Pakistan Economy - News & Updates - Archive

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Farm forestry to develop agriculture​

FORESTRY and agriculture, from land use point of view, share the same objective that is an efficient management of soil in the interest of human being, and they together combine to form an essential mode of transforming soil fertility into raw materials needed by man.

– A planned and balanced relationship between these two increases the mutual effectiveness, which ultimately adds to the prosperity of the farmers and brings stability and affluence to human beings that neither agriculture nor forestry alone could achieve.

A farmers needs tree for fuel for his hearth, wood for the implements and building material, as fodder for his animals in time of fodder scarcity, shade for his family and animals, shelter belts and windbreaks to save his crops from desiccation and fruit trees to enrich his diet. But unfortunately in our country these basic necessities are not easily and readily available to farmers to the extent of his requirements.

The major part of our country located in the dry arid zone, experiencing extremes of temperature, scanty rain fall and high velocity winds. As a result of these adverse climatic factors, our natural tree resources are very meagre. We have five per cent of the total area under forests which is far less than the 20 per cent considered necessary for a balanced economy of an agricultural country. It will, therefore, be seen that there is a large gap which needs to be filled up. The details of both productive and protective categories of forest in Sindh are as under:

Category Type Area million % of total land

acres area of Sindh

Productive Riverine forests 0.596 1.71

Forests Irrigated forests 0.203 0.58

Productive Mangroves 0.852 2.45

Forests Range-lands 1.131 3.25

2.782 8.00

So for the energy requirements of the province are concerned, the existing wood energy requirements are estimated at 6.4 million m3 against sustained supply of 1.68 million m3 thus there is a generating gap of 4.72 million m3 between energy supply and demand (FSMP 1991).

This shortage of fuel wood has forced farmer to misuse a very large quantity of cow dung which otherwise would have gone to his fields as fertiliser

Apart from acute shortage of fuel, timber and fodder, our farmer has also to face the menace of salinity, water-logging and erosion by wind and water which threaten our lands. Unfortunately many of our agricultural holdings are on marginal farm lands and it is doubtful, if they are suitable for permanent agriculture. Such farms, on account of improper land use, exhaust their fertility and become unfit for cultivation in few years. This situation is further aggravated by indiscriminate felling of trees to meet the fuel wood and timber requirements. In such problematic areas, raising fast growing tree species on short rotation is an essential component of crop pattern leading towards permanent productive agriculture.

In view of these facts, it is evident that farm forestry is a must in establishing permanently productive agriculture. When we are striving to induce the farmers to increase food production by using improve seed, fertiliser and new techniques, the foresters should also see that the farmers /land lords accept farm-forestry as a normal and profitable proposition, and grow windbreaks live fences and wood lots particularly block plantation of babul (Acacianilotica) locally called Huris on their farms.

In order to induce the farmer to raise windbreaks, live fences, and farm wood lots, what is needed to day is to adopt measures which are purely promotional, including different kinds of assistance. Though we do have some regulative and controlling measures on wood produced on farms, yet the promotional side is still lacking.

Dissemination of technical know-how and celebration of tree weeks, which do have educative value are also lacking in zeal and enthusiasm, with which these were celebrated about 20 to 25 years back. In those days discussions were held on T.V and radio and informative, educative and motivational articles were published in regional and national news papers and such book-lets, brochures. Leaf-lets were also distributed in educational and other institutions, debates were held in schools, NGOs, CBs and VOs were involved at all levels in tree plantation, but now-a-days there is no such activity.

What is required to make farm-forestry a successful campaign is a concrete and substantial monetary and material assistance. Experience has shown time and again that our farmer is not reluctant to accept change, provided he is convinced of its benefits. Farmer’s attitude towards progress is positive.

What obstruct his progress are financial limitations and liabilities. When supplied free or on nominal rates, the desired planting stock and financial aid to establish them, he will be too happy to practice farm-forestry. Agriculture Development Bank of Pakistan, which is contributing a lot in the development of agriculture, can also help the farmers in this sphere by providing interest-free loans and encouraging them to re-activate an old practice of Hurri-cultivation which was introduced in Sindh as back as 1858.

Farm forestry to develop agriculture -DAWN - Business; February 04, 2008

 

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tougher year for exports to the US​

Like other developing countries, 2008 will prove to be tough year for Pakistani exporters in selling their goods to their American customers following expected fall in demand as a result of recession in the US economy.

As the current forecast about a possible recession has been sparked by mounting US sub-prime debt defaults, the purchasing power of the American consumers is expected to fall substantially. US household debt is more than 100 per cent of the US GDP. Given the current rate of debt accumulation, the stimulus package of $145-150 billion on the consumers spending will be negligible. The US Fed interest and discounts rates are likely to further weaken the dollar (and fuel inflation), resulting in cut in costlier imports into the United States.

Some local exporters however think that the downturn in the US economy would create more demand for low priced , low value goods.

But many analysts say the continuing security situation and low value addition in the exportable goods—mainly textile and clothing- may further dampen our export prospects to the US. The situation becomes more complicated by foreign travel advisories and cautious approach of buyers due to unpredictable economic and political situation.

Pakistan’s 25-27 per cent exports are directed toward the US---the highest export to any country after the 28-member block of the European Union, Afghanistan and United Arab Emirates. This shows that any slowdown in the US economy may have a far reaching impact on our exports.

The US and EU being our principal markets, account for over half of our total exports which gives a clear message to policy makers in Islamabad to explore new markets and to reduce heavy reliance of exports on these few markets.

