Pakistan Economy - News & Updates - Archive

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LAHORE (May 29 2006): The incompetence of the Punjab financial planners is likely to pave the way for gross misuse of funds which are likely to come in plenty in the coming financial year.

The provincial financial wizards are struggling hard to finalise such development schemes for the fiscal year 2006-07 so as to justify unprecedented flow of funds about Rs 83.7 billion for the development sector.

"Apparently, there is no panic scene but the development and planning department is experiencing problem-of-plenty this time around," sources closely associated with budget making process, quoted senior officials as saying.

The federal government had indicated in December last year that under the interim National Finance Commission Award provinces and federally controlled areas would get an enhanced allocation of funds. But it was only in March this year that the provinces were conveyed about the exact size of funds meant for the development sectors.

Never in Punjab's financial history the annual allocation of development funds had gone beyond Rs 48 billion.

Sources said there had been about 860 to 900 schemes, which enjoyed the status as approved, but allocation of funds was not made against them in previous years for want of finances.

This time around, the sources said things were other way round. "Fund are hugely surplus, but schemes have not been carved out so for to absorb available money," they added.

Under these conditions, the finance department may suggest buffer or advance allocations of funds, which could be utilised later when more schemes would be available.

Such practices in the past, the sources pointed out had led to massive embezzlement of money as once the provincial assembly passed budget, things move away from the public view. Since the public sector accountability process is not strong, it becomes easy to misappropriate public money, sources said expressing the fear that since next financial year would also see holding of general elections, the gulping of funds, lying idle, at the behest of weak political governments could not be ruled out.

 

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FAISALABAD (May 29 2006): The Faisalabad Development Authority would develop the FDA City on modern and scientific lines to bring about a positive cultural change in this textile capital of the world, said City District Nazim Rana Zahid Tausif.

Addressing a function of computerised balloting of plots in this housing colony sprawling over 1,208 acres of land near Motorway (M-2) on Sargodha Road, he asked the authority to develop this city to cater to the needs of the coming generations with all basic amenities of life.

Criticising developers of private colonies, he added they have fully conned people without giving them fundamental amenities. "Still 106 private colonies are without electricity," he claimed.

FDA Director General Raja Safdar Hussain said work to add two lanes to the Sargodha Road would be started from July this year, which would enhance value and importance of the FDA City."

The authority would keep its management after its development and a project management unit would be created to undertake this while rules and regulations are being prepared for this, he added and also claimed the base level of buildings in this city would be strictly adhered to rules to maintain symmetry and beauty.

FDA would also provide 840 contracted residences to retired provincial government employees through Punjab Housing Foundation, he maintained.

Earlier, 1601 plots of one-Kanal, 1840 of 10-Marla and 1816 of five-Marla were allotted to people through the ballot.

 

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ISLAMABAD (May 28 2006): Federal Commerce Minister Humayun Akhtar has said that Pakistan would take benefit from the economic progress of China and other countries of the region.

In an interview with BBC he said that Pakistan is sharing a free trade agreement with China, adding that negotiations are also in progress with a number of Asian nations.

Humayun said, "We have signed a South Asia free trade agreement for the South Asian countries. We have gone through major reforms within our economy despite major challenges that we face. Our economy grows at 8.4 percent. All these indicate towards healthy atmosphere."

To a question the Commerce Minister said that country is moving quite fast and has made huge improvement in telecom infrastructure, saying, "We have deregulated, we have privatised the monopoly and there are lots of foreign companies coming into Pakistan." He further said that Pakistan was also making good progress in training manpower for IT adding that the country is moving towards right direction.

To another query the minister disagreed that the people of Pakistan don't like the United States. He said the US played important role in the relief and rehabilitation activities after October earthquake. He said that the US sent the Chinook helicopters for providing relief items to the hilly and far-flung areas hit by earthquake. Similarly, he said that it had also established field hospitals in the hit areas where a huge number of quake victims were treated.

Humayun said that the United States and Pakistan have a long-term relationship and we are trying to base it on solid foundations, economic foundations and it has every reason to grow.

To another question that the European Union should make a move in accepting the G-20s offer on agriculture market access and the United States should make counter offer on domestic support which would result in actual cutting of their spending.

 

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Sunday May 28, 2006

KARACHI: Pakistan Gems and Jewelry Industry is totally reinventing itself as a quality producer of able to compete globally through skills and technology up-gradation, better quality control and innovative branding.
This was a joint statement by the Pakistan Gems and Jewelry Strategy Working Group (SWOG) at a local hotel in Karachi on Sunday.

The event attracted more than 100 participants from the gems and jewelry industry to celebrate the launch of a monthly trade magazine, "Zar-o-Jawahir Pakistan", intended to broadcast to Pakistan and the global market place that Pakistan’s Gems and Jewelry sector is ready to claim in rightful place in the US$80 billion plus international market for gems and jewelry.

Others in the region are exporting into the billions of dollars, and Pakistan’s industry has now come together to gain significant market share.

The "Pakistan Initiative for Strategic Development and Competitiveness" (PISDAC) is a United States Agency for International Development (USAID) funded activity managed by J.E. Austin Associates Inc. and is aimed at increasing the competitiveness of Pakistani Small and Medium sized enterprises.

The sectors currently covered under the project are Gems & Jewelry, Dairy, Marble & Granite, Furniture and Horticulture/Food Processing.

The project worked with several prominent Pakistani industries and helped form three Strategic Working Groups (commonly referred to as SWOGs), which develop sector-specific strategies.

