Pakistan Economy - News & Updates - Archive

[Neo]

Mysterious wheat surplus​

One day the dream economic team had to face the consequences of its own actions. The current wheat crisis is a case of “as you sow, so shall you reap.” It used to be said before the base was revised that a million ton of additional wheat contributes half a percentage point to GDP growth.

Of course a loss of wheat output of equal quantity would knock off the same percentage point of growth. After the change of base, the weight of wheat is less than before, but is still significant for a regime whose religion is growth. Any come down in terms of growth weakens its only legitimising argument.

So growth must not only happen, it has to be high enough. In October last year, the data of large scale manufacturing for the first quarter of FY 2006-07 made it very clear that the high-pitched target of 13 per cent for the whole year would be impossible to achieve.

No data was issued for the following two quarters, neither monthly nor quarterly, as is the practice. It had to be fixed by creative national accountants. If large scale manufacturing fails, a respectable overall growth is still possible if agriculture performs exceptionally well. Data for kharif crops – rice, sugar cane and cotton – becomes available in good time for the fiscal year. By March-April, the state of the news was not very good for cotton and rice. Sugar cane was the only crop worth talking about.

All these data are presented by their source agencies at the annual meeting of the National Accounts Committee headed by Secretary, Statistics. In the light of information presented, this committee is competent to decide the growth rate that is published in the Economic Survey. The importance of the chair of this committee for a growth-crazy regime cannot be underestimated. It should come as no surprise that in the past seven years, all secretaries of statistics were either those nearing retirement and hoping to get extension or additional secretaries in-charge looking for promotion. Some have had the rare distinction of double extension even as additional secretary in-charge.

This committee used to meet in the end of April or latest by early May. The practice was to have provisional estimates based for the year based on nine months data. All this has changed and this meeting is pushed as late in May as is expedient. The effort is to include a good estimate of wheat, a big ticket item. Being a rabi crop, its output can only be judged about this time. The PR advice is that a bumper crop not announced with the budget is like it never happened.

This time the pressure to perform was much greater. In an election year, a bumper wheat crop and the achievement of the trade-mark growth rate of GDP of seven per cent would be the best argument for policy (read political) continuity. There was no way to achieve this GDP target without a bumper wheat crop. The target fixed for wheat was not based on an expectation of bumper crop. It was 22.5 million tons and was ambitious any way when compared with the actual production of 21.3 million tons and 21.6 million tons in the previous two years.

The provinces, whose job it is to provide crop estimates, are stated to have reported a total of 22 million tons, which was higher than the previous two years but less than the target by half a million ton. This would have undermined the targeted GDP growth of seven per cent and, therefore, utterly unacceptable. Some midnight oil was burnt and, lo and behold, the target of 22.5 million tons was not only achieved but surpassed by as much as a million ton. With 23.5 million tons of wheat, the GDP growth rate of seven per cent was credibly achieved. The announcement of the outcome of the deliberations of the lowly National Accounts Committee came, for the first time in the history of its 86 meetings, directly from the Prime Minister’s Secretariat.

Even 22 million tons is a comfortable level of output and does not signal a difficult situation to the market despite the extra demand of Ramazan. Prices came under pressure when attempt was made to export a non-existent surplus.

With an eye on the elections which cost money, the lords of the land asked their ministry, the ministry of agriculture and food, to seek permission for exporting wheat. With a bumper crop and rising world prices, how could the permission have been refused? The bad experience of exporting wheat at the time of an earlier bumper crop, a real one, was forgotten. The venerable Mr Shafi Niaz, who then was Advisor on Agriculture and a passionate advocate of support prices, was accused by the dream economic team of an economic mentality of shortages in an era of surpluses.

So the ministry of agriculture lost no time and exported half a million tons. This brought down the actual supply of 22 million tons to 21.5 million tons. With orders for more, prices in domestic market started to rise, not only due to reduced supply but also in sympathy with the rapidly rising world prices. The panic ban on export of wheat and wheat-related products confirmed what the market had already discovered, that there never was a surplus. But the damage had already been done. The decision to import one million ton at prices way above received for the half a million ton exported, only shows how costly it was to jack up GDP growth on the basis of a spurious surplus.

It is not even amusing to see those having claimed success of first generation reform and want to go on and on to do their second generation reform, speak the language of run-off-the-mill politicians. To warn smugglers and hoarders of actions for which either no machinery exists or it has been weakened in the name of good governance, to talk of price magistrates and subsidies to utility stores, and to rely on bans rather than duties is a retreat that reformers are failing to admit. What to speak of action against private hoarders, the official hoarders – the provinces holding on to over four million tons – have ignored the dream team.

The provinces have the last laugh because the economic team had gone out of the way to encourage credit to private sector to build stocks in competition with the corrupt and inefficient food departments. As for the smuggling, the market has always catered for it, whatever the level of production. To say that two million tons have been smuggled and hoarded is an attempt to cover up the lack of integrity in the estimation of wheat crop.