The exports to US have already witnessed a slight reduction of 0.21 per cent to $4.183 billion during the year 2006-07 against $4.192 billion in the previous year. However, the exports grew to over $4 billion in the year 2006-07 from $2.304 in the year 2003-04, a substantial growth since the abolition of the post textile quota regime. But it seems that export proceeds to US have reached a saturation point and are on decline since 2007.

The latest figures for the current half year are not available to determine the latest export trend to US. However, exporters reported a sizable decline in the shipment of goods to US following imposition of emergency, political uncertainty and turmoil on the streets after Benazir’s murder.

The United States is a traditional buyer of Pakistani textile products and Pakistan enjoys a favourable trade balance since long. Our textile sector cater to the need of the lower and middle class.

What is really affecting exports is now the country’s image. Foreigners do not want to buy products with ‘Made in Pakistan’ written on them,” says an exporter. A researcher, Mohammad Sulaiman says that the recession in US economy will have serious repercussions on our exports.

Second, the US economic downturn will also impact Asian economies including that of China. Obviously, countries like Pakistan whose textile exports are vulnerable, we may see the scope of foreign trade shrink.

There have been a host of other factors affecting the export growth particularly to the US which include stiff competition from China, India, Vietnam and Bangladesh, regional preferential arrangements such as North American Free Trade Area (NAFTA), Central American Free Trade Area (CAFTA). The US sponsored Qualified Industrial Zones (QIZs) in Jordan and Egypt which allow duty-free access to their products, have also affected export competitiveness.

Pakistan also has to address other challenges and to put in place pro-active policy measures including a balance in the monetary and fiscal policy. The policies of the previous government focused on revenue generation and reduction of debt to GDP ratio. Moreover, the highest ever increase in interest rates under the tightening of monetary policy for the last two years for controlling the core-inflation also had an impact on industrialisation leading to cash flow problems for some genuine exporters.

But the major challenge is our low productivity and quality, timely delivery and better research and development for keeping pace with international market trends.

The productive capacity suffers because of relatively low investment in new machinery and technology. The tax system favours investment in the non-industrial sectors, particularly speculative businesses such as stocks and real estate.

The export goods fetch low prices because we produce low end and low quality products and many could can be blamed for not developing their own brands. The education system does not produced necessary skills needed for quality goods. Competitiveness does depend on price alone.

Economist Dr A R Kemal said, it would be premature to determine the actual fall out of the slow down in US economy on Pakistan’s exports. However, he said, it is certain that the demand will decrease which will subsequently impact imports.

Pakistan will not be the only country to be impacted. Other countries like India and China will also experience some fluctuations in their exports.

Statistics shows US imports about $100 billion textile and clothing. Pakistan share is about 3-4 per cent of its total imports.

A Karachi-based industrialist, Engineer M. Jabbar says that consumer spending in the US market is falling and our textile and clothing export may see some decline but it will not be substantial. The price will have to be more competitive with lower profits--, an answer for selling in recession economy.

It is expected that the slow down in US economy might impact the export of high value added products because of higher prices but the recession may nor impact exports will low value added products. But there may be supply constraints.

A tougher year for exports to the US -DAWN - Business; February 04, 2008

 

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Surge in the current account deficit​

Pakistan is confronted with a record current account deficit of $6.138 billion at the end of the first six months of the current financial year--a 31 per cent increase over the same period last year. This has happened in a country with a modest foreign exchange reserves of $15 billion coming down by a billion dollars within a few weeks.

In the past, ministers used to brush aside such concerns arguing that foreign investment was pouring in and workers remittances were swelling. But now due to the political turbulence and the increasing violence, the foreign direct investment (FDI) is tapering off and foreign investments in privatisation has drastically slowed down. The home remittances are however increasing as Pakistanis abroad do not want to hold their savings there and be investigated by foreign governments. The portfolio investment from abroad has also plummeted since the emergency was clamped.

On the import side, crude oil price is very much on the high side after touching $100 a barrel and the cost of food imports is also rising. The Opec oil producers have tentatively decided not to increase the oil output and bring down the prices. The oil consumption in Pakistan is increasing by nine percent annually, despite the rising prices. Simultaneously, foreign trade deficit is increasing steadily and during the first six months of the year has reached over $7 billion. The fear is that at the end of the financial year, the total trade deficit may rise to $13 billion.

The IMF and the Asian Development Bank have cautioned Pakistan that it could not sustain large current account deficit in the long- run and it will have to take steps to rectify the situation.

The solution lies in stepped up exports, but increasing the exports is not easy. Factories are closing down for want of electricity or gas. In the Punjab 200-300 textile mills, big and small were closed last week for want of power or gas.

The small and medium enterprises have to play their part in increasing exports but they are also hurt by the shortage of power and frequent load-sheddings Pakistan cannot meet its textile production and export target for want of power.

Exports during the first six months of the year fell five per cent below the modest target. The textile export is confronted with new difficulties in view of the drift towards the global recession. There are serious problems in the US market which consumes quarter of the Pakistans textile exports. One set of American importers are reluctant to place orders for goods for fear the exporters may not be able to meet their target date for delivery because of political convulsions, violence and energy shortage.

Another set of American importers prefer not to buy textiles with the marking ‘made in Pakistan’ which is not popular in the US market at the moment and so some of them are shifting their purchases to India or Bangladesh. If the political uncertainties continue and production and exports are affected, Pakistan’s textiles exports will suffer more. There is a new opening for the export of Pakistani kino to the Russian Federation. Russia has removed many of the restrictions on the import of kino and Pakistan can benefit by that in the manner it has been benefiting with the removal of restrictions on citrus imports into China.