SWOGs include industry leaders, government officials, academia, and relevant NGOs that are working together to develop strategies and implement policy and regulatory changes through public-private dialogue.

These strategies are aimed at upgrading production, improving marketing and understanding and meeting consumer demand. The Strategic Working Groups identify priority investments in human resources, infrastructure, technology, and, management required to produce higher-quality products.

The strategy developed by the Gems and Jewellery SWOG is aimed at facilitating growth throughout the value chain. The SWOG envisioned working together across regions and activities for establishing Pakistan as a high value added, internationally competitive, world-class hub for precious stone cutting and jewelry manufacturing. strategic initiatives are intended to close the benchmarking gap between Pakistan and other countries with a strong Gems & Jewellery sector.

SWOG members anticipate that the proposed initiatives will result in an increase in jobs, particularly in skilled labor. Only recently has the Gems and Jewelry sector been officially recognized and granted industry status by the Government of Pakistan.

The Small and Medium Enterprise Development Authority (SMEDA) and the Export Promotion Bureau (EPB) have been two key partners along with the USAID PISDAC project. They have helped the industry to move forward, and are committed to help the industry achieve its ambitious goal to increase exports to US$500 million or even more by 2010. Industry hopes to develop its value chain quickly so that its performance will go well beyond this goal.

The Magazine is intended to share latest updated research and information throughout all stakeholders the entire Gems and Jewelry value chain, from mine to market.

 

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Monday, May 29, 2006

ISLAMABAD: The government spent over Rs one trillion on poverty alleviation and social sector related programmes during the last four years, which resulted in poverty decline from 32.1 percent in 2000-01 to 25.4 percent in 2004-05.

“Rural poverty has declined from 39 percent to 31.8 percent and urban poverty from 22.7 percent to 17.1 percent”, Dr Ashfaque Hasan Khan, the advisor to the Finance Ministry, told APP on Sunday.

He said the real Gross Domestic Product (GDP) grew at an average rate of almost 6 percent per annum in the last four years as against 3.3 percent in the preceding four years. It is set to be between 6 to 7 percent during the current fiscal year which showed strong economic recovery, he added.

He said the growth rate increased to 8.4 percent in 2003 as compared to 1.8 percent in 2000-01. “If we take a longer term view, growth recovered from an average of 3 percent during the last six years prior to 2001-02 to an average of over 6.5 percent during the last three years (2002-03 to 2004-05),” he said.

He said that due to strong domestic consumption and investment, real private sector consumption grew by 8.2 percent in 2003/04 and 16.8 percent in 2004/05.

He said that higher consumption, feeding back into economic activity was likely to support the ongoing growth momentum, adding that it suggested the emergence of a strong middle class with buying power.

He said that poverty in Pakistan had declined from 32.1 percent in 2000-01 to 25.4 percent in 2004/05, rural poverty had declined from 39 to 31.8 percent and urban poverty from 22.7 percent to 17.1 percent, he added.

He said this was because real GDP grew at an average rate of almost 6 percent per annum in the last 4 years (2000-01 to 2004-05) as against 3.3 percent in the preceding 4 years. The advisor said that unemployment had gone down from 8.3 percent in 2001-02 to 6.2 percent in the second quarter of 2005-06 and the pace of job creation had increased.

 

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ISLAMABAD (updated on: May 29, 2006, 19:24 PST): The country is expected to achieve 6.6 percent GDP growth rate during the outgoing year and the next budget will be pro-poor and caring for the masses. This was stated by the Advisor on Finance Dr. Salman Shah at a joint pre-budget briefing here on Monday along with Minister for Information and Broadcasting, Muhammad Ali Durrani and Minister of State for Finance, Umar Ayub Khan.

Giving an overview of the current financial year, the Advisor on Finance said the GDP may slightly be higher than estimated 6.6 percent with the availability of more data.

This year the overall fiscal deficit is estimated to be four point two percent of GDP including expenditure related to earthquake. He said the fiscal deficit without the earthquake would have been three point five percent which is better than fiscal deficit of three point eight percent of GDP last year.

He said the inflation target for the year was eight percent and hoped it will be less than eight percent. He said the target of inflation for next year will be six point six percent.

He said the last labour survey shows that five point five eight million jobs were created over the last two years and the unemployment rate has declined. Pakistan living standard measure survey shows substantial reduction in poverty from thirty two point four percent to twenty five point six percent.

Dr. Salman Shah said the balance of payment is surplus inspite of record imports. Foreign exchange reserves stand at thirteen billion dollars and hoped to close the year with a healthy situation.

About the next year's budget, he said it would aim at maintaining growth rate between six to eight percent at an average of seven percent, increase per capita income, maintain fiscal discipline, going forward with an overall deficit of four point two percent inclusive of earthquake, keep inflation at six point five percent, maintain external finance stability with increase in reserves, continue to improve credit rating in international capital market, improve competitiveness of the economy for the exports and domestic markets.

The Advisor on Finance said other measures will include strong growth of public sector development programme including mega projects, substantial increase in the funding of Khushhal Pakistan Projects for community projects, provide relief to low income groups, salaried persons and pensioners, brings stability to critical food items for low income groups by ensuring supply at affordable prices, continue to provide subsidy for power, fertiliser, fuel, and other food items.

Dr. Salman Shah said for major emphasis on human development and social sector, provinces will be provided significant transfers in line with the fifth NFC Award.

He assured that the budget will be a caring one and effort will be made to uplift the under privileged segments of the society. It will be pro-poor and focus on employment generation through economic growth, major up-scaling of PSDPs, special community development programmes would be launched having good impact on employment in depressed areas in the rural community.

