Pakistan Economy - News & Updates - Archive

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ADB to provide $150 million for augmenting rural economy, water resources​

FAISALABAD (July 27 2008): Asian Development Bank will provide $150 million for Sindh Growth and Rural Revitalisation Programme (formerly Sindh Resource Management Programme) to promote private sector participation; improve public expenditure management and revitalise the rural economy.

According to an update project report, which was prepare by Xiaoqin Fan, Senior Public Sector Management Specialist Pakistan Resident Mission of ADB, about 50 percent of Sindh population resides in rural areas, and about 40 percent, or 7 million people live below the official poverty line. More than 70 percent of the rural population derive their livelihood from agriculture.

Agriculture (including livestock, fisheries, and forestry) contributes about 30 percent to provincial GDP. However, over the 1998/99 to 2004/05 period, the trend growth rate of real agricultural value-added was only 2.3 percent per year, and only 0.2 percent per year in per capita terms. In Sindh, the landless ratio is the highest (62 percent) among the four provinces, making non-farm income important for income generation.

The slow growth of the rural economy has led to a large and widening income gap between urban and rural Sindh. The rural urban divide is a serious concern not only for the welfare of the rural population, but also because it is potentially destabilising. Thus accelerating rural growth, and improving the income level of the rural poor, is urgently needed, Xiaoqin Fan added.

According to ADB project document, the some major factors were taken into account in determining the size of the loan: (i) the strength of the Program and its development impact, (ii) the financial, economic, and political costs associated with the implementation of the Program, and (iii) the overall development financing needs estimated by the Finance Department of the GoS.

The primary driver in the Government's decision to seek the ADB's policy reform and financing support is to reduce rural-urban inequality and enhance the pace of growth, particularly in the rural areas through a set of targeted reforms and increased investment.

The enhanced flow of funds to rural areas will enhance the productivity of agriculture, livestock, fisheries, rural infrastructure, rural health and education, and will be evidenced through their budgetary allocations.

Additional supportive measures to be undertaken include the creation of mechanisms to bridge the viability gaps in critical areas to encourage private sector participation in infrastructure service delivery in a transparent manner.

Meanwhile, ADB will provide $0.8 million for Sindh Province Water Resource Development (formerly Provincial Water Sector Development Strategies & Investment Plan).

Arnaud M Cauchois, Rural Development Specialist, CWAE explained that the project is envisaged to produce an ADB-financed investment program under the Multitranche Financing Facility (MFF) modality with a focus on water resources infrastructure, institutional strengthening and capacity development. It is anticipated that this project will improve the availability and productivity of water resources in Pakistan in 7 months.

Improved availability and productivity of water resources with an emphasis on irrigation infrastructure and water management. According to ADB project report, Investment program for water resources improved management and development in Sindh province to be financed under an ADB Multitranche Financing Facility.

Sector policy framework, a sector road map and a medium term investment program to guide ADB sector engagement consistent with MFF requirements. Criteria for selecting program projects. Feasibility level preparation of all canal command upgrading and rehabilitation project(s) to be financed under the MFF first tranche.

Detailed implementation arrangements and implementation plan. An assessment of small to medium dam technical and economic feasibility in Sindh province and recommendation for sub-sector strategy improvement and for financing under the second tranche investment programme.

Preparation of a program management facility (PMF) to support the MFF programme. Due diligence for financial management, procurement, and safeguards according to The ADB guidelines, including as required a resettlement framework and draft resettlement plans, environmental review procedures framework, initial environmental examinations and/or environmental impact assessments and indigenous peoples plans.

Business Recorder [Pakistan's First Financial Daily]

 

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'Green and skilled Kashmir': AJK government to implement plan rapidly​

MIRPUR (July 27 2008): The AJK government's vision of "Green and Skilled Kashmir," primarily aimed at converting AJK into a model welfare state, is being implemented under a broad-based phased development programme across Azad Jammu and Kashmir, official sources said.

The sources told APP here on Saturday that the mass development programme will prove to be a milestone in redirecting the economy of the liberated territory with special focus to provide employment to the youth and to reform their economic future.

"Provision of technical training at least to two persons in every home in Azad Jammu and Kashmir forms the central part of this programme," the sources said. They said that the programme will not only help emerge and strengthen better home economy but would also involve the implementation of various mega projects. These giant public welfare projects will usher in the regime of welfare to fulfil my dream of an AJK as true welfare State.

The sources said that the government has paid special attention for the implementation of massive construction works in the earthquake zones of Azad Jammu and Kashmir with special focus to generate opportunities of employment for the youth.

The plan, the sources said, will increase economic graph of the citizens. They said that the AJK government had entered a phase from where societies take big take-off for economic fortune making.

Referring to the ideological priorities of the AJK government, the sources revealed that the government has fixed the priorities to promote the historic consciousness to link up the youth with the ideological assets and to fortify further State's relations with Pakistan.

The AJK government has also decided to promote working liaison with the Federal and Provincial governments and the authorities concerned for the settlement of the Mangla Dam affectees besides to promote co-ordination and consultation with the Kashmiri Diaspora, the sources said.