Pakistan however suffers from the loss of the $90 million fish imports to the European Union (EU). Eight months have past since the EU imposed the ban , but that has not been lifted in spite of Pakistan’s efforts. The ban on old PIA planes flying to Europe has been lifted but the ban on the fish imports has not been lifted, as enough efforts to clean up the trade have not been undertaken.

Pakistan has now removed the sales tax on marble and granite. The 2.5 billion tonne marble mines can be dredged for exports and for domestic use. Marble has a large market-- both domestically and externally. Jewellery exports can also increase and we can earn a good deal through the export of Swati emeralds after conditions stabilise there. There is a scope for large-scale export of furniture to the Middle East if the trade is organised properly. There has been a suggestion that soon there will be a surplus of over a million tonne of sugar which can be exported, but the ministry of industries is opposed to the export of sugar while mill owners want the TCP to export half a million tonne of sugar from the existing stocks. The government is afraid the results of the efforts to export sugar may be the same as the anfractuous effort to export wheat which created a serious wheat crisis. In addition, the cost of production of sugar is very high and exports will have to be subsidised in a big way.

The imports have been increasing for fear the rupee will be depreciate further and that will push up import prices. So the businessmen are importing in the hope of selling them at high prices after the expected devaluation. However, a fall of 1.3 million in the import of tyres and tubes during the last six months is a significant development.

Food prices continue to rise not only locally but globally adding to the hardships of the people.

Meanwhile, efforts are being stepped up to increase privatisation and sell more bonds abroad to earn more foreign exchange. But this may not be the time we may get the best price for the bonds. Overall strenuous efforts have to be made to improve the balance of payments and reduce the current account deficit as soon as possible and the bond sale should be the last of the options.

Surge in the current account deficit -DAWN - Business; February 04, 2008

 

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Pakistan and the global financial crisis​

The current financial crisis in the West has critically exposed the vulnerabilities of a liberalised financial system. It has also highlighted the challenge that the policymakers and regulators are faced with in an increasingly globalised, ever-changing world.

The domino effect of a trouble sparked by US sub-prime debt defaults underscores apparent and hidden linkages of the complex market capitalism that never ceases to spring surprises. Just when the financial gurus in the West thought that they have devised enough safeguards to avoid repeat of 1996 Far East Asian financial turmoil that shook many countries, they are faced with a new, in a way, more grave situation on their own soil.

How well will they be able to respond is yet to unfold. Whether or not the Fed rate cut and the stimulus package will soften the impeding US recession only time would tell. But some consensus is emerging that the US sub-prime debt crises may linger on for two to three years.

The banking, other financial institutions, fund and asset management giant firms in the West, meanwhile, will come under pressure from depositors and shareholders on how prudent have been their investment and lending policies.

Far away from the US and Europe, Pakistan watched at the tumbling of capital markets, keeping its fingers crossed. The local banking hierarchy and fund managers were concerned. But the primary reason for their anxiety was different. They were worried about issues surrounding upcoming elections and worsening law and order situation. They were also concerned about the infrastructure deficit, particularly energy shortages. All these factors create a congenial environment for foreign capital infows.

When contacted for their comments on the possible impact of troubled Western financial markets on the Pakistan’s capital market including high performing banking industry, high-placed sources in banking expressed the same views but differently: The global financial crisis has not affected Pakistan in the first round.

When approached through her media manager Dr Shamshad Akhtar declined to give comments on possible impact of the crisis on Pakistan. She also preferred to keep mum over what steps she intends to take to further consolidate the regulatory framework governing banks to rule out possibility of debt defaults and possible scams.

However, the SBP’s First Quarterly Report issued last month says that “the domestic economy is now more open and prone to external shocks than ever before”.

The SBP governor has,however, reinforced the direction of monetary policy that she thinks is best suited to the economy at this juncture. The biggest challenge to the economic fundamentals is posed by increasing pace of inflation. The State Bank moved against the global tide of falling interest rates and further tightened its monetary policy by increasing the discount rate and cash reserve ratios for banks.

During the press conference, Dr Shamshad reported to have said that so far Pakistan escaped the recent economic turmoil emerging from US and engulfing the developed European economies. Much would depend on the nature and duration of the global crisis.

“We have been able to escape the affect not because of some superior more efficient safeguards that we had but because we are too weak to figure in global financial matrix”, said a senior economist with rich international banking experience.

“No it has not affected us so far. We cannot possibly be totally immune but I do not see a big impact in the near future”, said Dr Khalid Mirza, head of Competition Commission.

He commended the State Bank for improving its supervisory function to regulate particularly the banking industry.

Zubyr Soomro, a senior Citi Bank executive spoke in his capacity as President, Overseas Chamber of Commerce and Industry, grouping of 168 influential multinationals and foreign companies including 32 members from the financial sector.

Mr Soomro sent his reaction via e-mail. He wrote, “The primary impact for us to consider would be tightened terms for access to international debt markets; these are there for emerging markets in particular. Some countries will also need to assess how much their local banks may have invested in some of the problematic instruments that have surfaced”.

“In our case though this is probably minimal and our banks have benefited from pretty effective financial sector reforms too, thus improving resilience to international shocks”, he added.

“We cannot afford to be complacent, institutions need to be strengthened “, said another senior retired banker.

The banking in Pakistan too is stressed because the other leg of the financial system, the securities market is not developed. “For the financial system to cope with demands of an emerging economy with so much potential, it needs the other pillar to be strengthened to provide a sound foundation for an expanding economy”.