It will provide the people opportunities to exploit their potential through skilled development, education, and health programmes. He said the budget will also start putting Pakistan on a road that the potential of agriculture, industry and services sectors can be achieved through reduction in cost of business, rationalisation of taxes and duties and improvement of productivity through focussed programmes.

He, however, pointed out that there are also risks involved in going forward and the government will have to remain very vigilant and ensure that it maintains macro-economic stability. He said these risks emanate from continued high oil prices and tension in the region which can have economic impact in Pakistan. He said we need to make sure that we take prompt action to off set any risk which hits Pakistan.

He said for the new budget, we will have to maintain fiscal discipline and don't go back with the begging bowl, raise our resources in the optimal manner and the development programmes and expenditures are met through our own resources.

The Minister of State for Finance, Umar Ayub Khan said emphasis in the next budget will be on Khushhal Pakistan Programme and Khushhal Pakistan Fund. Projects at micro level and village level will be launched like farm-to-market roads, rural markets, village electrification programme.

He said this year thirteen thousand villages will be electrified. Additional resources will be provided for safe drinking water supply to every one.

Replying to questions, the Advisor on Finance said in the overall context, the defence expenditures over the last five years have come down from around six point five percent of GDP to almost three point five percent. He said there is almost freeze in the increases in defence and even not kept up with inflation. He, however, said that Pakistan cannot be oblivious to its security and whatever is needed to modernise our armed forces, we will provide the resources.

He said the defence expenditure will be kept within the growth in the economy. Referring to the programme of purchases for defence to modernise the armed forces, he said these are multi-year programmes and implementation is extended over a long period of time.

To another question, he said large scale manufacturing growth is expected to be nine percent this year. Overall investment to GDP ratio has gone up to twenty percent this year which is a very good indicator. He said FDI trends, privatisation and bank credit trends indicate that investment in the economy is strong and broad-based.

He announced that a Pakistan Statistical Authority will be established by the end of next month to keep accurate data and Monopoly Control Authority is being transformed into a Competition Commission which will be effective from the next financial year.

The Competition Commission is aimed at promoting competition in various sectors of the economy, will have legal authority and teeth so that when it acts, it makes a difference.

Referring to the price hike, he said necessary legal measures will be taken to ensure that no one indulges in profiteering and hoarding.

Earlier, the Minister for Information Muhammad Ali Durrani said that efforts of the government will be to ensure maximum participation of all segments of the society in the development of the country.

He said the Information Ministry in co-ordination with the Finance Ministry has taken the initiative to provide access to the media to the Finance Ministry about the budgetary process. He said media is a point of connectivity between the government and the people.

 

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Source: Pajhwok Afghan News, Kabul


ISLAMABAD - Pakistan has said that it will decrease route fares on goods bound for Afghanistan from Karachi port under the transit trade agreement.

In an interview with Pajhwok Afghan News on Sunday, Pakistan's Minister for Railways Shaikh Rashid Ahmad said Afghan traders transporting their goods to Peshawar from Karachi through railway would be given 50 per cent discount in rout fares.

"We have talked to the traders and listened to their problems. We want to address the difficulties faced by them," said Shaikh Rashid Ahmad. To ensure speedy movement of goods through railway, the number of bogeys had been increased to 24,000, he added.

Both Pakistani and Afghan traders have welcomed the announcement. A traders' leader engineer Mohammad Shafi said if implemented, the decision it would prove a blessing for traders.

He said Pakistani authorities some time create problems for Afghan traders by delaying transfer of their goods from Karachi. This was why, he said, a number of Afghan traders were now importing their goods through Iran's Bandar (port) Abbas.

Haji Zarghoon, an Afghan trader in Islamabad, said reduction in rout fares was a good news for them.

 

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By Khalid Qayum and Haslinda Amin Bloomberg News

MONDAY, MAY 29, 2006


ISLAMABAD Pakistan's economy will probably grow at an annual pace of as much as 8 percent over the next five years, matching neighboring India, on record foreign investment and rising consumer spending, Prime Minister Shaukat Aziz said.

"We are creating gradually a middle class, which is driving consumption," Aziz, a former Citibank executive, said in an interview last week. "It's a very viable economy and it is growing. We have reduced poverty by about 8 to 10 percentage points."

Pakistan's $118 billion economy expanded 8.4 percent in the year to June, the fastest pace in two decades, as consumers spent more on cars, motorcycles and mobile phones.

The return of overseas investors who had sidelined the country, which borders Afghanistan, due to security concerns after the terrorist attacks on the United States may help Pakistan match the pace of growth in India, the second- fastest expanding major economy, after China.

Aziz said Pakistan's economy would grow between 6 percent and 8 percent this year, which would help the nation's annual per-capita income surpass the $800 mark.

"Growth is based on strong macroeconomic fundamentals and a structural-reform agenda that has been broad- based and deep," said Aziz, who will complete his first term as prime minister in October next year.

"Reforms are based on a philosophy which is deregulation, liberalization, privatization, transparency and good governance."

Pakistan's Privatization Commission is set to sell a 51 percent stake in Pakistan State Oil by June 30, the asset sale agency said Thursday. It will also sell management rights in National Investment Trust, the largest mutual fund company, next month, the agency said. In June it sold a 26 percent stake in Pakistan Telecommunication, the biggest phone company, to Emirates Telecommunications for $2.59 billion.