Business Recorder [Pakistan's First Financial Daily]

 

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PIP publishes 'Pakistan Energy Outlook'​

KARACHI (July 28 2008): Petroleum Institute of Pakistan (PIP) has recently published 'Pakistan Energy Outlook (2007-08 to 2021-22)', an exhaustive and informative document which is the outcome of diligent endeavors by a team of industry professionals. This authentic guide addresses the growing demands of energy for sustainable development.

It highlights the current energy scenario and specifies guidelines for the future through giving the energy demand forecast for the next 15 years.

Pakistan's total energy consumption in 2006-07 was 60.2 million tons oil equivalent (mn TOE) and is expected to grow between 4.4 and 6.1 per cent per annum to reach in the range of 115 to 148 mn TOE by 202 1-22.

Pakistan faces a huge and growing energy deficit during this 15-year period, primarily because of the declining local natural gas reserves, which currently accounts for 49 per cent of the total consumption. This yawning gap between demand and supply may partly be offset by the planned hydel, coal and nuclear projects.

The Energy Outlook suggests gas imports through cross-border pipelines and in the form of LNG. To meet the coming challenges, prudent and stringent energy conservation measures are also recommended along with sustainable development of domestic energy resources including increased onshore/offshore oil & gas production and development of the Thar coal reserves.

Petroleum Institute of Pakistan (PIP) represents all segments of the petroleum industry of the country ie exploration & production, refining, marketing, pipeline and natural gas. It aims to assist and guide organisations and individuals associated with the industry.

To achieve this objective it carries out various activities to build a professional & informed group that enhances the quality of service, encourages high ethical standards and undertakes studies of policy and regulatory issues affecting the development of the petroleum industry in Pakistan.-PR

Business Recorder [Pakistan's First Financial Daily]

 

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Provincial inputs for setting energy prices: possible or not?​

EDITORIAL (July 28 2008): It has been reported in a section of the Press that the provincial governments have protested against the federal government's decision to pass on the impact of rising international fuel prices on a monthly basis instead of the existing biannual system of automatic fuel adjustment mechanism.

The reason behind the federal government's decision to amend the system from biannual to monthly reassessment is evident: if the past year is anything to go in terms of the rise in the international price of oil a biannual system of adjustment may consist of a massive overnight rise every six months, a rise not acceptable to the public and therefore fraught with high political costs. However, a monthly rise would, by definition, be smaller and, therefore, politically more acceptable.

The shift from biannual to monthly was proposed by the present government at a time when the international price of oil rose unabated form almost a year. Any price reversal, and data reveals that the oil price has been declining in the global market for the second week running, would, one hopes, also translate into a lower price adjustment eventually.

The word 'eventually' is critical for those who may argue that the decline in global oil prices must raise the possibility of a decline in the price charged to Pakistani consumers next month for according to Naveed Qamar, the Finance Minister, the government continues to pay about one billion rupees a day as subsidy. Given the weak macroeconomic fundamentals till such a time as total subsidy to this sector reaches zero it is unlikely that the federal government would be able to match the oil price decline in fixing the domestic price.

And yet there is a strong rationale behind the provinces' demand to the federal government to consult them on the price of electricity: as energy is forming an ever rising component of the monthly budget of the people of the provinces - a factor that would have political implications for the provincial governments - therefore they argue it is critical for the federal government to take them on board.

The amount of subsidy affordable by the federal government on energy must determine how much price to charge the consumer for energy. If the element of subsidy was not a factor, then the mechanism for setting price of electricity is fairly simple. The regulator is requested by the power producers to raise tariffs in line with increasing input costs. The regulator holds a public hearing and based on the data available recommends a price.

This recommendation is then passed onto the government which determines the political cost of the price rise without subsidy; which assists the government in setting the subsidy levels. Unless the provincial government is prepared to pay part of the subsidy it is not logical to allow the provincial governments a role in decision making.

The foregoing does not imply that the input of the provinces must not be taken on board, an input that can also provide a forum for the federal government to insist that the various departments of the provincial governments pay up their dues to Wapda. The reduction of the circular debt as it has come to be known would reduce the pressure on Wapda's resources which can then be diverted to more development projects.

Provincial-federal parleys on the subject of electricity price can also be useful in terms of rewarding those provinces where the transmission and distribution costs (that include electricity theft) are lower than in other areas. In today's world where performance based allocations are critical to increasing accountability this in-built element of an incentive to cut our significant energy losses would assist in increasing supply from the existing generating capacity.

Business Recorder [Pakistan's First Financial Daily]

 

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Annual trade policy: a relic of the past​

Do we need an annual trade policy any longer? Many businessmen and academics don’t really see any sense in it. They argue that the government should rather spell out its long-term trade, industrial and investment vision, identifying trade opportunities in various sectors for a period of at least five years.

It should give a clear roadmap as to how it plans to secure greater market access, attract domestic and foreign investment in industries it wishes to encourage, lower cost of industry and exporters and improve their capacity to compete in the global markets.

“Trade policy is a relic of the past. Apart from Pakistan and a few other states, I’m not familiar with many countries that issue any annual trade policy,” says development economist Navaid Hamid, who teaches at the Lahore School of Economics.

“It doesn’t really make sense to have an annual trade policy. It was required when we (and other countries) could use high customs tariffs and duties as our main trade promotion tool as well as a major source of government revenues. Annual trade policy made a sense in those times, not now,” he maintains.

