Pakistan Economy - News & Updates - Archive

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Japan to extend technical help in agriculture sector: envoy​

ISLAMABAD (August 20 2008): Federal Food, Agriculture and Livestock Minister Nazar Muhammad Gondal has said that Pakistan attaches great importance to its relations with Japan, and there is a tremendous potential of increasing co-operation in food, agriculture and livestock sectors between two countries. He stated this while talking to Ambassador of Japan Seiji Kojima, who called on him here in his office in Islamabad.

The minister said that Pakistan is an agricultural country and there is need for increasing technological and research sharing between the two countries in food, agriculture and livestock sectors and Japan can provide assistance to Pakistan in improving seed quality of vegetables, fruits and other crops. "Joint ventures in food processing and agriculture machinery could be started." he added.

Gondal said that Japan should lift ban on fruits and vegetables export from Pakistan, as we are ready to fulfil the standards set by Japan and especially the quality of mangoes are according to the world standards and there is a great trade potential between two countries in this sector.

He said that Pakistan also needs Japanese co-operation and technical assistance in Livestock and fisheries sector, which provides a great share of agriculture in Pakistan and development in this sector can give a great boost to our economy. The minister emphasised the need forincreasing co-operation between two countries in fields of science and technology, education, culture and tourism.

The Japanese envoy said that Pakistan is fast growing economy and the government of Japan would extend its technical and scientific assistance to Pakistan in agriculture sector. "There is a need to exploit the trade potential between the two countries to its fullest" he said. The meeting was also attended by Minfal Secretary Zia-ur-Rehman, and other senior officials.-PR

 

[Neo]

Pakistan does not need IMF support​

EDITORIAL (August 20 2008): Mohsin Khan, International Monetary Fund's (IMF) Director for the Middle East and Central Asia categorically denied that Pakistan had requested any loan from the IMF. He added that Pakistan would not require IMF assistance in the next 10 months, or till the end of the current fiscal year, with two provisos: the government must succeed in slashing expenditure, inclusive of subsidies on oil and products, and accesses other sources of funding to offset falling reserves.

This advice conforms to basic tenets of economic theory: a sustainable budget deficit and adequate foreign exchange reserves are critical to cauterising weak macroeconomic fundamentals, like a falling external rupee value, rising rate of inflation, and promoting investment, both foreign and domestic, in an effort to increase productivity and propel the Gross Domestic Product growth.

The question, however, is whether this is doable. Can the government, for example, slash expenditure and generate other sources of funding to strengthen its reserves position? Slashing expenditure, especially on subsidies, constitutes one of the most unpopular decisions that can be undertaken by an elected government, especially given the inflationary pressures that have forced many of our low income earners to a below subsistence level income. This, in turn, has led to a rise in the number of suicides as well as a rise in the number of parents leaving their children on the doorstep of charities etc.

Be that as it may, the government has reduced subsidies on oil and products and even though there is general anger against the decision of the government to continue to increase the price of oil and products in spite of the rather significant decline in the international price of oil, the fact remains that from the point of view of economic policy focused on reducing inflation this is a bitter pill that the people of this country will have to swallow for some time to come. To neutralise the effect of rising oil prices on the very poor the government has decided to extend subsidies to those living below the subsistence level through the issuance of Benazir cards and food stamps that would provide some support to them in their effort to make ends meet. Targeted subsidies are always to be supported over and above general subsidies like an across the board subsidy on the price of oil.

With respect to Mohsin Khan's statement about the need to access sources of funding that would offset falling foreign exchange reserves, the recent statement by Naveed Qamar, the Finance Minister, is significant. He stated that Pakistan was expecting around 3.5 billion dollars by the end of September out of which one billion dollars would be released by international financial institutions (IFIs), a fact reconfirmed by Mohsin Khan, and the remaining 2.5 billion dollars from remittances.

The State Bank of Pakistan reported that total remittances received (July-April) 2007 were $5.3 billion - an increase of $868.96 million over the corresponding period last year; and if this trend continued remittances would rise by $5.8 billion by the end of June 2008. However if the 2007-08 trend continues till the end of September 2008 then the remittance income would be around 1.4 billion dollars by the end of September and not the extremely optimistic figure quoted by the Finance Minister of 2.5 billion dollars. Nonetheless even the 2.45 billion dollars by end of September from the IFIs as well as remittance income will provide significant support to our foreign exchange reserves.

