Pakistan Economy - News & Updates - Archive

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Declining fish exports: Efforts afoot to explore new markets ​

KARACHI: In order to nullify the adverse impact of European Union’s (EU) ban on exports from Pakistan, the seafood sector is engaged in exploring new markets as well as enhancing the export volume to the existing markets.

According to sources in seafood sector and Trade Development Authority of Pakistan (TDAP), a number of delegations, comprising the industry people and government officials would visit different countries to explore the export potential in these markets. The targeted markets included countries of Middle East, Central Asia, Africa, Far East and Australia, for which the government is planning to send the delegations in near future. As a first step, a delegation comprising officials of TDAP, Marine Fisheries Department (MFD) and Ministry o Food, Agriculture and Livestock (Minfal) is expected to visit Australia sometime next month to meet the concerned government authorities and to explore the opportunities for seafood exports to Australia.

“The visit was earlier planned in March, however, due to political situation and formation of the government, it was put off for sometime later,” an official of TDAP told Daily Times here Tuesday. On the other hand, Vice Chairman, Pakistan Seafood Industries Association (PSIA) Faisal Iftikhar revealed that a number of delegations to visit Central Asia, Middle East and African markets are also being planned and modalities are being finalised with TDAP in this regard.

“Industry has lost the hopes of removal of ban on exports to EU and to recover the losses suffered due to this ban, new markets should be found out to increase the export,” industry people said.

Also, EU market has become irrelevant for the moment because a good quantity of fisheries products is being exported to other markets, which has fetched precious foreign exchange reserves to the industry, they said. A good quantity of fisheries products could be exported to a number of new markets if aggressive marketing is undertaken by the government and industry because of less stringent regulations in these markets compared to EU, the government officials said. For instance, Australia offers good potential to our seafood products and these can easily penetrate because of favourable regulations for export when compared to EU, which often resulted in suspension of import of fisheries products from Pakistan. About the exports, the industry people said that the export figures which were reduced to half in first six months of current fiscal year have now been improving with the export of bulk quantity of fish to Far Eastern markets.

Daily Times - Leading News Resource of Pakistan

 

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PIA takes delivery of 9th Boeing 777 aircraft​

KARACHI: Boeing and Pakistan International Airlines (PIA) have celebrated the delivery of the carrier’s 9th 777 aircraft.

PIA’s newest airplane, a Boeing 777-300ER, departed Paine Field on a delivery flight to its home base in Karachi, a press release issued here Tuesday said. PIA’s new 777-300ER, shown landing during a test flight, sports a tail design representing Pakistan’s Northwest Frontier Province. Two previous 777-300s have been delivered to the airline with similar themed tail designs in honor of the country’s Punjab and Sind provinces.

Daily Times - Leading News Resource of Pakistan

 

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Mobile numbers changed from 7 to 8 digits ​

ISLAMABAD: Pakistan Telecommunication Authority (PTA) on Tuesday announced successful migration of cellular mobile subscriber numbers from 7 to 8 digits as of 1st April 2008. The dialing codes of all mobile companies have also been changed from 4 digits to 3 digits.

According to details, as part of new mobile numbering plan, all mobile numbers in the country would now comprise of 8 digits by moving the last digit of the dialing code into subscriber number such that the dialing code would be reduced to 3 digits (i.e 0333-51xxxxx would now be 033-351xxxxx).

It is important to note that numbers of Mobilink, Warid, Ufone and Telenor will remain the same 11 digits as before. For Paktel (China Mobile), Instaphone and SCOM (AJK& Northern Areas), in addition to aforementioned shifting of subscriber numbers, digits of their dialing code would also change.

All these changes have become effective from April 1, 2008. Until June 30, 2008 all old and new numbers could be dialed. From 1 July 2008 onwards only new numbers will be valid, PTA spokesman said.

The spokesman said that the PTA with the help of all cellular, fixed line and WLL operators has ensured that this change remains hassle-free for consumers. However, in case callers face any difficulty they may contact their concerned operator and may contact the PTA complaint cell number 0800-55055, if the interruption in their service continues.