“Now you can make strategic changes whenever you want to. You don’t need a trade policy for that. Having trade policy as annual feature means we are offering bureaucracy an opportunity to favour some and discourage others. It creates more confusion. We need a more transparent and honest process for encouraging (international) trade and look at long-term economic and trade growth,” Navaid insists.

Leading businessman Akber Sheikh too wants the government to do away with trade policy as an annual feature. “It was okay to have annual trade policy when the economy was mostly controlled by the state. Now we don’t really want it because the nature of business has changed altogether and we have moved rapidly towards privatisation and a free market regime under the World Trade Organisation (WTO). Successive governments have pursued the same economic, industrial and trade policies over the last several years. We therefore don’t really need trade policy every year. We should have a long-term policy detailing a vision and roadmap for enhancing our capacity to participate in the international trade,” he says.

He says most changes in the trade regime – like liberalisation of import with India as announced in the latest trade policy – could actually be effected through SROs and did not require a lengthy trade policy. “This is not my opinion alone. Most businessmen think in these terms. Also we attach too much hopes on trade policy and when we don’t see any of those fulfilled we get disappointed,” Akber says.

Years back former Commerce Minister Razzak Dawood had also stated that many people don’t look at the annual trade policy favourably and want the government to discontinue this practice.

“What is the use of a long speech by the minister and piles of papers if the so-called policy does not to contain anything substantial?” wonders former Lahore Chamber of Commerce & Industry (LCCI) president Pervez Hanif. “The previous government made a number of promises and announced numerous initiatives – such as establishment of garment cities, industrial clusters, branding and marketing of Pakistani products, helping exporters open up offices in major markets – to boost exports from Pakistan. None of these promises were fulfilled nor any initiatives have materialised so far,” he laments. “Same goes for the incumbent government,” he says.

He maintains that no government has ever consulted private sector or exporters before formulating a trade policy. “It is a document prepared by the ‘babus’ of the commerce ministry without any input from the stakeholders,” he says.

“We just don’t have any permanent mechanism for ensuring regular dialogue between the government – which is essential for policy predictability – and the private sector. It is because of this gap that no trade policy has ever been able to lay out a long-term vision or roadmap or any initiatives ever implemented or materialised. At the end of each year, we find only parts of the policy executed. Therefore we have new initiatives and promises at the start of every year without any link to the past,” Pervez says.

The weak dialogue between the business community and the government means Pakistan continues to lag in export and market diversification.

The first trade policy of the incumbent coalition led by the Pakistan People’s Party (PPP) for the year 2008-09 is also being seen and judged in this context – lacking in long-term vision, clear-cut roadmap for product and market diversification and a consultative process with the stakeholders.

The focus of the new trade policy – which sets export target of $22.1 billion for the current fiscal, up by 15 per cent from what was achieved last year – seems to be helping the industry, particularly export-oriented sectors cut their production costs through cheaper imports of industrial and other raw materials and capital goods from India and widening the scope of the DTRE and Temporary Importation schemes for duty- free import of materials for exports.

Besides liberalisation of imports from India and encouragement of Indian investment in CNG bus making, it gives certain fiscal, tax and other incentives to the domestic pharmaceutical industry to boost its exports and attract fresh investment in this sector, increases export rebate by one per cent for 14 small and medium industrial sectors like surgical instruments, carpets, fans, furniture, auto parts, cutlery, sports goods, etc and establish industrial clusters in various cities in Punjab, Sindh and the NWFP.

It promises to zero rate exports by refunding indirect taxes on input costs of exporters and subsidised loans for meeting international environmental standards. Other salient features of the policy include upgrading horticulture as an industry and announcement to support setting up of cool chain for facilitating horticulture exports, incentives for rice export.

“There is no vision of future in the trade policy of the PPP. The measures announced in it – like an increase in rebate for some industries, liberalisation of import from India, developing clusters, etc – are not really the material that make up a vision, a policy,” former caretaker finance minister Salman Shah argues.

“The policy should have given the roadmap to increase exports to a certain level over a period of, say, five years, and decrease imports to narrow the trade deficit, which has grown to $21.5 billion last year. Also, we don’t find any mention of the measures that would be taken to boost exports and in which sectors. The government has liberalised imports from India, which is a positive step, but it has not said a word if and how it plans to boost exports to the large Indian market. It says nothing on how do we intend to take advantage of our Free Trade Agreement with China. I seen nothing substantive or exciting in the trade policy,” Salman says.

A Sialkot-based exporter, who does not want to be identified, says the new trade policy has borrowed most of its content as such from the previous government’s trade policies without adding its own input to it. “There is nothing new in it. All the measures are actually continuation of the previous policies except for liberalisation of imports from India, which is a good sign for peace and development in the region,” he says.

LCCI president Mohammad Ali Mian says policy lacks concrete measures for curtailing imports.

“It is a traditional, run-of-the-mill policy. It lacks cohesion with the overall economic objectives as laid down in the budget speech. No major steps have been announced to control the rising cost of doing business. It reflects the gap between the government and business and trade bodies.”

He insists that the government should have given a package for major export industry – textiles and clothing, which still forms 57 per cent of the total exports – to lower its cost of doing business. “It would have been much better if the government had announced certain concrete measures to boost investment, which is direly needed to boost industry and exports.”

