Pakistan Economy - News & Updates - Archive

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Inflationary pressures to stay due to monetary overhang: report ​

Sunday, September 30, 2007

KARACH: Further inflationary pressures may be seen in near future owing to monetary overhang research analysts said Saturday.

“Monetary overhang of 4.6 per cent would further fuel inflation,” Samiullah Tariq researcher with InvestCapital Securities said in his report. He pointed out that GDP growth remained 14.7 per cent (real growth plus deflator) last year, while the money supply growth remained much higher due to a variety of factors.

“Consequently, a monetary overhang has been created which would be inflationary for the economy,” Samiullah stated. “Presently, we are observing inflationary pressures in the economy (MoM inflation for Aug-07 is at a 12-month high of 1.3 per cent). We believe it would be difficult for the government to contain inflation below 7 per cent against its target inflation of 6.5 per cent if the current situation persists,” he opined.

The SBP has released the money supply numbers for FY07. Actual money supply growth of 19.32 per cent has outstripped the FY07 target of 13.5 per cent amid rising net foreign assets (NFAs) on the back of higher foreign investment (+88 per cent inclusive of direct and portfolio investment) and remittances (+19 per cent).

Samiullah Tariq said government sell-offs restricted borrowings but fuelled NFAs The government borrowing has remained restricted during the year despite higher-than-expected fiscal deficit of 4.3 per cent of GDP against the target of 4 per cent for FY07.

The government offloaded significant amount of its holdings in UBL ($650mn/Rs39.2bn) HBL (Rs12.1bn/$200mn) and OGDC ($811mn/Rs49bn) to mitigate the impact of rising development expenditures (+16 per cent YoY), he reminded.

In addition, the government also floated Eurobonds in the international market worth around $750 million (Rs45 billion) in order to take advantage of the excess liquidity present in the global market.

These government transactions coupled with FDI of $5.1 billion (+46 per cent) and portfolio investment (inclusive of government’s sell-offs) of $3.3 billion (up 241 per cent) contributed to 274 per cent rise in NFAs from Rs73 billion to Rs275 billion.

This rise in NFAs is also evident in the rising foreign exchange reserves of Pakistan, which have increased by $2.5 billion from $13.1 billion at Jun-06 to $15.6 billion on Jun-07. Private sector credit flow down by 9 per cent during FY07. An in-depth analysis of the credit borrowers shows that 45 per cent of the total loans extended were received by the manufacturing sector.

Among the manufacturing industries, food products and beverages (11 per cent), textile weaving (5 per cent) and paper & board industries (3 per cent) have made major contributions to the total private sector credit.

Major expansions are being witnessed in the agricultural credit as the growth of agriculture has risen by 5 per cent in FY07. Higher food prices (+10 per cent for FY07) and higher production volumes boosted farmer’s confidence, hence, credit extension has increased.

Credit for Mining & Quarrying has increased by 9 per cent as a consequence of rising commodity prices around the world. Oil prices are presently up by 32 per cent YoY. In addition, the Petroleum Policy 2007 is expected to provide clear incentives to investors in order to achieve self-sufficiency for the country’s energy needs. Investment into fixed assets in the Mining sector - measured by gross fixed capital formation - has increased by 94 per cent during FY07.

Credit for the Manufacturing sector grew on the back of higher investment into FMCGs, Paper & Board industries. Pakistan’s consumption expenditure (inclusive of government and private) has increased at a 5-yr CAGR of 15 per cent, which has increased demand for packaged food and products.

Among the Textiles, the total sector witnessed zero percent growth, while among the sub sectors Weaving was the best performer. Spinning and finishing sectors have witnessed significant credit retirement, as supply glut situation has been faced by these two sectors. This credit retirement has been compensated by expansion in Weaving, Knitwear and Apparel.

“We believe that credit growth would improve after the political uncertainty would come to an end till first quarter of calendar year 2008. As the confidence of the investor would improve, investment would increase pushing the GDP growth higher in the coming years.

Inflationary pressures to stay due to monetary overhang: report

 

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Current account gap shrinks in July-Aug​

ISLAMABAD, Sept 29: The current account deficit shrank by $562 million to $1.434 billion in the first two months (July-August) of the current fiscal year as against $1.996 billion during the same period last year, says a fact sheet of the ministry of finance issued on Saturday.

As percentage of GDP the current account deficit in the first two months stood at 0.9pc of the projected GDP for the year as against 1.4pc in the corresponding period of last year.

According to the details, exports (on fob basis) have grown at an average rate of 6.7pc during the period under review amounting to $2.910bn. Imports on the other hand recorded a modest fall of 0.6pc totalling $4.624bn during the period.