An eroding rupee has dramatically raised the government's foreign debt servicing payment and that of course will increase the pressure on expenditure. For Mohsin Khan to state that the rupee should be allowed to settle at its true market value maybe sound like an advice for a country that is in the throes of a downward business cycle rather than one which has weak macroeconomic fundamentals all around.

This is attributed to the rape of the economy because of heavy subsidies and corruption of the former government but also the National Reconciliation Ordinance that has resulted in the de-freezing of accounts with the departure of billions of dollars from the country's banking system. One would hope therefore that the Pakistan government would formulate its own prescriptions instead of relying on the standard normal ones proposed by IMF that have generated controversy in other countries. For this, it is required to think out of the box and a complete change of economic managers/advisors is required.

 

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Power co-generation​

EDITORIAL (August 18 2008): According to a report in this newspaper, the Pakistan Sugar Mills Association (PSMA) is lobbying for an upfront tariff of 11 cents per unit instead of the existing indicative tariff of 7.8 cents for the co-generation projects it has offered to set up to bridge the power supply-demand gap in the country.

Nepra has however termed the tariff demanded by PSMA as too high. The Minister for Water and Power, Raja Pervaiz Ashraf, has assured PSMA that the government will provide maximum possible incentives, and resolve all pending issues relating to the planned power projects. The minister has also directed the PPIB Managing Director to process the proposals submitted by the sugar industry on a fast-track basis.

According to one estimate, the country's 77 sugar mills are producing 12 tonnes of baggase - a by-product - that can co-generate over 2,000 megawatts of additional electricity. It is said that the sugar industry can initially generate 1,000 megawatts of electricity within two years, which, incidentally, is rather a longish period, given the rapid rate of growth of power demand in the country.

The existing power supply-demand gap ranges from 4,000 to 5,000 megawatts while the country's total installed generation capacity from hydroelectric, thermal, IPPs and nuclear sources stands at 19,566 megawatts, which is almost two-thirds of the entire generation capacity. Power consumption in the country has meanwhile grown at an average rate of 9.5 percent per annum over the last four years.

A stagnant power supply but growing demand has created a deficit of 4,000 to 5,000 megawatt, while the demand for electricity is projected to grow at the rate of 8.7 percent per annum. Bagasse therefor offers an inexpensive and efficient way to generate electricity.

Experts believe that with a little improvement in technology, or by entering into joint ventures with Wapda, the sugar industry can acquire the high-pressure technology to increase its power co-generation capacity. According to one estimate, a sugar mill with a capacity of 4,000 TCD can produce around 40 megawatts of electricity from bagasse.

The country can thus benefit with the overall production of 3,000 to 4,000 megawatts of electricity, and Wapda can recover the invested amount within two years. Secondly, co-generation methodology can be pressed into service during the lean period ie from October to March when hydropower plants are at their lowest ebb due to shortage of water while the crushing season is in full swing.

By using this new technology based on high pressure, power boilers attached to extraction-condensing turbines can operate and produce electricity to fill the widening gap between power supply and its rising demand. Thirdly, the process is environment friendly as no greenhouse effect or ozone depletion takes place due to use of bagasse as fuel.

Fourthly, this mode of power generation would be based on a local raw material, as a result of which the electricity produced will be cheaper than that produced by IPPs by at least 20 to 30 percent. The methodology involves use of a power station to simultaneously generate both electricity and usable heat energy. Conventional power plants emit heat created as a by-product of electricity generation into the environment, while co-generation offers a simple way of increasing the overall efficiency of a power plant by utilising the waste heat in the exhaust gases rather than discharging them into the atmosphere while still warm.

Thus, fuel is used at a very high efficiency level, and the overall emissions of carbon dioxide are minimised. Experts maintain that in order to obtain heat at a useful temperature, it is normally necessary to raise the temperature of the exhaust gases, which in turn increases the overall efficiency. Thus, the overall efficiency for CHP ranges from 70 to 90 percent as compared to 35-55 percent for conventional power plants, which is a major plus point.