Former Pakistan Readymade Garments Manufacturers & Exporters Association chairman Ijaz Khokhar is dismayed at the absence of any clear-cut roadmap for boosting textile and clothing and other exports.

Annual trade policy: a relic of the past -DAWN - Business; July 28, 2008

 

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The ‘what and how’ of agriculture?​

THERE was not a single cabinet meeting where I was not told what should be done and what was required to be done. The ‘what’ part is easy. My answer was always a counter question: ‘How is it to be done’? It is the manner of doing that is necessary for a positive outcome.

The fallacy about agriculture is that action can be taken quickly and that the problem can be solved at the macro level. Pakistan is precisely going through that kind of malaise at this juncture; a lot of activity but nothing concrete on the ground.

If everything were centralized, the current kind of malaise would come through. And what is required are decision makers and not lobbyists or apologists.

Agriculture as it stands now cannot and will not deliver. The interventions appear simple but become complex when taken to the ground level. The plethora of institutions involved is a source of delay. The critical element is momentum in implementation at the grass-root level when a problem comes up, some one has to take a decision that is in the best interest of agriculture.

The second fallacy is that Pakistan has agriculture scientists and that may not be true. A Ph D degree does not necessarily mean that you have scientists on board. The position is that Pakistan only takes genetic material from the international research centres, puts them in the national yield trials and then picks out the best material that has been tested all over the country.

Wheat and maize research institute in Mexico CIMMYT provides wheat and maize genetic material and IRRI in Manila provides the basis for rice production systems. This then is the story of our scientists. They are at the best the doers of other people’s research activity.

The third fallacy is that science alone plays a part. That may not be so for science has to be somehow coupled with art if the intervention has to go off the ground. I know of scores of people who have gone through 30 years of life in the civil services doing nothing but counting who did what wrong in public life. That is why Islamabad is known as ‘Ilzamabad’.

Let me give you some examples of what I mean when I say that any one who determines a new intervention can be scientist irrespective of whether he is a Ph D or not. In rice, the intervention by a priest in Mozambique has given a new twist to rice production in which 50 per cent water is saved and productivity doubled. None of our rice scientists were able to devise what this priest has done. In fact the entire intervention can now be changed in virtually every crop through the process of not accepting the present status quo and believing that a new world awaits agriculture.

Fertiliser that is going to be very expensive, also has a relatively much cheaper substitute. This would have been a roaring success but for the fact that in the very first meeting with regard to this process, the matter was put to rest by the intrigue of the relatives of one of our leading lawyers. That lawyer seemed to have a clout with the President. The disadvantage was converted in to an opportunity. Organic fertiliser would have been available at Rs250 per bag of 50 kg as against the current DAP price of Rs3,200 per bag of 50 kg.

The wisdom of the West can be put to rest that if you use organic fertilizer, the country would be in ruins and famine conditions would emerge. Nothing of this kind happens. For the first year, there will be a slight dip of between five and 10 per cent but the long-term advantages are many. Agriculture by this method is sustainable. We keep on hearing of alkaline soils but does one understand that this is due to DAP and the alkaline nature of the chemical fertilisers.

In the process of providing short-term benefits, the long-term equation is lost. Phosphate and nitrogenous fertilisers can be obtained naturally through the trees that fix these fertilisers in the soil. Some of these trees are indigenous to Pakistan while others are from Africa. The substitutes are available at virtually no cost. All required are organisational ability and, of course, the ability to fight the MNCs.

The moot question is why should other countries help you? Why should they not exploit Pakistan? That is exactly what they have done. The foreign hold on our assets is worse than the physical imperialism of yester years.

The courage to take actions lies with local workers and the liability for persuasion with the local administrator. I was a young civil servant when chemical fertiliser came into existence. The fertiliser was pushed for sale at the exorbitant price of Rs6 per bag. What the World Bank did to ensure that this would be a permanent feature was they asked that institutional arrangements be made for the permanency of the intervention.

So out came the fertiliser import department. Then to correct soils, the soil testing labs were introduced. Then these were taken to tehsil levels and then came the remedial measures that were themselves of a nature that did not enforce confidence.

What then is the solution? It lies with the persons who perceive matters in totality and then take stock as to how the intervention has to come about.

When this substitution in fertiliser takes place, new compulsions will arise. Where will they be able to sell their commodities for markets are few and far between? So one thing will snow ball into another and that is not a bad idea for this nation needs to get off its haunches. There is a certain relish in being independent and taking risky chances? Do it.

The ‘what and how’ of agriculture? -DAWN - Business; July 28, 2008

 

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Privatisation of strategic assets​

The Federal Minister for Privatisation and Investment, Syed Naveed Qamar, announced on June 6 the re-prioritised privatisation programme 2008-09.

The list of State Owned Enterprises (SOEs) includes prime engineering units such as Heavy Electrical Com-plex (HEC) at Hattar and Pakistan Machine Tool Factory (PMTF) at Karachi.

Earlier, the minister had assured that stakeholders including the employees would be taken on board before finalising the on-going privatisation process to make it pro-worker and pro-people. The SOEs on privatisation list, as already approved, are to be reviewed accordingly. This has not been done in real earnest. Engineering units like Pakistan Steel, Heavy Mechanical Complex (HMC), HEC and PMTF are of national strategic importance and should not be sold to the private sector.