The narrowing of trade deficit is the direct result of improvement in exports on the one hand and a marginal decline in imports on the other. The improvement in the trade balance during the period under consideration was an encouraging development and would have salutary impact on the country’s overall balance of payment.

Invisible balance maintained a surplus of $269 million as opposed to a deficit of $82 million in the same period last year. Private transfers also registered an improvement of 41pc or $588 million over the corresponding period last year.

Workers’ remittances also grew by over 21pc to $984m in the first two month of this fiscal year.

Current account gap shrinks in July-Aug -DAWN - Business; September 30, 2007

 

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Pakistan’s rice exports to Turkey may go up​

ISLAMABAD, Sept 29: Pakistan will increase export of rice to Turkey in the wake of dispute settlement body of WTO decision asking Ankara to remove burdensome procedures and implicit barrier to market access.

This decision would really have a positive impact on Pakistan’s exports because it would remove burdensome procedures and barrier to market access in the Turkish market, an official in the commerce ministry told Dawn on Saturday.

The US government has taken action against Turkey at the World Trade Organisation in a row over Turkish restrictions on rice imports.

This complaint was supported by Argentina, Australia, China, Egypt, European Communities, Korea, Pakistan and Thailand as third parties.

He said the decision would alert other importers as well who have similar implicit barriers.

Currently, Pakistan has very negligible export of rice to Turkey due to the quantitative restrictions and high tariff walls on the agriculture produce, including all varieties of rice to protect their local farmers.

According to the DSB decision, Turkish decision, from September 2003 and for different periods of time, to deny, or fail to grant, certificates of control to import rice outside of the tariff rate quota, constitute a quantitative import restriction, as well as a practice of discretionary import licensing.

Accordingly, it is a measure of the kind, which has been required to be converted into ordinary customs duties and is therefore inconsistent with Article 4.2 of the Agreement on Agriculture.

It was recommended that the Turkey should bring the inconsistent measures as listed above in conformity with its obligations under the WTO agreements.

This means that in compliance of this decision, Turkey will have to open up its market for import of rice from all rice producing countries.

Pakistan’s rice exports to Turkey may go up -DAWN - Business; September 30, 2007

 

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Gas deal with Pakistan to be signed in October: Iran​

TEHRAN, Sept 29: Iran will sign a multi-billion dollar gas pipeline deal with Pakistan in the absence of India by the end of October, a top Iranian oil official said on Saturday.

“The peace pipeline contract... will be ready to sign by the end of October,” Hojatollah Ghanimi-Fard, Iran’s representative to the talks, told the oil ministry’s news service Shana.

Indian officials have been absent from the talks over the ‘peace pipeline’ between Iranian and Pakistani officials to finalise the long-delayed deal, which would see Iranian gas sent to Pakistan and to India via Pakistan.

“It was agreed that the price be calculated according to the current gas market standards,” Ghanimi-Fard was quoted as saying by the Irna news agency.

“Pakistan asked for 60 million cubic metres per day, 30 million of which was approved,” he said.

“All issues of disagreement were studied again and all points have been finalised,” he said, adding that the final meeting would be held in Pakistan in mid-October to “study the text of the contract to see if it does not contradict agreements”. Ghanimi-Fard said India was welcome to join the contract “whenever this country’s problems are resolved and it will be a tripartite deal”.

Gas deal with Pakistan to be signed in October: Iran -DAWN - Top Stories; September 30, 2007

 

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Coolies go home, here come the trucks: Pakistan and India allow trucks inside borders from Oct 1​

ISLAMABAD: Pakistan and India are set to discontinue six decades old coolie system and would allow cross-border movement of trucks up to the designated points at Wagah and Attari borders from Monday, October 1, 2007.

According to the agreed arrangement between the two countries, Pakistan would allow Indian trucks to cross 200 meters inside the Wagah customs area and India would allow Pakistani trucks to come 400 meters inside at Attari, Member Customs Federal Board of Revenue, Shahid Rahim Sheikh, informed Daily Times on Saturday.

A standing committee comprising Pakistani and Indian Customs officials would also be established to resolve the issues, which need attention of both sides. This committee would meet after two-month intervals at Wagah and Attari borders for mutual consultation, he said.

This initiative of the both governments would not only reduce the cost of bilateral trade between the countries but would also help save time in transportation of goods between the two countries, he said.

Both sides would establish a telephonic link to consult each other in maters that require immediate resolution for smooth flow of trade on a day-to-day basis between the two countries, he added.

The decision had been taken at the technical level meeting held between the customs authorities of the two countries at Wagah. Senior customs officials of the Federal Board of Revenue were also present in the meeting. In that meeting the two sides had agreed that trucks from one side would be allowed to go to designated points on the other side at the Wagah/Attari border for unloading of cargo, he added.