"There are no sweetheart deals in Pakistan anymore," Aziz, who was elected prime minister by the Parliament in 2004, said. "Today, Pakistan offers a level playing field to all investors. We are one of the few countries where no sectors" are off limits to local or foreign investors.

Aziz was appointed finance minister by President Pervez Musharraf in 1999 to help turn around the economy that at the time had barely one month of foreign-exchange reserves and where the government had almost defaulted on its foreign debt repayments.

Now Pakistan has foreign-exchange reserves of $13 billion, helped by record overseas direct investment of $3 billion in the 10 months to April 30.

Two loan packages from the International Monetary Fund have also helped the country raise $1.9 billion in three foreign-currency debt offerings since 2004.

Pakistan estimates it will get $3 billion of foreign investment annually to sustain its economic growth rate, Aziz said. Companies from China, Singapore and the Middle East are investing in Pakistan, while Japanese companies such as Toyota Motor make cars in the country, he added.

Temasek Holdings, Singapore's state- owned investment company, this year bought a 72.6 percent stake in Pakistan's NIB Bank and it also plans to start an asset-management company.

Still, a faster pace of expansion in Pakistan's gross domestic product may not be sustainable without further changes to improve economic efficiency, said economists including Sakib Sherani from ABN AMRO Bank in Islamabad.

"The government needs to be more realistic about GDP growth targets," Sherani said. "Growing at 7 to 8 percent on a sustainable basis is beyond Pakistan's capacity without real institutional strengthening."

Pakistan's long-term foreign-currency rating was raised in November 2004 by a level to B+, or the fourth non- investment grade, by Standard & Poor's, after lowering to within two levels of default status in October 1998 after the country tested nuclear weapons and attracted sanctions including a ban on aid and loans from countries in Europe and the United States.

The resumption of aid and loans after the country began supporting the U.S.- led war on terrorism in 2001 has helped Pakistan's benchmark stock exchange index to climb tenfold, reaching a record April 17.

Pakistan's 8.4 percent economic growth rate last year compares with an average 4 percent pace in the decade starting 1990, when according to the government the poverty rate in the country almost doubled to 33 percent.

India's economy is expected to expand at an 8 percent pace this year, matching the rate of expansion of the previous three years, Finance Minister Palaniappan Chidambaram said last week. The $775 billion economy expanded 7.6 percent in the three months to Dec. 31 from a year earlier.

Pakistan's government is boosting farm production, which accounts for a quarter of the country's gross domestic product, to reduce poverty in rural areas, Aziz said. Agricultural reforms have made the "farmer better off today," he said.

Peace with India will also help to reduce poverty in the region, he said. A peace treaty offered by Prime Minister Manmohan Singh of India this year "must be driven by dispute resolution," he said.

"We remain cautiously optimistic" about peace talks with India, Aziz said.

"We have tied trade and business relations with India with the resolution of Kashmir dispute," he said. "So progress on Kashmir will determine the progress on trade and investment ties with India."

ISLAMABAD Pakistan's economy will probably grow at an annual pace of as much as 8 percent over the next five years, matching neighboring India, on record foreign investment and rising consumer spending, Prime Minister Shaukat Aziz said.

"We are creating gradually a middle class, which is driving consumption," Aziz, a former Citibank executive, said in an interview last week. "It's a very viable economy and it is growing. We have reduced poverty by about 8 to 10 percentage points."

 

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Pakistan's $118 billion economy expanded 8.4 percent in the year to June, the fastest pace in two decades, as consumers spent more on cars, motorcycles and mobile phones.

The return of overseas investors who had sidelined the country, which borders Afghanistan, due to security concerns after the terrorist attacks on the United States may help Pakistan match the pace of growth in India, the second- fastest expanding major economy, after China.

Aziz said Pakistan's economy would grow between 6 percent and 8 percent this year, which would help the nation's annual per-capita income surpass the $800 mark.

"Growth is based on strong macroeconomic fundamentals and a structural-reform agenda that has been broad- based and deep," said Aziz, who will complete his first term as prime minister in October next year.

"Reforms are based on a philosophy which is deregulation, liberalization, privatization, transparency and good governance."

Pakistan's Privatization Commission is set to sell a 51 percent stake in Pakistan State Oil by June 30, the asset sale agency said Thursday. It will also sell management rights in National Investment Trust, the largest mutual fund company, next month, the agency said. In June it sold a 26 percent stake in Pakistan Telecommunication, the biggest phone company, to Emirates Telecommunications for $2.59 billion.

"There are no sweetheart deals in Pakistan anymore," Aziz, who was elected prime minister by the Parliament in 2004, said. "Today, Pakistan offers a level playing field to all investors. We are one of the few countries where no sectors" are off limits to local or foreign investors.

Aziz was appointed finance minister by President Pervez Musharraf in 1999 to help turn around the economy that at the time had barely one month of foreign-exchange reserves and where the government had almost defaulted on its foreign debt repayments.

Now Pakistan has foreign-exchange reserves of $13 billion, helped by record overseas direct investment of $3 billion in the 10 months to April 30.

Two loan packages from the International Monetary Fund have also helped the country raise $1.9 billion in three foreign-currency debt offerings since 2004.

Pakistan estimates it will get $3 billion of foreign investment annually to sustain its economic growth rate, Aziz said. Companies from China, Singapore and the Middle East are investing in Pakistan, while Japanese companies such as Toyota Motor make cars in the country, he added.

Temasek Holdings, Singapore's state- owned investment company, this year bought a 72.6 percent stake in Pakistan's NIB Bank and it also plans to start an asset-management company.