Daily Times - Leading News Resource of Pakistan

 

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Govt setting up company to generate $355m for 525MW power plant​

ISLAMABAD: The government will set up a special purpose company to generate financing worth $355 million from both local and foreign financial institutions for carrying out the 525-Megawatt gas based thermal power plant at Chichoki Mallian, sources told Daily Times here on Tuesday.

They said that cost of the project is $355 million that was negotiated between Pakistan Electric Power Company (PEPCO) and Chinese company Dong Fong. They said that a special purpose company would be set up to generate financing of $355 million from local as well as foreign banks.

At present the country is mainly depending on hydel power generation and due to water shortage the hydel power generation has dropped to around 2300 MW per day from 3200 MW. The officials are of the view that the country would be facing around 1400 MW power shortfall by 2010.

At present the thermal power generation stands at 4800 MW by IPPs and 3000 MW by Wapda. After the completion of the thermal power plant at Chichoki Mallian, 525 MW thermal power would be added to the national power system in the next two years.

Sources said that the cost of electricity generated through the project would stand at $0.67 million per MW and added that it would be the lowest cost than the electricity generated through Independent Power Producers (IPPs). They said that the cost of electricity generated through IPPs was $1.2 million per MW.

Sources further said that the plant would be operated on gas and the per unit cost of the electricity generated through Chichoki Mallian thermal power plant would be 5.35 cents per unit or Rs 3.31 per unit. Sources also informed that PEPCO was receiving power from HUBCO at 17.50 cents per unit or Rs 10.40 per unit.

“By setting up 525 MW gas based thermal power plant at Chichoki Mallian, public sector will be able to provide electricity at cheaper rates than the electricity being provided by IPPs, sources added. He said that the project would be completed within two years by 2010.

They said that 450 MW power project at Nandipur (Gujranwala) was also being set up by public sector at the cost of $ 329 million and 525 Megawatt gas based thermal power plant at Chichoki Mallian would be the second project that would be owned by public sector.

Chinese company Dong Fong Electric Corporation has already completed the hydro power plant at Ghazi Barotha project that is delivering 1450 MW power. The company is also recently working on five other power projects of 869 MW.

A 4-member Chinese delegation headed by Si Zefu, Chairman M/S Dongfang Electric Company called on Federal Minister for Water and Power Raja Pervez Ashraf here on Tuesday. The minister invited the firm to participate in the power sector and asked to complete the projects by the company in Pakistan in the stipulated time.

The minister said “we recognize the professional experience of the company and expressed the hope that the Chinese government would extend its support and assistance enabling Pakistan to overcome the power crisis. The Chairman of the Company said that his company is well aware of the power situation in Pakistan and assured that it would complete the project as per schedule.

Daily Times - Leading News Resource of Pakistan

 

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Number of foreigners visiting Pakistan decreases ​

* Decrease due to law and order situation​

LAHORE: The number of people coming from abroad has decreased because of the law and order situation in Pakistan.

At the same time, the number of people going abroad has increased during the last couple of weeks. A senior Civil Aviation Authority (CAA) official at Allama Iqbal International Airport, Lahore, said on the condition of anonymity that due to bomb blasts in major cities the number of people coming from abroad had reduced.

“In January and February, a large number of people living abroad, including foreigners and Pakistanis, visited Pakistan; however, the number has decreased in March,” he added. He said a large number of people from Pakistan went abroad during March.

Nauman Chatta, owner of an immigration consultancy firm, said he had witnessed a large number of people leaving the country during the last month. “Most people were conscious about the security situation in Pakistan,” he said.

Mrs Zahida Masood, a Pakistani-born UK national, said via telephone, “It’s very safe in the UK and why should I put my life in risk by coming to Pakistan?” Natasha Janwani, a US resident, told Daily Times over the telephone that she was planning to visit Pakistan in April but her husband would not allow her due to deteriorating law and order.

Kamran Malik, the public relations officer of the CAA, said the number of people visiting Pakistan from abroad had not decreased, but said that foreigners were concerned about the security situation in Pakistan.