Perhaps the dream economic team needs to learn some old generation lessons from a populist politician. Once atta prices go out of hand, there is no end to this atta-push inflation. Everyone who can raise the price of goods or services s(h)e sells, will do so and those who cannot, will protest. With a high incidence of poverty and no social protection worth the name, atta continues to weigh higher in ordinary budgets than the price indices assume.

Mysterious wheat surplus -DAWN - Business; September 24, 2007

 

[Neo]

Rising debt defaults​

Non-performing loans of both commercial and specialised banks rose to Rs184 billion at end-March 2007 from Rs173 billion at end-December 2006- a rise of Rs11 billion in just three months. The stock of non-performing loans net of provisioning also increased to Rs47 billion from Rs36.5 billion. And as a result, the ratio of net NPLs to net loans climbed to two per cent from 1.5 per cent.

Over this period, the gross NPLs of commercial banks rose to Rs142.8 billion from Rs134.5 billion, and that of specialised banks increased to Rs41.3 billion from about Rs38.7 billion.

The increase in NPLs indicates that the private sector is finding it difficult to service bank debt on time. And in their race for earning profits ,banks err while evaluating credit quality.

The volume of NPLs has shown an increasing trend after some years while banks’ profits have grown rapidly—thanks to low tax rates and high banking spread. The after-tax profit of the banking system zoomed to Rs84.1 billion in calendar year 2006 from just Rs2.9 billion in 2002. And in Q1 2007 it reached at Rs21.6 billion.

On the other hand, the cost of production and trading has risen sharply due to high inflation and high cost of water, gas and electricity plus a substantial increase in the bank interest rates. Bankers say that this has forced even their prime borrowers to defer debt repayments.

“Besides, banks have developed a sort of herd mentality in credit making which too is responsible for increasing NPLs,” says head of credit division of a large commercial bank.

Most banks are too focused on consumer lending without ensuring whether, “it is their cup of tea.” Resultantly, many are accumulating bad loans as they lack the expertise needed to manage such assets.

Although the loan infection ratio of consumer loans remained low at 3.2 per cent at end-March 2007, it saw a full percentage point increase during the quarter. From borrowers point of view, a big jump in mark-up was responsible for this situation.

Within the consumer loans portfolio, the highest rate of default was seen in credit cards. Bankers say they received a lot of cases of credit card payment problems during January-March 2007. “After close scrutiny we found that an increase in the mark up rate had created these problems,” said the head of a consumer finance at a local bank. “Besides, our staff who verified credentials of credit card seekers had not done their homework well,” he admitted.

At end-December 2006, credit cards had a loan infection ratio of 1.4 per cent which jumped to 3.7 per cent at end-March 2007.

In January-March 2007, corporate loans also came under NPLs as some seasonal loans issued earlier and due for repayment in July-September 2006 remained unpaid for next six months. Top bankers say corporate loans became infected partly because of the private sector’s financial woes and partly due to the banks’ inability to supervise these loans prudently.

This fits well into the much talked-about theory that part of the Rs402 billion private sector loans disbursed in FY06 was used for investment in stocks and in the real estate. And as the real estate prices slumped by the end of 2006, the borrowers began to defer debt payments.

The rise in corporate NPLs also suggests a co-relation between credit growth/NPLs and between NPLs and corporate leverage.

It has been observed that when the private sector credit grows strongly in a particular year, the stock NPLs shows a build up in the following year.

For example, when in FY05 private sector credit grew to an all time high of Rs438 billion, the gross NPLs of commercial banks also increased by Rs4 billion.

Since the private sector credit of Rs402 billion in FY06 was in excess of the target of Rs330 billion, an increase in NPLs of commercial banks in FY07 may be explained by the quality of credit.

Similarly, studies suggest that the banking sector asset quality is dependent on the financial health of the corporate sector. As the corporate sector’s profitability in calendar year 2006 was weaker than in 2005, it also increased NPLs till the end of March 2007.

Bankers involved in credit disbursement say that NPLs for April –June 2007 might also show further increase. They say that the agriculture sector would see repayment problems as the monsoon rains and floods have stripped farmers of cash. Textile spinning sector is also facing liquidity problems and is unlikely to repay bank loans on time. And higher interest rates on consumer loans would continue to create payment problems.

Agricultural loans show the highest loan infection ratio because loan recovery in rural areas dominated by powerful feudal lords is not a simple task. At end-March, 23.7 per cent of all agricultural loans were non-performing.

Bankers say non-performing loans are likely to increase further in April-June 2007 due to not-very-tight credit policies of banks during calendar year 2006. But as banks became more prudent in lending with the start of 2007, “you’d see its impact on NPLs after six months and I’m sure from July 2007 onwards there will be some regression in NPLs,” predicted a senior official of state-run National Bank of Pakistan.

An SBP official said, the SBP views the growing trend in NPLs with concern “but we are certainly not alarmed.” The reason is that the bulk of NPLs upto March 2007 are concentrated mostly in initial categories i.e. where the principal or interest or both remained unpaid for three months or six months. A State Bank report, however, showed that a portion of total NPLs was also liable to be treated as “Loss”.