In the first stage, trucks up to ten-wheelers would be allowed to cross over to the other side. Both the sides have also agreed to obviate the need for passports, visas and international driving licence; a system of computerised single entry permits would be introduced. These permits, which would be issued in triplicate by the respective customs authorities, would contain a picture ID of the driver, his name, address, licence number and details of the vehicle.

The drivers of these trucks would wear bright yellow jackets/vests with “Driver-Pakistan” inscribed on the back of the Pakistani drivers and “Driver-India” inscribed on the back of the Indian drivers. As per statement, the operation of trucks shall take place between 0700-1400 hours PST and 0730-1430 hours IST, he said.

In case of force majeure, the customs authorities of the two sides at Wagah/Attari border shall establish hotline contact to workout the modalities for further action. He further informed that officials from both the countries also agreed that the customs authorities of the two sides would also consult each other to resolve local issues as and when required.

Pakistan and Indian customs authorities agreed that the two sides shall open a dedicated cargo gate towards South-East of the existing Pakistan customs house and South-West of the existing Indian customs house at the Wagah/Attari border.

A fenced path shall connect the two customs houses through this gate and upon completion of this dedicated cargo gate, all cargo traffic shall pass through it, he said.

Daily Times - Leading News Resource of Pakistan

 

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‘OGDCL to undertake offshore exploration in Arabian Sea soon’​

ISLAMABAD: After successful onshore oil and gas exploration, the Oil and Gas Development Company Limited (OGDCL) will soon undertake offshore oil and gas exploration in the Arabian Sea, Managing Director of the Company, Arshad Nasar said on Saturday.

For this purpose, an exploration license with government holdings and petroleum production sharing agreement with OGDCL has been signed by the government over a block covering an area of 1,492 square kilometres located in the Arabian Sea.

In an interview, the MD said the company will invest an amount of $1.1352 million during the first two years of the initial term of the license.

Responding to a question he said the company has all set to become a multi-national company and in this regard all the preparations have been completed.

Mr Nasar said the company has succeeded to spud 50 wells last year, which speaks volume of its success.

Terming the company as the largest public limited company engaged in exploration and production activities in the country for the last four decades, he said presently, OGDCL is 100 percent owner in 28 exploration blocks.

In addition, it is the operator as well as working interest owner in other 13 exploration blocks and partner in another six exploration blocks operated by other exploration and production companies, he added.

He further informed that OGDCL is operating 39 Mining and Development and Production Leases and is partner in 33 non-operated Mining and Development and Production Leases.

The MD said company’s annual sales are more than 39,130 barrels of oil per day, 919 million cubic feet per day of gas, 334 metric tonnes per day of LPG and 71 metric tonnes per day of sulphur.

He said its major oil and gas fields are located at Kunnar, Pasakhi, Bobi, Tanbdo Alam, Thora, Lashari, Sono, Fimkassar, Kal, Sadqal, Rajian, Missakeswal, Dhodhak, Dhakhni, Chanda, Chak, Naurang, Qadirpur, Uch, Pirkoh, Loti, Nandpur/Panjpir and Hundi/Sari.

OGDCL has so far completed major development projects like Dhodak Development Project, Dhaki Development Project, Pirkoh Development Project, Nandpur/Panjpir Development Project, Sadqal Gas Compression Project, Uch Development Project and Bobi Development Project, he added.

He said company’s equipment base includes seven drilling rigs, two work over rigs, a geological field party, four seismic parties, four engineering field parties, a gas gathering and pipeline construction party, seismic data processing centre, geological analysis laboratory, wireline logging unit, cementing units and data logging unit.

Daily Times - Leading News Resource of Pakistan

 

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Pakistan and US sign Fata development accord ​

ISLAMABAD (October 01 2007): Pakistan and the United States of America on Sunday signed a new $750 million agreement for the development of social sectors in Federally Administered Tribal Areas (FATA).

Representatives of the two countries signed the multi-year agreement for American people's assistance for FATA development amounting to $750 million, which will be spent on different development programmes over the next five years.

The US is providing $105 million this year for the FATA programme, said a US embassy statement here on Sunday. "The United States Government on behalf of the American people understands the importance of delivering resources quickly and effectively to bring essential services to the people of the FATA," US Agency for International Development (USAID) Pakistan Mission Director, Anne Aarnes, said after signing the bilateral agreement with the Secretary, Economic Affairs Division (EAD), M Akram Malik.

The USAID Director said that it was part of a long-term commitment by the United States to assist the Government of Pakistan in addressing the acute development needs of the people of this important region of Pakistan. "We commend the Government of Pakistan in establishing the Sustainable Development Plan for the FATA," Aarnes said.

