Pakistan Economy - News & Updates - Archive

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Construction activities in UAE: industry, exporters to benefit from raise in cement price​

KARACHI (July 25 2008): The United Arab Emirates (UAE) has recently raised the cement price by 15 percent due to its rising demand, mainly benefiting Pakistani cement industry, sources said on Thursday. Pakistan is the major cement exporter to the UAE, as it fulfils around 70 percent of the total demand of the product in the emirates.

After the rising cement prices in the face of huge demand in UAE, analysts see Pakistan as a primary beneficiary to flood the Arab markets with its product. It is likely to receive huge cement export orders shortly, they said.

With the current surge, the prices of cement have mounted to $98 a tonne, as was previously stood at $85 a tonne, depicting an increase of $13 a tonne. As a result, a 50-kg cement bag will be available at 19 dirham as compared to 17 dirham per bag previously, they added.

"We were expecting the UAE will re-fix the maximum cement price, as the product fell short in emirates markets at previous price of 17 dirham per bag," said a leading cement exporter. He said that UAE is facing a shortfall of some six to seven million tonnes, and its is expected to go up to eight million tonnes this year due to increased construction activities there.

During the last fiscal year, Pakistan exported over four million tonnes of cement to UAE at a FoB rate of $70 to 75 a tonne, an exporter said. "With, an increase of $13 per tonne, our export will ultimately increase and we are expecting a rise of $8 to10 per tonne in FoB price of cement," he said. According to him over two dozens Pakistani builders and construction companies are engaged in construction activities there preferring Pakistani cement.

Business Recorder [Pakistan's First Financial Daily]

 

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IT sector registers 30 percent growth in revenue​

LAHORE (July 25 2008): IT sector in Pakistan has registered 30 per cent growth in revenue in a very short span of time whereas the fundamentals of the sector are highly strong and the recent dollar's appreciation has significantly boosted the IT sector revenues.

While talking to Business Recorder here Thursday, the Chairman, NetSol Technologies Limited and Chief Executive Officer (CEO), Saleem Ghauri said the present growth pattern can be maintained and revenue can be doubled provided priorities are reviewed.

About the ongoing economic pressure, he said one immediate way to come out of economic crisis is the earliest start of automation of public sector that would double public sector's efficiency. He, however, said that the decline in stock market is due to different reasons and it has nothing to do with the strong fundamentals of IT sector. The IT sector stocks will shoot up again once the inflationary pressure on economy is away.

The growth in revenues has enabled the industry to hire high-skilled IT professionals and thus contributed to the national economy in a big way, he said. Adding that more the trained human resource the IT sector has, the more country's economy would flourish and prosperity could sustain on longer terms, he added.

Moreover, he said that the NetSol Technologies is doing miracles in the field of IT and exports of its flagship product LeaseSoft, a suite of end to end leasing and finance software solutions catering to the needs of retail and wholesale finance businesses, has touched to the level of $20 million in a short span of time.

"We are foreseeing exports of LeaseSoft will touch $100 million in the next three years," he said. According to him, leading international business houses like Mercedes Benz, Yamaha Motors, Toyota Motors, Dongfeng Nissan, UMF, BMW and FIAT group in Asia Pacific region, besides a good number of leading brands in Europe and North America are successfully using LeaseSoft.

He said that the IT industry has already realised the potential and started putting infrastructure in place to have more and more human resource in the years to come. "NetSol has recently come up with the concept of NetSol Technology Institute (NTI) and it has planned branching out all over Pakistan to ensure short courses for Pakistani youth. "We want to dispel the impression that IT belongs to the youth of elite class" he added.

According to him, the government can ensure a real economic revolution by providing IT training to youth on war footing basis on the one hand and automation of public sector organisations on the other.

"A strong leadership with a visionary approach towards IT sector is an urgent need of the hour," he said. When pointed out that senior employees' in public sector organisations are a major hurdle in automation drive, Ghauri said this is where a strong and clear-headed leadership is required.

Since majority of Pakistani youth lives away from major cities, ie in rural areas, therefore, a strong network of IT training institutes is the only way of spreading IT education in Pakistan," he said. Ghauri extended a wake-up call to the government for investment in IT training of youth, which would ensure IT Pakistan of tomorrow.

The country's exports in IT have reached to half a billion dollar and number of highly skilled human resource is very impressive in the sector but still it needs from the government to do more.

