Pakistan Economy - News & Updates - Archive

[Neo]

Oil price rise and implications for Pakistan ​

ARTICLE (June 16 2008): Pakistanis have been particularly vociferous in holding the government accountable for the oil price rise in recent months. Not surprisingly, the politicians have been embroiled in a blame game made all the more credible because of the fact that the country has been subjected to three different administrations during the past eight to ten months.

Throw in a general election considered to be largely fair and free, and one has all the ingredients necessary to make accusations stick. The budget for the fiscal year 2006-07, prepared by the Shaukat Aiz government, failed to take any account of the possibility of a rise in the international price of oil. In today's world of hedge fund managers such failure cannot be explained away by blaming external factors, as Musharraf and his band of dwindling cohorts would have us believe.

And the people of this country are paying the price of this failure which was compounded by three decisions forced onto the newly elected government: (i) because of the impending elections the caretaker government took the decision to continue to subsidise oil prices in the domestic market, which, in turn, put pressure on the government to (ii) slash expenditure with, as usual the Public Sector Development Programme (PSDP) being the casualty; and as this was not adequate, (iii) heavier reliance was placed on deficit financing or borrowing from the banking sector - a highly inflationary policy. Thus even though the oil prices were artificially stabilised, the inflationary pressures increased mainly because of a higher deficit.

This accounted for a 9.5 percent estimate of budget deficit according to the PML (N)'s short term Finance Minister, Ishaq Dar - scaled down to 7.5 percent on the assumption that the proposed reduction in PSDP would take place. Actual figure released by the Economic Survey was 7 percent.

There is no question about the fact that the ability of a large number of Pakistani households to make ends meet is being eroded due to inflationary pressures. However, the question that comes to mind is the policy of subsidy is something that is sustainable? Classic economic theory gives subsidies as a policy option an overwhelming thumbs' down: an across the board subsidy implies a distortion of the market which will have to be paid for by the government.

In the case of Pakistan's oil subsidy the government has had to pay out huge sums of money from its scarce resources, leading to high budget deficit. If the subsidy is targeted then the issue of abuse in a country like Pakistan where governance remains a challenge crops up almost immediately.

That words do change in meaning over time is a study in itself. However, as an example, the word sophisticated is rooted in the word sophistry which, in times of yore, meant false. Today the word sophisticated has no negative connotations. A look back at history reveals that the word 'subsidy' was originally envisaged as a progressive tax, a precursor to the modern day income tax, and was first levied by Thomas Wolsey in 1513 with the objective of raising money to pay for Henry VIII's war with France.

Today subsidy is defined as state support for its poor, or state support targeted to certain industries/farmers/interest groups belonging to segments that are not poor by any stretch of the imagination. An example that comes to mind is the textile sector, another the rich absentee landlords sitting in our national and provincial assemblies; even our armed forces have received many an economic incentive in its non-defence related production activities.

With the rise in the international oil price its impact, therefore, is not limited to Pakistani consumers. Strikes and protests are becoming widespread in Western countries, from the UK to France to other European Union countries. And the 27 EU countries are at odds over what is the best way to deal with the crisis. Acting sanctimoniously they have rejected demands for a subsidy - this is after all against classical economic theory. However such economic considerations do not apply to the EU's farm policy that heavily subsidises the farm sector - a subsidy whose benefits are not passed onto the EU consumer. Politics, as always, plays a bigger role than economics.

The Iranian President Ahmedinejad has stated that oil prices have been artificially inflated by 'capitalists' and that crude oil remains plentiful: "while the growth of consumption is lower than that of production and the market is full of oil, prices are constantly on the rise and this situation is completely artificial and imposed...Powerful and international capitalists (are working) mendaciously to pursue their political and economic aims." Critics disagree.

They cite the latest figures from US government agencies and trading data that indicate that hedge fund managers and speculators have reduced bets on higher oil prices by 80 percent since July last year when prices began to rise sharply and crude futures rose to record highs. So if it's not the hedge fund managers and the speculators, then who is responsible for the oil price hike?

Could it be the massive liquidity in the financial markets that accounts for oil price rise? Mr Ito, senior analyst at UBS Securities Japan, agrees: "Oil prices are surging not because of a supply shortage, but because of massive liquidity," he maintained referring to the influx of financial funds into markets, helped by low interest rates.

Or could it be the oil companies that are responsible for the oil price hike? Democrat Senators in the US want to levy a windfall profits tax against the five largest U.S. oil companies and rescind $17 billion in tax breaks the companies expect to enjoy over the next decade. "The oil companies need to know that there is a limit on how much profit they can take in this economy," said Sen. Richard Durbin of Illinois, the Senate's No 2 Democrat, warning that if energy prices are not reined in "we're going to find ourselves in a deep recession." But the Democrats are going to have to overcome staunch Republican opposition to any new taxes on the oil industry. The five largest US oil companies earned $36 billion during the first three months of the year.

Given the problem the question is: what is the best solution? French President Nicolas Sarkozy has called for an EU-wide cap on value-added taxes on fuel. VAT accounts for some 70% of prices at the pump in much of Europe and according to Sarkozy, the French government is earning an additional €150-170 million in VAT receipts every three months as a result of the explosion in oil prices. This money could be used to offset the worst impact of the fuel price rises, he said. His proposals have already been met with widespread skepticism from the Commission and other European governments.

Amelia Torres, a spokeswoman for Joaquin Almunia, the EU commissioner for monetary affairs, said that tax cuts would send the wrong signal to oil-producing countries that European states were willing to absorb rising gas prices. But at the G-8 summit in Amori, Japan, plus 3 (including the three major oil guzzlers of the world namely China, India and South Korea) it was decided to focus on the consumer nations: technology, conservation and diversification. This has raised other concerns: technology may be at odds.

