21-mmcfd gas to Karachi Electric Supply Company (KESC) for generating 105 MW of additional power. Addressing a press conference here at the Governor House on Monday, Sindh governor Dr Ishratul Ibad said that load-shedding coupled with technical faults in the transmission system have made the life of citizens miserable.

In view of such situation the governor met President Musharraf. The President convened a meeting involving all the stakeholders, which lasted for about five hours. During the meeting the President took immediate steps and passed orders on the spot. To give relief to Karachiites, the President agreed for an out-of-the way favour and sanctioned 21 mmcfd additional gas to KESC for generation of 105 MW power.

The governor said that work on faulty generator turbine ie Unit-IV had been completed and the KESC would be producing more power, and thus the masses would get some relief.

He informed that the peak electricity demand of Karachi was around 2400 MW while the shortage hovered around 100MW. He said that increased demand from the industrial, agricultural sector and households widened the demand-supply gap, as the supply did not increase in the matching ratio due to lack of investment in the sector.

Dr Ibad said that they had asked the KESC to avoid load shedding in the residential areas and also asked to defer infrastructure improvement work other than those of immediate nature. He also said that the government was giving subsidy on electricity and added that they have asked the KESC to provide break-up in the bills showing the subsidy given to consumer.

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Portfolio investment down $1.202 million

KARACHI (June 19 2007): Portfolio investment in the country's equity market declined by $1.202 million to $859.811 million on June 15, 2007 from $861.013 million recorded on June 13, 2007 due to outflow by USA and Singapore investors.

According to data released by the State Bank of Pakistan (SBP), major inflows were witnessed by Hong Kong investors of $730,383, Japan $956,727, Switzerland $1,094,319, United Kingdom $5,691,524 and USA $1,841,244 on June 15, 2007. On the outflows side, $243,246 were withdrawn by Hong Kong, $730,576 by Singapore, $3,840,423 by UK. and $13,044,495 by USA investors on the said date.

http://www.brecorder.com/index.php?id=579484&currPageNo=1&query=&search=&term=&supDate=
 
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