He said Pakistan, with a population of 170 million, 60 per cent of which consists of under-25 youngsters, is an ideal country where IT sector can spearhead the economy in the days to come. "Once the government realises this potential and ready to invest on technical training of Pakistan youth, IT revolution will start in the country," he said.

Business Recorder [Pakistan's First Financial Daily]

 

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Pakistan, India to discuss CNG bus manufacturing ​

Saturday, July 26, 2008

ISLAMABAD: Pakistan’s offer to arch-rival India to invest in CNG bus manufacturing would be taken up in upcoming composite dialogue between the two sides, a senior govt official said on Friday.

“More deliberations on the issue in order to permit India to manufacture CNG buses will be held during composite dialogue between the two countries,” Secretary Commerce Syed Asif Shah told The News.

Announcing the trade policy for 2008-09 last week, Commerce Minister Ahmed Mukhtar said a decision had been taken that if “Indian manufacturers of CNG buses make a firm commitment to manufacture such buses in Pakistan,” the ministry might allow import of 10 buses by road via Wagah from each potential investor as a test consignment.

The government has already made the import of CNG buses duty-free by removing 15 per cent duty in the budget for 2008-09.

“There is no law in the country which could block Indian investment. Pakistan has a liberal investment policy, but generally both countries discouraged investment in each other,” said an official of the Board of Investment who asked not to be named.

India has granted permission to the National Bank of Pakistan (NBP) to open a branch there. When asked why India-specific CNG buses were being imported, the secretary commerce said some CNG buses imported from the European Union did not suit the country’s roads while Indian buses more suited the conditions here.

Deputy Chairman Planning Commission Salman Farooqui, during his visit to India last month, invited some of the leading Indian companies to invest in Pakistan. He also asked the Indians to invest in the power sector for developing the Thar coal project, which had stuck for the last several years because of a tussle between the federal and provincial government, “but the issue has now been resolved,” another official of the Planning Commission told The News. Besides this, Indian investment for developing the mining sector, particularly Thar coal, was also sought.

The government, in association with the International Finance Corporation (IFC) and World Bank, is organising ‘Investor’s Roundtable on Pakistan’s Power Sector’ in Washington DC on July 28 and 29.

The government as a goodwill gesture in the trade policy also allowed import of mineral extracting machinery from India. Pakistan has the largest coal reserves in the world but it does not have the expertise to develop the ‘black gold’ for power generation.

Pakistan not only allowed investment from India in the trade policy but also increased the positive list from 1,802 tariff lines to 1,938.

Pakistan, India to discuss CNG bus manufacturing

 

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Experts stress need for pro-poor growth strategy ​

Saturday, July 26, 2008

LAHORE: Economists assert that Pakistan currently needs pro-poor growth strategy while the government continuing the development agenda of the previous regime is further widening inequalities and providing bailout opportunities to plunderers of national wealth.

They point out that growth that benefits the poor requires the state to provide an enabling policy environment. However, they deplore that this has not happened in Pakistan after the change of government.

The only way to reduce poverty is through all-inclusive growth, particularly in turbulent times like the one being faced by the country. Nations have rebuilt themselves from ashes by involving each segment of society in nation building.

Faisal Qamar, a Dubai-based chartered accountant, says despite extremely weak economic indicators all is not lost in Pakistan and the country can join the developed world by redesigning its policies according to national interest.

First and foremost thing is that the economic managers of the country must realise that the quality of institutions matters, he says, adding attempts to reform or build robust pro-growth institutions must first identify a narrow and specific set of ‘growth-enhancing’ institutions and then support them.

Asif Ali Shahid, a Canada-based Certified Public Accountant, says Pakistan is currently plagued with weak accountability and poor capacity to deliver.

This points toward the fact that the country is currently unwilling or unable to play the role of a developing state.

He says governance guru Kaufmann had collected evidence from 170 countries which shows that good governance supports wealth creation, but economic growth does not result in improved governance. Economist Naveed Anwar Khan deplores that every ruler in Pakistan is obsessed with enhancing growth and says analysis of a number of quantitative cross-country studies by World Bank reveals that political stability and the rule of law are associated with growth but not necessarily with poverty reduction. On the other hand, enhancing civil liberties and political freedom are linked with poverty reduction but not necessarily with growth. Poverty, he adds, should be the main concern of policymakers.