Use of co-generation is particularly appropriate in factories or on farms that operate drying processes. Yet another benefit is that co-generation plants are small as compared to conventional power stations, and are often sized to suit an industrial or commercial application that requires a fairly constant quantity of electricity and heat for its operations.

Although power tariff demanded by PSMA for co-generation projects is indeed on the higher side, the cost of power production is steadily increasing whether it is co-generation or conventional power generation. There is thus a need to rationalise power tariff for co-generation and other modes of electricity production.

However, a tariff of 11 cents per unit for all sugar mills will be rather too high in our socio-economic environment. As sugar industry will be using a cheap local raw material for power generation, the rate of tariff demanded by it needs to be negotiated.

 

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Business circles say Musharraf’s resignation good omen​

* Hope for political stability, economic revival to follow
* FPCCI chief says Musharraf chose the best option
* SCCI chief says govt should now focus on other issues
* Dhedhi expects stock market to perform well
* FBAATI chairman says Musharraf should be given credit for his achievements

KARACHI: The business and trading community on Monday termed the resignation of President Pervez Musharraf as “the best option” that he chose in the prevailing situation and hoped for the much-needed political stability and economic revival to follow this latest development.

“To avoid further confrontation, which county cannot afford, this is a wise decision on part of Mr Musharraf to step down and let the new democratic system to move on,” leaders of country’s business community responded to the president’s resignation.

However, some people in business circles were not expecting the president to resign and contended that he should have faced the impeachment motion and defended himself against the charges the ruling coalition was leveling against him.

The business community however opined that now the onus lies on the ruling partners as to how they manage the country’s affairs, particularly in the economic arena, which has deteriorated massively in the recent months.

Though, Karachi Stock Exchange (KSE) gained massively as well as the Pak rupee appreciated against the dollar, they said that it is remains to be seen whether this trend would sustain or is a temporary euphoria.

FPCCI: “It was the best available option that President Musharraf chose to save the country from further plunging into political instability, and will hopefully bring back normalcy in the country,” Federation of Pakistan Chambers of Commerce & Industry (FPCCI) President Tanveer Ahmed Sheikh said.

He said that it is now up to the ruling coalition to deliver on various fronts, economy in particular, and added that the business community hopes that the present government functions smoothly for the economic prosperity and development of the country.

SAARC: Tariq Saeed, SAARC Chambers of Commerce & Industry (SCCI) President and leader of the ruling group in FPCCI welcoming the president ’s resignation said that the government should not opt to put Pervez Musharraf on trial as it would not bring an end to political instability.

Rather, he viewed that it should be focusing on pledges that it made with the people such as the restoration of pre-emergency judiciary, a consensus candidate for the president office, restoration of 1973 constitution in its original shape and foremost the economic revival of the country.

Saeed also argued against the president’s views during his address to the nation that Pakistan had no recognition before his take over. “Pakistan enjoys recognition right from its birth and especially after the nuclear blast in 1998 after which Pakistan joined the ranks of a few nations, which possessed this capability... and that was a big achievement,” he added.

Dhedhi: Stock broker Aqil Karim Dhedhi also viewed the resignation as a way forward to political stability and hoped that the economy would perform well in the coming days as the fundamentals are still strong and just need the government’s attention.

The economic outlook, he added was not bad and the deterioration was caused by the high crude prices in the international market. “As now the government has withdrawn the subsidy, the improvement in the macroeconomic indicator would hopefully be achieved,” he said.

About the future outlook of the stock market, he said that response after the resignation has been positive and the market posted massive gains. He expected the stock market to perform well following the return of political instability in the country.

FBAATI: FB Area Association of Trade & Industry (FBAATI) Chairman Idris Gigi said he was a bit disappointed over the resignation, as the president should have countered the allegations. “Though mistakes were committed by him, but it will be unfair not to give him credit for the achievements in his era,” Gigi added.

 

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President Musharraf’s resignation pushes KSE 460.91 points up​

KARACHI: The Karachi stock market made great strides on the first trading of the week on Monday with ending of the ongoing political uncertainty in the country following announcement of resignation by President Pervez Musharraf during his address to the nation, analysts said.