Going forward, “banks will have to further tighten their credit appraisal and monitoring standards to stem increase in their NPLs portfolio and re-assess their exposures in relatively high risk areas,” says the report.

Bankers involved in credit disbursement and recovery say that a fast-paced mergers and acquisitions in the banking industry had also contributed to growth in NPLs. While mergers and acquisitions go on, many bankers switch over jobs and newcomers take time in having a grip on their new assignments. As a result banking operations suffer including in the areas of credit quality assessment and recovery.

(During January-March 2007 banks’ cash recovery fell slightly to Rs7.15 billion from Rs7.25 billion during October-December 2006).

“Generally speaking, banking industry is facing human resource scarcity, particularly at the middle and low levels,” says Raza Fatimi, himself a mid-level official in credit department of a local bank. “We hire new boys on contract and train them in different disciplines but it is just too difficult to get the best out of them,” he said and admitted that banks often do not pay them enough.

Earlier this month, the SBP sent a draft circular to all banks proposing that they make 100 per cent provisioning against all NPLs instead of following different slabs currently in practice.

It also proposed that the time period of one year should be reduced to six months for classifying non-performing personal and consumer loans as “Loss.” After having input from banks the central bank is likely to implement new standards from next year to stimulate loan recoveries. But banks fear a big decline in profits in case of implementing these measures.

An executive member of Pakistan Banks Association said making 100 per cent provisioning against all categories of NPLs could be very difficult. “The proposal about reducing the time period for treatment of non-performing personal and consumer loans as loss, merits consideration.”

Rising debt defaults -DAWN - Business; September 24, 2007

 

[Neo]

Need for an export-driven wheat production strategy​

THE State Corporation of India recently invited a tender for import of 511,000 tons of wheat for Oct-Dec 2007 at a price as high as $380 per ton. But, Pakistan failed to grab the opportunity of earning precious foreign exchange--- despite Minfal’s claim of having harvested a bumper crop of 23.5 million tons amidst global shortages--- as compared with 21.2 million tons produced last year.

Paradoxically, the government had to ban the export as prices of wheat and flour rose sharply in the domestic market. There could either be large-scale hoarding, or the government’s claim of bumper crop of 23.5 million tons was wrong.

Press reports also suggest sizeable wheat smuggling to neighbouring countries. Recently, the government also had to ban export of wheat products. It is a pity that in an age of advanced statistical and computational techniques, Minfal can not accurately assess measure the wheat production even four months after the harvest.

According to USDA, global wheat production was 594 millions tons during 2006-07 as against 616 millions tons in 2005-06. Wheat prices escalated in the international market from $160/metric ton to present $300-325/metric ton.

India is importing 3-4 million tons of wheat to beef up its strategic reserves. In this scenario, export of two million tons would have fetched a precious foreign exchange of $600 million and an amount of more than Rs36 billion would have been pumped into the rural economy of Pakistan. Increased crop would have also kept the wheat and flour prices low thereby saving poor consumers from spiraling food inflation. But, due to un-imaginative policy of the Minfal, Pakistan and its farmers were deprived of earning good prices and precious foreign exchange.

Had the Minfal and the farming community been more innovative and taken the international wheat production shortage into account, the country would have been able to harvest a much bigger crop last year as it was a proven fact that price signals are the most decisive factors in enhancing production.

Given that wheat is the staple food of the people, its importance demands a sizeable crop without fail, to meet the needs of ever-increasing population. Consistent good crops are also needed to control high food inflation which is making the life of ordinary people miserable. Based upon its natural resource base, farmers enjoy comparative advantage in wheat production but still it is not a cash crop due to its low support price. Surprisingly, crop area under wheat is stagnant at about 8.4 million hectares and production has not increased much since 21 million tons was harvested in 99-2000, though a better crop was claimed this year.

Wheat policy is inward looking and ignores the international conditions altogether. Farmers with subsistence land holding do not have any knowledge of international scenario and just adopt the traditional cropping pattern which is not in sync with the market force of the world. Big farmers never take farming on economic factors as to them land is a means to attain political power and prestige which is then used to amass economic power as well.

The provincial agriculture departments are engaged in issues dealing with the production and supply of agriculture inputs. The policy making in case of wheat is the domain of the federal government. The Minfal should, therefore, adopt the wheat policy well before the growing season keeping in view the international production scenario.

An innovative wheat policy--- “Grow for ourselves and exports” is needed. Instead of fixing the wheat production target arbitrarily, at 10-15 per cent above the previous year’s production, Minfal should fix the target in September on the basis of crops harvested in Europe and especially, on expected crop size of Australia and Argentina as they are major wheat-exporting nations.

Another factor would be carryover wheat stocks available with major wheat producers every such as USA, Russia, Ukraine, Australia and Canada etc. If the production in Australia and Argentina and the global wheat stocks are less, Minfal can just increase wheat target, predict expected price in next year and start educating farmers to increase the crop area and gear up production effort so that a larger size of crop is harvested which, can not only ensure food autarky, but also generate sufficient surplus for exports.