Another economist Yunus Kamran, an FCA, says according to the research done by Overseas Development Institute London in a developing state progressive taxes are collected, labour is regulated and chronically poor protected. There is a sense of nationhood, investment is attracted and national development goals are promoted.

He says it has a powerful, competent, autonomous and stable bureaucracy and its political loyalty is not tested. A developing state is relatively independent of special interests, although it is well linked with non-state actors who contribute to policy formation.

Economic development is consistently prioritised by government policy, which promotes productive entrepreneurship.

He says tolerance, meritocracy, social mobility and high levels of education are valued and promoted. Leaders promote development (which may also benefit them) and corruption is limited. The planners in Pakistan would have to reform their growth model on these lines to ensure all-inclusive and pro-poor growth, he suggests.

Economists single out corruption, particularly the use of public resources for private gains, as the main cause of inequality. They say it not only affects the level and efficiency of private investment and public spending, with negative effects on economic growth and development, but also increases income inequality and poverty. It affects poor people’s daily lives. If corrupt officials demand bribes, it can mean even basic services are put beyond poor people’s reach and can make them feel voiceless and powerless.

They say corruption cannot be eliminated altogether, however, corruption level of over 51 per cent can devastate growth, investment and poverty reduction as has happened in Pakistan.

Experts stress need for pro-poor growth strategy

 

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Electronics market biggest victim of inflation ​

Saturday, July 26, 2008

KARACHI: The once busy and overcrowded Saddar electronics market is sporting a deserted look as prices of electronics items and white goods soar out of reach. The once loyal customers are now mere bystanders and window shoppers, unable to afford anything within.

A short market survey led to the discovery that prices of white goods such as washing machines, refrigerators, air conditioners, and air coolers have all risen by at least eight to 10 percent, which translates to a hike of Rs1,300 to Rs3,000 and above per item.

Similarly, other items such as geysers, gas burners, ovens, and microwaves have witnessed a rise of 25 to 30 percent. In monetary terms, this amounts to Rs2,800 to Rs4,000 and more per item.

There are three reasons behind the exorbitant price hikes: the rising dollar value, the depreciating rupee, and the spiralling cost of iron. This rise in values of electronics products has been recorded within the span of two to three months. The sharpest spike has come in the last month.

Dealers at the various electronics market around the city claim that inflation has hit them the hardest, as they deal with luxury items that people can choose to live without. They also say that while other businesses like restaurants and groceries continue to thrive with customers, electronics dealers are left hanging in balance with a stagnant market.

Nisar Ahmed, owner of Surmawala House, has 24 shops all over Karachi. He has been observing consumer-buying trend in the different localities of the city, and said: “Consumers are opting to stay at home and concentrate on their bread and water, rather than buying electronics goods.” According to him, even branches situated in posh localities of the city had reported low sales, while those in middle class localities were the hardest hit.

“The only customers left to us are those who simply cannot do without electronics items. Sometimes we see parents come in and buy dowry items for their daughters, with this being the wedding season,” he said.

Ahmed, however, added that even in the case of dowries, the number of items purchased by parents has reduced. “People now buy only the most essential items, such as cooking ranges and fridges, whereas just a year ago, they would also purchase microwaves and washing machines.”

Another dealer, Kamran Hameed, explained that summer was usually a “season time” for electronics dealers, but this year, it was no different from any other time. He said that while both local and foreign brands continued to be sold, the thriving business they once had was no longer there.

“Consumers have no alternative. Ninety-five percent of the market has always preferred Chinese manufactured brands, and local names such as Dawlance, Waves and Haier have the biggest sales, but even they have increased their prices by several thousand rupees,” he said.

Electronics market biggest victim of inflation

 

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Pakistan needs tighter fiscal, monetary policy: IMF ​

Saturday, July 26, 2008

KARACHI: Pakistan needs to tighten fiscal and monetary policy to contain inflation and reduce its current account deficit, according to the International Monetary Fund.

The warning, issued by an official in Washington on Thursday and subsequently posted on the IMF website, came days ahead of the central bank’s next policy meeting, when it is expected to raise interest rates.

“Now a significant tightening of both fiscal and monetary policies to contain inflation and reduce the external current account deficit is needed in our view,” said David Hawley from IMF’s external relations department.

Pakistan is in talks with the World Bank on a broad economic package that could include financing by the development lender linked to government reforms.