It is not yet clear what action the EU will take: reduce taxes or hope that the price of oil will eventually come down. But it is clear what Pakistan will do: Seek a Special Oil Facility which will defer payment for imports by one year at least. And what will happen a year from now, critics may ask? Who knows what tomorrow will bring is a refrain that will, in all probability, gather momentum as helplessness may well overtake the average consumer burdened under inflationary pressures. Surprisingly it is not even clear what action the government of Pakistan will take in spite of the fact that the budget has been announced.

According to the budget documents subsidies related to oil and electricity sector are as follows: (i) WAPDA to receive a subsidy of 74,612 million rupees (lower than the revised estimated for 2007-08 of 113,658 million rupees) with the major share to be allocated to inter-Disco tariff differential estimated at 65,000 million rupees for 2008-09 as opposed to 87,000 million rupees for the revised estimates for this year. (ii) KESC is to receive 13,800 million rupees with 12,000 million rupees to be allocated to KESC on account of tariff differential in contrast to last year's revised estimates of 19,596 million rupees and 15,796 million rupees respectively. (iii) The budget document states that 15 billion rupees was budgeted last year to be paid on account of price differential claims of POL products, however a total of 175 billion rupees only was paid due to political constraints - this figure will be reduced to 140 billion rupees in the forthcoming fiscal year.

It is not clear what this figure reflects in terms of whether the government believes it will receive the Saudi Oil Facility or the rupee-dollar parity which would determine the extent or limit of the subsidy. In short there is confusion and the people will have to wait for what the next year will bring in terms of cost of oil and products as well as the cost of electricity.

Business Recorder [Pakistan's First Financial Daily]

 

[niaz]

A poignant comment on the new budget.


Another opportunity goes waste

By Shahid Javed Burki


PAKISTAN in 1947 was a stunningly different place from the country we know now, so different that most of today’s young people would have trouble imagining it. The size, structure and potential of the economy are much different than was the case at the time of the country’s birth.

Pakistan’s economy, looked at in terms of its performance over the 61-year period since the country’s birth, has done well. Its GDP has increased at the annual average rate of 4.4 per cent with the result that the economy now is 18 times larger than what it was in 1947, and income per head of the population is four and half times higher. In 1947, what is Pakistan today had a population of 30 million. With the current size of population estimated at 162.5 million, there are now five and half times as many people living in the country as was the case at the time of birth.

However, economic progress was not even during this period. Pakistan has had as many periods of rapid economic growth as of sluggish performance. The economy grew rapidly over a period of 27 years, from 1960 to 1969, from 1977 to 1988 and, more recently, from 2002 to 2007. The average rate of growth during these periods was 6.3 per cent. For the remaining 34 years, the economy performed less well, growing at a rate of 3.8 per cent. The roller-coaster ride the economy followed was in large measure due to the availability of foreign capital flows.

Pakistan relied on external savings to augment the low rate of domestic savings. External savings were large whenever the United States needed Pakistan for strategic reasons. This was the case in 1960-69 when the country joined the US effort to stop the spread of communism; in the 1980s, when Pakistan joined the US in forcing the Soviet Union out of Afghanistan; and again in 2001-07 when Pakistan became the ‘frontline state’ in Washington’s ‘war on terror’.

In the case of Pakistan rapid economic growth was not a part of a paradigm shift as was the case with neighbouring India. In the mid-1980s, India began to reform its economy, dismantling the ‘licensing raj’ in favour of a more open economy. One important consequence was that India, after 1986, was able to climb out of the ‘Hindu rate of growth’ and move on to a higher growth trajectory. It has remained on that trajectory for the last 20 years whereas Pakistan’s seems poised to take another plunge, continuing with the roller-coaster ride of the past six decades.

Having seen its economy grow at seven per cent a year in the five-year period between 2002 and 2007, the country is likely to see a two to 2.5 percentage point decline in the rate of growth in 2007-08 and for a couple of years beyond.

This will happen for a number of reasons, including a possible decline in the quantum of external flows.

But even more important, weighing on the economy are serious macroeconomic imbalances: both fiscal and balance of payments deficits have increased to unsustainable levels. These have produced inflationary pressures, further exacerbated by the increase in world commodity prices.

There is need for an adjustment in the approach to economic management. What should be the direction of economic policies as new administrations at both the federal and provincial levels settle down?

There are basically two options: the government could do what it has always done in periods of crises in the past or it could attempt to restructure the economy to ensure progress along a trajectory that would ensure high rates of growth with significant impact on the incidence of poverty and distribution of income. On previous occasions, the governments usually focused on short-term measures rather than on long-term structural change.

This may be a good time to alter the stance and attempt to bring about a fundamental change in the structure of the economy.

It should be noted that the current economic downturn is different from some of the previous ones in that it has not been caused by a sudden and sharp decline in foreign flows that brought about previous reductions in growth. This time the crisis is largely the cause of internal dynamics reinforced by some developments in the world’s commodity prices. The present crisis is the result of the failure of the previous set of Islamabad-based policymakers to foresee the consequences for the economy of the model of development they had adopted.

That model placed the economy under the control of an unconstrained private sector with the state withdrawing so much to the sidelines that it failed to do what it must to maintain equilibrium.

The suspension in the legitimate role of the state has meant that the country was left with a number of serious problems. Among them are a tax system that yields resources for the government well short of the public sector’s need for investment thus continuing the economy’s dependence on external flows. There is a public educational system that does not educate and adequately train a very large number of young people. The system of public health does not provide adequate health care for the poor.