The Karachi Stock Exchange (KSE) 100-share index gained a massive 460.91 points and closed at 10,719.62 points as compared with 10,258.71 points of the previous session. The KSE 30-share index gained 589.67 points to close at 12,279.90 points.

Massive buying activities were witnessed during the trading session owing to intense buying euphoria by the retail and institutional investors giving considerable boost to the market. Commenting over rejuvenation of the market, analysts said that the market opened in the green zone with an initial gain of 104.77 points and this positive stance remained dominant throughout the trading session. The market turnover increased 63.43 percent and traded 158.86 million shares as compared to 97.20 million shares traded in the previous session. The overall market capitalisation gained 4.28 percent to Rs 3.332 trillion as against previous session’s Rs 3.195 trillion. Out of 283 companies, 234 closed in positive zone, 36 in negative while 13 remained unchanged.

Hasnain Asghar Ali, Analyst at Aziz Fida Husein and Company citing reasons for positive index said, “Bulls regained control as the political uncertainty ended, rupee recovered 1.6 percent, all eyes are on the new political setup and what they have to offer to put the economic train back on track.”

The decision to accumulate by the seasoned market participants at times of uncertainty, when light was visible a few steps ahead, paid well. The session opened amid rumours of a major decision shortly, continued the positive run-up, although participation further reduced after the announcement of the President’s address and support on dips in the main board stocks managed to maintain a positive stance throughout the session as volatility went at its peak when the decision was about to come. It was however welcomed by the local bourses.

Ahsan Mehanti, Senior Analyst at Shahzad Chamdia Securities in his comments citing reasons for positive index termed them owing to intense buying euphoria witnessed from retail and institutional investors as President Pervez Musharraf resigned and democracy won its battle and heavy buying was witnessed as political crises ended, expectations of reinstatement of judges still looms and the rupee strengthened with record Rs 1.2 per dollar.

The futures’ market turnover went up to 21.26 million shares as compared to 15.11 million shares traded in the previous session. Forty of the companies closed in the positive zone.

 

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Pakistan’s sovereign debt beset by concerns​

HONG KONG: Pakistan’s sovereign bond spreads stayed high on Tuesday after the resignation of President Pervez Musharraf failed to clear doubts whether the government will now tackle its urgent political and economic problems.

Despite the rally in Pakistan’s stocks, credit analysts warned the country has yet to convincingly show it will deal with a host of economic problems, including its deteriorating fiscal position, slowing economic growth and double-digit inflation. The nuclear-armed country also faces continued political uncertainties such as who will replace Musharraf and how the coalition government, comprising historic rivals Pakistan People’s Party and Pakistan Muslim League (N), will deal with a Taliban insurgency.

Pakistan’s five-year credit default swaps (CDS) were bid at 700 basis points, little changed following Musharraf’s resignation on Monday.

Investors would thus need to pay $700,000 annually for protection against a default in $10 million of the country’s underlying debt.

“We do not think the political issues are all resolved - the key question remains how well the two major coalition partners ... can cooperate without conflict, and focus on turning around the economy,” said Lehman Brothers in a note to clients. “We still see substantial risk of political turmoil dominating the more pressing economic issues. In addition, concerns over a potential deterioration in the security situation remain in place as well.” Spreads on Pakistan sovereign bonds, which are not widely traded, have widened more than 2 percentage points this year as the political and economic turbulence has spurred ratings downgrades by Standard & Poor’s and Moody’s.

 

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Inflation unlikely to ease in 2-3 years​

ISLAMABAD: It is unlikely that inflationary pressure would ease, at least not in the next two to three years owing to the continuing increase in global food and fuel prices, the Investor’s Relation Service at the Ministry of Finance said on Tuesday.

Other factors that would prevent high inflation rate from easing are the second round effects of previous food/energy price shocks, a gradual removal of fuel and power subsidies, a weaker rupee, higher import prices and monetary overhang from the unprecedented government borrowing from the SBP for budgetary financing.

A very low base of last year as well as massive increases in both oil and commodity prices have augmented this extreme inflationary trend in Pakistan.