In May, the central bank increased its key discount rate to 12 per cent from 10.5 per cent. Hawley noted the Pakistani central bank’s foreign currency reserves had fallen nearly $6.5 billion since the end of June 2007 to about $7.7 billion, while the rupee has depreciated by 20 per cent against the dollar since June 2007.

The drain on reserves is a consequence of burgeoning oil import bill and foreign investors retreating because of political uncertainty dogging the country four months after a civilian coalition formed a new government.

Prime Minister Yousuf Raza Gilani is due to leave for his first official visit to the United States on Saturday and is scheduled to meet US President George W Bush on Monday.

Last week, two US senators unveiled a bill to provide Pakistan with $7.5 billion over five years to help its transition to civilian-led democracy.

Pakistan needs tighter fiscal, monetary policy: IMF

 

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PS production capacity to be raised to 1.3mT ​

Saturday, July 26, 2008

ISLAMABAD: Adviser to Prime Minister/Minister for Industries, Production and Special Initiatives (MOIP&SI) Mian Manzoor Ahmad Wattoo said on Friday that production capacity of Pakistan Steel Mills (PS) needs to be increased to 1.3 million tons per year to make it more viable and meet increasing demand of steel in the country.

He said this while chairing a meeting on expansion plans of the PS. The meeting was also attended by Chairman PS Moeen Aftab Sheikh and senior officials of MOIP&SI.

He said that under the current expansion plan, by the end of current year, the production capacity would increase to 1.3 million tonnes per year from the current 1m tonnes.

Wattoo said that under the second phase of expansion, by the end of 2010, the capacity will increase to 1.5m tonnes. He further informed that total increase in production during the current year will be 1 lakh tonnes and capacity utilisation will increase to 91 per cent from current 82 per cent.

To implement the expansion plan effectively, it is necessary that the PS is removed from the privatisation list, Wattoo said, adding the mill is a national asset and it should not be privatised.

He assured the PS administration that he will recommend to the prime minister that the mill should be delisted from the privatisation list.

The meeting was told that the PS spent Rs25 million during the current year on the import of iron ore and coal and the cost could rise to Rs30 million in the next year owing to increasing prices in the world market and high freight charges.

Wattoo stressed that every effort should be made to utilise local raw material and the PS should ensure that at least 20 per cent of it is used.

It will help in reducing the cost of production besides giving employment to the poor and generate economic activity, he said, adding that incentives and technical training should be given to the owners of mines and local people so that extraction and processing can be done on a fast track. He instructed the PS administration to focus on Balochistan in this regard.

The members of the meeting were told that a meeting has already been held between PSM, MOIP&SI and Balochistan government in this regard and a similar meeting with NWFP government will be held in coming weeks, and with other provinces will follow shortly so that more local raw material can be utilised.

Wattoo assured that MOIP&SI will fully assist PSM in its expansion plans and the plan to utilise local raw material.

PS production capacity to be raised to 1.3mT

 

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Pakistan’s competitive rankings stagnating​

ISLAMABAD, July 25: Pakistan’s competitive rankings are stagnating, rather than improving, and the new government faces new economic challenges which have far-reaching implications for poverty reduction, fiscal and trade balances, inflation and economic growth, says annual report of the Competitive Support Fund.

Pakistan’s business competitiveness index (BCI), which captures firm level strategy and operations, registered a decline of 15 positions from last year, from 64th to 79th position, says the 2008 CSF report released here on Friday.

The report says that Pakistan is among the lowest one-third countries in global competitive ranking as it ranked 92nd out of 131 countries in the latest Global Competitive Index (GCI).

In a globalised economy, competitiveness is the key to Pakistan’s future prosperity but its ranking shows that much work remains to be done to achieve this.

These performance rankings are mirrored by the struggles being faced by many of its key export industries, such as apparel and textile, sports goods and surgical instruments, the report said.

The report said Pakistan’s scores were quite low at 107th and 108th place on a scale and were “influenced by very poor performance related to human resources: primary education, higher education and training and labour market efficiency.” This indicates the need to focus priority attention on workforce development. This focus will have the benefit of boosting incomes for the average worker while better productivity will provide benefits to Pakistani industries.

It said there is a growing perception that business competitiveness at the firm level has been getting worse in Pakistan as showed by a sharp decline in scores for 2007-08. Pakistani companies are finding it increasingly difficult to compete as industries in other countries continue to improve their competitiveness. The same Pakistani companies facing stiffer economic competition may now be more aware of their true competitive position – affecting a more realistic self-scoring than in previous years.