PPP Co-Chairman Asif Ali Zardari had reportedly directed the Privatisation Commission (PC) in May, to drop strategic units from the sell-off programme. These are Pakistan Steel Mills, Pakistan State Oil (PSO), Oil and Gas Development Co (OGDC), Pakistan Petroleum Limited (PPL), Sui Southern Gas Co (SSGC) and Sui Northern Gas Pipelines Ltd (SNGPL). The PC has done this. On the same principle, the remaining units of strategic importance, namely HEC, PMTF and PECO, which all are at present managed by the State Engineering Corporation, should be taken off the privatisation list.

The previous government had de-listed Karachi Shipyard & Engineering Works (KSEW) and Heavy Mechanical Complex (HMC), the two heavy engineering units, from privatisation programme. Both the companies are profitable and viable.

The private sector has been allowed to invest, rather in a big way, in power generation sub-sector, while strengthening and development of transmission and distribution (T&D) sub-sector remains the sole responsibility of public sector. Plans are being implemented to almost double the present installed power generation capacity by the year 2015. To connect additional generation capacity a number of 500 kV and 220 kV transmission lines are planned for construction countrywide. This will create huge market demand for power transformers that are being produced by HEC. A rough estimate is of 580 . transformers required during next five years, costing about Rs15 billion.

HEC has an annual installed capacity of producing 148 power transformers of a wide range. It is a single-product single-customer manufacturing facility and as such not very attractive for the private sector in following the present production programme that has long payback period too.

The divestment of the Complex therefore may weaken the base created for high voltage electrical equipment, and, in such case, the government has to resort to import of power transformers, draining further on foreign exchange resources. Nonetheless, it is a matter of concern that the PC invited the Expressions of Interest (EOIs) for sale of 90 per cent shares of HEC along with its management in November 2006 but there has been no tangible progress on its transfer of ownership as yet. If the prevalent situation continues for some more time, the Complex could turn into a sick unit.

Similar is the case of PMTF for which the EOIs were invited from the prospective investors by December 26, 2007. The poor response forced the PC to extend last date for receiving the EOIs two times, to January 22, 2008 and then to February 7. It reflects on the lack of will on the part of private sector to continue to run the company operations in future, as required by the PC. PMTF is the only unit of its kind in the country and has contributed largely towards industrialisation. The facility was created for indigenous manufacturing of machine tools, under technical collaboration and technology transfer agreements with the world-reputed machine tool manufacturers. Subse-quently, its design and manufacturing capabilities were upgraded and modernised a number of times.

A well-developed machine-tools sub-sector is essential for reproducing technologies and adoption of advanced manufacturing processes. Unfortunately, the private sector has never come forward to invest in this area in formal sector. On this premise, it is likely that the prospective buyer would only be interested in acquisition of PMTF’s real estate, which is spread over an area of 226 acres in prime location of Landhi, Karachi. The trend was witnessed in the sell-off of other engineering units in the past that ceased operations on take over by the private sector. The company also produces modern defence equipment that could come to a halt in case of its divestment.

During 1992-95 six industrial units of the State Engineering Corporation were sold, at a paltry sum of total Rs140 million. Most of these units have been closed down since change of ownership, resulting in loss of revenue, unemployment and economic regression. Privatisation of these engineering companies was counter-productive. Karachi Pipe Mills, Metropolitan Steel Corporation (MSC) and Quality Steel Works, all located in Karachi, were highly profitable entities, but were privatised since “it’s not government’s business to do business.” On the other hand, assets of Pakistan Switchgear Limited (PSL), Lahore and Textile Machinery Co, Karachi were disposed of for the reason that these companies were incurring losses. All these SOEs were privatised without doing proper homework, and the vested interests played their role in divestment of its valuable assets at throwaway prices. Another unit, Pioneer Steel Mills, was returned to its owner of pre-nationalised days.

Engineering industry is termed as prime mover for the economic growth. To achieve import substitution and export promotion it is essential to strengthen the national engineering industry, which has stagnated over the last many years. This can best be done in public sector, given the conditions.

The writer is former Chairman of State Engineering Corporation of the Ministry of Industries, Production and Special Initiatives.

Privatisation of strategic assets -DAWN - Business; July 28, 2008

 

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Saudi oil facility or grant?​

SAUDI oil on deferred payment — the ‘Saudi Oil Facility’ — is expected to deliver another lifeline to Pakistan currently battling the worst of the budgetary woes.

The past experience shows that this deferred payment facility is assumed to be a “grant” from Saudi Arabia to cash-strapped Pakistan. The common perception is that it may not be different this time also. As reports go, Saudis will soon extend a $5.9 billion oil facility. The modalities are being worked out.

A Western diplomat familiar with Saudi ties to Pakistan was quoted as saying that the Saudis in 1998 began supplying crude oil under a deferred payment facility after Pakistan carried out its maiden nuclear tests and came under international economic sanctions.

“After three years of deferred payments arrangements, the Saudis practically “wrote off” the payments. It would be interesting to see if there is going to be a “write-off” in future of the deferred payments now under discussion,” the diplomat was quoted as saying.