Ours is an economic system that does not produce enough jobs for a rapidly increasing work force. Our cities do not provide some of the basic needs of the citizenry.

Ours is an agriculture sector that, in spite of its size and endowments, is unable to feed a growing population. Our economic structure does not mesh with the structure of the global economy; and severe power shortages that have produced great suffering for the poor and dislocations for many parts of the economy.

Given the state of economic affairs, the government has to do three things simultaneously. It has to adopt policies of adjustment in order to restore macroeconomic stability; it has to reignite the process of growth so that it can be sustained over time; and it has to not only provide for the poor but also work to reduce their number and reduce income inequalities.

The government, in other words, has to work on both the immediate and the medium to long-term. Short-term measures and long-term strategic policy must support each other and take the country in the same direction. The budget for the financial year 2008-09 presented an opportunity for the new policymakers to set the country on a new track. But unfortunately it was not taken. Why I believe that another opportunity was lost is a question I will take up next week.


DAWN - Editorial; June 17, 2008

 

[Moin91]

Sindh ADP outlay exceeds Rs89 billion


Rs9bn allocated for transport and communications including light rail, bridges and roads

Tuesday, June 17, 2008
By Salman Siddiqui

KARACHI: Setting aside the financial constraints amid an estimated budget deficit of Rs14 billion for 2008-09 fiscal year, the Sindh province has allocated historical high funds of Rs89.3 billion for Annual Development Program (ADP) in the province.

While presenting provincial budget in the assembly on Monday, Chief Minister Sindh Syed Qaim Ali Shah announced allocating Rs89.3 billion for the next year’s development programme, which is 23 per cent higher than Rs72.3 billion revised ADP of current fiscal year progressing fast towards its end on Jun 30. Sindh’s own - including its districts development portfolio - share in ADP is allocated at Rs67 billion, which is 34 per cent higher than Rs50 billion the province pooled last year.

The rest of Rs22.3 billion (i.e. 20 per cent) of total Rs89.3 billion ADP allocation, the province would be received through Federal Development Portfolio (i.e. at Rs12.7 billion); Foreign Project Assistance (i.e. at Rs9.09 billion) and DERA (i.e. at Rs0.51 billion).

The biggest share of 16 per cent (i.e. of nine billion rupees) of total ADP was allocated for transport and communication sector development, as Sindh government gave this sector the utmost priority among its other development projects. Therefore, the significant amount put for transport and communicated would be used for the construction of roads linking farms to the markets, Chief Minister said in his budget speech.

Through this allocation, 586 schemes covering a road network of 12,00 km, improvement in 500 km and 10 bridges are being taken up, 45 of these schemes are expected to be completed in the next financial year.

In terms of strategic arteries and bridges, the Khairpu-Larkana bridge over Indus is being implemented by NHA and another bridge on Indus from Sakrand to Sehwan has also been included in Federal PSDP, said CM.

Moreover, the existing Mega City Development Program is being up-scaled and this would now specifically attend to transport sector. Under this, province strategy is to go for Mass Transit such as Light Rail that can provide solutions to traffic congestions for next few decades. Shah expects to scale it (Mass Transit) up from existing $800 million to the tune of $1.5 to $2 billion.

Province has provided Rs2 billion package for various priority schemes for Karachi, whereas ongoing and new schemes in water, sewerage, transport have been provided funding. The province will allocate Rs200 million for Lyari Expressway Resettlement Project.

Larkana City: Among the other top priorities of government of Sindh, it has especially allocated Rs2 billion package for Larkna - the city of PPP martyr chairperson Benazir Bhutto. This especial package is allocated besides Rs5 billion committed by Federal Government.

There are allocations for town development of Bhit Shah, Swean, Shahbaz Qalander Shrine and other places which remained ignored earlier. Ghorakh Hill Development will be undertaken and Sindh will seek public private partnership for this resort. Water supply to Baba Bhit; Shamspir and Salehabad in Manro will be expedited through an allocation of Rs100 million.

As an urgent requirement of Rs329 million has been provided for Fire Fighting and Solid Waste Management Machinery for major Towns. The provincial kitty would spend Rs500 million on Clean Drinking Water for All project from provincial kitty in addition to Federal Government allocation.

Agriculture sector: The current year development budget has a hefty allocation of Rs4.87 billion for agriculture sector including livestock and fisheries compared to Rs3.5 billion in 2007-08 - representing an increase of 36 per cent.

The construction of dams including Nai Baran Dam on a fast track basis over an area of 30,000 to 40,000 acres; promotion of flower and fruit nurseries; establishment of Agro Export Processing Zone at Karachi; training women in cotton picking; up-gradation of hospitals and rehabilitation of health training institutions; strengthening and developing social sectors and youth development programs are also under the ADP.


Sindh ADP outlay exceeds Rs89 billion

 

[Moin91]

Rs360m for preparing feasibility to develop coal

Tuesday, June 17, 2008
KARACHI: The Sindh government has allocated Rs360 million for preparing the feasibility for developing coal reserves in Thar and Sonda.

Announcing the budget for 2008-09 in Sindh Assembly, Chief Minister Syed Qaim Ali Shah said the provincial government has already invited proposals for a joint venture on Thar coal. Based on initial contacts, we expect an enthusiastic response from several reputed private sector groups, he added. He said the government has planned to establish training institute in mechanised mining in collaboration with some foreign institute at a cost of Rs600 million.