Daily Times - Leading News Resource of Pakistan

 

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Editorial: 100 days of economic challenges​

The State Bank has cut its growth forecast from 7.2 percent of the GDP to 6.6 percent for the current fiscal year ending in June, and is worried about the rising annual budget deficit which is threatening to hit 6 per cent, far above the targeted 4 percent. The services sector — mostly on the consumer side — has performed well but agriculture and manufacture have slumped. In the next hundred days, the coalition government in Islamabad will be hard put to straighten out the problems faced by the people as a result of an economy which threatens to falter further.

Some of the crisis has arisen from the style of economic governance adopted by the outgoing government. But the hardship of the common man is also owed to a downturn in the global agricultural economy and the sky-rocketing of the price of energy. Pakistan used to pay just over one billion dollars for its oil in the 1990s; now it pays six billion, and oil prices are expected to stay high. Unfortunately the government in 2007 decided not to pass on the rising oil prices to the consumer, which means that the current government will have to let the real price fall on the people or risk carrying a dangerously large fiscal deficit pregnant with possibilities of galloping inflation.

The coming wheat crop is said to be greatly affected by lack of water. In consequence, the farmers in Sindh have collected a significantly reduced per acre yield. So we could be looking at an even bigger shortage of flour in the country once again. Therefore, given our inability to deploy a system of special distribution for sections of population directly affected by this shortage, one can say that the masses are likely to become quickly disenchanted with the new government. And the problem of flour smuggling to neighbouring countries will remain because we cannot dare equalise the lingering price differential, given our conditions. True, the Federal Board of Revenue (FBR) on Monday empowered the Frontier Constabulary (FC) and Rangers “to end the smuggling of wheat and wheat products, rice and all types of pulses to other countries from Pakistan”. But whether this will work or not, given the extent of corruption in the works and the difficulties of policing a porous and long border, remains to be seen.

When we talk about the FC we are referring to the porous borders with Afghanistan; and a reference to the Rangers means our border with India. To get cheap flour to the low-income consumer, we will have to keep it priced far below the international price. Inevitably, smuggling will follow. The government had recently fixed the wheat price at Rs 510 per 40kg but the farmers want it raised to Rs 600 — refixed since by the prime minister at Rs 620 — because India is giving Rs 660 and the landed cost of imported wheat is Rs 1350! In 2007 the support price for wheat was Rs 425, which gives us an inkling of the extent of smuggling that Pakistan has experienced.

That might happen again. And the government will have to bend its back to stop it from happening as it doles out subsidised flour imported at a price double that of its new support price. Other agricultural items too are under threat as the global economy continues to underperform. This means that flour will not be the only item the government might have to protect for the survival of the population and its own survival. And the money it will spread around to organise its distribution system might stoke inflation and erode the income of the lower classes.

It has been observed by economists that global food cost is linked to the cost of energy. And that once again is a zone of challenge for the government. Had the former government paid all its bills to the distribution companies, the crisis would have been a little less extreme, but the IOU on the oil side is also a mountain by now. The energy sector is where the former government is most to blame. It was warned by the World Bank in 2003 that energy would run dangerously short unless special steps were taken. Heady with high growth rates, the government refused to listen because it had “shattered the begging bowl”.

In the coming one hundred days, the only thing going in favour of the new coalition government is its wide political base and an opposition in parliament which must feel a little hot under the collar for the crises that envelop the country. The people will nevertheless burn during the summer as power outages increase in number and duration. With food expensive and in short supply, the masses will be forced to complain loudly. So the government should let the people have information about the nature of the crisis. And for that the “myth of cheap food in India” will have to be broken by allowing the people to watch Indian TV news channels instead of just Bollywood song and dance. Indeed, the coming hundred days should on no account be used up in foreign policy adventures to satisfy the raw public passions that only time will help interpret correctly. *

Daily Times - Leading News Resource of Pakistan

 

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project to be functional in 2009​

BEIJING, April 1: China’s state-backed mining and metals firm MCC Group said on Tuesday that its Pakistani Dapua copper project would start production in the first quarter of 2009.