The Saudis had extended this facility in the immediate aftermath of the nuclear tests, while the western world had imposed sanctions against Pakistan. Saudi Arabia and other Gulf friends helped Pakistan remain afloat, rescuing it from financial distress. Saudi Arabia extended the facility of deferred payment on its crude sales of 80,000 barrels per day. This facility continued for full two years but was reduced to half the quantity – 40,000bpd – for another year.

Though the payment was technically deferred, Pakistan has practically not paid this amount to Saudi Arabia as yet. Many in Pakistan and in some western capitals felt this may have been converted into a grant. However, some analysts caution against this line of thinking advising that the payments still remain outstanding in books.

The recent past can be a guide to deferred payment. During the almost decade long Iraq–Iran war (1980–88), the Gulf Arab states were siding with the regime in Baghdad under Saddam. In order to help Iraq overcome financial strain of the long war, oil-rich Gulf Arab states provided large assistance in both cash and kind to Iraq.

Once the war came to an end, things started to change somewhat. It was at this juncture that the reality dawned upon Saddam Hussain that the entire sum that was provided during the Iran-Iraq war by its Arab neighbours and which was then perceived as a grant by them was in fact a loan, repayable to the respective donors.

And thus when Kuwait asked the Iraqi government to pay back all that accrued to it, Iraqis simply refused, insisting it was a grant and not a loan. Saudi Arabia attempted reconciliation between the two sides but failed.

And even now, there is a lot US and Iraqi pressure on Saudi Arabia and other Gulf Arab States to write off the debts that were provided to Iraq under Saddam Hussain and which Baghdad had always perceived as grant.

However, the Saudis and other Gulf Arab states still seem reluctant to oblige. They have been weathering that the pressure, refusing to give in.

And it is only in recent weeks that the UAE government finally announced writing off the debts during the Saddam rule. Others are yet to follow.

Some analysts also believe that Opec members are committed to the international community not to provide oil on non-commercial terms. That, perhaps, explains the ambiguity on the deferred payment facility.

While Saudis may not press for repayments for whatever reasons, the deferred payment is no grant. The policy planners in Islamabad need to understand and comprehend fully its consequences too.

Saudi oil facility or grant? -DAWN - Business; July 28, 2008

 

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What is the real per capita income?​

By Aftab Ahmad

As stated in the Pakis-tan Economic Survey, one of the redeeming features in fiscal year 2007-08 when the economy was faced with multiple challenges, was that the per capita income moved up from $926 to $1,085.

A study of the national income accounts, however, shows that the higher inflation rate of 10.3 per cent (as measured by the CPI) had played a significant role in pushing up both the GDP and the per capita income for 2007-08. To work out the per capita income for a particular year, the gross domestic product (GDP) is calculated at current market prices, which includes the element of annual inflation.

As a result high inflation in 2007-08, the GDP calculated at market prices showed an increase of 20 per cent over the previous year, while at constant prices (of 1999-2000), the GDP growth moved up only by 5.8 per cent. Similarly, the per capita income at current prices had gone up by 17.1 per cent to reach $1,085, whereas on the basis of constant prices of 1999-2000, the per capita income increased by only 4.4 per cent.

The per capita income appears impressive largely because of the higher inflation rate during the year 2007-08. Had the inflation rate been moderate, the increase in the per capita income would, also, have been modest, at best.

Second, the net factor income from abroad showed a robust growth in last fiscal. If the net factor income from abroad is positive, it adds to the gross national product (GNP) and vice-versa. The per capita income is arrived at by dividing the GNP over the country’s population. If the net factor income from abroad is positive , the per capita income works out to be higher. It helped in taking the per capita income from $926 in 2006-07 to 1,085 in 2007-08.

The marked increase in the net factor income is attributed to a surge in the income in home remittances which moved up to an all time record of nearly $6.5 billion in last fiscal.

Third, the per capita income had been arrived at by converting the figures in the rupee into the dollar, on the basis of an exchange rate of Rs61.30 to a dollar. The slide in the value of rupee vis-à-vis dollar started only about a couple of months ago and the exchange rate had remained stable during the major part of the year. The average exchange rate for 2007-08 worked out to be considerably better than the present exchange rate of Rs70-71 to a dollar. If the per capita income was calculated on the basis of the current exchange rate of the rupee vis-à-vis dollar, it would be considerably less.

The per capita income of $1,085 thus loses much of its charm, particularly when we know that the increase is largely inflation-related. The government should aim at bringing down the inflation rate by boosting the production/availability of both the agricultural and industrial products. Only a rapid and sustained growth of the commodities sector, whose performance was lacklustre last year, can help lower inflation.

In addition, while the increase in the income from home remittances is most welcome, we should not depend on a source not fully in our control. The government should, therefore, make all possible efforts to boost all other sources of national income.

Besides, the per capita income is calculated in terms of dollar. The World Bank reports the per capita incomes of various countries in its World Development reports in dollars to make them comparable with one another. If the exchange rate is stable, the per capita income keeps growing. However, if the exchange rate depreciates against the dollar, the increase in the GNP may be neutralised due to decline in the value of the national currency. As a result, the per capita income may remain stagnant or it may even show a decline, despite an increase in the GNP. In Pakistan, this has happened many times when the rupee had been on a decline. It would be vital for us to maintain our exchange rate stability.