Still, a faster pace of expansion in Pakistan's gross domestic product may not be sustainable without further changes to improve economic efficiency, said economists including Sakib Sherani from ABN AMRO Bank in Islamabad.

"The government needs to be more realistic about GDP growth targets," Sherani said. "Growing at 7 to 8 percent on a sustainable basis is beyond Pakistan's capacity without real institutional strengthening."

Pakistan's long-term foreign-currency rating was raised in November 2004 by a level to B+, or the fourth non- investment grade, by Standard & Poor's, after lowering to within two levels of default status in October 1998 after the country tested nuclear weapons and attracted sanctions including a ban on aid and loans from countries in Europe and the United States.

The resumption of aid and loans after the country began supporting the U.S.- led war on terrorism in 2001 has helped Pakistan's benchmark stock exchange index to climb tenfold, reaching a record April 17.

Pakistan's 8.4 percent economic growth rate last year compares with an average 4 percent pace in the decade starting 1990, when according to the government the poverty rate in the country almost doubled to 33 percent.

India's economy is expected to expand at an 8 percent pace this year, matching the rate of expansion of the previous three years, Finance Minister Palaniappan Chidambaram said last week. The $775 billion economy expanded 7.6 percent in the three months to Dec. 31 from a year earlier.

Pakistan's government is boosting farm production, which accounts for a quarter of the country's gross domestic product, to reduce poverty in rural areas, Aziz said. Agricultural reforms have made the "farmer better off today," he said.

Peace with India will also help to reduce poverty in the region, he said. A peace treaty offered by Prime Minister Manmohan Singh of India this year "must be driven by dispute resolution," he said.

"We remain cautiously optimistic" about peace talks with India, Aziz said.

"We have tied trade and business relations with India with the resolution of Kashmir dispute," he said. "So progress on Kashmir will determine the progress on trade and investment ties with India."

http://www.iht.com/articles/2006/05...mberg/sxpak.php

 

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ISLAMABAD (May 30 2006): The government has decided to allocate Rs 270 billion for federal Public Sector Development Programme (PSDP) for 2006-07, which also includes foreign aid component of Rs 38.5 billion and operational shortfall of Rs 20 billion.

However, provincial allocations of Rs 115 billion, and Rs 50 billion meant for earthquake reconstruction would take the total of PSDP to Rs 415 billion.

Official documents obtained exclusively by Business Recorder from Planning Commission and to be discussed by the National Economic Council (NEC) at its meeting on Wednesday show that of the total Rs 270 billion PSDP, Rs 132.5 billion (49.1 percent) would be allocated for infrastructure projects, Rs 130.8 billion (48.4 percent) for social sector and Rs 6.7 billion (2.5 percent) for others.

However, the net financing has been calculated at Rs 250 billion, deducting Rs 20 billion as operational shortfall.

The documents suggest that the provincial share of PSDP would be around Rs 115 billion, to be spent by the provinces through their own Annual Development Programs (ADPs).

The Water and Power Development Authority (Wapda) is likely to spend Rs 30 billion, from its own resources outside PSDP, while the National Highways Authority (NHA) has also agreed to raise additional Rs 6 billion through securitisation of toll revenues and other receipts.

In addition, earthquake reconstruction expenditure would be Rs 50 billion. Thus, the actual total investment including outside PSDP by Wapda and NHA would be Rs 451 billion, Planning Commission claims in the documents.

The distribution of federal PSDP of Rs 270 billion shows that Rs 170.2 billion would be allocated to federal ministries, Rs 16.2 billion for special areas, Rs 35.4 billion for special programs and Rs 48.2 billion for corporations. However, putting aside Rs 20 billion as operational shortfall, the net financing would stand at Rs 250 billion.

With the share of provinces amounting to Rs 115 billion and inclusion of Rs 50 billion in the PSDP, meant for earthquake reconstruction, the total financing would stand at Rs 415 billion, as was mentioned by President Pervez Musharraf two days back.

The total demand for the development programme, which Planning Commission received from the various federal ministries/agencies was Rs 454 billion (ie Rs 250 billion more than the current year's PSDP of Rs 204 billion) which had to be adjusted and rationalised with the proposed programme size of Rs 270 billion (ie only Rs 66 billion more than the current year). However, Planning Commission is of the view that any increase beyond this level would be fiscally untenable.

Despite this constraint, all the on-going projects/programs have been protected and the commitments for major projects, such as Chashma Nuclear Power Plant, raising of Mangla dam, lining of water canals and watercourses have been met, the documents show.

SALIENT FEATURES OF PSDP 2006-O7 ARE:

i) Emphasis has been placed on completion of major water projects with an increase of allocation from Rs 41.7 billion during the current fiscal to Rs 55.3 billion, which is 20 percent of the PSDP. This would help reduce poverty, accelerate agriculture growth in the medium term and create construction-related additional jobs during implementation.

ii) Major investment of Rs 6 billion is programmed for the improvement of watercourses, which would contribute to optimal and productive use of the scarce water resources.

iii) Sufficient allocation has been made for roads linking Gwadar port with upcountry, which would also contribute to a better investment climate and trade.

iv) Adequate funds have been proposed to provide air and rail links of Gwadar with the upcountry, Iran and with the corridors leading towards Central Asian States.

v) NHA has been allocated Rs 25 billion, while the Authority has further agreed to raise at least Rs 6 billion through securitisation of its toll receipts and other revenues to complete the development projects in time. The total NHA outlay of Rs 31 billion during 2006-07 would facilitate speedier completion of the projects.