“No decent person can wish others to suffer but the crisis in the West has created a situation pregnant with immense possibilities for Pakistan”, a senior banker told Dawn.

Explaining his position, the banker said that he expected a lot of investment funds looking eastward in the near future as options and yields in developed markets dried out.

“We need to prepare ourselves on war footing by getting floating barrages from the Middle East to overcome the energy shortages and to receive a fat chunk from the investment that would be diverted to surging economies of Asia”, Amir Siddiqui, head of the retail banking of National Bank of Pakistan told Dawn over telephone.

Pakistan and the global financial crisis -DAWN - Business; February 04, 2008

 

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New strategy to rationalise need-based projects ​

ISLAMABAD (February 04 2008): The government has framed new guidelines for the provinces for the current Public Sector Development Programme (PSDP) implementation, directing them to rationalise the need-based projects for people's welfare.

Sources said that the new strategy is meant to ensure utilisation of PSDP funds in a most prudent manner to prioritise the people-centric projects. The strategy is focused on saving of the resources without hurting or slowing down the projects. It says that the new projects will not be included in the PSDP 2007-08.

Budgeted projects not yet started would remain on hold during the second half of the current fiscal year. Expenditure to be incurred during May-June, 2008 on slow moving projects may be delayed till July -August, 2008. It says that fast moving projects and those to be completed by June 2008 would not be disturbed and the required amount will be made available--like Mangla raising project, Chashma nuclear project (C2), etc.

It says that the provincial governments have also been taken on board to rationalise their development programmes in the light of this strategy.

It rules out any possibility of cut in PSDP for the current fiscal year. It notes that announcement of cut in percentage term in the PSDP will further adversely affect the already fragile financial market. However, the financial position of the government would be steadied in line with the new strategy.

The new guidelines highlight the importance of different key sectors and stress the need of doing more in these areas. They say that modern infrastructure is not only necessary for the development but is also required to attract foreign investment. Recent increase in FDI, in addition to the friendly policies, is due to modern infrastructure being developed.

The strategy says that a modern network of rail and roads is being developed. During 2007-08, Rs 166.6 billion, or 50 percent of the total development budget outlay, will be spent on development of infrastructure including water storage and its conservation.

The government has not neglected social sector. Development of social sector is also necessary to improve the quality of the life of the people, to reduce poverty, make available qualified human resources for speedy development etc. Rs 156.0 billion, or 47 percent of total development outlay, is being spent on social sector.

It wants special focus on less developed areas and terms it as a government's priory. In a reference, it says that the share of Balochistan in the PSDP would increase from 2.7 percent in 1999-00 to 14 percent in 2007-08.

Special allocation has been made to develop less developed districts ie Thar, Dera Bugti and Kohlu, and additional funds have been provided to the provinces under the new NFC award. It maintains that the provinces are being encouraged to initiate and execute need-based projects for the benefits of the people.

Business Recorder [Pakistan's First Financial Daily]

 

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Saudi giants to invest in energy, steel and pharmaceutical sectors ​

JEDDAH (February 04 2008): Three leading business groups of Saudi Arabia including Al-Tawairqi, Hubco and Al-Bakri International have shown interest to expand investment in Pakistan's energy, steel and pharmaceutical sectors.

The chief executives of Saudi business giants evinced their readiness for enhancing investment in various fields for accelerating pace of economic development in Pakistan during their separate meetings with Caretaker Prime Minister Mohammadmian Soomro here on Sunday.

Chief Executive of Al-Tawairqi M.Tariq Barlas, Chairman HUBCO Muhammad and Chief of Al-Bakri Abdul Qadir met with Prime Minister Soomro and showed interest for investment in Pakistan.

Reposing confidence in Pakistan's investment-friendly policy, CEO of Al-Tawairqi Tariq Barlas showed immense interest for making investment in the coal based power projects in Pakistan. It may be mentioned that Pakistan government plans to generate 20,000 mega watt energy through coal based and other source of generation.

Barlas appreciated the visionary approach of Caretaker Prime Minister Mohammadmian Soomro for developing alternative energy sources including coal, solar and wind to cater to the growing demands of energy sources in the country. The Prime Minister said the government appreciates investment and expansion plan of Al-Tawairqi group in producing high quality steel.

He expressed the confidence that a plan of enhancing investment in Pakistan will unleash boost to the economic development activities. The Prime Minister was of firm view that investment and business friendly approach of the government was encouraging foreign investment.

Mauhammad Ali Reza, Chairman HUBCO said Pakistan had a strong human bank with a sound economy. He said his company was examining to set up a hospital of international standard in Pakistan. He said investment had already been made for setting up gas distribution depots in Pakistan.

He said the country seriously requires to revise whole pattern of energy production through alternative means for overcoming energy shortage.

Chief of Al-Bakri International Abdul Qadir, the largest oil supplier to Pakistan, observed that Pakistan was a land of opportunities for investment with tremendous potential of development in different sectors.

Business Recorder [Pakistan's First Financial Daily]

 

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Domestic debts shoot up by Rs 225.34 billion in five months: SBP ​

KARACHI (February 03 2008): Pakistan''s domestic debts shot up by Rs 225.340 billion, or 8.64 percent, to new peak of Rs 2.822 trillion during the first five months (July-November) of the current fiscal year 2008, against Rs 2.596 trillion on June 30, 2007, due to the significant rise in fiscal deficit and slowdown in the privatisation process, according to the State Bank of Pakistan (SBP) on Saturday.