Group’s vice president Wang Yongguang also told reporters MCC was expected to bring its Papua New Guinea nickel and cobalt mine into commercial production early next year.

He said the group would get its final approval for a public share offering very soon.

“The approval for the whole listing will come very soon. We have entered the final stage,” Wang said on the sidelines of a conference.

He said the proposal had won approvals from eight relevant ministries.—Reuters

Copper project to be functional in 2009 -DAWN - Business; April 02, 2008

 

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WB to help Achieve economic stability​

ISLAMABAD, April 1: The World Bank will continue to work with Pakistan to reduce poverty and achieve economic stability and welfare of the people.

This was stated by World Bank Country Director Yusupha B. Crookes, who called on Finance Minister Ishaq Dar here on Tuesday, with a WB team presently visiting Pakistan.

The two sides exchanged views on the current economic situation and expressed the hope that the new government would give a viable and transparent plan for economic development and overcome impediments and imbalances in the economy through well-thought-out policy interventions.

Mr Dar briefed the visitors about economic priorities of the government and indicated that a statement of current financial status inherited by the government would soon be presented to people through parliament to bring greater transparency and fact-sharing with the nation.

He said that with public support Pakistan would hopefully come out of the present economic turbulence and address the economic issues confronting the public through adjustments in monetary and fiscal policies. He said that relationship with WB would be based on transparency, mutual trust and confidence.—PPI

WB to help Achieve economic stability -DAWN - Business; April 02, 2008

 

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Tajikistan seeks joint ventures​

FAISALABAD, April 1: Both Pakistan and Tajikistan have incredible potential in the field of textile, and joint ventures would improve the situation further.

This was stated by Tajikistan’s Ambassador to Pakistan Saidbeg Saidov while speaking to members of the Faisalabad Chamber of Commerce Industry here on Tuesday.

Tajikistan, Mr Saidov said, was an agriculture-based country, and its 73 per cent population was attached with this sector.

He said cotton was a major crop of Tajikistan and provides livelihood to thousands of people.

Mr Saidov said business community of his country was fervent to join hands with the Pakistani textile exporters and this approach would be beneficial for both the countries.

He urged Pakistani businessmen to invest in Tajikistan in the fields of gems and electricity as both sectors had a lot of potential for earnings.

FCCI President Asim Khursheed said Pakistan and Tajikistan had cordial relations which needed to be augmented. Businessmen from both sides should come forward and make efforts for joint ventures, he said.

Tajikistan seeks joint ventures -DAWN - Business; April 02, 2008

 

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July-December current expenditures up by 33 percent ​

KARACHI (April 02 2008): The country's current expenditures presented strong growth of 33 percent during the first half of current fiscal year due to the substantial rise in both current and development spending.

As per details provided by Ministry of Finance, during the July-December period of current fiscal year, 2008, overall expenditures reached Rs 775.1 billion as compared to Rs 581.4 billion during the same period of last fiscal year, depicting an upsurge of Rs 193.7 billion. The increase in the current expenditures during first half of 2006-07 was 10.7 percent from Rs 111.4 billion to Rs 155.8 billion.

The tremendous rise in expenditure has been on account of high interest payments, which amounted to Rs 237.7 billion by the end of December 2007 as compared to Rs 155.8 billion during first half of 2006-07.

Second major share in the expenditures was witnessed by provinces, which amounted to Rs 210.1 billion during July-December 2007-08 over the Rs 176.7 billion in corresponding period of last year. Defence expenditure went up by 15 percent to Rs 131.8 billion from previous Rs 114.9 billion.

Actual expenditures showed a sizeable growth in July-December compared to a decline in the corresponding period of last year, and spending under economic affairs reached Rs 50.9 billion in first half of current fiscal year, up by 173.3 percent year on year basis compared to a fall in some period of last fiscal. Expenditure under superannuation allowance and pension increased by Rs 10.1 billion to reach Rs 22.8 billion compared to a fall of Rs 5.3 billion in first half of fiscal year 2007.