"We have crafted our assistance activities to directly support this plan, and we look forward to working together closely with FATA officials in its implementation."

The new agreement will be used to support programs in capacity building, livelihoods, agriculture, micro and small and medium enterprises, health, education and infrastructure development in the FATA. The US Ambassador Anne W. Patterson said that the US was dedicating substantial resources to meet the need of Pakistani people, and to build service and institutions over the long run. The government programme will improve health, education, infrastructure, agriculture, governance, and economic dynamism in the tribal areas, he added.

Business Recorder [Pakistan's First Financial Daily]

 

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Pakistan's economy fast growing: Shaukat ​

ISLAMABAD (October 01 2007): Prime Minister Shaukat Aziz said the successful implementation of wide ranging structural reforms and supportive macroeconomic policies have transformed Pakistan's economy into a stable and resurgent one. It was because of the policies and reforms, he said, Pakistan's economy has become one of the fast growing economies in Asia.

The Prime Minister was talking to a delegation of British Telecom and Saigol Group, who called on him and signed a memorandum of understanding (MoU) on Sunday.

While referring to economic growth in Pakistan, the Prime Minister said that because of a reform agenda based on deregulation, liberalisation and privatisation, Pakistan has attracted record amount of foreign investment of US $8.4 billion in 2006-07. He said the economy of the country is growing at an impressive rate of 6-8 percent per year, the middle class is expanding and poverty as well as unemployment is reducing.

The Prime Minister said structural reforms in many sectors including banking, capital markets, energy, power and telecom have attracted investment, created jobs and provided better quality services. Pakistan's attractive demographics with 60 percent young population is a very attractive feature for the long term investors, he added. Out of the total population of 160 million, he said, 100 million people are below the age of 25 thus creating future economic activity and opportunity.

Shaukat Aziz said that after having gained economic strength the government is now in a position to transfer the benefits of economic growth to the people and as a result there has been a visible improvement in the living standards of the people. He said per capita income has been doubled and all human development indicators are positive.

While referring to the progress made in telecommunication sector, the Prime Minister said Pakistan has become a hub of activity for international and local telecom companies and unprecedented amount of foreign investment flowed into the sector due the well thought out telecom policy, which was prepared after intensive discussions and debates involving all stakeholders.

He said telecom is one of the fastest growing sectors of the country where combined teledensity has increased from 4 percent to about 44 percent of the population. The number of subscribers has increased form 8 million in 2003 to over 62 million in 2007 and the market has the potential to reach 80 million in the next couple of years, he added.

He further said that the telecom sector has become a major employer of skilled jobs as its exponential growth has resulted in creation of 80,000 jobs directly and 500,000 jobs indirectly.

Shaukat Aziz while appreciating the signing of MoU between British Telecom and Siagols (Pvt) Ltd, said that this will bring international expertise to the country and capitalise on various opportunities in the field of media comprising television, radio and internet/satellite services in Pakistan.

The Prime Minister also appreciated the contribution made by the British Telecom during October 2005 earthquake for restoration of telecom services by rendering help to SCO for telecom services besides providing satellite PCOs services.

While briefing about the credentials of British Telecom (BT), Paul Falkner, Director General BT Global Services said that BT is a London based telecom service provider company doing business in retail and wholesale local, national and international telecommunications products and services.

He said that BT is highly encouraged by Pakistan 's structural reforms and investment friendly policies and are planning to invest more in Pakistan. He said memorandum of understanding (MoU) signed between BT and Saigol (Pvt) Ltd marks a new era in networked IT services, telecommunication services and higher-value broadband/internet product and services and it will benefit the people of Pakistan.

Business Recorder [Pakistan's First Financial Daily]

 

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SMEDA's Rs 1743.16 million plan to promote surgical industry ​

SIALKOT (October 01 2007): Small and Medium Enterprise Development Authority (SMEDA) has prepared a three-year plan to promote surgical industry of Sialkot with more than Rs 1,743.16 million.

Official sources told APP here Sunday that in the first phase of the plan, special attention would be given to setting up a company under the name of Surgical and Medical Devices Pakistan at a cost of Rs 77.90 million.

Medical Devices Training and Research Centre (MDTRC) would be established with Rs 542.90 million in Sialkot, while Rs four million would also be spent on marketing and branding, sources added.

The objectives of setting up of MDTRC are to provide common facilities in high-tech electro-medical devices, training for labour in advanced instruments manufacturing, dissemination of knowledge about latest technology, information resource centre and new instruments development.

The step has been taken keeping in view the potential of surgical industry to enhance its exports to US one billion dollars by 2015.