HIGHER FISCAL DEFICIT AND LOW PRIVATISATION PROCESS PUSHED THE DOMESTIC OUTSTANDING DURING THE FIRST FIVE MONTHS: This tremendous rise in debt stock was driven by the growth in the floating debt category, which went up by 14 percent.

The overall floating debts touched the level of Rs 1.264 trillion in November 2007 as against Rs 1.107 trillion in June 2007, depicting an increase of some Rs 156.65 billion during the first five months of current fiscal year.

The floating debt includes three months treasury bills, Market treasury bills and MTBs for Replenishment Permanent debts, which includes market loan, federal government bond, income tax bond etc, has gone up by 7.49 percent or Rs 41.434 billion to Rs 594.409 billion during the July-November 2007 as compared to Rs 552.975 billion stood in June 2007.

Un-funded debt, based on the national saving has mounted to Rs 963.336 billion in November 2007, earlier stood at Rs 936.081 billion at the end of last fiscal year 2007, depicting a jumped of Rs 27.255 billion during the first five months of current fiscal year 2008. "Higher fiscal deficit and low privatisation process pushed the domestic outstanding during the first five months," economists said. They said that presently the government is also increasing its borrowing from the saving schemes and borrowing from saving schemes would further go up, as government is likely to revise its interest rate in upward side during the February. "If the interest rates of saving scheme would increased then it is expected that the government would further borrow from the unfunded debts,'''' they said.

Business Recorder [Pakistan's First Financial Daily]

 

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Reverse remittances surge by 11.6 per cent ​

Power sector sent out $101.8 million, communications and IT $84.3 million, petroleum refining $48.2 million

Tuesday, February 05, 2008

KARACHI: Foreign companies sent back home $497.5 million of profits during the first half (July to Dec 2007) of the current fiscal year, posting a significant growth of 11.6 per cent over $445.8 million remitted during the same period of the last fiscal. Huge outflow of profit shows that the foreign companies are fully utilising government’s facility that allows them to remit 100 percent profit back to their countries.

The latest statistic of State Bank of Pakistan (SBP) revealed that during July-December 2007 the power sector (thermal) remained at the top for sending back $101.8 million profit out of the country followed by communication and IT sector which repatriated $84.3 million against $97.4 million that is 13.4 percent less than July-December2006.

In terms of proportion the highest 731.7 percent growth was recorded in personal services sector. During July-December 2007 personal services sector sent abroad $2.5 million as compared to $0.3 million in the matching period of last fiscal year.

The second highest 304 percent growth in profit flight was recorded in pharmaceutical and OTC products which surged to $19 million from $4.7 million of July-December 2006. In first half of current fiscal year 9.9 percent decline of profit outflow was recorded in food sector which shed to $17.7 million as compared $19.6 million in the respective period of last fiscal year.

Tobacco and cigarettes manufacturers sent out $20.1 million against $15.4 million, while chemicals sector repatriated $27.1 million as compared to $22.3 million. In addition, 5.3 percent growth in exodus of profit was recorded in petroleum refining sector, which rose to $48.2 million against $45.8 million in the corresponding period of last preceding fiscal year.

From July-December 2007 the oil & gas exploration companies repatriated profit $50 million against $23.1 million of last fiscal year. Moreover, 50.4 percent decline in outflow of profit was recorded in fertilizer sector which stood at $1.6 million against $3.3 million, similarly 4.6 percent reduction was recorded in cement sector as cement manufacturing companies sent back $4.8 million as compared to $5 million in H1FY07.

From July- December 2007 the automobile sector repatriated $10.9 million, which had dispatched profit $8 million during the same period of fiscal year 2006-07. Further, from July-December 2007 a 45.2 per cent decline was recorded in trade sector, which shrank to $11.7 million as compared to $21.3 million of corresponding period of last fiscal year.

Storage facilities providing companies sent back $4.1 million against $2 million of last fiscal year. Israr Khan adds from Islamabad: For a country like Pakistan, the huge drain looks very disturbing as it has already been facing a potential threat of burgeoning current account deficit (CAD) continuously for the last couple of years. Multinational donors have time and again cautioned for its negative consequences.

During the period under review, CAD jumped to an alarming $6.17 billion, which was 26.9 per cent more than what the first half of the last fiscal. Interestingly, foreign investors find Pakistan an attractive destination, as they are allowed to invest in any sector and bid for any

privatising enterprise, can own 100 per cent of the capital or have foreign and local partners. Besides, there is no limit on the profit they can make and can repatriate 100 per cent of the capital anytime and remit total profits to their countries.

Independent economists question whether investment is coming for a manufacturing unit which will create jobs, increase production and augment exports or a service unit with limited options like mobile telephones that have to be imported in large numbers along with supportive equipment.

The answer to the question can be found in whether investment will promote exports or help in import substitution. Pakistan needs more exports and greater import substitution so that the import bill can be reduced.

If it is a manufacturing unit, will it depend on imported raw material or use the local raw material? We have already a huge raw material import bill, which we cannot afford to expand unless the exports increase.

Though it is very pleasing for Pakistan to receive large foreign direct investment (FDI), but painful aspect of this growth is rising outflow of profits/dividends in foreign exchange. During 2006-07, such outflows on account of remittance of profits and dividends to foreign investors’ countries of origin amounted to $804.2 million against $504.4 million in 2005-06.