Qaim said Thar coal provides an excellent opportunity for establishing coal-based power projects. It is unfortunate that the previous government failed to announce an appropriate up-front tariff and refused to allow meagre tariff of 5.7 cent per kilowatt (kWh) to a major Chinese company, which offered to establish 600 megawatts power plant with Thar coal. WAPDA is paying approximately 15 cents per kWh to existing power projects while the tariff for new projects based on the current fuel prices, will be over 18 cents, he noted.

Chief Minister said based on the estimates, Pakistan is expected to pay additional opportunity cost of around $1 billion per year due to the delay in developing Thar coal. Referring to energy sector, he pointed out that Sindh government has already provided land to private sector for the establishment of wind power projects.

Rs360m for preparing feasibility to develop coal

 

[Neo]

KSE crashes 497 points as investors lose confidence ​

Tuesday, June 17, 2008

KARACHI: The equity market on Monday witnessed intense selling pressure throughout the session as the benchmark KSE 100-share index slumped 497.43 points to close at 12,444.13.

Investors offloaded their positions in absence of any positive news and persistent political jitters.

The KSE 30-index closed at 14,552.29 points with a loss of 687.26 points. All shares index closed at 8,931.88 with a loss of 338.94 points. Market capitalisation stood at Rs3.83 trillion as compared to Rs3.98 trillion at the weekend.

The market could not digest weekend developments. Moody’s has reported that Pakistan is losing investors’ confidence, the rupee-dollar parity will further widen with the rupee depreciating by 15 per cent to reach Rs75 per dollar from the current level of around Rs67 per dollar. The news that five banks were near collapse further dampened market sentiments.

Saad bin Ahmed, Head of Research Capital One Equities, said investors were concerned over falling SCRA balances and rumours regarding banking sector. He said that in the long run it is expected that the State Bank will further increase the discount rate, which will have a negative impact on the market.

The local bourse continues to seek consolidation said Hasnain Asghar Ali of Aziz Fidahusein. Persons having access to international avenues for investments are not likely to think twice while the local investors from middle-income group are likely to shift to NSS and commercial papers, he said. Ali said if this adjustment continues on a natural course the consequences might be unbelievable.

Without taking any responsibility Hasnain Asghar Ali said it is therefore recommended to hold on only to the stocks that are likely to sail smooth despite all the odds and having a sound cash flow, besides them offloading in others can be opted for till of course the authorities decide to take up the economic and social issues seriously.

Ready market volume stood at 107.52 million shares as compared to last trading session 104 million. Future market volume stood at 40.186 million shares as compared to last trading session 34.597 million.

Highest volumes were witnessed in NIB with 5.663 million shares closed at Rs12.40 with a loss of 60 paisa followed by Adamjee Insurance at 4.709 million shares closed at Rs276.40 with a gain of Rs5.15 and DGKC at 4.573 million shares closed at Rs70.68 with a loss of Rs3.72, National Bank with 4.449 million shares closed at Rs164.35 with loss of Rs8.65, Oil & Gas Dev.XD with 4.041 million shares closed at Rs125 with loss of Rs4.95, Arif Habib Securities with 3.666 million shares closed at Rs162.5 with loss of Rs8.55, Fauji Fert Bin with 3.194 million shares closed at Rs36.75 with loss of Rs1.2, Azgard Nine with 3.15 million shares closed at Rs62.7 with loss of Rs.3.3, Pak Petroleum with 3.102 million shares closed at Rs257.5 with loss of Rs.11.5 and Nishat Mills with 3.054 million shares closed at Rs93.58 with loss of Rs4.92.

KSE crashes 497 points as investors lose confidence

 

[Neo]

Remittances rise 18pc to $5.9bn in 11 months ​

Tuesday, June 17, 2008

KARACHI: Remittances sent home by overseas Pakistanis continued to show a rising trend as $5,903.83 million were received in the first 11 months (July 2007-May 2008) of the current fiscal year, showing an increase of $915.73 million or 18.36 per cent over the same period of the last fiscal year.

The amount of $5,903.83 million includes $2.36 million received through encashment and profit earned on Foreign Exchange Bearer Certificates (FEBCs) and Foreign Currency Bearer Certificates (FCBCs).

The monthly average of remittances for the period July-May 2007-08 comes to $536.71 million as compared to $453.46 million during the same period of the last fiscal year, registering an increase of 18.36 per cent, the State Bank said on Monday.

The inflow of remittances in the July-May 2007-08 period from USA, Saudi Arabia, UAE, GCC countries (including Bahrain, Kuwait, Qatar and Oman), UK and EU countries amounted to $1,618.46 million, $1,127.65 million, $1,002.01 million, $892.41 million, $420.79 million and $162.66 million, respectively as compared to $1,319.47 million, $927.09 million, $771.10 million, $689.17 million, $392.59 million and $136.53 million, respectively in the July-May 2006-07 period Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries during the first 11 months of the current fiscal year amounted to $677.49 million as against $749.58 million in the same period last year.

During last month (May 2008), Pakistani workers remitted $584.75 million, up $46.77 million or 8.69 per cent when compared with $537.98 million sent home in May 2007.

The inflow of remittances into Pakistan from most of the countries of the world increased last month as compared to May 2007. According to the break-up, remittances from USA, Saudi Arabia, GCC countries (including Bahrain, Kuwait, Qatar and Oman), UAE, UK and EU countries amounted to $154.73 million, $125.94 million, $97.23 million, $94.49 million, $41.76 million and $15.01 million, respectively as compared to the corresponding receipts from the respective countries during May 2007, that is $143.35 million, $99.49 million, $79.29 million, $97.59 million, $37.99 million and $13.45 million. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries during May 2008 amounted to $55.43 million as compared to $66.49 million during May 2007.