Inflation for the current fiscal year 2008-09 has been targeted at 11 percent. Global food and fuel crises have impacted Pakistan heavily, resulting in a massive surge in inflation in general and food inflation in particular.

The overall CPI-based inflation registered a sharp increase in July 2008 as against the corresponding month of last year. The overall inflation increased to 24.3 percent in July 2008 as against 6.4 percent in the corresponding month of last year (July 2007). When viewed in the long-term perspective, inflation in July 2008 was the highest since the decade of the 70s. The record breaking surge in the overall inflation of 24.3 percent in July 2008 is largely attributed to a sharp pick-up in both food and non-food inflation.

During 2007-08, the average inflation stood at 12 percent as compared to 7.7 percent in 2006-07.

Food inflation: It is a well-known fact that food inflation has emerged as a major source of concern for policy makers around the world, including Pakistan.

Food inflation surged to 33.8 percent in July 2008, an increase of 8.5 percent from July 2007.

Food inflation averaged 17.6 percent in 2007-08 as against 10.2 percent in 2006-07. It is clear that the last two years inflation was driven by higher food inflation.

Food inflation in Pakistan has been fuelled by a combination of domestic demand driven factors (rising per capita income), local supply shortage and global trends in the prices of essential commodities. Higher prices of edible oil (palm oil and soybean) and dependency on their imports transmitted higher international prices to domestic prices. Similarly, the domestic prices of wheat and rice also followed the global trend and witnessed sharp increases. To encourage farmers to grow more wheat and check cross-border smuggling the government has increased the procurement price of wheat from Rs 425/40kg to Rs 625/40kg – an increase of 47 percent. Livestock and dairy products (meat and milk) also registered sharp increases because of their rising domestic demand on the one hand and increase in the prices of feedstock on the other.

Non-food and non-energy inflation: Exhibiting the same increasing trend, non-food and non-energy inflation and stood at 16.8 percent in July 2008 against 13.8 percent in June 2008 and 5.2 percent in June 2007. Non-food and non-energy inflation averaged at 8.1 percent in 2007-08 as compared to 5.5 percent in 2006-07.

Non-food inflation: In July 2008, non-food inflation stood at 17.3 percent, an increase of 4.9 percent from July 2007.

It averaged 7.8 percent during 2007-08 against an average of 6 percent in 2006-07.

The sharp pick up in non-food inflation owes heavily to transport (37.1 percent), fuel and lighting (20.4 percent), cleaning/laundry (18.1 percent), education (14.1 percent), and house rent (13.5 percent) etc. Fuel and lighting and transport sub-indices have surged mainly on account of the pass through of higher international oil prices to domestic consumers and are likely to increase even more with the gradual removal of subsidies on these items.

 

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Rs 358bn for exporters under EFS during FY09: SBP​

KARACHI: Funds amounting to Rs 358 billion would be available to exporters for the export of products eligible under the Export Finance Scheme (EFS) during 2008-09 as the Dr Shamshad Akhtar, Governor State Bank of Pakistan has decided to increase the overall quantum of export finance for banks under this scheme, reveals a circular issued by SBP on Tuesday.

In order to ensure availability of adequate financing to the exporters under the EFS and to assist them in achieving the exports target, the SBP would allow limits of Rs 125 billion to the banks under the scheme for the current year, which are 25 percent higher than the amount outstanding as on June 30, 2008. As loans under the scheme are allowed for 180 days, therefore, around Rs 250 billion would be provided during the year as refinance from the SBP at the rate of 7.5 percent. In addition to this, banks would also provide financing facilities to the exporters under the scheme from their own sources, to the extent of 30 percent, which comes out to Rs 108 billion, at the same rate of 7.5 percent. Commercial banks have been brought on board further on this sharing mechanism.

Furthermore, in order to ensure timely availability of financing to exporters, the SBP has also advised the banks that in future, financing requests from exporters under EFS should not be turned down, which otherwise are meeting the requirements of EFS and lending criteria of the respective bank. SBP would regularly monitor the behaviour of banks in optimal utilisation of limits and if a bank is unable to fully utilise its allocated limit, its unutilised limit would be allocated to other banks.