At the moment, these outflows are overshadowed by huge quantum of inflows but in the long-run, the quantum of outflows could exacerbate balance of payments. Can the government be able to sustain inflows in the shape of privatisation proceeds about which the government is very confident and how long they would keep on privatising the state-run entities? There would be one point where all these inflows would stop then what would be the alternative source to finance the current account deficit.

However, now the government is inclined to receive proceeds through the Global Depository Receipts (GDR). According to economic experts, due to outflows, the current account deficit and fiscal deficit may have a significant impact on the value of the rupee. Besides, it would translate into a large increase in Pakistan’s net foreign debt position. A large and growing public debt could also eventually put upward pressure on interest rates and crowd out private investment.

Reverse remittances surge by 11.6 per cent

 

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Govt to curtail borrowing in two years ​

Dr Shah says new govt must revise petroleum prices, inflation has benefited rural incomes, govt will procure 7mT wheat next season

Tuesday, February 05, 2008

LAHORE: Federal Finance Minister Dr Salman Shah has said the government’s dependency on the State Bank for borrowing will ease in a couple of years as the government has been improving its fund-generating schemes including the Pakistan Investment Bond (PIB) and National Saving Schemes (NSS).

He added in the current year the government had fixed the target of Rs125 billion for revenue generation from NSS and had also decided to issue euro bond in March to tackle the budget deficit.

Dr Shah was talking to reporters here after the launch of Real Estate Investment Trust Regulations 2008. Talking about issues that the forthcoming elected government could face after the general election in order to maintain the seven per cent growth rate amid inflationary pressures, Dr Shah said adjustment in petroleum prices in the first six months of the next government would be crucial.

“The forthcoming government must revise petroleum products’ prices in the first six months,” he remarked. However, he pointed out that the government could cover the adjustment in petroleum product prices by taking energy conservation measures and efficient use of fuel. For that, he added, both the government and people had to contribute and a massive awareness campaign was also necessary.

He substantiated his argument by saying the world had been facing food inflation and prices of food items had almost doubled worldwide and a similar impact was being witnessed in Pakistan. He quickly added the inflationary trend in food items had increased the income levels of rural areas of the country, which accounted for about 65 per cent of the total. Therefore, Pakistan’s rural economy and farmers’ standard of living had improved.

To a question about the surge in ghee prices, he said it was also an international phenomenon as palm oil prices had reached $900 per tonne from $400. “If international palm oil prices decrease then local ghee rates will also come down.”

In a bid to provide relief on basic kitchen items for targeted people, he said, the government was launching a special scheme which would only benefit the poorest segment of society. Talking about flour prices, he said the government had controlled its prices, which had declined with smooth supply. He was of the view that the flour price in Pakistan was half than prices in the region including India, Afghanistan and Central Asian States.

About the wheat procurement price for the next crop, Dr Shah said the government had targeted to procure seven million tonnes of wheat in that season and the wheat procurement price would be announced according to the market price at the start of harvesting.

Regarding privatisation process, he said in near future the government would launch global depository receipts of National Bank, Habib Bank and Kot Addu Power Co internationally while privatisation of Pak Steel Mills would be done through an initial public offering (IPO).

Earlier, Dr Shah said the Real Estate Investment Trusts (REIT), though new in Pakistan, were introduced in other markets over four decades ago, adding the global REIT market had grown to a total market capitalisation of $764 billion.

“This compares to a market capitalisation of $608 billion 12 months ago. The REIT is a fast growing asset class. Asia has beeninstrumental in this growth. In fact, Asia has been called the new REIT tiger.

“The year 2007 saw the REIT markets across the Asian region experience a strong performance, particularly in stock prices, total returns and dividend yields,” he remarked. He was of the view that REIT was a transparent, tax efficient, income producing, professionally managed collective investment scheme (CIS) that made investments in real estate ventures.

“As an alternative asset class, the REIT will provide the people of Pakistan in general and small and middle class investors in particular an opportunity to benefit from real estate upside. The REIT undoubtedly will broaden and diversify the supply side of securities and will provide depth to the capital markets,” he said.

He further said the REIT could have been introduced much earlier but since real estate was a provincial subject, a comprehensive series of meetings were arranged by the Ministry of Finance and the Securities and Exchange Commission of Pakistan to convince the provincial governments on the urgent need to create an enabling environment for modern products like REIT. Securities and Exchange Commission of Pakistan Chairman Razi-ur-Rehman also spoke on the occasion.

Govt to curtail borrowing in two years

 

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FBR reforms may be completed by 2009: Yousuf​

ISLAMABAD, Feb 4: The government has allowed double salary to 16,500 out of 25,000 employees of the Federal Board of Revenue (FBR) as part of the tax machinery reforms expected to be completed by 2009.

Addressing at the first-ever ‘Employees Workshop’ here on Monday FBR Chairman M Abdullah Yousuf said that now the concept of living wages existed in the tax machinery.

With the World Bank-funded reform project, the board has allowed the special pay package (double salary) to all its employees from Naib Qasid to senior tax officer. However, the chairman has not made it clear whether to consider the remaining 8,500 employees for the facility or they will be declared as surplus.

“We now have to prove and justify this special treatment through our efficiency, performance and results,” he asked the employees. He also underlined various on-going projects of infrastructural development, which include building of an additional block of FBR with a total cost of Rs230 million.

Mr. Yousuf said that the total involvement and commitment of FBR employees were required to execute the on-going Tax Administration Reforms Programme (Tarp) and Tax Policy Programme with a complete success.

He said that all officers/officials had to make determined efforts to make FBR an institution of international standard that could facilitate the taxpayers and deliver to the needs of the government.