vi) To complete five mega dams by 2016, significant investment would be required in this sector. To begin with, Rs 10 billion has been proposed for land acquisition.

vii) Allocations for education and training have been increased by 29 percent, which would provide qualified human resources to match the highly competitive world market.

viii) Allocation for health sector has been increased by 20 percent, reflecting continuing emphasis on improving the productivity of human capital and general quality of life.

ix) The Information Technology and Science and Technology sectors would receive an increased allocation of 24 percent and 39 percent, respectively, to spur research, development and expand employment opportunities in emerging areas.

x) Sufficient allocations are being made for reforms relating to governance including access to justice programme.

xi) To reduce poverty and bring synergy in the communities, a new programme, 'Participatory development through social mobilisation', is proposed to be launched with an initial allocation of Rs 500 million.

xii) To alleviate poverty and generate employment, the Khushhal Pakistan Fund (KPF), established during 2005-06, has been proposed to be enhanced to Rs 10 billion. This fund would be in addition to the allocation of Rs 24.4 billion being proposed for KPP I &II.

xiii) Allocations for Special Areas (AJK, Northern Areas and FATA) would be enhanced by 15 percent with a view to accelerating development in less developed areas.

xiv) To provide clean/safe drinking water at union council level, an investment of at least Rs 4 billion would be made during the next fiscal year.

xv) Intensive work on National Trade Corridor is being initiated during 2006-07, which would facilitate trade flows and help reduce the cost of doing business.

According to the documents, NEC would be requested to authorise the Planning Commission to make adjustments, if needed, within the same size of the programme to accommodate important projects on the basis of quarterly review of projects' progress.

It is also being asked that PC should be authorised fast-track adjustments as a result of quarterly reviews within the same size of the approved PSDP. These adjustments should be exempted from complicated procedural formalities and funds should be released expeditiously to reach the project directors.

It may be mentioned here that the actual PSDP expenditure during July-April was Rs 149 billion (73.1 percent) including foreign aid of Rs 26.7 billion, which was higher than the development expenditure of 63 percent incurred during the corresponding period of previous year.

With the introduction of cash plans by the PC, the releases had somewhat improved, the documents said. However, measures are still needed to ensure timely availability of funds to the projects for their completion on schedule, the PC documents said.

 

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Fiscal year 2007 targets: GDP 7 percent; inflation 6.5 percent; trade gap $6.3 billion; current account deficit $7.6 billion


ISLAMABAD (May 30 2006): The National Economic Council (NEC), headed by the Prime Minister, is likely to set 7 percent target for GDP (Gross Domestic Growth), 6.5 percent for inflation, 10-11 percent for monetary expansion, $7.6 billion trade deficit, and $6.288 billion current account (CA) deficit (amounting to 4.3 percent of GDP) for fiscal year 2006-07.

The Medium Term Development Framework (MTDF) had projected GDP growth rates of 7 percent and 7.3 percent for 2005-06 and 2006-07, respectively, but the present assessment for 2005-06 growth is 6.6 percent.

"Since there is no significant deviation from the target in the first year, the second year projections are relatively valid. Thus, the next year GDP growth can safely be assumed at 7 percent," the Planning Commission says in its summary to the NEC, titled 'Review of annual plan 2005-06 and prospects for 2006-07'.

Official documents available with Business Recorder suggest that 4.5 percent growth has been assumed for agriculture sector, and 13 percent for large-scale manufacturing.

The services sector is likely to grow around 7.1 percent, whereas per capita GNP would be $935, based on current prices, which would be higher by 11 percent from 2005-06 level.

SAVING AND INVESTMENT: To attain 7 percent GDP, total investment of Rs 1895 billion is being envisaged, of which, about one-third would come from public sector and two-thirds from the private sector. As regards its financing, it has been projected that 79.8 percent would be financed through national savings and remaining 20.2 percent through foreign resources.

A corollary of this financing is the requirement that domestic savings increase to 15.5 per cent of GDP in 2006-07 against 13.9 per cent estimated for 2005-06.

INFLATION Inflation in the current year had shown an improvement as it came down to around 8 percent as compared to 9.3 percent previous year. Efforts would be made to sustain the said improvement, that may result in bringing it further down to 6.5 percent. Since during the current year, higher contribution to the observed inflation of 8.0 percent emanated from food group (2.8 percentage point), this trend is definitely needed to be reversed, as the weight of food items in poor households' expenditure basket is about half. This requires ensuring adequate supply of edibles through higher domestic production plus imports.

MONETARY POLICY With real GDP growth of 7 percent and inflation projected at 6.5 percent, it will require targeting money supply growth around 10-11 percent. The basic objective of the monetary policy would be to ensure price stability combined with adequate provision of credit to private sector.

In this regard, the Planning Commission says that it should be ensured that the bulk of the credit to private sector is utilised for investment purposes.

FISCAL POLICY In the context of economic development, fiscal policy is generally considered to act as a catalyst for private investment in the economy. It implies that an integral part of the policy should be to raise the ratio of development expenditure to GDP, so that it facilitate achieving higher level of overall investment and thereby GDP growth.

FOR 2006-07: Public Sector Development Expenditure (PSDP) as a ratio to GDP has been planned at 5.1 percent as against 3.8 percent of GDP in 2005-06. Since it may entail larger budget deficit, the fiscal policy should simultaneously ensure raising adequate revenues. This sets another objective of the fiscal policy to enhance tax/GDP ratio through improved tax collection and broadening the tax base.