 

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Net foreign investment rises to $220 million​

KARACHI: Net foreign investment inflow in the country rose by 40 percent to $220 million in July this year compared with $157.5 million in July last year.

Foreign direct investment was up by 76.1 percent to $340.7 million from $193.5 million. There was an outflow of $120.2 million in July this year compared with outflow of $36 million in July last year.

Investment of $214.5 million came from Singapore, $54.2 million from US, $23.3 million from UK, and $22 million from South Korea.

The country had received $5.192 billion during 2008-09.

 

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Pakistan and US amend development accords​

ISLAMABAD: The US governments and Pakistan on Tuesday signed two amendments to their bilateral agreements on US development assistance to Pakistan.

The amendments establish the basis for the United States Agency for International Development (USAID) to provide $15.4 million more to projects that strengthen Pakistan’s agricultural production and that improve the health of Pakistani mothers and children.

“Today’s agreement is another sign of the Unites States’ commitment to Pakistan,” said USAID Acting Mission Director Edward Birgells. “This money will go to projects that directly reach and benefit the Pakistani people.”

 

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Current account deficit widens to $1bn ​

Thursday, August 21, 2008

ISLAMABAD: Despite a sizeable build-up in Pakistan’s current transfers, the burgeoning trade deficit has pushed the current account deficit (CAD) to $1.01 billion during the first month of the fiscal year 2008-09, depicting an increase of 23.77 per cent over $816 million in the corresponding month of the last fiscal.

It is worth-mentioning that CAD during last fiscal July-June 2007-08 widened to $14.016 billion compared with $6.878 billion a year earlier. The deficit was equivalent to about 8.4 per cent of gross domestic product (GDP), compared with a full-year target of 4.8 per cent.

The State Bank of Pakistan (SBP) said on Wednesday that during July 2008-09, in spite of strong build-up in current transfers of about $968 million, $1.62 billion trade deficit in goods and services was instrumental in turning the current account into deficit. Net current transfers rose to $968 million during the month under review, from $911 million in corresponding month of the last fiscal.

Current transfers went up as the country received $627 million in workers’ remittances or foreign exchange sent back home by overseas Pakistanis during the July 2008-09, up from $496 million a year-ago in same month. At the same time, the resident deposit holders also deposited $100 million in foreign currency accounts (FCA) compared to $33 million, they placed in these accounts during corresponding period of the last fiscal.

Though inflows in these accounts proved as a cushion in moderating current account deficit, but still outflows due to trade deficit, interest payments and profits and dividends remitted by the foreign companies to their respective countries were so huge, that inflows were unable to keep away the CAD from falling in red zone.

It is worth-mentioning that during July 2008-09, trade imbalance (in goods and services) up from $1.447 billion last year to $1.62 billion this year.

Higher oil prices spiral since November 2007 might add to the woes on external front through widening trade imbalance. Factors responsible for this huge deficit included higher outflows on account of transportation, travel, insurance, construction services, royalties and licence fees.

The country had to spend $306 million on transportation account whereas its earning under this head was only $89 million. Thus, the net deficit in the service account due to chartering of vessels for imports, exports shipment was $217 million. Another factor responsible for big services’ account deficit was a net outflow of $107 million on account of overseas traveling.

The country had to spend $127 million to finance personal and business-related traveling abroad of individuals and groups whereas it earned only $20 million under this account. Hence the services account deficit in July 2008-09. The same applies on spending on insurance and royalties and licence fees paid to international organizations and their employees operating in the country.

 

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Moody’s may further downgrade Pak rating ​

Thursday, August 21, 2008

LONDON: Pakistan is in danger of a further downgrade of its “B2” sovereign credit rating as its foreign exchange reserves are being rapidly depleted, Moody’s Investors Service said on Wednesday.

The ratings agency said the success of structural reforms would be vital to assuage foreign investor concern, noting that the resignation of President Pervez Musharraf on Monday would help heal domestic political divisions.

“If the government remains unable to govern effectively, then discordant policies and their weak implementation could further set back investor confidence,” Moody’s said in a statement. This would, in turn, damage Pakistan’s balance of payments stability as well as the government’s fiscal financing prospects, it added.