Besides facilitation and education of taxpayers, the major focus of the programme was on training and re-training of the employees, end-to-end solution of the problems through automation and infrastructural development. A considerable progress had already been made in this regard, he said, adding: “We have to make things easy for the taxpayers and improve the efficiency, capability and working environment of our employees to enable them to give better results”.

The chairman said that the infrastructural facilities and working environment provided at Regional Tax Offices were comparable to any of the tax institution in the developed countries. He said that the FBR was in the process of acquiring a piece of land for employees’ residential accommodation.

He said that the primary objective of establishing the FBR Foundation was to ensure the welfare of employees and to look after their housing, educational and health needs. He said the foundation would be fully operative by the end of 2008.

Speaking about the prevailing security environment, he said that the security of the employees and the office buildings was being ensured through a system. A committee had been constituted to dispose of disciplinary cases as early as possible, he said.

Talking about the transformation of CBR into FBR, Mr Yousuf said that it was not simply change of the nomenclature but much more than that. “It now gives us much greater autonomy which would help us to grow at a faster pace and become an institution capable of delivering as a prime revenue-generating agency of the country,” he added.

FBR reforms may be completed by 2009: Yousuf -DAWN - Business; February 05, 2008

 

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Bush seeks $830m for Pakistan​

WASHINGTON, Feb 4: US President George W. Bush on Monday unveiled a $3.1 trillion budget plan for 2009, which includes a financial assistance of $830 million for Pakistan.

The purpose of this assistance is to “sustain our strategic partnership with Pakistan,” the White House said. “Approximately $830 million (will) help Pakistan achieve stability, development, and democracy goals.”

The US assistance focuses “on security, economic development, and combating terrorism in Pakistan’s western frontier regions,” the White House said.President Bush also has requested $1.1 billion to “help build a stable Afghanistan.”

On Jan 28, President Bush authorised Secretary of Defence Robert Gates to provide “with the concurrence of the Secretary of State,” as much as $75 million worth of equipment, supplies and training to “build the capacity” of the Frontier Corps.

The United States is also considering a proposal to increase the presence of US Special Forces on Pakistani soil in support of the Frontier Corps.

Adm Eric T. Olson, head of Special Operations Command, visited Pakistan last fall and included a stop at the Frontier Corps headquarters. The US troops, however, will only provide counter-insurgency training to Pakistani troops, particularly those from the Frontier Corps.

Meanwhile, the US Congress has attached two unusual clauses to military assistance to Pakistan.

Bush seeks $830m for Pakistan -DAWN - Top Stories; February 05, 2008

 

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Bank shows willingness to invest in public and private sectors: ​

Exim Bank upgrades Pakistan’s rating​

ISLAMABAD: The US Exim Bank has made arrangement with three Pakistani banks namely National Bank of Pakistan (NBP), Muslim Commercial Bank (MCB) and Standard Chartered Bank to provide finance for the public sector projects. Afterwards they might proceed to finance the projects in the private sector too, a senior official at Board of Investment told Daily Times on Monday.

US Export and Import (Exim) Bank has upgraded its sovereign risk rating for Pakistan.

US Ambassador to Pakistan, Anne W Patterson attended the meeting along with Minister for Investment, Privatisation and Commerce, Shahzada Alam Manoo and Federal Secretary Mushtaq Malik, which discussed the potential of US Investment in Pakistan.

The representative of Eximbank informed the investment division that the bank was now open to finance Pakistan’s purchases of US goods and services in the public sector, from short-term, 180-day sales to contract on repayment terms of five years or more. The cost of financing would be now 13 percent less. The envoy also expressed US’s willingness to assist Pakistan by way of grants, technical training, and preparation of feasibilities and support for debt financing & project loans for the public sector by Eximbank.

Appreciating the role of the people and the government of Pakistan for struggle against terrorism and sectarian extremism the US Ambassador said that US was committed to long-term business relations with Pakistan. Lauding the government’s efforts for the progress and economic growth made during the last few years, she said that Pakistan has tackled some difficult macroeconomic issues and the country’s economic growth has responded positively to the reforms, which have been recognised internationally by global capital markets and international rating agencies.

While, commenting on the role and mission of the investment division and the Board of Investment (BOI). The Secretary said that foreign investment is one of the major pillars to enhance the competitiveness of the services and manufacturing industries in Pakistan and it has brought with it the know-how, expertise, new technology and financing facilities, resultantly generating employment and reducing poverty.

The US Ambassador was informed that Pakistan needs more investment from the US and western countries to receive the long term benefits and on behalf of the Investment Division and the BOI, Mr Malik expressed his appreciation and thanked the US Government for its support provided to the BOI through the Competitiveness Support Fund (CSF) to restructure the Board of Investment and enhance the efficiency of its operations. The US Ambassador was further elaborated that in order to enhance the efficiency of it operations the BOI has been given the Investment Division status to deal directly with the high-level decision makers including the Prime Minister.

This new structure is based on the international best practices where the CSF assisted the Government of Pakistan to benchmark the BOI with other relevant agencies in the region. With the CSF assistance the BOI has formed a Foreign Investor Council (FIC) to serve as a forum for policy dialogue between GOP and the foreign investor community to increase foreign direct investment in Pakistan; bring together the expertise and experience of top multinationals and present it to the Government; generate favourable opinion from international business community on Government’s measures to improve Pakistan’s investment climate for a knowledge-based economy.