Remittances rise 18pc to $5.9bn in 11 months

 

[Neo]

Punjab sets record Rs160bn ADP​

LAHORE, June 16: The Punjab government has set aside a record sum of Rs160 billion for the Annual Development Plan (ADP) for 2008-09 which would mainly be financed through surpluses accruing from revenue and capital accounts of the provincial government.The current ADP is 6.67 per cent higher than the previous year’s Rs150 billion.

According to budget documents tabled in the Punjab Assembly here on Monday, the current ADP includes Rs132.947 billion net revenue account surplus, Rs13.593 billion net capital account surplus and Rs1.221 billion net public account surplus, besides Rs1.226 billion federal grants and Rs11 billion foreign project assistance.

The ADP has been designed under the medium-term framework, with emphasis on social sectors (49.3 per cent) and rural areas (64.5 per cent), focus on infrastructural investment (34.3 per cent) and allocation to pro-poor sectors (82 per cent).

Sixty per cent of the funding has been allocated for ongoing projects to seek their completion while 40 per cent has gone to new projects. Fifty-eight per cent of 2,957 schemes are likely to be completed during the year.

Social sectors i.e. education, health, water supply and sanitation will see 24 per cent increase in funding over last year, infrastructural investments 25.7 per cent, production sectors 189.7 per cent, services sectors 61.4 per cent and special programme 23.3 per cent.

The allocation for education is over Rs30 billion, which is 40.3 per cent higher than the last financial year. It includes Rs5 billion World Bank-assisted Punjab Education Sector Reforms Programme.

A model programme of upgrading two best colleges in each district launched last year for turning them into high quality institution with autonomous status will continue this year too. Two of the weakest colleges will be picked for a complete overhaul. Declaring cut in maternal and infant mortality rate, strengthening primary, secondary and tertiary healthcare as primary objectives of the government in the health sector in partnership with the private sector, the province has allocated Rs9 billion which is 38.4 per cent higher than the previous year. Around 140 rural health centres and 160 basic health units will be provided health facilities.

A feasibility study for health insurance would be undertaken, leading initially to a pilot project for health coverage for the poor. Feasibility studies would also be conducted for establishing a children hospital in Faisalabad, a cancer hospital, a liver institute and a neuro-sciences institute in Lahore.

The allocation for water supply and sanitation has been enhanced by 23 per cent over the previous year and Rs8 billion have been allocated, with priority to barani and brackish areas for provision of facilities, introducing concepts of water metering in rural areas and waste water treatment.

Most of the schemes being initiated belong to southern Punjab and Potohar areas.

For welfare of destitute women, elderly persons, orphans, widows and abandoned babies, an allocation of Rs700 million has been made. These funds would also be used for construction of women barracks in jails and their shelter homes (Darul Aman), as well as imparting them skills to make them economically independent.

To eliminate regional disparities, a sum of Rs2.4 billion has been proposed for launching Phase-II of Barani Village Development Project, southern Punjab poorer districts development programme and provision of necessary social and physical infrastructure, like roads, water supply and electricity in Cholistan.

The local government and community development department has been allocated Rs8.41 billion, 20 per cent higher than the last year’s ADP.

A sum of Rs2 billion would go to provide basic infrastructure in katchi abadis and Rs3 billion for Punjab Development Programme focusing generation of economic activity and employment through local level small schemes.

Road sector’s total outlay in the ADP is Rs17.5 billion, up 22 per cent than the last fiscal and accounting for almost 15 percent of the core development programme for 2008-09. About 500-km length of existing roads would be widened from the present 12 feet to 24 feet, while 150-km new roads or missing links would be constructed.

New schemes of elevated expressway — one each in Lahore and Rawalpindi — and dualisation of Gujranwala-Sialkot road would also be undertaken.

Irrigation sector’s total outlay for the year 2008-09 is Rs11.3 billion, constituting about 11.2 per cent of the core ADP.

Out of total 103 schemes included in the ADP, 60 have been targeted for completion by allocating 73 per cent of the outlay to the ongoing and 27 per cent to new projects.

The main targets are lining of 350km water channels, rehabilitation and modernisation of Taunsa Barrage, construction of five small dams, improving drainage and flood protection for 105 square mile area in Gujranwala, Sialkot, Sheikhupura, Narowal, Sargodha and Kasur districts.

A 3.2 MW Khokhara hydropower project will also be completed besides preparation of five additional hydel power projects of 24.8 MW combined.

An amount of Rs6.768 billion has been allocated for urban development sector which is 44 per cent higher than last year’s.

The allocation includes Rs900 billion for projects to replace outlived water supply lines causing gastroenteritis threats.

A provision of Rs30 million has been made for identification, master planning and development of intermediate cities in the province.

The Punjab Large Cities Development Policy Loan is being negotiated with the World Bank to make large cities engines of economic growth.

The proposed $300 million loan is aimed at improving land use planning, property tax reforms, revenue generation, collection and effective urban services delivery.

Of production sectors, a sum of Rs3 billion has been apportioned to agriculture sector, Rs1.9 billion to livestock and Rs2.3 billion for TEVTA.

In the services sectors, Rs1.5 billion have been given to information technology, Rs2.5 billion to emergency service and Rs100 million to tourism sector.

Planning and development department would get Rs3.15 billion and the environment Rs1 billion.

Three major projects have been identified in the special infrastructure sector with an allocation of Rs29 billion for them. These are Lahore Ring Road, Sialkot-Lahore Motorway and Lahore Rapid Mass Transit System project.

