Pakistan Economy - News & Updates - Archive

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AJK to have independent economy: minister ​

Thursday, September 18, 2008

MIRPUR (AJK): The government of Azad Jammu and Kashmir was taking revolutionary steps to establish an independent economy based on self-reliance for the welfare of the masses across the liberated territory.

The AJK Minister for Electricity Malik Muhammad Nawaz said this addressing an Iftar dinner hosted by Chief Engineer Electricity (South) Tariq Mahmood Mallick here late Sunday in honour of Nazir Ahmed Mir Chief Engineer (North) on the eve of his retirement from service.

Malik Muhammad Nawaz the government has launched a human resource development programme so that the state may have its own skilled workers and to ensure their active and fullest role in the overall speedy progress in all sectors of life in the liberated territory.

He said that AJK would soon emerge as the best welfare state of Asia following the translation of the vision of “green and skilled Kashmir” into a reality. He said that the government had also designed and started implementing a comprehensive policy to promote economy based on self-reliance in Azad Jammu Kashmir. The government, he said, is determined to turn AJK into a true model welfare state.

AJK Minister for Commerce & Industries Ch. Muhammad Yousaf, Secretary Electricity Muhammad Iqbal Rattiyal, Secretary Housing and Planning Sardar Muhammad Altaf, Secretary Auqaf Iqbal Muhi-ud-din and hundreds of other serving and retired officials of AJK Electricity Department and the city elite including senior journalists also attended.

The chief guest - Nazir Ahmed Mir, retired Executive Engineer and founder of electricity department AJK Malik Muhammad Iqbal, Secretary Housing Sardar Muhammad Altaf, President Non-gazetted Employees Organization Ch. Gulzar Ali, Sayed Qaiser Shiraz Kazmi and Yaqoob Bhatti also addressed the gathering. Elaborating the fiscal development plan launched by the state electricity department, Malik Muhammad Nawaz said that over Rs800m are being spent for completion of various schemes under annual development program.

 

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Cotton output to fall below 12m bales​

ISLAMABAD, Sept 17: Pakistan’s cotton output in the 2008-09 is likely to be less than 12 million bales, falling short of a target of 14.1 million, officials and producers said on Wednesday, increasing the need for imports.

Pakistan, the world’s fourth-largest cotton producer, had to import nearly 4.7 million bales the previous year after production in 2007-08 fell to 11.6 million bales against a target of 14.14 million.

A fall in the area under cotton, pest attacks and shortage of fertiliser were the major factors that hit production in the 2008-09 crop year, which runs from April to March.

“It will be a big achievement even if we touch the 12 million bales mark,” said Ibrahim Mughal, chairman of the Agri-Forum, a farmers’ association.

“The area under cultivation is almost 500,000 acres less than the target area of 8 million acres, and there have also been pest attacks like mealy bug and cotton leaf curl virus.”

A spokesman for the Food and Agriculture Ministry confirmed that the target of 14.1 million bales was out of the question but did not give a new estimate. Another ministry official said it would be below 12 million bales.

Ministry officials and farmers’ representatives are likely to meet in a few weeks to reach an estimate for the new crop.

The final assessment is usually made around February.

Pakistan’s domestic consumption fluctuates between 14 million and 16 million bales a year. Cotton and textiles account for about 60 per cent of the country’s exports.

Pakistan achieved record cotton production of 14.6 million bales in 2004-05, but output has been falling since then, meaning the country has to import cotton every year to meet the requirements of its textile mills.

Cotton imports in July and August, the first two months of the financial year to June 2009, were 300,000 bales, an industry official said.

Farmers’ forum chairman Mughal said rising production costs, because of higher prices of power, fuel and fertiliser, were discouraging farmers from growing more.

“There are simply no incentives for farmers, no profits.”

 

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Pakistan to dent Indian basmati exports​

NEW DELHI, Sept 17: Indian basmati rice exports are expected to fall sharply as an export tax makes the grain more costly while its rival, Pakistan, gains from a steep fall in its currency, a top exporter said on Wednesday.

R.S. Seshadri, director of Tilda Riceland, India’s largest basmati rice exporter, said the price gap between premium varieties from the two countries had risen to about $500 a ton. “With a gap of $500 a ton, there is no chance that a foreign buyer will look at India. This gap has been existing for the last two months,” he told Reuters.

In neighbouring Pakistan, where rice accounts for about 8 per cent of the country’s exports, traders said shipments were rising. “Rice exports have become attractive due to the rupee’s devaluation, and we have seen exports going up,” said Abdul Baseer, vice-chairman Rice Exporters’ Association of Pakistan.

Pakistan’s total rice output is expected to rise at least 10 per cent to more than 6 million tons in the 2008-09 fiscal year on a larger planted area, officials and growers say.

But exporters estimate rice output at 7 million tons and say exports could exceed 4 million tons.

A Pakistani exporter, who did not want to be named, said annual basmati exports from the country might rise to 1.2 million tons next year from 800,000 tons.

“Pakistan’s minimum export price is lower on basmati rice than India’s and along with the devaluation exports are going to be more attractive,” he said.

EXPORT CURBS: Seshadri said new export contracts were usually signed in October, just ahead of the harvest of the new crop.