Ironically, the rupee has depreciated against the dollar by about 15-20 per cent since the beginning of this year, while most of the other world currencies such as the euro, yen, China’s yuan and even the Indian rupee had appreciated considerably in recent months against the dollar, due to the poor health of the US economy. The per capita incomes of all these countries would, therefore, gain from their currency’s strength against the US dollar, while in case of Pakistan, the case would just be the reverse.

Although the per capita income has moved up to$1,085, our indebtedness has also grown alarmingly during the last few years. While the internal debt nearly doubled from Rs1,576 billion in FY 2000 to Rs3,012 billion in FY 2008, the external debts and liabilities had risen in just one year from $40.48 billion in FY 07 to $45.93 billion in FY 08.

What is the real per capita income? -DAWN - Business; July 28, 2008

 

[Neo]

Bush offered $115 mln in food aid to Pakistan​

WASHINGTON (Reuters) - U.S. President George W. Bush offered $115 million over two years in food aid to Pakistan, the White House said on Monday, after he met with Pakistani Prime Minister Yousaf Raza Gilani.

"The president offered $115 million over two years in food aid and $42.5 million of that will be available over the next six to nine months," White House spokeswoman Dana Perino told reporters.

Bush offered $115 mln in food aid to Pakistan - Yahoo! News

 

[ejaz007]

Slow but definite start on tallest building
By Jamil Khan

KARACHI: The City District Government Karachi (CDGK) has started work albeit at a slow pace on what will be the country’s tallest building, the 47-story IT Tower and Call Center. It will be featured near the city government’s headquarters at Civic Center, Gulshan-e-Iqbal.

City Nazim Syed Mustafa Kamal signed an agreement for the construction of the building on February 2008 in Kuala Lumpur but with the slow pace of work it is unlikely that the building will be completed in the stipulated time of two years.

The construction is being carried out by Malaysian firm IM Technologies, Pakistan, a consortium of two foreign firms, IJM Investment JA Ltd and Malpak Ltd. Initially, a MoU (memorandum of understanding) was inked by the city nazim, IM Technologies and an Indian firm, Astra Netcom Ltd on July 18, 2006 but after reservations shown by different quarters, the Indian firm was sidelined from taking part in the 200-million-dollar project.

Officials in the city government’s Works and Services Department told Daily Times that presently, soil testing and excavation work has started and will be completed in the next couple of weeks. “As this structure will be the tallest in the city, lengthy procedures such as soil testing have to be carried out for safety before the project kicks off on a major scale,” he said.

The contractors have erected iron curtains around the 3.05-acre proposed site by hanging huge panaflex posters, depicting the salient features of the project for the people passing by.

Sources in the KBCA confirmed that the requirements of the 47-storey-building are in order and an NOC for its construction has been issued. The city government Project Director, Rauf Akhter Farooqi, told Daily Times that there were no hurdles in the way of the project and all formalities are over and done with.

The tower will be the country’s first “intelligent and environment friendly building”. It will house its own power-generation facility of 18 MW, as well as have its own recyclable water supply. Besides the 10,000-seat call center, this tower will have all commercial facilities, including a shopping center, auditorium, food court, four multiplex cinemas, 260-room luxury hotel, health center, office space and three basement car parks for 2,100 vehicles.

Sources in the Enterprises and Investment Promotion Department told Daily Times that after the completion of this fully commercial building, the city government will have a constant source of a handsome amount of revenue.

“As work on this project has started, different national and multi-national firms have approached the city government to reserve space in the call center,” he said.

Daily Times - Leading News Resource of Pakistan

 

[ejaz007]

Foreign trade up $11.70b
By RAMZAN CHANDIO submitted 9 hours 44 minutes ago

KARACHI - The country’s total foreign trade has reached $59.20 billion in the last financial year 2007-08 over $47.50 billion of corresponding period of the financial year 2006-07. In monetary terms the volume of the foreign trade increased by 11.675b dollars over the fiscal year 2006-07.

The official data of Federal Bureau of Statistics showed that the total exports of the country enlarged to $19.222 billion in outgoing FY08 depicting 13.23 percent growth over $16.976 billion dollars of corresponding fiscal 2006-07.

However, unprecedented increase of 30.87 percent was observed in the imports of the country as total imports amounted to 39.968 billion dollars in FY08 over $30.539 billion dollars of corresponding FY07.

In $39.968 billion dollars imports, the oil imports bill enlarged to $11.380b in last fiscal year 08 over $7.335 billion dollars of corresponding fiscal year 07 which showed 55.14 percent increase against corresponding fiscal.

Out of total $11.380 billion dollars import bill, country spent $6.158 billion dollars on petroleum products while $5.22 billion dollars were spent on the imports of petroleum crude.

Similarly, a huge increase of 53.51 percent has been recorded in the imports of food commodities as food sector’s imports amounted to $4.209 billion dollars in outgoing fiscal year 2007-08 against $2.742 billion dollars of same period of last fiscal 2006-07.

In food group imports, country spent $860 million dollars in last fiscal against $415million dollars of previous FY07 which showed an unprecedented increase of almost 100 percent over corresponding period.