Grants (other than provinces) jumped to Rs 45.2 billion, up by 71.5 percent, on account of non-receipt of logistic support grant from the US. Development expenditures also increased significantly by 48.2 percent YoY during July-December FY08 compared to 16.4 percent during July-December FY07.

Business Recorder [Pakistan's First Financial Daily]

 

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$14.837 million towel products export orders lost ​

KARACHI (April 02 2008): With increasing complaints from foreign buyers over the escalating prices of towel products, the country has lost foreign orders worth $14.837 million of towel products during July-February period of the current fiscal year, exporters said on Tuesday.

"This was only because of the soaring yarn prices and political unrest in the country which made production costlier and difficult to reach the foreign buyers on time," they said. The state of political turmoil prevailing for the last one year was restricting the foreign buyers from visiting Pakistan. To sell products in the world markets, local exporters have to visit neutral venues to finalise business deals, they said.

On the other hand, there is an acute shortage, of about 1.1 million bales of cotton, which the last government had completely overlooked, resulting in crisis-like situation in the local market, they added.

They said that foreign buyers are still inclined towards Pakistani products but their higher prices than countries like India, China, and Bangladesh have pulled down their growth in world markets.

About innovation in the products to stand firm against other competitors in world markets, they said that the government is not financially supporting such moves. "Traditional towel products still have demand. Therefore, there is no need to go for innovation without any government support. It is also an expensive venture with no lucrative outcome," they added.

Pakistan has exported $377.220 million worth of towel products during eight months of the current fiscal year as compared to $392.057 million during the same period of last fiscal year, declining by 4 percent or $14.837, according to official statistics.

However, a robust growth of 16.28 percent, or $6.516 million in exports of towel products was seen in February 2008 to $46.552 million as compared to $40.036 million of February 2007.

Exporters complained that local yarn exporters are damaging the country's towel and other textile related products in the world market. "Towel products and other value-added textile items are made with local yarn by the some countries against Pakistani products in the international arena. As a result, exports decline," they said.

Turkey and Portugal are big markets of Pakistani towel products, they said, and added that shortage of quality yarn had made the manufacturers to use substandard yarn, which subdues the quality of products. Consequently, complaints from foreign buyers rise.

Exporters said that manufacturers are not able to produce on world standards for the unavailability of quality yarn, whereas the foreign buyers want a continued shipment for four months. "These buyers want us seal a deal for a longer period, minimum four to six months, while increasing cost of production during the same period does not allow us to go for such a risky venture," they elaborated.

Regarding dispatching the newly designed samples of items to foreign buyers, exporters said that they are constantly demanding for them but it is not viable for many exporters to fulfil for cost reasons.

Business Recorder [Pakistan's First Financial Daily]

 

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Pakistani businesses not equipped to comply with world standards: report ​

ISLAMABAD (April 02 2008): The businesses in Pakistan are not fully equipped to comply with the international labour and social standards which dented export earnings to the tune of $3 million in 2007, a report said.

Competitiveness of business enterprises is a key concern in Pakistan as exporters are under immense pressure to stay in the world market due to poor labour, environment, safety and health standards. In the international market, quality standards of a product are also judged in the light of international labour and social standards in vogue in the exporting country.

For example, the ban on exports of seafood by the European Union clearly indicates that the country has lost precious $128 million foreign exchange, reason being substandard seafood ,while EU has already imposed 100 percent check on import of frozen fish products from Pakistan.

Under the World Trade Organisation regime, 'Technical Barriers to Trade' (TBT) arise whenever an exporter is required to comply with particular requirements of the importing country. Such requirements may entail consideration of health and safety of consumers and requirements to do with environmental protection.

In this world, which is heading towards economic integrity, the countries that have strengthened their links with the global economy through trade and investment have generally grown more rapidly over a sustained period, while one of the major hindrances for the low-income countries towards adopting this path is the limited enterprise capacity to comply with international buyers' requirements.

International buyers are increasingly demanding compliance to labour, environment, safety and health and other social standards, along with demands for product quality and reliability.