“And there may indeed have been a falling off in the underlying competitiveness as represented by loss of orders, market share and profitability. There was also a significant decline in good market efficiency scores, indicating that market force may not be fully at work.”

The report said business environment still limited the performance of firms. The increasingly unreliable electricity supply, a weak judicial system and the lack of world-class commercial courts are among the areas highlighted in the report, saying improvements in the business environment were needed at the federal, provincial and local levels.

The report said that Pakistan was not competitive in cost, quality and product differentiation. Although improvements have been made in the service and financial industries and in areas of the government, the country has fared poorly compared with its neighbours in key areas, such as provision of health and education services, in the development of a modern infrastructure and in the cost of doing business.

Pakistan’s competitive rankings stagnating -DAWN - Business; July 26, 2008

 

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Indian buses to hurt local industry: Euro-II standards ignored​

KARACHI, July 25: While the environment ministry is concerned over non-adoption of Euro standards in fuels and engines, the commerce ministry has allowed import of old CNG buses from India.

The Pakistan Automotive Manufacturers Association (PAMA) feels that the local industry would collapse with the arrival of old buses and it would render thousands of people jobless in assembly plants and vending industry.

The environment ministry is of the view that pollution in the cities has increased to an alarming level and there was a need to control it for our future generations.

The ministry has stressed the need for working jointly on a war footing to improve air quality, as other countries of the region have successfully accomplished their targets.

The environment ministry, in collaboration with the petroleum ministry, had set up a committee in 1994-1005 to develop a road- map for introduction of clean fuels which included introduction of unleaded gasoline, reduction of sulphur content from diesel and promotion of CNG.

The petroleum ministry introduced unleaded petrol in 2000, while sulphur content in diesel was reduced to 0.6 per cent from one per cent. The low sulphur diesel is highly essential for introducing Euro-II compliant vehicles. Pakistan is lagging behind and there is a need for adopting Euro standards.

To review the Euro-II compliant diesel situation, a meeting between the environment ministry officials and representatives of Pakistan Automotive Manufacturers Association (PAMA), Oil Companies Advisory Committee (OCAC), petroleum ministry officials and Pakistan Environmental Protection Agency (PEPA) was held last month.

The petroleum ministry officials informed the meeting that huge resources are required by refineries to de-sulpharise fuels, and local refineries have to chalk out a $700 million programme to improve their production and reduce sulphur content to 0.5 per cent.

The official mentioned that Pak-Arab Refinery Limited (Parco) would bring low sulphur fuel by June 2010 while other refineries would be in a position to provide it by 2011.

However, the official expected a rise in the price of diesel by Rs2 to 4 per litre if low sulphur diesel is produced, and proposed that this cost impact should be absorbed by refineries.

The PAMA representative stated that they had agreed with the time schedule. All imported petrol driven vehicles would comply with Euro-II standards from July 1, 2009, and all new models, locally manufactured gasoline vehicles would comply with Euro-II standards within a maximum period of three years. However, the representative indicated that a lead time of 18 months would be required by them after availability of low sulphur fuel to adopt Euro-II standards for diesel vehicles.

PAMA in a letter to Federal Commerce Minister Chaudhry Ahmed Mukhtar on July 22, 2008, stated that local bus and truck industry appears very disturbed after the announcement in Trade Policy 2008-2009.

The association recalled that the local industry had met a heavy setback by a similar policy of the previous government in 2005 to 2007 when taking advantage of relaxation provided in the gift, personal baggage and transfer of residence scheme, some 11,261 used trucks were imported against 7,432 trucks produced locally.

Similarly, 1,227 used buses were imported against the total of 1,563 buses produced locally during 20 months (from July 2005 to March 2007).

However, during the last one-and-a-half years, the local industry performed well after withdrawal of relaxation in import of used trucks and buses.

PAMA stated that one of the local assemblers of buses had introduced a CNG bus after making heavy investment and was looking for some support.

The local manufacturers are already facing problems of smuggling and influx of used trucks and buses, prime movers and dumpers under various garbs.

The relaxation in trade policy would open a floodgate of imported used vehicles and the country would become a junkyard of old heavy vehicles.

It would go against government’s policy of modernising the trucking industry.