The Punjab government for the establishment of Medical Devices Training and Research Centre would provide the facility of building while the work on this mega project would be undertaken in near future.

Business Recorder [Pakistan's First Financial Daily]

 

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$5.2 billion power sector reforms: Wapda to submit roll-out plan to Prime Minister ​

ISLAMABAD (October 01 2007): The Water and Power Development Authority (Wapda) is to submit roll-out plan to the Prime Minister Shaukat Aziz, envisaging specific timelines and targets to achieve the goals, official sources told Business Recorder.

The plan is being drafted on the instructions of Munawar Basir Ahmad, the new Managing Director of Pakistan Electric Power Company (Pepco) who, to satisfy the consumers, intends to introduce some measures similar to those he introduced in SSGC, sources said.

"The Prime Minister has mandated me fast track implementation of the power sector reforms, including restructuring and corporatisation," sources in Iesco quoted him as saying in his first letter to power distribution, generation companies and National Transmission and Dispatch Company (NTDC).

One of the key objectives given by the Minister for Water and Power, Liaquat Ali Jatoi, and Secretary Ismail Qureshi is to stop load shedding, minimise tripping and, consequently, improve the customer services on fast track basis.

"Admittedly, the current supply and demand scenario is in itself a Herculean task", he said, adding that "Wapda must put in full efforts to overcome the crisis-like situation and the spectre of load shedding, facing the nation in the months to come."

Sources said that Wapda would provide details to World Bank (WB) and Asian Development Bank (ADB) investment plans, according to which both donors have offered billions of dollars to the Discos, Gencos and NTDC for system improvement.

They said that ADB had raised the question with the federal government whether the power distribution companies (Discos) would be in a position to absorb the investment of $5.2 billion for 2008-2017 and pay it back within the stipulated timeframe.

Sources said that ADB Country Director and World Bank officials met Prime Minister's advisor on finance on August 30 and September 3, respectively, and discussed the forthcoming multi-tranche loan facility for the power sector. During the discussions, ADB Country Director pointed out that overall investment in the power distribution sector would be $5.2 billion for 2008-17, and raised a few queries before finalising the pact.

The issues which the bank says need further clarifications from all concerned Discos are: details of investment, whether approval of the CDWP/ Ecnec had been obtained and what would be the impact of proposed investment and what benefits would be obtained in terms of savings and system efficiencies; whether the Discos have the capacity to absorb the investment and pay back, what would be debt equity ratio, and what were assets and liabilities of Discos? What would be its impact on tariff? How would this investment change the balance sheets of Discos? Would it be sustainable or not? Had the financial and technical analysis of such investment been carried out? And what would be the key financial and operational indicators, were main concerns of the donors.

According to sources, heads of both Wapda and Pepco would also ask the Prime Minister to allow 23 per cent increase in tariff, as was promised by the government in February when 10 percent raise was notified.

The National Electric Power Regulatory Authority (Nepra) had allowed 33 percent increase in the tariff in February last but the government notified only 10 percent with the arguments that such a huge raise would have a negative impact on the government's performance especially when elections were near. Wapda is of the view that Finance Ministry did not pay Rs 50 billion due last fiscal as subsidy, which forced the utility to arrange funds from the commercial banks.

This issue would also come under discussion and Wapda would ask for notification of remaining 23 percent, as the same is being demanded by the Secretary Finance, Ahmad Waqar.

Business Recorder [Pakistan's First Financial Daily]

 

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Indigenous coal-fired power plants: MoU signed for conducting feasibility study ​

KARACHI (October 01 2007): The Sindh Coal Authority, Mines and Mineral Development Department, Government of Sindh and Descon Engineering and Descon Mines (Pvt) Limited here on Sunday signed a Memorandum of Understanding (MoU) for conducting feasibility study for the establishment of 125MW (each) integrated mining and power generation units at Golarchi in District Badin and at Southeast of Naukot, in District Tharparkar.

The MoU was signed by Syed Abbas Ali Shah Director General, Sindh Coal Authority and the representatives of M/s Descon Engineering and Descon Mines (Pvt) Limited.

The Sindh Coal Authority will allocate an area of 100 square kilometres to them to carry out feasibility study to undertake development of identified coal mines and construction, commissioning and operation of minemouth Coal-fired power plants.

The Descon Engineering and Descon Mines (Pvt) Limited shall apply for letter of intent to Private Power and Infrastructure Board (PPIB) Water and Power Development Authority (Wapda), Government of Pakistan for establishment of minemouth indigenous coal-fired power stations with total capacity of 125 mw each. If the power project is found feasible the Sindh Coal Authority will support and assist in obtaining of the same.