Keeping the above in view, Punjab Resource Management Program (PRMP), assisted by Asian Development Bank (ADB), has been specially designed for promotion of the core labour, environmental and quality standards. It has now been extended for five years as a cluster program with Punjab Government Efficiency Improvement Program (PGEIP) that focuses on development of the private sector.

The strategy made by PGEIP will focus on some certain themes including international labour standards (ILS), occupational health and safety, issues related to women work force, environmental standards, WTO and other quality standards.

ILS address the diverse issues including freedom of association, occupational health and safety, forced and bonded labour, child labour, social security, labour inspection, tripartite consultation, vocational guidance, employment policy, non-discrimination, wages, work duration and maternity.

The recent recall in USA of Chinese-made toys due to high lead level indicates the major challenges of quality, product safety, food handling and other manufacturing standards, the compliance of which is essential to remain competitive in the global arena.

The report says that even informal and agriculture sectors are being increasingly covered by the global standards. An example is the Better Cotton Initiative, started by major garment importing companies who intend to improve the standards at the tail end of their supply chain.

The businesses are faced with a two-pronged dilemma. On the one hand, they are faced with the issue of costs of compliance with international standards on labour, environment and quality. The businesses lack the requisite capacity to handle the costs associated with compliance of these standards. On the other hand, the costs of non-compliance are also significant.

The report says that globally about 2.2 million workers suffer serious non-fatal injuries and another 160 million workers suffer from short or long-term illness from work-related causes. Those in favour of universal labour laws advocate that weak labour standards could give exporters a comparative advantage.

Pakistan has committed to update domestic labour policies. However, upon examining closely, one finds many gaps and discrepancies within the policy framework. There is an urgent need to concentrate more on international standards of labour to increase output while putting a better input than ever before.

Business Recorder [Pakistan's First Financial Daily]

 

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Indian curbs on rice export likely to help Pakistan ​

NEW DELHI (April 02 2008): Indian restrictions on rice exports will spur global prices and help fellow exporters like Pakistan and Thailand because overseas sales from India will fall to a fraction of last year's, a trade body said.

Exports from India are likely to fall to 250,000 tonnes this financial year from 5.5 million tonnes in 2007/08, Sanjay Sethia, president of the All India Rice Exporters' Association, told Reuters in an interview on Tuesday.

"Pakistan, Thailand and other exporting countries will make money, while India will lose out," he said. India banned non-basmati exports on Monday to try to ease pressure on prices, which has pushed wholesale price inflation to a 14-month high.

"It is a hasty decision and needs to be relooked at by the government. Unnecessarily, India could end up inflating world prices," Sethia said. Governments from Cairo to Manila have announced steps to ensure domestic rice supplies at a time global stockpiles have halved and prices have doubled to multi-year highs.

"I feel that India's exports will now fall to about 250,000 tonnes during 2008/09, as only some traditional basmati rice can be exported," he said. He said Pakistani and Thai rice traders had increased prices by about $150 to $200 per tonne on some rice grades after India raised the minimum export price for non-basmati rice last week to $1,000 per tonne from $650 per tonne free on board.

On Monday, the minimum export price for basmati was increased to $1,200 per tonne from $1,100. Trade officials said India exported 5.5 million tonnes of rice in the year to March 31, 2008, up from 3.8 million tonnes last year but that the new restrictions have tempered sales. Out of the 5.5 million tonnes, 4 million tonnes is estimated to be non-basmati rice and 1.5 million tonnes superior quality rice including basmati.

INFLATION: Sethia said last week's increase in the minimum export price was so steep that it ruled out the export of coarse grades of non-basmati rice, generally given by the government to the poor under public distribution scheme.

He said the Indian government's move would also block exports of superior quality non basmati which is quoted at between $1,200 per tonne and $1,700 per tonne, while basmati rice above $1,200 per tonne could be sold overseas. The prices for India's superior quality rice compared with $1,100 to $1,200 per tonne in Pakistan.