Wheat prices in the international market are expected to be in the higher range due to fears of on-going drought in Australia. Another factor is the increasing use of corn by bio-fuel industry. This may lead to increased demand for wheat in international market.

It is time that policy-makers in Minfal and farming community forums, such as the Kisan Board should start looking outwards for developing production patterns of different crops.

Need for an export-driven wheat production strategy -DAWN - Business; September 24, 2007

 

[Neo]

When the number of automobiles doubles!​

FROM once the largest ship-breaker in the world, Pakistan is now wanting to be a significant ship builder, and we are seeking to do that not through one shipyard but two large ones.

Simultaneously the automobile industry in Pakistan has set the target of manufacturing half a million cars and one million motorcycles by 2010. That is three years from now and that would amount to more than doubling the existing capacity.

Can we really do that when our basic steel production capacity is one million tones? In addition we will be producing a number of buses and trucks to carry our goods.

Automobile imports within first nine months of the last financial year exceeded one billion dollars and if the new target is to be achieved, the automobiles imported in parts will exceed two billion dollars and we are planning that at a moment with a large trade deficit and an external account deficit of over $7 billion.

The capacity of Pakistan Steel would have been increased eventually to three million tones if the Supreme Court of Pakistan had not called off the privatisation of Pakistan Steel saying it was done “in indecent haste”. While the Pakistan Steels eventual output is to be three million tones, the current steel consumption of the country is 3-4 million tones.

World steel prices have been rising very high in recent months and the government has been adding to the taxes on it so the domestic price of steel has gone very high.

Do we have enough of technologies and well-trained technicians to achieve such large targets in such a short time. A manager of a Japanese automobile company in Karachi asks “what do I do with a worker on the assembly line if he can not read the manual”? Evidently we need far more educated and trained technical workers who can adapt to new technologies quick.

We are not talking here of imported or foreign-assembled cars in large numbers, particularly the luxury models but of locally assembled cars---in fact the local manufacture of the entire car along with engines.

Because of defects in locally manufactured cars, which get corrected subsequently, there is a large preference for foreign-assembled cars and even old foreign-assembled cars. The locally assembled cars have yet to become perfect to the satisfaction of the Pakistani customer who pays a heavy price inclusive of hefty duties.

When we get half a million cars and one million motorcycles on the road, where the roads for them? The roads are already congested and clogged by existing automobiles. Where is the parking space in major cities?

Setting large targets is easy and very alluring, but to realise that is tough and demands a great deal of exertion.

So not every developing country has opted for manufacturing automobiles. India is different and has a long history of automobile making. Malaysia under Mahathir Mohammed tried to make its own car but had to go through too many exertions and sacrifices.

When we double the number of cars we produce, we would need far more petrol, engine oil and gas. Do we have enough of that when our own oil meets only 20 per cent of our needs? World oil prices have hit $84 a barrel and the external account deficit of the country cannot go on rising.

When it comes to motorcycle production, the imported vehicles have resulted in the shutting down of many local factories. The Chinese motorcycles have a dominant share of the market and when within five years the trade between China and Pakistan touches $15 billion, most of the motorcycles will be of Chinese origin. Meanwhile, their prices would have come down and their quality improved because of the growing Chinese technology.

We have tried to attract more western car manufacturers along with those from East Asia or Japan and Korea. We tried to get the Daimler’s Mercedes to manufacture in Pakistan beginning with trucks but the Mercedes eventually dropped the project.

Following the rise in the price of cars, and preference of foreign-assembled cars, we allowed five-year-old cars. Many cars came in and so the age of the car was reduced to three years. Over 13,000 five-year-old cars are lying in Japan, as only three-year-old cars can be imported to Pakistan after the current budget. The disadvantage of importing foreign assembled old cars is that we need to import spare parts soon to repair them and the process can become too costly.

While the high-income groups prefer to import luxury cars and the low-income group old foreign assembled ones, public transport is receiving little attention. Consequently the roads are clogged by luxury cars and high-priced vehicles, the workers find it difficult to reach the place of their work and return home. And the transport costs a great deal.

It has become easy for the middle-income group to buy new cars using bank loans which are offered in plenty. Almost every foreign and local bank is offering car loans which are secure as far as the banks are concerned and quite often no cash down payment is essential.

Too much petrol gets wasted by cars and public transport owing to traffic jams and this waste will become higher as the number of cars increases day by day.

A developing country with 160 million people, of whom one-third lives below the poverty line, are to adopt a policy primarily aimed at helping the low-income group instead of catering to the needs of the rich and the very rich who can easily avail a car.

We should have a proper public transport policy in which the waste is cut to the low and the transport is really helpful to the people. The index of success of the economic policy is not the number of vehicles that the country produces, but how helpful is the policy to the low income groups who are to move from homes to the factory and back to their place of residence.

When the number of automobiles doubles! -DAWN - Business; September 24, 2007

 

[Neo]

Moves towards trade corridor​

The federal government has approved setting up of a trade, energy and transport corridor between Pakistan and China. For this purpose, a 16-member Policy and Supervisory Board has been constituted under the chairmanship of the President of Pakistan. Plans will be finalised by a Pakistan-China bilateral working group.