Punjab sets record Rs160bn ADP -DAWN - Business; June 17, 2008

 

[Neo]

‘Parallel economy a threat to welfare plans’​

ISLAMABAD, June 16: The country’s black economy is estimated to have grown to be half as big as the formal economy, which yields a GDP of $166 billion.

Sources told Dawn on Monday that the problem had reached such proportions as could upset public welfare plans.

The parallel black economy of $83 billion could yield the national exchequer eight billion dollars if taxed even at a rate of 10 per cent.

“These are very conservative estimates. The fact of the matter is that black economy could be much bigger,” said an official dealing with economic affairs.

Pakistan’s economy is largely undocumented, providing space to the informal sector to grow and thrive. “Under-invoicing has gone on for years and at a huge scale,” he said.

Most recently hoarders and black marketeers earned billions in wheat and flour trading, but no record was available to pin them down, the official said.

“This approach is no different from that adopted by former economic managers, headed by Mr Shaukat Aziz, who first launched documentation of the economy in 2000-01, but abandoned it on the same excuse in the name of being business-friendly,” the sources said.

They said that a strategy was being finalised to bring the informal sector into the formal one in order to achieve new resource mobilisation, particularly by encouraging the development of cottage industry.

Officials in the economic ministries have been directed to give an implementation mechanism to substantially raise revenues by providing incentives to the informal sector to merge into the formal sector.

The Federal Bureau of Revenue chairman said that there were different estimates about the size of the black economy.

“But I believe black economy is 30 to 40 per cent of our total economy and this is quite disturbing,” he said

‘Parallel economy a threat to welfare plans’ -DAWN - Top Stories; June 17, 2008

 

[Neo]

14 percent decline in FDI ​

KARACHI (June 18 2008): Foreign direct investment (FDI) during the current fiscal year declined by 14 percent mainly due to uncertainty on political front and continued demonstrations in the country.

Despite the fact that a political government has been set up in the country, the confidence of foreign investors in Pakistan's economy has not revived and they are still reluctant to invest in Pakistan due to continued demonstrations, especially by lawyers, across the country and political battle, analysts said. They said that although the investors want to invest in Pakistan, they believe that the change in the political set up would hurt their investment

State Bank of Pakistan (SBP) data on Tuesday showed that net foreign investment (including FDI and portfolio investment) declined by 37.2 percent, to $3.943 billion during eleven months of current fiscal year in slow portfolio inflows due to political uncertainty in the country.

Net foreign investment during the July-May of last fiscal year 2006-07 was $6.28 billion. Out of net foreign investment, FDI declined by 14.1 percent, or $639 million during July-May of 2007-08. After current decline, overall FDI stood at $3.881 billion against $4.520 billion in same period of last fiscal year.

Analysts said that besides FDI, portfolio investment also declined by 96.5 percent, to $62.2 million against $1.760 billion of corresponding period of last fiscal year. "Although overall FDI depict some declined during the current fiscal year, the present statistics are very encouraging and despite the political battle foreign investors are investing in the Pakistan," said an economist.

He said that portfolio investment is also recovering, and current statistics are proof that the country's economic fundamentals are strong and have ability to attract foreign investors despite last one year's uncertainty. "It is clear that during the current fiscal year the country's net foreign investment would be less than last year. However, we are expecting that in the next fiscal year investment would boost," he added.

Business Recorder [Pakistan's First Financial Daily]

 

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'16 trade pacts signed with different countries since 2003' ​

ISLAMABAD (June 18 2008): Pakistan has signed sixteen bilateral and regional trade agreements for propelling its exports since 2003, official sources said. Bilateral and Regional Trade Agreements commonly referred to as Free Trade Agreements (FTAs), Preferential Trade Agreements (PTAs) or Regional Trade Agreements (RTAs) are contributing to the development of global trade and take members to one step nearer to the multilateral regime, the sources said.

The Ministry of Commerce has initiated market access negotiations with various trading partners for two fundamental reasons ie seeking maximum market share for Pakistani exports in foreign markets and ensuring level playing fields for Pakistani exporters vis a vis other competing exporters who have bilateral or regional arrangements FTA or PTA trade rights in these markets, sources added.

Pakistan and Indonesia have also signed a comprehensive Economic Partnership Agreement in November 2005 to promote trade ties between the two countries. Five out of ten Member States signed the ECO Trade Agreement (ECOTA) in July 2003. The signatory members are Pakistan, Iran, Turkey, Afghanistan and Tajikistan.

Business Recorder [Pakistan's First Financial Daily]

 

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Multi-national corporations: reinvestment of 25 percent profit in country sought ​

ISLAMABAD (June 18 2008): The Senate Standing Committee on Finance has recommended the government to ensure that multi-national corporations operating in Pakistan should re-invest at least 25pc of their net profit in the country.

The committee in its recommendations for amendments in the Finance Bill 2008-09 asked that multi-national corporations operating in Pakistan should re-invest at least 25 percent of their net profit in the country.

The committee urged that the interest free loans should be promoted to finance particularly development in agriculture and SME's, which would result in poverty reduction.

In all such cases the financial institutions should be obligated not to charge anything more than actual service charges, it emphasised. The State Bank of Pakistan (SBP) should accelerate its efforts towards promotion of Islamic banking and finance in the country.

The Federal Bureau of Statistics should be made an autonomous institution so as to ensure high degree of professional integrity and greater credibility and privatisation must be reviewed and rationalised to ensure complete parliamentary oversight and protection of strategic interests of the country, the committee urged.