Sethia said the government's decision to hike the export price limit had already caused local rice prices to fall. Prices in southern India have fallen to 17 rupees per kg from 20 to 22 rupees (49 to 54 cents) a year ago. Rising food prices have been a major trigger for India's widely watched wholesale price inflation, which surged to an annual 6.68 percent in mid-March, posing a major policy challenge at a time when economic growth is slowing.

On March 20, the government scrapped the 70 percent import duty on rice, spurring Indian traders to look at the Pakistani market for the possibility of buying rice there.

"People have started checking for the import of rice from Pakistan, milled and semi-milled," Sethia said. But he added the sudden change in rice export policy was likely to sow confusion in the trade about government policies and the imports may not now materialise.

Business Recorder [Pakistan's First Financial Daily]

 

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Pakistan's economic growth may pick up to 6.5 percent next year: ADB ​

ISLAMABAD (April 03 2008): Economic growth in Pakistan is expected to be moderate, to 6.3 percent, in the 2007-08 and may slightly pick up, to 6.5 percent in 2008-09. The forecast is lower than the average 7 percent growth rate during the recent years, Asian Development Bank (ADB) said in a report on Wednesday.

The growth momentum in Pakistan, Bangladesh and Sri Lanka will be affected by economic deceleration in major markets. The growth in these South Asian countries will be affected mainly by moderation of growth in India, said the ADB annual report 'Asian Development Outlook (ADO) 2008'.

The forecast for the current and next fiscal years are also lower than Pakistan's own projections of maintaining growth trajectory of around 7 percent as stipulated in the five-year (2005-10) programme. In its recent report, the State Bank of Pakistan (SBP) also stated that growth rate could be around 6 to 6.5 percent in the current fiscal year.

The ADB forecast looks to be a bit speculative as the new government is yet to announce its economic policy. Most of the ADB forecast is based on SBP figures. It is still premature to forecast growth for Pakistan, which is in transition and a lot may depend on next budget. It will be seen whether new political regime gives growth-oriented budget or it will give relief to the common man, said an independent analyst.

"Political uncertainty and the security environment and formation of the government may curtail investment and drag down economic performance," said the ADO. Revenue shortfalls produced by slowing economic activity and expenditure overruns may limit fiscal space and reduce public investment. This may affect private investment and growth, said the report.

The declaration of November 2007 emergency and the downgrading of Pakistan credit rating outlook resulted in net outflow of $243 million from special convertible Pakistan rupee account held by foreigners during November 2007.

The ongoing energy shortages caused by an ageing energy infrastructure, chronic underinvestment in expansion and maintenance, and unsustainable pricing regimes slow production and badly affect domestic and foreign investment.

According to the report, Pakistan could face difficulties in global financial market that could further affect capital inflows. In addition, planned issues of global depository receipts may not materialise.

The agriculture growth will be lower than earlier expected because of pest attacks and floods. These two factors are resulting in shortfall in cotton production in moderating textile manufacturing sector growth and an overall slowdown in large-scale manufacturing sector growth in the first six months of 2007-08.

Despite tight monetary conditions and moderating growth, inflation is expected to overshoot SBP's target 6.5 percent and reach 8 percent. There would be continued pressure on food prices and pass-through of some higher global oil prices. The tight monetary policy will have only a limited impact on controlling food inflation.

The fiscal deficit is likely to exceed the government target of 4 percent of the GDP in the current fiscal year. In the election year, the government deferred the pass-through of higher international oil prices to consumers until March 1. The ADO says the increase in the prices of petroleum products by the government is small in relation to the international oil price rise. The government subsidy on this account expanded to Rs 60 billion.

With fiscal deficit widening and external inflows remaining subdued, the government borrowings from SBP in 2007-08 had risen more than threefold by January 2008 relative to the same period in the last fiscal year.

The current account deficit in the first 7 months of the current fiscal worsened by 47 percent compared with the same period of the last fiscal year and is likely to widen to 6.3 percent of the GDP for the full year.

The income account may also feel the strain of larger external borrowing by the government to finance the deficits, the increased cost of commercial borrowing resulting from downgrading Pakistan credit rating outlook from stable to negative in November 2007 and the start of payments in 2008 on the debt rescheduled by the Paris Club.