A 50-sq km piece of land will be allocated to Chinese developers at nominal rates for establishing special economic zones (SEZs). Incentives similar to the Chinese SEZs may be provided.

A site for China-Saudi oil refinery will be identified and its terms and conditions decided on a priority basis. The energy advisor has been directed to recommend within 60 days the oil concessions for Chinese companies which are expected to bring in at least 200 rigs.

The dry port at Sost near the Pakistan-China border, the seaport, airport and oil refinery at Gwadar, the proposed rail sector projects and the expansion of the Karakoram Highway are moves toward setting up the energy corridor.

Islamabad has already decided to award the contract for construction of an international airport at Gwadar at a cost of $70 million to a Chinese company — the China Harbour Engineering Company (CHEC).

By virtue of its geo-strategic location, Pakistan can serve as an energy corridor between the Gulf and China and the Gwadar port can become a major outlet for trade between the China, Central Asia and the Gulf region. The proposed $6 billion National Trade Corridor (NTC) envisages improving all sectors of communications, including ports, shipping, aviation.

The Asian Development Bank has agreed to provide $1 billion for the NTC project that would link Karachi to Gwadar and Khunjrab in Northern Areas.

The World Bank and other lenders have already agreed to provide $1.8 billion for the Karachi-Gwadar-Khunjrab section, which is estimated to cost $2.8 billion. The World Bank will provide $300 million within a year.

China’s stakes have witnessed a steady growth in Pakistan over past many years. It has made investments in a wide range of infrastructure projects in different parts of the country, particularly in strategically located Balochistan and the Northern Areas.

It has been focusing on building the strategic transport links between Pakistan’s Northern areas and its remote western regions including Xinjiang. The number of road links between Pakistan and China has risen to eight.

Plans are also afoot for a rail link between Pakistan and China.

The Chinese have already built the railroad up to Tibet and its extension to Pakistan will ensure a faster movement of cargo between the two countries.

The linking of the KKH with Gwadar will need building of new highways and rail tracks passing through Balochistan’s vast expanse.

China and Pakistan are also considering to link the Karakoram Highway to the southern Pakistani port of Gwadar through the Chinese-aided Gwadar-Dalbandin railway, which extends up to Rawalpindi.

Islamabad and Kabul recently signed an understanding for laying railway track between Chaman (Pakistan) and Spinbudlak (Afghanistan). The project will take around one year to complete. Around 10.5 km of track would be laid at a cost of Rs700 million.

Under the accord, Pakistan, in the first phase, will provide the infrastructure to introduce railway system up to Spinbudlak. In the second phase, the track will be extended up to Kandhar and there from up to Khushka through Herat.

Pakistan Railway will complete feasibility study for laying of track between Spinbudlak and Kandhar. It would be a pioneering rail project that will introduce railway system in Afghanistan.

Moves towards trade corridor -DAWN - Business; September 24, 2007

 

[Neo]

Is the economy slowing down?​

Pakistan’s import bill of petroleum products slipped 17 per cent in July-August FY07. This happened not due to a fall in prices but in import volumes. It indicates that the refining capacity of local petroleum companies has increased as is clear from a growth in the import of petroleum crude. But it also points to a slowdown in the economic activity.

The Asian Development Bank recently estimated 6.5 per cent growth in Pakistan’s GDP for FY08 against the official target of 7.2 per cent.

This low growth forecast takes into account “the tightening of the monetary policy; the impact of high international oil prices; declining growth in exports and expected slower growth in the US economy, Pakistan’s largest trading partner, in July–December 2007.”

That the monetary tightening would impede industrial growth is fast becoming evident. Industrialists including those in textiles sector say higher input cost including higher interest rate has robbed them of their competitive edge in international market.

Textile exports fell 5.2 per cent in August 2007 and showed a negligible growth of 1.2 per cent in July-August combined. Overall exports, however, grew 4.3 per cent to $2.96 billion. This suggests that Pakistan may miss the export target of $19.2 billion for this fiscal year.

However, remittances from overseas Pakistanis continue to rise.

In July-August remittances grew over 21 per cent to $985 million. The ADB says the remittances might reach $6.2 billion at the end of the fiscal year in June next.

But as exports are unlikely to reach the targeted level, a jump in remittances would contribute much towards balancing the current account. The ADBP projects that the current account deficit would rise to 5.5 per cent of GDP in FY08 from 3.9 per cent in FY07.

For the time being, strong inflows of remittances have kept the foreign exchange reserves intact at $16 billion and firmed up the rupee.

Forex inflows through remittances, exports or other channels have also raised the rupee liquidity levels in the inter-bank market.

But as individuals and corporates make large withdrawals from bank deposits for spending in Ramazan, banks are experiencing a liquidity crunch. So strong has been the liquidity shortage that banks resorted to heavy discounting from the State Bank several times during the week ending on September 21. This kept overnight lending rate tied to 9.9 per cent, slightly below the discount rate of 10 per cent, most of the time during the week.

Bankers anticipate that the liquidity shortage would continue throughout Ramazan and ease off in the middle of October.