The PAMA urged the commerce minister to withdraw the announcement of relaxation in the age limit of five years in case of used buses because it would hurt the bus industry seriously. Heavy commercial vehicles are not baggage items and they should not be allowed under the baggage scheme. The local industry should be allowed to first meet the local demand of CNG buses and if the government needs investment in this field from India and elsewhere, such an investment should be allowed on a level-playing field.

Indian buses to hurt local industry: Euro-II standards ignored -DAWN - Business; July 26, 2008

 

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India offers diesel pipeline to Pakistan​

NEW DELHI: Indian Punjab is ready to open a diesel pipeline to Pakistan through Bathinda in response to Pakistan’s announcement to import fuel from India. “An oil refinery is being set up in Bathinda. Punjab is prepared to connect the refinery with Pakistan through a pipeline for the supply of diesel,” Indian Punjab Chief Secretary Ramesh Inder Singh told visiting Pakistani journalists in Chandigarh on Friday.

According to sources, the chief secretary said, “Opening the land route will enable the two neighbours to become economically stronger.” He said Indian Punjab was ready to trade different commodities with Pakistan, adding that a nodal officer had also been appointed to promote trade. He said other items, including tea, dry fruit and cement were also being traded between the two countries, adding, “Cement is cheaper by around Rs 45 per bag in Pakistan as compared to India.” He said India could export oranges, maize, guava, mangoes and litchis, and asked the government to increase the number of commodities in the trading list between India and Pakistan.

http://www.defence.pk/forums/strate.../13001-eu-s-interest-pakistan.html#post177720

 

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US Congress closer to approving additional $75m for Pakistan​

* State Department reiterates Pakistan’s status as ‘key ally’ of US
* US administration moves to allocate $226-227m to upgrade Pakistan’s fleet of F-16 jets​

WASHINGTON: As Prime Minister Yousuf Raza Gilani prepared to embark on his first trip to Washington, the Bush administration hailed Pakistan as a key ally while a powerful Congressional committee moved closer to approving another $75 million for its anti-terrorism efforts along the Afghan border.

Ahead of the visit -- the first by the elected leader since parliamentary elections early this year -- there have been strong expressions of support for Pakistan’s democratic government and sustained economic development of its people by both the US administration and Congress.

The $75 million in the pending 2009 Defence Department budget is set aside to help bolster the Pakistan Frontier Corp in its efforts to confront terrorism challenges along the Afghan border through a combination of economic, political and security measures.

The House Armed Services Committee has authorised the funding, and it now awaits approval from the House Appropriations Committee. Gilani is due to meet President George W Bush at the White House, Vice President Dick Cheney and top Congressional leaders during the three-day visit.

Key ally: At the State Department, a spokesman said: “Pakistan is a key partner in the war on terror. It plays a critical role in our long-term efforts to build a stable and prosperous South Asia.” In a sign of support for Islamabad’s security requirements, the US administration has also moved to allocate funds -- about $226 million -- to upgrade its existing fleet of F-16 jets.

Gonzalo Gallegos, acting State Department deputy spokesman, called the F-16 programme, “a tangible symbol of the US-Pakistan relationship”.

Pakistan is currently undergoing economic turmoil, including rising food and fuel prices, and this is a daunting challenge to the new civilian government, he said, strongly defending the administration’s move to shift anti-terrorism funds to upgrade the fighter planes, which are also used in counter-terrorism efforts.

Upgrades: “This $226-227 million funds is -- was already allocated for other updates on different airframes in Pakistan -- the bottom line here is that we’ve shifted money to help the democratically elected Government of Pakistan to fight a common foe, a common enemy that we have. We believe that these upgrades that had already been approved will help the Pakistanis help us fight this common foe, and that we believe that this is a positive way to help a friend.”

Meanwhile, top Congressional leaders will meet Gilani on Capitol Hill, where they will reaffirm their support for democracy and long-term relationship with the Pakistani people. A key lawmaker said on Friday that the Congressional leaders looked forward to meeting the Pakistani prime minister and cited two recently introduced measures -- the Biden-Lugar legislation and the Reconstruction Opportunity Zones initiative -- as reflecting lawmakers’ support for democratic and economic development of the country.