The ADB has suggested that Pakistan has to build greater capacity to finance its investment needs with internal resources ie savings. Pakistan will also have to improve competitiveness of exports, attract FDI in manufacturing industries and expand tax base.

Business Recorder [Pakistan's First Financial Daily]

 

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ADB doubtful about Pak growth sustainability ​

Thursday, April 03, 2008

ISLAMABAD: The Asian Development Bank (ADB) has raised doubts about long-term sustainability of growth patterns for Pakistan, owing to domestic political uncertainty, higher global oil and commodity prices.

The ADB also lowered down Pakistan’s GDP growth forecast to 6.3 per cent against the actual target of 7 per cent, due to the lingering energy crisis, while the revised upward inflations touched 8 per cent against the envisaged annual target of 6.5 per cent for the current fiscal year.

“Issues of long-term sustainability therefore, arise, especially in the context of high global oil and commodity prices and domestic political uncertainties,” stated the Asian Development Outlook (ADO-2008) released by the ADB states on Wednesday.

The ADO 2008 also outlined twin deficits ó current account deficit and fiscal deficit, as major challenges for Pakistan in the future line of action. External debt rose by another $2.5 billion in the first half of FY2008 as a consequence of the rising current account and fiscal deficits, while foreign currency reserves were also depleting.

Revenue shortfalls produced by slowing economic activity and expenditure overruns, may limit fiscal space and reduce public investment, which in turn may affect private investment and growth. In addition, continued tight monetary policy conditions in view of persistent inflation could serve to dampen demand and limit any expansion.

Despite tight monetary conditions and moderating growth, inflation is expected to overshoot SBP’s target of 6.5 per cent and reach 8 per cent, reflecting continued pressure on food prices and the pass-through of some higher global oil prices.

Yet, inflation pressures have persisted, with food prices rising to 11.6 per cent in January 2008 (based on a 12-month moving average), compared to the 8.5 per cent, a year earlier.

The fiscal deficit is likely to exceed the Government’s target of 4 per cent of GDP for the FY 2008, mainly on higher interest payments and a rise in development expenditures.

With the fiscal deficit widening, and external inflows remaining subdued, the Government’s borrowings from SBP in FY2008 had risen more than threefold by 19 January 2008, relative to the same period in FY2007.

This led to a sharp 90 per cent increase in the net domestic assets of the banking system, and resulted in an annualized growth of 19.2 per cent in M2.

The current account deficit in the first 7 months of FY2008 worsened by 47 per cent, compared to the same period in FY2007, and is likely to widen to 6.3 per cent of GDP for the full year. The trade gap widened by over 25 per cent in the first 7 months of this fiscal year.

The financing of the current account deficit remains a key issue, given the deterioration in the financial account caused by the halt in foreign portfolio investment in the first 7 months of FY2008.

Difficulties in global financial markets could further affect capital inflows. In addition, planned issues of global depository receipts may not materialize. The declaration of emergency on 3 November 2007 and the downgrading of Pakistan’s credit rating outlook resulted in a net outflow of $243 million from special convertible Pakistani rupee accounts held by foreigners during the month. Altogether, net foreign investment tumbled by 34.9 per cent in the first 7 months of FY2008 relative to the same period in FY2007, caused by a slowdown in FDI growth and virtually no portfolio investment as foreign investors shied away from the stock marketsóa demonstration of the high level of volatility of such inflows.

With a weakened financial account, the burgeoning current account deficit led to a drawdown on SBP’s foreign reserves of almost $1.5 billion between 31 July 2007 and 15 February 2008.

External debt rose by another $2.5 billion in the first half of FY2008 as a consequence of the rising current account and fiscal deficits.

Improved economic fundamentals have enhanced the resilience of the economy and helped absorb shocks, including higher global oil prices and 2005’s devastating earthquake.

Growth, however, has generated a heavy imbalance in the external current account, which could affect the economic momentum. The current account deficit has been financed largely from strong incoming foreign investment. External sources have also been employed, increasingly, to finance the fiscal deficit.

ADB doubtful about Pak growth sustainability