They say it is not only Ramazan spending spree that has taken so much cash out of the banking system. “The presidential elections next month and general elections due afterwards also explain large withdrawals from deposits recently,” said treasurer of a local bank.

A leading moneychanger said that branches of foreign exchange companies in the Punjab and NWFP have also reported large selling of dollars, sterling and euro in the last few weeks. “Part of this selling could be linked to political activity ahead of elections.”

In July-August CPI inflation rose 6.4 per cent year-on-year but food inflation increased 8.5 per cent.

Growing incidence of hoarding and smuggling of food items like wheat and wheat flour makes it difficult to rein in food inflation. The price of wheat has soared to the highest level last week despite the fact that the country has 1.5 million surplus grains. In the past few weeks, the government repeatedly promised to launch a crack down against hoarders and smugglers but that is not in sight. On the contrary, it shot down a proposal from the directorate of customs intelligence to employ helicopters to check smuggling on Pakistan-Afghanistan borders.

For those who think that overall inflation would continue to fall even if food inflation remains higher, some reality checks might be in store. Already, the Ramazan-related price hike is yet to show in CPI inflation of September.

Besides, prices of a variety of items from fertilisers to furnace oil to liquefied petroleum gas to steel products have been on the rise. The international oil prices have touched $84 per barrel with prospects of rising further. Besides, the fiscal deficit is set to rise beyond the targeted level due to an increase in pay and pensions, larger subsidies announced ahead of elections and a 20 per cent increase in budgeted development spending. The ADB says it might touch 4.2 per cent of GDP against the target of four per cent. All this point to the possibility of inflation exceeding the target of 6.5 per cent.—Mohiuddin Aazim

Is the economy slowing down? -DAWN - Business; September 24, 2007

 

[IceCold]

Pakistan plans to import 100 MWs electricity from Iran

ISLAMABAD: Pakistan has planned to import 100 megawatts of electricity from Iran at the price of 6.25 Cents per unit.

National Economic Council’s executive committee a few days ago had given approval to this plan of importing 100 MWs of electricity from Iran. This project costing a total of Rs3.60 billion for laying 100 kilometers long transmission lines on completion would provide electricity to Pakistan via Gawadar at 6.25 Cents per unit

According to one Iranian news agency, Export Development Bank of Iran would provide 85 percent of the cost of the project finalized between the power generation companies of the two countries and this project would be completed in three years. Pakistan is already currently importing 39 MWs of electricity from Iran.

 

[Bushroda]

Is the economy slowing down?​

Is the economy slowing down? -DAWN - Business; September 24, 2007

Is it that the US subprime effect beginning to be felt in Asia?

 

[Neo]

Pakistan become destination of choice for all investors: Prime Minister ​

ISLAMABAD (September 25 2007): Prime Minister Shaukat Aziz on Monday said that a level-playing field to both local and foreign investors and government's macro-economic policies and structural reforms, had greatly encouraged foreign investment in Pakistan.

He was talking to a delegation of Capital Investment Overseas, Abu Dhabi, headed by Chairman, Abdulhamid Saeed, who called on him here at the Prime Minister House here on Monday.

The Prime Minister said that with a growth rate consistently ranging between 6-8 percent, the expansion in middle class and significant rise in per capita income, Pakistan had become a destination of choice for all foreign investors.

He said that Pakistan greatly values its brotherly relations with UAE which were based on common faith, values and a shared perception on international issues and were growing with the passage of time.

Abdulhamid Saeed informed the Prime Minister that as a result of stable economic policies and good governance coupled with consistent growth in the economy, UAE looked at Pakistan as a destination for its investment.

He said that close links between the two countries would lead to UAE's increased investment in Pakistan. He apprised the Prime Minister of the details of his Company's proposed project to build a state of the art five-star hotel in Lahore comprising 602 rooms with an estimated investment of Rs 20 billion which would be completed by the year 2011.

Business Recorder [Pakistan's First Financial Daily]

 

[Neo]

Pakistan to get $0.170 billion ​

ISLAMABAD (September 25 2007): Pakistan and United States here on Monday signed five amendments for additional funding of $169,938,713 to the ongoing five-year $1.5 billion bilateral agreement of development assistance to Pakistan.

The agreement was signed by US Agency for International Development (USAID) Pakistan Mission Director Anne Aarnes and Secretary for Economic Affairs Division M Akram Malik. Akram Malik thanked the US government for providing additional funding, which would help further strengthen the economic co-operation between the two countries.

Anne Aarnes said, "The United States government is proud to continue working with the government of Pakistan in improving the living standards of its citizens." The funding would be utilised for education, health, good governance, economic growth and reconstruction of earthquake-hit areas of northern Pakistan and Azad Jammu and Kashmir, she said.

She said that continued economic growth, greater political stability and better educated and healthier Pakistan society also benefits the United States, and added that "it creates the conditions for our continued joint success in fight against terrorism".She said that the agreement was manifestation of longstanding bilateral relations between the two countries.