Meanwhile, the import of dry milk and milk food for infants decreased by 11.73 percent as its total import amounted to $74.344 million over $84.223 million of previous fiscal.

While nominal increase of 10.32pc recorded in the machinery group imports as its total imports reached to $7.376 billion in FY08 against $6.686b of corresponding FY07. The analysts said the continuous surge in oil prices in international market have given unprecedented boost to imports in last fiscal. They said that machinery, raw materials and semi-finished items imports have been depicting a substantial growth during the last couple of years which may also continue in next fiscal.

Meanwhile, nominal growth of 13.23 percent observed in the total exports of the country as total exports amounted to $19.222b in last FY08 against $16.976 billion of previous FY07.

Foreign trade up $11.70b | Pakistan | News | Newspaper | Daily | English | Online

 

[ejaz007]

Siemens and Bosicor sign agreement
Source: APP submitted 9 hours 48 minutes ago

KARACHI - The Siemens Pakistan have entered in to an agreement with Bosicor Chemicals Pakistan Limited for the erection, refurbishment and installation of their Chemical Plant (Aromatic).

An announcement here on Monday said that the plant will be relocated from Italy and to be erected adjacent to the existing Bosicor Refinery at Mouza Kund, Hub (Baluchistan).

It said that the Aromatic Plant is expected to come on stream in the first quarter of 2010 producing Benzene, Cyclohexane, Toluene, Mixed Xylenes, MetaXylene, Ortho Xylene and Para-Xylene (BTX). Para-Xylene is a raw material for PTA which at present is being imported

Siemens and Bosicor sign agreement | Pakistan | News | Newspaper | Daily | English | Online

 

[Neo]

Analysts see SBP raising rates by 50-150 bps ​

Tuesday, July 29, 2008

KARACHI: The State Bank of Pakistan is expected to raise its key discount rate on Tuesday in its battle to bring soaring inflation back under control.

A Reuters poll of seven analysts showed a range of expectations for the rate rise lay mainly between 0.5 and 1.0 percentage points. One analyst predicted a hefty 150 basis point move. “Investors are expecting a rise of up to 150 basis points tomorrow in the monetary policy,” said Sajid Bhanji, a dealer at brokers Arif Habib Ltd, as the Karachi Stock Exchange’s main index fell more than 4 per cent in Monday morning trading.

One analyst hedged predictions, by offering an alternative forecast that the central bank would leave the discount rate unchanged and lift the statutory liquidity requirement by 100 basis points instead.

In May, the central bank raised its key discount rate to 12 per cent from 10.5 per cent and increased its cash reserve requirement by 100 basis points to 9 per cent for all deposits up to one year maturity. It also jacked up the statutory liquidity requirement by 100 basis points to 19 per cent of the total time and demand liabilities.

State Bank of Pakistan’s chief spokesman Syed Wasimuddin said the central bank would announce its policy decisions on Tuesday. Analysts said further tightening was necessary given the acceleration in inflation and widening current account and fiscal deficits.

Annual inflation climbed to 21.5 per cent in June, pushed to its highest levels since the 1970s by soaring world prices of crude oil and food commodities. “To prevent the second round of inflation, monetary policy has to be tightened,” said Muzzamil Aslam, economist at KASB Securities Ltd.

The target for inflation in the current fiscal year ending in June 2009 is 12 per cent, which analysts feel will be hard to achieve.“The most likely trigger of better times would be a slowing in inflation but I’m not confident in forecasting a slowdown this year,” said ING economist Tim Condon.

http://www.thenews.com.pk/arc_news.asp?id=3

 

[Neo]

Pakistan emerging market for US direct investment ​

Tuesday, July 29, 2008

LAHORE: Pakistan is an emerging market, rich with exciting opportunities for US direct investment. Commenting on the current visit of Prime Minister Syed Yousuf Raza Gilani to the United States, founder chairman Pak-US Joint Business Council and Vice President SAARC Chamber of Commerce and Industry (SCCI), Pakistan Chapter, Iftikhar Ali Malik on Monday said that Pakistan, with its investment friendly climate, is now open to the American business community.

He said there are significant opportunities for the US and other foreign suppliers to undertake investment in Pakistan. “Pak government will fully ensure sustained and sound economic policies and strict implementation of Intellectual Property Rights,” he said.

He hoped that Pakistan would achieve sustained growth in key sectors, including an increase in per capita income and improvement in its microeconomic indicators. He said Pakistan is ideally located geographically, with immediate access to the Central Asian Republics, and has a competitively affordable and expanding workforce of 36 million.

Malik said that Pakistan’s foreign investment policy is open and liberal, adding that US Pakistan Business Council helps the American corporate sector identify opportunities in Pakistan’s vast resource based industries, such as oil, gas and petrochemicals, a fast growing infrastructure sector, and other industries such as textiles, garments, software and automotive manufacture.

“Pakistan is a country rich in history, culture and natural resources”, he observed, and said he was confident that partnership between the United States and Pakistan, which began over 50 years ago, would reach a high point in the years to come.

Malik further noted that multinational companies and investors are visiting and investing in Pakistan, with several joint ventures and MoUs underway in various sectors, and observed that the balance of trade between USA and Pakistan, which is tilted in favour of USA, should be “more balanced.”

http://www.thenews.com.pk/arc_news.asp?id=3