The Sindh Coal Authority will allocate the coalfield area for a period of 18 months from the date of demarcation of the area for exploration license, within 15 days after signing of MoUs. While M/s Descon Engineering and Descon Mines (Pvt) Limited will carry out survey and exploration/investigation at its own cost and risk for completion of a Bankable Feasibility Study Report.

The demarcation of the coalfield area will be done by a joint survey team comprising the technical personnel of Descon Engineering and Descon Mines (Pvt) Limited, Director General Sindh Coal Authority, Director General Mines and Mineral Development Department and by the concerned Revenue Department of Government of Sindh.

The purpose of investigation is to determine suitable quality and quantity of coal which can be economically and safely mined, handled and transported to the power plant in order to provide at least one million tonnes of coal or more annually for 30 years.

The signing ceremony was attended by Irfanullah Khan Marwat, Minister for Mines and Mineral Development Department, Syed Abbas Ali Shah, Director General, Sindh Coal Authority, Muhammad Khalid Mirza, Director General Mines and Mineral Development, Abdul Razak Dawood, Chairman Descon Engineering and representatives of Descon Engineering.

Business Recorder [Pakistan's First Financial Daily]

 

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Transforming the economy​

By Dr Aqdas Ali Kazmi

The growth experience of countries at different stages of economic development teaches us an important lesson. The sustained growth in a country over a long period of time must result in fundamental changes in the structure and composition of its GDP.

These changes generally synchronise with a steep decline in the share of the agricultural sector and rising shares of industry and services sectors in the GDP. This transformation becomes more viable and visible as economies rise in the scale of development from take-off to drive-to-maturity and finally to the stage of mass consumption.

The global GDP for 2005 has been estimated at $45 trillion. The four industrial countries namely the US with GDP of $13.0 trillion, Japan ($5 trillion), Germany ($2.8 trillion) and UK ($2.2 trillion) have a combined GDP of $23.0 trillion which is more than 50 per cent of the global GDP. The common and distinguishing feature of these economies is the share of agricultural sector equivalent to one per cent with industry and services sector contributing roughly 99 per cent to GDP. However, the relative shares of industry and services sector in the GDP of these countries show significant variation.
The agriculture sector in countries like Australia, Austria, Denmark, Hungry, Ireland, Canada, France, Italy, Korea, Norway, Sweden, Netherlands, Spain etc. with large GDPs has a maximum share of 3-4 per cent.

Now let us look at economic growth of Pakistan in juxtaposition to the structural changes it has registered over time. First, we have to look at the overall growth rate. The average annual growth rate for the period 1950-51 to 2006-07 comes to around 5.5 per cent with population growth rate being 2.2 per cent during the period, the annual growth rate in the real per capita income comes to be 3.3 per cent. When compared to the growth rates of counties like China, Singapore, South Korea, Malaysia, Thailand etc, Pakistan’s economic growth does not appear impressive.

The growth performance plan-wise depicts wide fluctuations. The high growth rate of 6.8 and 6.7 per cent achieved during the second plan (1960-65) and the third plan (1965-70) could not be sustained during the non-plan period of 1970-78 as it fell to 4.4 per cent. It was revived in the fifth Plan (1978-83) and sixth Plan (1983-88) to the level of 6.6 and 6.2 per cent respectively but from 1988-89 onward, the growth rate followed a downward trajectory with the result that for the seventh (1988-93) and the eighth plan (1993-98) it declined to 5.1 and 4.5 per cent respectively. During the period 1998-03, it was further reduced to 3.7 per cent per annum even through it recovered significantly in the four year period of 2003-07 with the average rate reaching seven per cent per annum.

As the Table indicates, growth rate of agricultural sector and the manufacturing sector from the 1950’s onward have fluctuated substantially. In case of agriculture, the growth rate has been extremely low in case of the first plan, non-plan period (1970-78) and the five years of 1999-03 spanning the otherwise abortive ninth Plan. The growth rate of agriculture during the third, fifth and eighth plan was reasonable. However, the overall average growth rate for the agriculture sector for the 55 years starting with the first Plan comes to only 3.7 per cent, which is quite inadequate considering the rising demand for food for the burgeoning population as well as the growing demand for raw materials to sustain the growth of the industrial sector. The services sector registered an annual average growth rate of 6.5 per cent in this period.

As regards the manufacturing sector, it could register double digit growth only during the two distinct spans of the economic development i.e. the second plan and the non-plan period of 2003-07. For the rest of the plan periods, the growth rates have been quite low with the result that on the average, this critical sector grew by only 7.3 per cent per annum during the last 55 years or so. This indeed reflects a poor performance of this vital sector which is supposed to spearhead the structural transformation of the economy.