The secretary also informed the Ambassador that the BOI is also trying to build up the capacity of its staff for more professionalism and efficiency. The BOI/ Investment Division has been working, with the assistance of the CSF, to design an investment strategy that will promote foreign and domestic private investment; investment treatment and protection; facilitation of foreign and private investment. Indeed, “the CSF has become an important policy instrument to help the government and the private sector as well as academia to form a partnership to promote innovation and investment to enhance the competitiveness of the Pakistan’s economy”, said Mr. Malik.

Malik Mushtaq, Secretary, Investment Division/BOI briefed the visiting delegation about the structural reform and aggressive investment policies pursued by the government. The policies have started delivering the desired dividends.

The macro economic indicators & exemplary performance of Pakistan’s stock market, clearly indicates that the economic progress is upward.

Daily Times - Leading News Resource of Pakistan

 

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Domestic debt rises to Rs 2.822 trillion: SBP​

KARACHI: Pakistan’s domestic debt outstanding rose by Rs 224.555 billion during the first five months of the current financial year, mainly due to high borrowing through treasury bills, Pakistan Investment Bonds and MTBs for replenishment.

The domestic debt rose by 8.70 percent to Rs 2.822 trillion from Rs 2.596 trillion at the end of the last fiscal, according to data released by the State Bank of Pakistan.

The government borrowed Rs 65.608 billion through sale of treasury bills during the period mentioned above. The government also borrowed Rs 91.042 billion through MTBs for replenishments. The overall floating debt rose by Rs 156.650 billion.

The permanent debt of the country rose by Rs 41.434 billion due to inflows of Rs 43.213 billion through sale of Pakistan Investment Bonds and Rs 9.007 billion through sale of prize bonds. Debt under some other heads was repaid.

The un-funded debt of the country surged by Rs 26.469 billion. Major inflows were recorded in Special Savings Certificates (Rs 5.975 billion), Bahbood Savings Certificates (Rs 16.796 billion), Special Savings Accounts (Rs 5.298 billion) and Pensioners’ Benefit Accounts (Rs 4.144 billion).

Daily Times - Leading News Resource of Pakistan

 

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Exports fall short of target during 1H ’08​

KARACHI: Key export sectors performed dismally in the 1st half of current financial year as majority of exportable items fell short of their targets during this period.

The most worrisome aspect is the poor export of textile, garments and other core categories, which make over 80 percent of total export volume of the country. “This led to overall shortfall in the export during July-December period of this fiscal year”, official statistics suggested.

Although, developmental categories posted growth during the period under review, little share of these items in exports did not help to enhance the overall volume of export.

Government has set $19.2 billion export target for financial year 2007-08. “It will be third consecutive year if exports fell short of target at the end of financial year”, analysts said.

It is pertinent to mention that export during the first six months of this financial year totaled at $8.716 billion against $9.219 billion target, which amounted to achieving of 94.5 percent target, thus leaving a shortfall of $503 million.

According to analysts, the export target of $19.2 billion seems impossible right from the beginning of current financial year because of various issues confronting the export and is likely to be missed in the present scenario when all the economic indicators are showing signs of recession including the exports.

“The ongoing uncertain situation as well as deteriorating law & order situation have adverse implications for the country’s export sector and impact of this situation have started emerging and would be more visible in the coming days”, analysts added.

According to exporters, big shortfall in actual export against its targets during the first six months was result of cancellation and failure to honour the export commitment marred by countrywide violence and disturbance, triggered by the demise of former Prime Minister Benazir Bhutto.

“All the industrial and business activities came to grinding halt as entire country was in a state of mourning on the death of Benazir Bhutto, which caused massive losses to industry including export”, they noted.

Financing cost and energy prices during the last few years made Pakistani products less attractive for buyers in international market and more recently the growing energy deficit is hampering the smooth operations of industry.

A closer look on the export performance of various sectors showed that textile and garments sector fetched $5.256 billion export proceeds during 1st half of current fiscal year against the target of $5.895 billion for the said period.

Export of core categories including rice, leather, sports, surgical etc. stood at $1.920 billion against target of $1.925 billion whereas developmental sectors export proceeds totaled $798 million against the target of $754 million.

Daily Times - Leading News Resource of Pakistan

 

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REITs to boost economic growth: Salman Shah ​

LAHORE: Real estate is an important sector for investment and REITs would provide an opportunity to the small investors to become shareholders in real estate and benefit from the real estate upside, said Federal Caretaker Minister for Finance, Dr Salman Shah on Monday.

He was speaking as a chief guest at the launching ceremony of regulatory framework for Real Estate Investment Trusts (REITs) held by the Securities and Exchange Commission of Pakistan (SECP). SECP chairman, commissioners and eminent business leaders were present on the occasion.

Shah said that REITs would give opportunity to general public to pool funds for participation in real estate ownership. “It would also have an overall positive economic impact on our economy,” the minister said adding that such initiatives by the government are part of its investor friendly policies and intend to meet the growing needs of the economy. He said that around the world REITs are seen an important tool for stimulating the growth and development of real estate investment market.

“REIT though new to Pakistan, were introduced over four decades ago. The global REIT market has grown to a total market capitalisation of $764 billion,” Shah said adding that Asia has been called the new REIT tiger. He said that 2007 saw the REIT market across the Asian region experience strong performance, particularly in stock prices, total returns and dividend yields.

The minister was of the view that the REIT would provide an investor-friendly atmosphere. “Philippines and Germany recently adopted a REIT regime whereas Italy is in the process of doing so,” said Shah adding that last month India, issued the draft REIT regulations for public comments.

Daily Times - Leading News Resource of Pakistan