BALANCE OF PAYMENTS

TRADE ACCOUNT: During 2006-07, exports (fob) are projected to grow by 18.0 percent to $19797 million against $16777 million (estimate) 2005-06. Projections of exports are based on (i) increase in agricultural production and manufacturing output and (ii) greater market access through bilateral arrangements, preferential and free trade agreements with regional and other countries and improvement in the overall competitiveness for the external sector by reducing the cost of key manufacturing inputs including electricity.

Imports are anticipated to increase by 16.0 percent mainly due to payments on account of POL, capital goods and edible oils. As a result, the trade account is projected to be deficit equivalent to $7613 million in 2006-07 against a deficit of $6852 million estimated for 2005-06.

INVISIBLE ACCOUNT: Prospects for the invisible balance will continue to be governed mainly by the behaviour of the workers' remittances. For 2006-07, remittances have been projected at $4500 million against $4300 million estimated for 2005-06. Allowing for other invisible receipts and payments, the surplus on invisible account is anticipated to stand at $1325 million compared to $1498 million estimated for 2005-06.

CURRENT ACCOUNT BALANCE: With a deficit of $7613 million on the trade account and a surplus of $1325 million on the invisible account, the current account deficit is likely to increase to $6288 million in 2006-07 (4.3 percent of GDP).

CAPITAL ACCOUNT: Gross disbursements are expected to be $2737 million in 2006-07, less by $168 million from 2005-06. After allowing for other capital movements, surplus of $1887 million is likely to occur in the overall balance.

However, taking into consideration transactions of the banking system, there will be a build-up of $1571 million in foreign exchange reserves which will take the total gross reserves at $13,977 million by the end of 2006-07.

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ISLAMABAD (May 30 2006): The World Bank (WB) anticipated Pakistan's economy growing at a balanced rate for another couple of years due to a calculated slowing down of consumers' demand that can lower inflation.

The bank, however, cautioned that as high oil prices have not been passed through fully there remain latent inflationary pressures from this source.

These facts were highlighted by a 215-page Global Development Finance (GDF) 2006 report of the World Bank, which is annual review of global financial conditions facing developing countries.

The bank says that explicit and implicit subsidies (through state oil companies) are imposing a heavy burden on the government purse and have increased government's fiscal deficit by as much as 0.5 percent of GDP in Pakistan between 2002 and 2005.

In the current context, and especially with significant portions of high oil prices yet to be passed through consumer prices, a tightening of monetary and fiscal policy is in order, if overheating and a hard landing are to be avoided.

It further projects prolonged exports' growth due to continued supportive external environment and expansion of Pakistan's textile and other manufacturing sectors. Besides, the bank expects rise in investment, due in part to the reconstruction efforts following the October 2005 earthquake.

The report has warned South Asian region that in future, managing the very strong growth of the past few years and ensuring that an inflationary spiral does not develop represents a serious challenge.

Rapid increases in domestic demand (notably consumption) and low interest rates have played a role in large swings in food prices that contributed to the surge in regional inflation.

It foresees that economic activity in the region would remain slow in 2006 through to 2008 as private consumption demand eases to a more sustainable pace in response to a tightening of monetary and fiscal policies.

Weaker global demand would slow export growth and although consumer demand is expected to decelerate, continued robust investment demand should keep imports expanding faster than exports.

The report further says that in India and Pakistan, more restrictive macro-policies, combined with tighter international credit conditions, and an easing of external demand (in the US), are projected to slow growth by about one percentage point in 2006.

 

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ISLAMABAD, May 29: Prime Minister Shaukat Aziz on Monday launched a $300 million buyout fund by two private equity firms and said it would facilitate up to $1 billion investment in Pakistan’s various industries in four years.

Speaking to the media persons on the occasion, the prime minister said the launching of the fund by Abraaj and BMA Capital was an historic occasion as this was the largest fund Pakistan would have through private investors.

He said these funds would be raised from investors all over the Middle East. Abraaj has its presence in the Middle East, North America and Asia while BMA-Capital is a local equity firm.

The prime minister said the per capita income in Pakistan had increased to $846 and the country’s privatisation plan was on track and the government was committed to transparency and continuity of economic policies for boosting investment.

“It is a private sector venture where the government has nothing to do except providing an enabling environment to attract investment”, the prime minister said.

He expressed satisfaction that every major name in the Middle East business circles was coming to Pakistan voluntarily and the increasing investment would further boost growth, create more jobs and contribute towards stronger and prosperous Pakistan.

The premier confirmed that the economic growth rate this year would be 6.6 per cent.

 

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ISLAMABAD, May 29: Prime Minister Shaukat Aziz on Monday stressed the need to check population growth which he said was undermining government’s efforts to provide better living conditions to the people.

Speaking at the inaugural session of a follow-up meeting of the council on Islamabad Declaration on Population and Development (IDPD) made by an international Ulema conference held in May last year, he said sustainable development was directly related to population stabilization.

Being appreciative of the IDPD, he acknowledged that the effort was playing an important role in lowering population growth in the country.

Besides insuring macroeconomic stabilization in the country, the government is also focussing on social sector development which has already started showing considerable improvement.

“I am sure that the advent of a consultative process between scholars and development partners during the follow-up meeting will open new opportunities for the country’s population welfare programme,” Mr Aziz said.

Speaking on the occasion, Federal Minister for Population Welfare Chaudhry Shahbaz Hussain said with the ongoing population growth rate of 1.86 per cent, the population of the country would double in next 38 years putting unbearable pressure on its socio- economic indicators.