Pakistan’s Ambassador to the United States Husain Haqqani has been meeting a number of senior administration officials and Congressional leaders to muster up support for the country ahead of the visit. app

Daily Times - Leading News Resource of Pakistan

 

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SBP may effect 50-100 basis points rise in policy rate: Merrill Lynch​

KARACHI (July 26 2008): The State Bank of Pakistan is likely to continue its previous stance of monetary tightening by increasing policy rate by 50-100 basis points, to curb inflation and liquidity for next six months, said Muzamil Aslam an economist at Merrill Lynch.

The State Bank has adopted tight monetary policy since July 2006 aimed at controlling liquidity and rising inflation, besides widening external account deficit.

He said that Pakistan's recent measures including domestic oil price rationing by 60-75 percent, monetary tightening discount rate (DR) by 1.5 basis points, Cash Reserve Requirement (CRR) by 1 percent, and Statutory Liquidity Requirement (SLR) by 1 percent, besides exchange rate deprecation by 17 percent, has put it at the top of the list among Asian peers on the tightening front.

However, economists believe inflation has not peaked yet, and will remain in the 20 percent range until December 2008. "At the July 29 monetary policy review, we are not ruling out either a 50-100 basis points hike in the policy rate or a 1 percent hike in the SLR, to counter a potentially pronounced second round of inflation," said Muzamil Aslam in "Monetary Policy Expectations" report issued by Merrill Lynch.

He said that a hike in the policy rate would help SBP keep real lending rates in the positive zone, in turn, offloading the stock of T-Bills. While, higher lending rates also reduce overall aggregate demand pressures, and hence, the external deficit. Therefore, we are not ruling out a 50-100bp hike in discount rate, Muzamil said.

In addition, higher lending rates have prompted a net retirement of loans since July 1, 2008, which brings the net advance-to-deposit ratio to 70 percent from 71.2 percent on June 30, 2008. Due to the current update it expected that SBP could go for another SLR hike, which would help drain excessive liquidity from the market and offload the T-Bills stock from SBP's book, he added.

However, he ruled out further hike in the CRR rate and said that huge Net Foreign Assets (NFA) outflows should keep liquidity in check, therefore no change is expected in CRR.

Aslam said: "We have asked 10 commercial banks and eight fund managers to list their expectations from the upcoming monetary policy and almost all bank treasuries see 1-1.5 percent hike in policy rate, while 60 percent expect a 1 percent hike in the CRR, and 50 percent see a 1 percent hike in the SLR."

Similarly, 50 percent of fund managers expect a 50bps-100bps policy rate hike, the other half does not see changes to the overall policy stance. Overall, the market has priced in 50bps-100bps hike in the DR. Hence, a hike to that extent would not be a surprise.

"We expect inflation to reduce only from forth quarter of fiscal year 2009 due to a high-base effect, as the recent oil price pass-through and second round impact have just begun to appear in headline inflation," Aslam said.

At present, investments in short-term papers (three- and six-month) are being recommended and wait for domestic inflation confirmation and announcement of the next monetary policy.

He said if oil prices remain range-bound at US $120-140/bbl over the next six months, we expect inflation to begin to ease-off from February 2009. Pakistan's long-term GDP growth trend is close to 5.0 percent, but the average GDP growth for the past five years is 7.0 percent, against 5.8 percent in FY08. Given the 5.5 percent GDP over 17 percent inflation is expected in FY09.

Business Recorder [Pakistan's First Financial Daily]

 

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Broad money registered 15 percent growth in 2007-08​

KARACHI (July 26 2008): The broad money (M2) registered a growth of 15.35 percent in last fiscal year (2007-08) mainly due to government's massive reliance on borrowing for budgetary support and increase in credit to private sector. Analysts said that increasing government budgetary borrowing was the major component in the last fiscal growth of M2, while an increase in credit to private sector was the second chief reason of over 15 percent growth.

The growth in last fiscal year was less than the growth of 19.32 percent in fiscal year 2006-07 due to tight monetary policy measures by the State Bank during last two years. Reserve money (RM) registered a growth of 21.56 percent in 2007-08 as compared to 20.88 percent in 2006-07. However, they said that the declined in the Net Foreign Assets (NFA) played a vital role in curbing further increase in the M2 growth during last fiscal year.

During 2008, overall net NFA witnessed a record declined of Rs 316.378 billion to Rs 668.514 billion as against a surge of Rs 274.551 billion to Rs 984.892 billion in fiscal year 2007.