The bilateral agreements are the instrument using which the United States, through the USAID, is providing $1.5 billion to Pakistan over five years in the areas of education, health, democracy and governance, economic growth and earthquake reconstruction.

Both governments revise the agreements annually to add additional funds, and Monday's signing marked the fifth cycle of amendments to the original agreements that the US had signed with Pakistan in 2002 with the aim to help Pakistan address its development needs as a strong US ally in the war against terror. This year's amendments will add approximately $200 million.

Business Recorder [Pakistan's First Financial Daily]

 

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Laboratories in major industrial zones proposed ​

ISLAMABAD (September 25 2007): Minister for Health Nasir Khan has proposed setting up of quality labs in major industrial zones to conduct stability studies and other tests relating to medicines.

The labs, to be accredited by Pakistan National Accreditation Council have been proposed to ensure quality of medicines in the country, Nasir Khan said while talking to a delegation of pharmaceutical manufacturers of Islamabad and Rawalpindi Zone.

Talking to a group of journalists here on Monday, senior representatives of the zone, Muhammad Asad and Shaukat Sindhu said the minister was apprised about the major problems confronting the pharmaceutical manufacturers.

The minister agreed that all sort of business activities should continue in parallel to the policy making and directed the concerned officials to issue all pending registration letters to the companies under Heat, Ventilation and Air Conditioning (HVAC) policy. The minister also approved one year extension in the installation of HVAC system by the companies which is ending on December 31 this year.

Muhammad Asad, a CEO of Global Pharmaceuticals informed that the minister said that the manufacturers would keep on doing stabilities but condition to submit data for new registrations will be applicable for the applications submitted after June 30, 2008. He said it was also decided that a committee comprising secretary health, director general health and drugs controller will meet with representatives of pharmaceutical manufacturers soon to formulate and finalise the agreed decisions.

Business Recorder [Pakistan's First Financial Daily]

 

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Over Rs 14 billion allocated for construction of roads ​

SIALKOT (September 25 2007): Punjab government has set aside more than Rs 14 billion during current fiscal period for the construction of new roads and widening of existing roads in the province. Official sources told Business Recorder here on Monday that under the programme 600-km long new roads would be constructed while existing 700-km roads would be widened in various parts of the Punjab.

Under the programme about 10 feet roads would be widened to 20 feet while 12 feet roads would be widened to 24 feet. The step was being taken for further improving the means of communication system and to ensure safe and hassle-free travelling facility to the masses in the Punjab, sources added.

Business Recorder [Pakistan's First Financial Daily]

 

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Balochistan to get 20pc shareholding in PPL: Deal clears way for GDRs​

ISLAMABAD, Sept 24: Having agreed to provide ‘reasonable shareholding’ to Balochistan in the Pakistan Petroleum Limited (PPL), the government has decided to sell minority stakes of the country’s oldest gas producer in the international market.

Informed sources told Dawn on Monday that an agreement in principle has been reached between the federal and provincial governments to allow 15-20 per cent shareholding to Balochistan along with proportionate representation on its board of directors to end a long-standing provincial claim over the company.

PPL is the country’s oldest and largest exploration and production company with annual sales revenue touching Rs20 billion. It produces more than 300,000 million cubic feet of gas and more than 240,000 barrels of oil per year, besides substantial annual production of condensate, liquefied petroleum gas and other minerals.

It has been on the privatisation list, of course, with continued postponements since 1998 under a covenant with the World Bank’s International Finance Corporation (IFC), which has about seven per cent shareholding in the company.

According to an official statement, a meeting of the Privatisation Commission board held by the newly-appointed minister Wasi Zafar on Monday included PPL among three other major public sector entities in the ‘priority privatisation programme’ for listing on the international market through Global Depository Receipts (GDRs).

Other companies, for which GDRs are planned to be issued, include National Bank of Pakistan (NBP), Habib Bank Limited (HBL) and Kot Addu Power Company (Kapco), the statement said. All these entities are already listed on the domestic stock exchanges.

Informed sources said the decision to issue PPL’s GDRs was taken because of some technical and legal aspects that were delaying the strategic sale of PPL’s majority shareholding, including formal transfer of PPL shares to the Balochistan government.

More importantly, the decision about the GDR issue would give a political boost to the government because of a resultant appreciation of share value in the stock market. This will also be in line with the government’s claim about continuity and consistency of the economic policies.

“Had that not been a consideration, there was no logic to announce such a decision in the midst of election season and that too without a privatisation schedule, a participant of the PC board meeting told Dawn.Balochistan has been demanding of the federal government to transfer entire ownership of the PPL to the province on the ground that the provincial energy resource had kept on feeding the country’s energy requirements since independence and hence it was time to compensate the province.

The provincial assembly had also adopted a unanimous resolution to this effect.

However, the current provincial set up changed its stance to the extent that the major shareholding might go the private sector as the centre planned to sell but since it was a provincial resource, a minority shareholding to the province would be a source of revenue to the cash-starved province.

After a lengthy negotiation process the centre agreed in principle to this modified demand. A lot of legal paper work, however, would now be needed to implement this decision, “but politically this is a settled issue”, a senior government official said.