The historical transformation of the economy has not resulted in the large scale industrialisation of the economy which keeps its agrarian structure and form. The share of agriculture has declined from 45.8 per cent in the early 1955’s to 20.9 per cent in the year 2006-07 while the share of services sector has gone up from 30 to 53 per cent. The fact that agriculture still contributes one-fifth to its GDP is a clear indicator of the country’s continuing backwardness and underdevelopment.

The manufacturing sector contributes only 19 per cent to GDP against a share of 12 per cent during the first plan (1955-60), an increase of seven per cent in the 50-years period. Paradoxically, the share of large-scale manufacturing sector which is the principal sub-sector of the manufacturing sector remained at 10.6 per cent of GDP from 1962-63 to 2002-03 a long period of 40 years and only in recent years it has shown some upward movement. The manufacturing sector which is concentrated within a few industries such as textiles, food, beverages, tobacco, fertilisers and pharmaceuticals, is highly under-developed and narrow-based with the result that the whole economy remains entrapped in an abysmally low level of productivity.

There is an aura of mystique about Pakistan’s historical growth experience. At the time of independence, it did not inherit any viable industrial and technological base and it seriously lacked in social, financial and physical infrastructure. The “initial conditions” were highly unfavourable and the industrial-cum technological gap was unusually large. However, this does not make a complete story. There have been many countries in the world which had faced initial conditions worse than those of Pakistan. Still these countries have registered unprecedented growth in the recent past and have moved up the highest stage of economic development. The question therefore remains unanswered: Why the take-off stage has been elusive for Pakistan for such a long period of time?

The writer is consultant/economist working in the Planning Commission.

Transforming the economy -DAWN - Business; October 1, 2007

 

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Emerging economic trends​

The performance of the economy in two months of this fiscal year has raised questions about the pace of the growth. A key issue is: how would the external sector fare?

Exports are not growing at the desired pace. Foreign portfolio investment has remained negative so far and is unlikely to reach the last year’s level more so because the prospects of generating foreign exchange through euro bonds are not so promising.

The privatisation process has come to a halt. Foreign direct investment and workers’ remittances continue to show a strong growth but the investment may falter because of the political uncertainties. The real sector of the economy has so far shown mixed trends. In agriculture, cotton production is likely to reach 14 million bales despite the attack of mealy bug and curl leaf virus. The production of wheat, rice and sugarcane are also likely to remain strong though rice production might see a nominal decline due to heavy monsoon rains and flooding. Water availability is at its peak and there are no chances of major or minor crops suffering because of its shortage.

In the industrial sector, there are signs that production would decline because of high cost of finance, labour and utilities. In the last fiscal year, large scale manufacturing sector had risen 8.4 against 10.7 per cent a year ago. No data about LSM production for the first two months of this year is available but industrialists say and exports’ volumes suggest that full capacity utilisation is not there.

Statistics on the performance of the services sector are also not available. But banks and financial institutions might continue to show strong results. Despite all moral suasion by the State Bank, the banking spread is still at 730 basis points, far higher than in India and other regional countries. This gives the banks a lot of opportunity to make huge profits. Some banks are likely to earn handsome profits as those which have completed the process of mergers and acquisitions are now geared to enter into new businesses. Two of these areas are agricultural and SME financing.

In July-August FY08 banks’ lending to agricultural sector rose 18 per cent to Rs25.8 billion. Bankers say their farm lending would rise further in coming months but they also realise that recovery of farm loans would be a problem this year. Farmers have suffered cash equivalent losses of billions of rupees because of rains and floods.

Disbursement of bank credit to the entire private sector has slowed down. Bankers and business indicate that the appetite for private sector credit is low due to a slower growth in industrial activity. The banks have also tightened credit appraisals to prevent borrowers from using part of the bank credit in making speculative investment in stocks and real estate.

No data about private sector credit off-take in this fiscal year is available. But the recently released SBP statistics show that in the last fiscal year the private sector borrowed Rs366 billion from banks, down from Rs402 billion a year earlier and below the target of Rs390 billion.

On the other hand, the government borrowing from banks for budgetary support totalled Rs102 billion in FY07 up from Rs67 billion in FY06 but lower than the target of Rs120 billion set for FY07. Fortunately, the government managed a much better borrowing mix in the last fiscal year. It borrowed Rs160 billion from commercial banks and retired Rs58 billion worth of SBP loans, thus mitigating the impact on inflation. A year earlier the situation was in total contrast: the government had borrowed Rs135 billion from SBP and retired Rs68 billion loans of commercial banks thus fuelling the flames of inflation.
From this fiscal year onwards, the government is bound to keep its inflationary borrowing from the central bank within limits determined jointly by the SBP and the ministry of finance. This coupled with the overall tightening of the monetary policy has so far kept inflation below the targeted level of 6.5 per cent for this fiscal year.