The SME model estates should be established in all the provinces and in the Fata and Northern Areas and promotion of SME's given priority all over the country. Tax on sale of property and real estate should not be levied on small plots.

Plots up to 5 Marlas must be exempted while others charged progressively keeping in view the size and locality of the plot, Income Tax/Corporate Tax on profit of banking sector should be increased from 38 to 41 percent, security Scheme for children, widows, elderly and the physically disabled should be devised in a manner that income support should be targeted for these four categories while all other financial support plans should be in a manner that bring gainful employment to poverty stricken people or other productive activities and do not make them depended permanently on doles.

The committee also recommended that in distress cases immediate steps be taken to resort to write off small loans of up to Rs 100, 000. This may be done in both in the agricultural and industrial sectors and House building Finance Corporation.

The government should also ensure that total for education is raised to 3 percent of the GDP in Fiscal Year 2008-09 and 4 percent of the GDP in the Fiscal Year 2009-10. The committee recommends to the National Assembly that recommendations made by the Parliamentary Committee on Balochistan should be implemented immediately and for the development projects of Balochistan, special and adequate allocations be made for execution and implementation of these projects on fast track basis.

Business Recorder [Pakistan's First Financial Daily]

 

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Turkish businessmen invited to invest in Pakistan ​

KARACHI (June 17 2008): A ten member delegation of Karachi Chamber of Commerce and Industry (KCCI) was warmly welcomed by the MUSIAD, the Independent Industrialists and Businessmen's Association of Turkey, Istanbul Chamber of Commerce and Istanbul Chamber of Industry on Monday at Turkey.

During meeting with Musiad, it was discussed that how business from Organisation of Islamic Conference (OIC) member countries can collaborate with Musiad to invest in the emerging Turkish market and leverage its experience and networks to expand into the European or Central Asian markets. They also agreed to visit Pakistan to seek the investment opportunities there.

The delegation also exchanged the information of 5th International "My Karachi-Oasis of Harmony" exhibition and reciprocally 12th International Trade Fair scheduled to be held between October 22-26, 2008, in Istanbul. In conjunction with that occasion, Musiad will also host the 12th International Business Forum (IBF) congress, which will be held between October 22-25, in Istanbul.

President of Istanbul Chamber of Commerce in a separate meeting stated that a delegation from Istanbul Chamber of Commerce will visit Karachi by the end of this year. The same enthusiasm was also shown by Istanbul Chamber of Industry and they agreed on transfer of technology in different rising sectors of industries.

The KCCI high-powered delegation led by Iftikhar Ahmed Sheikh, Senior Vice President of KCCI is nowadays in Turkey. The delegation was invited by the Istanbul Minerals and Metals Exporters Association who are organising an international buying mission in conjunction with 4th Beauty Eurasia 2008 Int'l Exhibition. The delegation will return on June 18.-PR

Business Recorder [Pakistan's First Financial Daily]

 

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Despite bumper crop, farmers get low rates for sunflower ​

Growers deprived of justified price for their produce as sunflower cooking oil rates soar​

Wednesday, June 18, 2008

ISLAMABAD: Oil solvent extractors in collaboration with middlemen are purchasing sunflower much below the announced price of Rs1,600 per 40 kg after the harvest of a bumper crop.

Sunflower growers have no option but to sell their produce at throwaway prices as the solvent extractors have put themselves away from the business while the middlemen are not only purchasing the produce at much lower price but also getting 5-8 kg extra, complained one of the progressive farmers from Multan.

The farmers are getting Rs1,100 to Rs1,200 per 40 kg of sunflower while the PASSCO and MINFAL announced the other day that the commodity would be procured at Rs1,600 per 40 kg which is contrary to reality, the same farmer said.

Growers opted to sow sunflower instead of wheat hoping it would turn their fate after the federal government failed to announce support price of wheat on time but the change did not work well.

Sunflower sowing was up 15 per cent during 2007-08 compared to previous year. Sunflower seed production was expected to be around 1.2 million tonnes, 0.4 million tonnes from Sindh and rest from Punjab.

“The sunflower traders are getting 5-8 kg extra on every maund or 40 kg purchase of sunflower and they are also paying Rs300-400 less per maund,” Rashid Jamil, another farmer from Muzaffar Garh told this correspondent on telephone on the issue.

The policymakers and officials of Ministry of Food Agriculture and Livestock (MINFAL) are always lauded for producing more grain or other commodities, yet no one ensures availability of a justified price for the produce. He pointed out the issue of sugarcane when the farmers suffered colossal losses after sugar mill owners refused to pay the agreed price.

Prime Minister, Syed Yousuf Raza in his opening address emphasized increasing the production of sunflower and other oil crops for less dependency on their imports, but it seems that market players are pushing the farmer community to raise a bumper crop and then slash price due to abundant supply.

Agriculture Development Commissioner at MINFAL Dr Qadir Bux Baloch when asked to comment on the issue said, “all of the solvent extractors would ensure payment of Rs1600 per 40 kg of sunflower with only 2 kg extra sunflower and 8-10 per cent moisture at mills gate. Reports of low prices and extra 5-8 kg sunflower for purchasing the commodity are not correct.”

When asked about still lower prices of sunflower against the international prices of Rs2,200 per 40 kg, Baloch said that procurement price of sunflower was Rs850 per 40 kg last year and this year farmers are getting Rs1,500 per 40 kg which is reasonable.

During the year 2006-07, the import bill of edible oil and oilseeds was $1.366 billion while this year it would be around $3.194 billion. The international prices of the palm oil have been rising since last year shooting up from $467 per tonne in 2006 to $962 per tonne in December 2007.