“Delays in the ability of its fiscal authorities to wean themselves away from central bank financing of the budget deficit also represent a formidable obstacle for improving inflationary expectations and reducing pressure on the Pakistani rupee.”

Moody’s cut Pakistan’s rating to “B2” from “B1” in May. “If, in coming months, Moody’s concludes that deterioration in Pakistan’s credit fundamentals is becoming irreversible, then negative rating actions may follow,” Moody’s said.

 

[Neo]

KSE falls 393 points as political disputes linger ​

Thursday, August 21, 2008

KARACHI: The lingering on of some political disputes between leading coalition partners in government in post-Musharraf era and a little progress by them on fixing the disordered economy revived bearish sentiments at stocks market on Wednesday.

KSE 100-share Index plummeted 393 points or 3.60 per cent and finished at 10,526 points. The parallel running junior 30-Index lost 455 points or 3.61 per cent and concluded at 12,151 points.

The leading bank, energy and telecom stocks faced mounted selling pressure throughout session, while the fertilizer and cement stocks were also among those, which hit lower circuit breaker in this session. Over three dozen stocks closed at maximum possible low in a day.

Turnover in ready market fell by 45 per cent to 116.579 million shares as compared to 211.244 million shares changed hands a day earlier. Future market turnover also declined to 15.651 million shares against 23.704 million recorded yesterday.

Accordingly, the overall market capitalisation dropped by Rs118 billion to Rs3.268 trillion.

Analysts were of the view that the setting of modalities and prioritising the issues on government hand, as to which one should be addressed first made the sentimental investors worry about their investment on bourses and they indulged into profit-selling at the available margins.

The difference of opinion on political issues and widening differences between them (coalition partners) as to how and when the deposed judges should be reinstated; whether the trial of Musharraf should be held or indemnify him; and who would be the next president of Pakistan were some so disturbing issues. The lingering-on of these issues was again putting a big question mark on relationship between partners in government and growing uncertainty in markets too, said Farhan Rizvi at JS Research.

On the other hand the extremely disturbed economy needs immediate attention of the government that looks less available owing to their full time involvement in political issues, a leading analyst said.

The statement by a Standard and Poor’s rating agency official about Pakistan’s economy was also very important one, as he also underlined the unresolved issues on economic front and stressed upon addressing them on immediate basis. If government fails to prepare a comprehensive plan for fixing economy in crisis the stock market could go to new low levels of late 90’s, he replied and pointed out, the all time high twin deficits and inflation needed immediate attention.

After opening in red market saw no recovery to green throughout the session, according to KSE website. But the Exchange quoted figures indicated that it extended the day gains by another 12.21 points to 10,931.27 points intra-day high sometime during the session from pre-opening level of 10,919.06 points.

At a point of trading market had dipped to 10,484 points intra-day low - losing 435 points, but a little buying in the closing hours recovered market above 10,500 points level.

Losers outnumbered gainers 243 to 46 with 16 closing unchanged among 305 active stocks on board.

Highest volumes were witnessed in Oil and Gas Development Company at 9.125 million closing at Rs117.28 with a loss of Rs6.17, followed by Callmate Telips at 8.048 million closing at Rs1.90 with a loss of 47 paisa, NIB Bank at 7.177 million closing at Rs9.44 with a loss of Re1, Zeal Pak at 5.389 million closing at Rs1.47 with a loss of nine paisa and Engro Chemical at 4.824 million closing at Rs206.90 with a loss of Rs7.64.

 

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Delay in resolving crucial issues may cripple economy ​

Thursday, August 21, 2008

Time is money that our new economic managers have already wasted a lot. It is high time now for the economic gurus of the government to focus on the reserves building and pay heed to country’s appalling fiscal situation; otherwise it would be not less than a mission impossible to bail out Pakistan from the economic mess.

After removal of General Pervez Musharraf from the scene, stock exchange showed bullish trend only for two days and country’s currency gained strength just because of the end of political chaos.

It is an eye opener for ‘democrats’ and for those who used to say once Mush gets the push, uncertainty would end that will prove beneficial for the economy. This notion was proven wrong, as even after the alleged stumbling block was removed the black clouds of chaos are still hovering over the country. This time around Mr. Musharraf is not responsible for the situation, rather the indecisiveness of coalition partners on judges’ issue is the main reason for chaos.