PPL is the operator of Pakistan’s oldest Sui gas field. The federal

government had taken over more than 63 per cent shares of the PPL from Barmah Oil Company in 1997 to raise its ownership to about 94 per cent.

Later, it decided to privatise the company but the Balochistan Assembly adopted a resolution asking the federal government to give its ownership to the province. The centre did not oblige the request then.

About two years ago, the federal government reduced its share in the company by 15 per cent through initial public offering (IPO) and planned to sell 51 per cent shares along with management control of the PPL. The plan was later put on the back burner because of structural lacunae in the gas pricing mechanism that also delayed the sale of Sui Southern and Sui Northern Gas companies.

Balochistan is currently in a classic debt trap – taking new loans to service old – and mostly relying on central banks overdraft to meet its running expenditures and interest repayments.

The official statement said the meeting also reviewed progress on the privatisation of National Power Construction Company (NPCC), Pakistan Tourism Development Corporation (PTDC) motels and restaurants, SME Bank, Heavy Electrical Complex (HEC), Faisalabad Electric Supply Company (FESCO) and Jamshoro Power Company (JPC).

The financial adviser for NBP GDR, the consortium of Deutsche Bank, Morgan Stanley and AKD Securities made a presentation before the PC board regarding the offering structure of the transaction, the statement concluded.

Balochistan to get 20pc shareholding in PPL: Deal clears way for GDRs -DAWN - Business; September 25, 2007

 

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Pakistan, US to devise new economic framework​

ISLAMABAD, Sept 24: Pakistan and the United States have decided to develop a new economic framework to broaden cooperation in bilateral trade, investment and infrastructure development.

“After having developed a political framework, time is for developing a new economic framework between the two countries aimed at providing substantial financial support to Pakistan,” Prime Minister’s Adviser on Finance Dr Salman Shah told Dawn on Monday.

He said a five-member high-level delegation, to be led by him, will leave for Washington on October 17 to hold “strategic dialogue on economic issues” with senior US officials. The prime objective is to effectively promote trade and economic

relations between the two countries.

One of the important efforts, Dr Shah said, is to double US investment in Pakistan from $1.7 billion to $3.4 billion within next two years for which Bush administration has assured to greatly facilitate the American investors in Pakistan.

Pakistan has successfully attracted an all time high $1.7 billion US investment in 2006-07, which needed to be further enhanced, he added.

“We hope to have substantial US investment in infrastructure projects and increased assistance for the development of Balochistan and Federally Administered Tribal Areas (FATA),” Dr Shah said adding that Pakistan currently required massive investment to improve its old and fragile infrastructure.

“Without improving this infrastructure we cannot sustain our economic development”, he said hoping to have an enhanced cooperation during 2007-08 between the two sides in the infrastructure field.

The adviser did not believe that in the absence of the much-delayed Bilateral Investment Treaty (BIT), there would be any problem to attract sizable US investment in Pakistan. “This investment from the American side is already taking place and only needs to be enhanced significantly,” he said.

Responding to a question, Dr Shah said that unfortunately trade and economic relations between Pakistan and the US did not greatly improve over the years as were the political relations. “But now this is the decision of both the governments to substantially enhance economic cooperation and this will be very good for Pakistan”.

To a question he said that the US government had expressed its willingness to provide considerable assistance for the development of Balochistan and FATA, particularly to promote education and health activities there.

During the visit, he said, Pakistani delegation will also have annual consultation meetings with the World Bank and the International Monetary Fund (IMF) in Washington.

Pakistan, US to devise new economic framework -DAWN - Business; September 25, 2007

 

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Abu Dhabi firm to build Rs20bn hotel in Lahore​

ISLAMABAD, Sept 24: Capital Investment Overseas — an Abu Dhabi based company, will build a five-star hotel in Lahore, comprising 602 rooms with an estimated investment of Rs20 billion.

The construction of the hotel will be completed by the year 2011, said chairman of the company Abdulhamid Saeed in a meeting with Prime Minister Shaukat Aziz here on Monday.

This will be the second big venture of a UAE-based private company to make huge investment in the hotel industry during the last two years.

Mr Saeed informed the premier that as a result of stable economic policies and good governance, coupled with consistent growth in the economy, UAE looks at Pakistan as a destination for its investment.

He said that close links between the two countries would lead to UAE’s increased investment in Pakistan.

Prime Minister Shaukat Aziz said that a level-playing field to both local and foreign investors and government’s macro-economic policies and structural reforms has greatly encouraged foreign investment in Pakistan.

He appreciated the Capital Investment Overseas’ investment in the real estate sector in Pakistan and said that the government of Pakistan would continue to provide every possible facility to foreign investors.

Mr Aziz said this would add to the tourism and corporate interest in the historical city of Lahore, in addition to relieving pressure on existing hotels and creating job opportunities

He said that with a growth rate consistently ranging between 6-8 per cent, the expansion in middle class and significant rise in per capita income Pakistan has become a destination of choice for all foreign investors.

Abu Dhabi firm to build Rs20bn hotel in Lahore -DAWN - Business; September 25, 2007