However, the government claims to achieve replacement level fertility by 2020 with total population of the country touching 195 million. Pakistan with a population of 156.26 million as of mid-2006 is the sixth most populous country in the world. However, now the demographic transition has set in and the fertility indicators are showing a positive trend, the minister said.

“The population growth rate which was over 3 per cent in the ‘80s has declined to 1.86 per cent. Total fertility rate has come down to 4 and contraceptive prevalence rate (CPR) has gone upwards to 37 per cent during the current year,” Mr Hussain said.

Following the IDPD, the ministry has initiated various programmes, stressing empowerment and involvement of women in decision making in their reproductive health issues, the minister said.

 

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PAKISTANI officials rejoice over the fact that direct foreign investment during the first ten months of this financial year has exceeded $3 billion as they had projected.

The bulk of that investment has come from the neighbouring Gulf States, the UAE and Saudi Arabia in particular and a major part of which has gone into the telecommunication sector. Far more investment is expected in this industry after Warid, a UAE company, has won over four million customers within its first year operations.

All that has encouraged the prime minister to promise an investor-friendly budget next month. And the Board of Investment (BoI) in its budget proposals has called for a reduction in the various corporate taxes and to cut withholding tax to three per cent. The BoI says that a great deal of money gets accumulated with the CBR and getting refunds take a long time, which creates liquidity problems for the companies.

The Securities and Exchange Commission has also come up with a useful guide for investment.

The BoI says that advanced tax should be abolished. It urges that multiplicity of taxes should be avoided and that if all kinds of taxes are taken in to consideration, the total tax rate on companies come to a high 42 per cent.

The board wants the tax and dividend to be reduced from ten to five per cent and the initial depreciation allowance to be raised to 90 per cent for new companies. It wants these proposals to be considered if the grant of tax holiday is not possible.

At a time when Pakistan is seeking more and more foreign investment, foreign missions are coming here seeking Pakistani investment in their countries, particularly in the real estate.

Delegations have been here seeking Pakistani investment in the Dubai real estate, in the new buildings and apartment blocks springing up there. The latest delegation to come is from the UK to sell prime land to Pakistanis who own quite a bit of property there.

And the State Bank of Pakistan has warned investors not to patronise phoney ventures abroad. Earlier, such warnings had been given by Prime Minister Shaukat Aziz.

But foreign companies from Singapore have come here and are developing real estate and offer s****y apartments by the seacoast with Askari Bank funding the buyers. It is getting to be a two-way investment now.

Much of the investment from the Gulf has gone into the telecom sector followed by the power sector (KESC) and Pakistan Steel. The investment in the telecom sector alone has been to the extent $1.7 billion.

We have now to see who gets the PSO, the Pakistan Petroleum, the Sui Northern Gas company and Sui Southern Gas company. If any of them gets sold before the end of this fiscal year, the over all earnings from privatisation will take a big jump.

These are not new employment creating and manufacturing enterprises. But they have certainly added to the employment and productive capacity of the industry.

What matters far more now is how much more they will invest to expand their enterprises, which cry for such expansion. The KESC and the PTCL and other mobile phone companies have indicated they propose to invest large additional sums and the new Saudi owners of Pakistan Steel have said they propose to invest $200 million more in the industry.

In fact, some of those enterprises like the KESC have to make the additional investment very quick and make the investment large enough to render the utility truly useful and satisfy the customers instead of outraging them with frequent load-shedding or breakdowns.

The fact is that the cost of doing business is still very high, not only the foreign investors and Pakistani businessmen say that, but also the World Bank and the Asian Development Bank. Multiplicity of taxes is one of the major problems. Corruption is a very significant deterrent.

Smuggling is another factor, which the manufacturers complain against. The red tape delays are galore and provoke the investors and feeble administration of justice and the failure of the system to execute the decrees passed by the courts is another deterrent.

Law and order continues to be a major problem. The police is often the offender instead of the protector and are often avoided by the victims. Above all that is the gross inadequacy of the infrastructure, specially power and water. The repeated failure of the KESC in recent times and the violence it provokes provides the best or the worst example.

Normally, trade should lead to more foreign investment. How much progress have we made in solving problems of trade with our Muslim neighbours?

After nearly 60 years, Pakistan and Iran have again agreed to remove trade barriers and achieve a $2 billion bilateral trade. This is how slow we have been in solving our trade problems or how problems solved reoccur again.

And for all the big talk about the excellence of Gwadar Port and how it will be made a well-equipped world port, we are now told that Gwadar port lacks modern equipment. It is also seen as a destination for foreign investment.

Because of such inadequacies, the ministries of commerce and textiles have recommended to the budget-makers to treat locally made machinery as exportable goods tax-free. But the government has invariably preferred to refund the duty after much delays rather than make the exports of machinery tax-free.

At the same time, speakers at a seminar in Washington say that Pakistan is now facing major economic risks. The economic policies of the present government make him very nervous, said Shahid Javed Burki, a former finance minister of Pakistan. It was also said that Pakistan had missed many of the opportunities offered by 9/11 while availing of a few of them. This is not the ideal climate for large-scale foreign investment when law and order is a significant deterrent.

With a large trade and balance of payments deficits, workers remittances and rising foreign investment totalling nearly $8-9 billion by the end of the year is financing the annual oil bill estimated at $5.5 billion.

But there is more than money in foreign direct investment; there is some more employment and technology transfer. And we need all of that instead of merely change of ownership of the public sector assets.

Direct foreign investment on new projects is always far better than the investment, which comes through privatisation. But in the kind of circumstances we are, we have to accept the Gulf capital for privatisation as it comes along.