Just because of the delay in decision on judges issue, bullish trend in the capital market could not survive and it tumbled by 393 point down to 10525 points and rupee shed by 40 percent against dollar. Owing to the indecisiveness, the country is again exposed to the political instability.

New ifs and buts and new actors and factors have been included in the restoring of the judges issue, which was earlier twice agreed under Murree and Islamabad declarations. If this issue is not resolved within next 72 hours, the improving signs in the economy may turn into depressing ones.

It is pertinent to mention that that government has already succumbed before the International Monetary Fund’s tough conditions to qualify for the $1 billion loan from World Bank and Asian Development Bank. The conditions placed by the fund are that the government will not borrow from the central bank of Pakistan, instead adopt other tools to generate finances to meet the fiscal deficit by arranging credit lines from international market. The government would also arrange finances through Pakistan Investment Bonds, National Saving Schemes, and Treasury Bills.

The IMF asked the ministry of finance to bring down its fiscal deficit target to 4 percent of the GDP against the target of 4.7 percent fixed for 2008-09. This is really a very strict condition to comply with.

The Fund too asked for change in the definition of fiscal deficit - currently based on revenue-expenditure formula - arguing that this formula has become irrelevant in view of the appalling economic situation of the country.

Rather the IMF stressed for financing-based fiscal deficit meaning that the if the regime arranges the finances as per laid down conditions, the amount of the arranged finances would be considered fiscal deficit. And the borrowed finances should not be more than 4 percent of the GDP. The fund also asked the government to quicken and accelerate the privatisation programme, which factually cannot be materialized without the political stability.

Under the IMF conditions the government also has to completely waive the Rs175 billion subsidy on oil prices by December this year and Rs89 billion on power tariffs including those of Distribution Companies (DISCOs) and the Karachi Electric Supply Company (KESC) by June 2009. Although the government has given the green signal to IMF to comply with all the conditions to qualify for the credit line of $1 billion from the WB and ADB, it seems a gigantic task keeping in view the impending political turmoil if the coalition partners fail to resolve the judges’ issue on time.

The victorious political barons need to realize the gravity of the situation and should forthwith take crucially needed decisions on political issues, as any further delay may cause irreparable damage to the country’s economy.

 

[Neo]

Indus Motor unveils new Toyota Corolla​

KARACHI, Aug 20: The Indus Motor Company (IMC) on Wednesday launched the new Toyota Corolla at the Expo Centre.

Akira Okabe, Senior Managing Director Toyota Motor Corporation, Japan, said that the Corolla sales in 2007 exceeded 35,000 units which was the second consecutive year that Pakistan had achieved the number one position for this car in Asia.

However, auto industry analysts said that the new model had been launched after a gap of six years. Not only this, the customers had seen the arrival of new Corolla in 2002 after a gap of eight years when the company had started its local assembly in 1994.

Analysts said that while taking a huge gap of years to introduce and make a complete change in the model, the IMC had only made cosmetic changes like introducing new crystal head lights and back lights, front grill etc., in order to fulfill a formality of introducing a new model every year.

It is not clear whether the Toyota Motor Corporation has any worldwide policy of taking a big gap of years to make a complete change in the model or it follows a policy, like in Pakistan, for making only cosmetic changes while launching a new model every year.

The IMC had been adopting the same lethargic attitude in its small car brands of Daihatsu Cuore and there had been no complete model change since its introduction in 2002.

Despite this, the sale and production of Toyota and Daihatsu brands for the year ended June 30, 2008 were 50,802 units and 48,222 units as compared to 50,557 and 47,821 units respectively in the last year.

Sales revenue increased to Rs41 billion during the year under review, up six per cent over Rs39 billion with the after-tax-profit of Rs2.3 billion as compared to Rs2.7 billion in the year ended June 30, 2007. Earnings per share decreased to Rs29.15 as compared to Rs34.93 in the previous year.

The company’s board of directors has declared a final cash dividend of Rs6.5 per share making a total distribution of Rs10.5 per share in 2007-2008. The total dividend paid for the same period last year was Rs13 per share.