Despite bumper crop, farmers get low rates for sunflower

 

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Power generation to be raised to 22,297 megawatts ​

MULTAN (June 17 2008): The Director-General, Energy Management Cell of Wapda, Tahir Bashir Cheema, has said that to meet the energy shortfall, the government has planned to increase power generation capacity to 22,297 mw in 2008-09 from 20,097 mw in 2007-08, with net addition of 2,200 mw.

Briefing a meeting of the executive committee members of Multan Chamber of Commerce and Industry (MCCI), chaired by Jalaluddin Roomi, he aid that the expected increase in power generation would include 1,067 mw of rental plants and 615 mw of IPPs to be added in the Wapda/Pepco system, and 205 mw of Korangi Thermal Power Station (KTPS) and 200 mw of IPP are expected to be added in the KESC system.

In addition to the already operating 300 mw Chashma Nuclear Power Plant (C-1) since 2001 and under-construction unit C-2 of same capacity, two more units (C-3 and C-4) of 300 mw each are planned at Chashma and are expected to be commissioned by 2014 and 2015, respectively. Further, 1,000 mw unit at Karachi has already been conceptually cleared. He said that Wapda was facing shortage of water in reservoirs. There was only 30 percent supply of natural gas and there has been increase in the prices of furnace oil. A number of power generation plants had completed their technical life during last decade.

He said that KESC , FATA, federal and provincial governments are defaulters of Rs 134 billion. He said that recovery in Punjab is 100 percent, 70 percent in Sindh, 60 percent in Balochistan and NWFP, and zero percent in FATA.

Tahir said that it was a pity that non-professional were appointed as chairman of Wapda who destroyed the organisation ruthlessly. Citing KESC, he said that there was no agreement, no rules and regulation signed between the government and the buyers who are now selling the assets of KESC to meet the salaries of the staff. They did not spend even a single penny for improvement of the system. Instead, they are defaulters and they were blackmailing the government by shutting down electricity whenever they desired.

He said that detailed engineering and design of Diamer Bhasha dam project had been completed and was under final review by Wapda. Tenders for construction of the dam are expected to be floated soon, whereas construction of the dam was expected to be started in the middle of 2009.

He said that for enhancing power generation capacity, the government has allocated Rs 76.2 billion, including Rs 16.320 billion as foreign aid in the annual Budget 2008-09. To overcome power shortage and to reduce the extent of load shedding, 1,500 mw thermal power projects at Dadu, Guddu and Faisalabad have also been envisaged during 2008-09 with average capacity of 500 mw each. Two hydropower projects of Northern Areas, including Naltar-III (16 mw) and Naltar-V (14 mw) have also been envisaged in 2008-09.

In respect of AJK, two hydropower projects, namely Battar (3.2 mw) and Dhannan (1.7 mw) are also under active consideration by the government. To cater the growing demand of power in the country, to increase the efficiency of system network and to reduce power congestion in the power system, multiple projects for construction of transmission lines and grid station, extension of feeder lines and installation of capacitors are under consideration by the respective Discos.

The meeting was also addressed by CEO of Mepco, Muhammad Amin Sahi, Chief Executive Officer Genco III Muhammad Rafiq Butt, Muhammad Azhar Iqbal, and Dr Muhammad Tariq, President of Bahawalpur Chamber of Commerce & Industry.

Business Recorder [Pakistan's First Financial Daily]

 

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Moody's report on Pakistan investment clime ​

ARTICLE (June 17 2008): Moody's Report on Friday, June 13, on Pakistan's chances to attract or retain foreign investments being dim, comes as no surprise. The conditions here hardly evoke confidence in the government's ability to control events that are externally generated, by themselves. All countries on earth, including the oil producers, are feeling the pinch of oil price surge, mounting inflation, weakening US dollar, and looming recession.

It will be foolish to expect Pakistan to remain immune to these external conflagrations, leave aside the domestic problems. How outsiders feel about it is probably more subdued than the outbursts on the domestic fronts, and no wonder. For more than six months now, these columns have carried dire warnings, as well as precepts to absorb the shocks. Regrettably, the leadership's agenda does not seem to be geared to address the looming disasters. Rather, they are more interested in non-issues or personal vendettas. Furthermore, the media too seems to be pre-occupied with events that do not interest the common men, engrossed with problems for the daily bread to the exclusion of every thing else.

How long can the present leadership ignore these basic concerns of the people at large, and pursue their personal agenda, is a moot question, but the larger national interests demand a quick solution to all matters of public interest. Then only can we hope for a relatively settled and calm atmosphere in the country and its business environment, attractive enough for foreign investors. Right now the position is just the reverse - frightful for even those who are already here and justifiably wish to pull out.

A look at the dwindling forex reserves and the negative FDI figures will prove our contention. Moody's have made a fair assessment and fudging figures to disprove them (as reportedly done in the past) is not going to help.

A candid and forthright admission of the problems and a sincere unflagging effort to overcome them with courage and determination will carry the true stamp of great leadership.

The question arises - are there any solutions? Yes, there are, but they require thinking out of the box, and quite different from the hackneyed bureaucratic approach. A people's government in a democratic set-up should not kow-tow to the civil servants. The latter should be made to realise what they are:- servants of the people and not rulers over them.

If such a leadership emerges and asserts itself, it can win the hearts and minds of the common people - body and soul - and overcome seemingly insurmountable difficulties. Then only can we raise our head and challenge the world to come and see themselves a conducive climate for investment in Pakistan, and make Moody's eat their words.

Business Recorder [Pakistan's First Financial Daily]