But the problem is that food inflation is still much higher than overall CPI inflation, which means that inflation is hitting the poor harder. The mishandling of wheat crisis and the resultant price hike shows that handling of inflation through administrative means remains a far cry.

In the first two months of this fiscal year the rupee remained somewhat firm—thanks to sufficient inflows of foreign exchange through various channels. But in the third month it started to fall more rapidly as the outflows outdid the inflows.

Between July 1-September 28 the rupee shed 23 paisa or 0.4 per cent of its value against the dollar. On September 28 the rupee closed at 60.70 a dollar down from 60.47 on June 30.

Emerging economic trends -DAWN - Business; October 1, 2007

 

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MONEY WEEK: fiscal year 2007 monetary expansion exceeds credit plan target by Rs 200 billion ​

KARACHI (October 01 2007): Although as per policy documents the State Bank of Pakistan pursued a tight monetary policy throughout FY07, money supply during the year expanded by Rs 658.3 billion, or 19.3 percent, compared with the targeted growth of Rs 459.9 billion, or 13.5 percent. Thus, monetary expansion exceeded the credit plan target by about Rs 200 billion.

This was shown in the final data released by the State Bank on September 24, for the week ending the financial year 2006-07 (FY07). It may be recalled that in the beginning of FY07, annual report of the State Bank for FY06 had stated that to achieve the inflation target, money supply had been envisaged to grow at 13.5 percent, significantly lower than the realised money supply growth of 15.2 percent during FY06. So, how the State Bank would explain the failure on this front in the forthcoming annual report, is to be seen.

Maybe the unbridled expansion would be explained by a reference to the election year. This happens the world around, but the question is why we failed to provide for that at the beginning of the year.

What figures show is that government borrowing remained well within the target (viz Rs 92.4 billion against the targeted Rs 130.1 billion, with budgetary borrowing and borrowing for commodity operations behaving admirably well and within the respective targets) and so was non-government borrowing (viz Rs 385.7 billion against the targeted Rs 395 billion with private sector ending up at Rs 365.7 billion against the target of Rs 390 billion though PSEs borrowed Rs 19.7 billion exceeding the target of Rs 5 billion by a very wide margin).

The huge amount of excess borrowing by PSEs was not only in violation of the Credit Plan target, it also spoke of the continuing inefficiency of some larger PSEs. Hence, the proposition to privatise the PSEs. While the proposition is well founded, difference must be made between good PSEs and bad PSEs. What the Privatisation Commission should be doing is to go ahead privatising these lazy and hardly able to walk 'white elephants', instead of selling the 'running horses'.

Another significant factor which contributed to the much higher than targeted monetary expansion was the behaviour of foreign sector. The planners at the State Bank visualised an expansion of only Rs 9.8 billion on this account. It appears that the State Bank did not properly consult the Finance and Economic Affairs Divisions who normally have good estimates about the foreign sector behaviour, or maybe they did not convey the true estimates to the State Bank, which is an important ingredient in the formulation of the Credit Plan.

We cannot, however, absolve the State Bank of doing its duty in containing monetary expansion, and hence inflation, on the basis of the foregoing assumption. By mid-year, it was amply clear that foreign sector had started exerting pressure on money supply.

Why the State Bank failed to neutralise the massive contribution of Rs 260 billion, which was over and above the targeted annual growth of foreign sector? Perhaps, the State Bank could have neutralised the huge impact of foreign sector by absorbing liquidity through the sale of its own paper. But, why State Bank did not work on introducing its own paper despite the proposal lying pending since long? (For comments and suggestions research.dept@aaj.tv)

Business Recorder [Pakistan's First Financial Daily]

 

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New trade route opens with India ​

LAHORE (October 02 2007): Trucks carrying tomatoes crossed the border between India and Pakistan on Monday, the first goods vehicles to do so in past 60 years, officials said. The neighbours agreed in August to allow each others' trucks over their only land border as part of a slow-moving peace process launched in 2004.

Porters on foot previously took fruit, vegetables and other items across the heavily militarised Wagah border, a decades-long tradition that now appears threatened. "Indian trucks entered our side of the border for the first time and brought around 1,200 crates of tomatoes which we unloaded here," a Pakistan Customs official told AFP.

The new procedure, adopted after demands by Indian and Pakistan traders, has "opened a new chapter of trade," said Nasir Butt, an importer from Lahore. But the porters have previously complained that they will lose their traditional livelihood.

Business Recorder [Pakistan's First Financial Daily]