Central bank statistics depicted that overall government sector borrowing for budgetary support from banking sector had gone up by 63 percent during fiscal year 2008 due to the massive borrowing from scheduled banks as well as from the central bank.

After the current upsurge, overall stocks of borrowing reached Rs 1.51 trillion mark on June 30, 2008, which previously stood at Rs 926.53 billion on June 30, 2007, depicting an increase of Rs 583.564 billion in 2008. Out of net borrowing, overall budgetary borrowing surged by Rs 554.564 billion to Rs 1.364 trillion.

The budgetary borrowing from central bank witnessed a prominent share in the overall budgetary borrowing, which stood at Rs 688.724 billion in fiscal year 2008, while during the fiscal year 2007 government had retired some Rs 58.575 billion. With an upsurge of Rs 688 billion overall budgetary borrowing stocks of SBP has crossed one trillion mark and reached new peak level of Rs 1.033 trillion on June 30, 2008 from Rs 344.991 billion on June 30, 2007.

On the other side the scheduled banks stocks of budgetary borrowing has declined by Rs 134.160 billion to Rs 330.901 billion in 2008 against the borrowing of Rs 160.590 billion in 2007. The credit to private sector has grow by Rs 16 percent or Rs 408.427 billion in 2008 to Rs 2.888 trillion as against an increase of Rs 365.718 billion in 2007.

"The State Bank of Pakistan continually pressurised the government for retirement and less borrowing from central bank. However, it was compelled to resort to massive borrowing from central bank on the back of slow foreign inflows," analysts said. The central bank statistics for 2008 depict that despite SBP advice the federal government continuously borrowed huge amounts to meet financial crunch.

To minimise government borrowing the SBP also used its toll by raising the discount rate. However, government borrowing is still on the rise, they added. They said that real economic costs of central bank borrowings cause enormous inflationary pressures, which is at present above 20 percent from last few months and it is expected that rising budgetary borrowing would further increase the inflationary pressure on the economy.

Similarly, the government has borrowed some Rs 28.652 billion for commodity operation and with current increased it has mounted to new peak level of Rs 127.204 billion by the end of June 28, 2008.

Business Recorder [Pakistan's First Financial Daily]

 

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Pak-Iran trade up at $125 million in three months​

KARACHI (July 26 2008): Pakistan-Iran bilateral trade has increased to $125 million in the first three months of current fiscal year after the launching of preferential trade agreement (PTA) between the two countries. This was stated by Commercial Attache at the Consulate-General of Iran, Ahmad Fasihi, while talking to APP at Iranian Pavilion at the ongoing Second ECO Trade Fair 2008.

He said Pakistan's exports to Iran were estimated at $66 million while its imports from Iran were $59 million. "Total trade volume will increase to $1 billion this year from last year's $420 million after the signing of PTA between the two brotherly countries", he hoped.

He pointed out that both countries have reduced customs duty to 20 percent on 648 tradable items which are included in the list under PTA. Pakistan has reduced customs duty on 338 items to 20 percent while Iran has slashed customs duty to 20 percent on 309 Pakistani items.

This has encouraged the businessmen of both sides to promote bilateral trade, he noted. Fasihi said Export Promotion Bank of Iran will open its branch in Karachi in the next few months to facilitate opening of letter of credit (L/C).

He said that currently, an eight-member delegation of Iran Chamber of Commerce is visiting Pakistan to participate in the Second ECO Trade Fair. The delegation will hold meetings with chambers of commerce and leading businessmen in Karachi to explore avenues to boost bilateral trade. These efforts will help in increasing the number of items in the bilateral trade, he opined.

Business Recorder [Pakistan's First Financial Daily]

 

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Rs 51 billion Kachi Canal to bring green revolution in Balochistan​

ISLAMABAD (July 26 2008): Kachi canal being built at a cost of Rs 51 billion would bring green revolution in Balochistan as it is set to irrigate 713000 acres of barren land in the province, Secretary Agriculture Balochistan Qayyum Nazar Changezi said Friday.

Talking to state-run TV channel he said initial cost of Kachi canal was Rs 31 billion. The gigantic project has the capacity to further irrigate 800000 acres barren land of four districts including 102000 acres land in Dera Bugti besides irrigating barren land of Naseerabad, Jhal Magsi and Bolan districts. The canal would increase the capacity of canal system of the province threefold. Presently around 400000 acres land was being irrigated through canal system.

Business Recorder [Pakistan's First Financial Daily]