India’s basmati rice is quoted at about $1,400 a ton for varieties usually shipped to the Middle East. The government slapped a tax of about $200 per ton on overseas sales of its aromatic basmati variety of rice earlier this year.

It also allowed exports of the premium grades only at a floor price of $1,200 per ton.

“The $200 tax is just the last straw and it is not at all helping. Neither does it go to the farmer nor to the trader,” Seshadri said. “A clarification on this is needed as quickly as possible. The new rice crop is going to come in a month or two.” He added the government would be under pressure to roll back the export tax by October or November if Indian exporters lost market share, but by then farmers would have already sold the crop at a lower price.

India banned exports of non-basmati rice earlier this year to ensure domestic supplies, but this month allowed shipments of the premium non-basmati variety, Pusa-1121.—Reuters

 

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Forex reserves drop to $8.91bn ​

KARACHI: September 18, 2008: Pakistan's foreign reserves fell $190 million to $8.91 billion in the week that ended on Sept. 13, from $9.10 in the previous week, the State Bank said on Thursday.

The State Bank of Pakistan, said its own reserves fell to $5.52 billion from $5.72 billion previously, while those held by commercial banks rose marginally to $3.39 from $3.38 billion.

Pakistan's foreign reserves hit a record high of $16.5 billion in October last year but have dwindled due to a soaring import bill, and foreign investors's withdrawal due to political uncertainty gripping the country.

Some inflows are expected in coming weeks, including $1 billion from the World Bank, $500 million from the Asian Development Bank (ADB).

An expected Saudi oil facility would also help Pakistan save foreign exchange. But all of these have still to materialise.

The rupee hit a record low of 77.77 rupees to the dollar in early trade on Thursday and dealers said they expect pressure to remain.

The current account deficit widened sharply to $2.572 billion in July and August, the first two months of the 2008/09 fiscal year, which is equivalent to about 1.6 percent of gross domestic product (GDP), compared with a full-year target of 6.0 percent of GDP.

The consumer price index in August rose 25.33 percent from a year earlier, compared with a full-year target of 12 percent for this fiscal year.

 

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World Bank willing to develop Thar coal​

ISLAMABAD (September 18 2008): The World Bank has expressed its desire to help federal and provincial government develop Thar coal and other mineral resources in Sindh, official sources told Business Recorder. Aslam Sanjrani, Managing Director, Thar Coal and Energy Board (TCEB), met with Yusupha Crookes, Country Director for Pakistan, at the World Bank office on August 29, 2008.

Said Al Habsy, Operations Advisor and Rashid Aziz, Senior Energy Specialist of the bank's Islamabad office, also attended the meeting. The sources said Sanjrani provided an overview of the status of activities of TCEB and its plans for the immediate future. He also elaborated on TCEB's needs for establishing the institution and building up the capacity of its staff and officials.

Sanjrani also dealt with the needs of the Minerals and Mining Department of Sindh government, as a separate entity, the sources added. The sources said, Yusupha Crookes stated that the bank was interested in helping the government - federal and provincial levels - and TCEB to develop Thar and other mineral resources of Sindh.

The bank's support will be driven by three primary considerations: (i) enabling the Sindh government to promote (through TCEB) the Thar coal deposits to potential investors; (ii) assisting Sindh government in overall development of the mining sector; and (iii) strengthening the institutional capacity of the concerned provincial government ministries, departments and entities/agencies.

After discussion, it was decided that the bank's task force will interact with the provincial government and TCEB to develop a programme through a technical assistance project of the bank support for Sindh and TCEB.

The technical assistance requirements are initially expected to be for: (a) strengthening the capacity of the concerned government ministries including, to the extent required, at the federal level, departments and specific agencies such as TCEB; (b) advisory services for establishing and strengthening TCEB; and (c) for technical, financial and legal advisors to carry out the required reviews, studies and analyses and assist the government.

The federal government had withdrawn its notification for establishment of Thar Coal Authority (TCA), approved by Prime Minister Syed Yousuf Raza Gilani due to continuous resistance of Sindh government; and on July 22, the provincial government issued two notifications to establish Thar Coal and Energy Board (TCEB) and enhance the strength of the board members, setting aside the notification of the federal government.

"We accept that coal exploration is the right of the respective province, but power generation is a Federal subject," said one of the officials of the Ministry of Water and Power. The ministry, which had earlier made an effort to establish the authority's office in the PPIB, is of the view that the principal seat of the board would be in Karachi.

 

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'IMF mission's visit, financial crisis have no impact on foreign exchange market'​

ISLAMABAD (September 18 2008): Senator Khurshid Ahmed, a prominent economist, in an exclusive to Business Recorder stated that the ongoing IMF mission and financial crisis in the international markets had no impact on the sentiment of the currency markets in Pakistan. He said that the rupee was facing immense pressure due to depleting foreign exchange reserves and weak macro economic fundamentals.

He said that the IMF mission is currently engaged in reviewing Pakistan economy with a view to providing guidance to Pakistan government in terms of identifying specific targets for macroeconomic indicators and the prescriptions to achieve these targets.

It may be recalled that Pakistan is not on IMF Poverty Reduction Strategy Grant (PRSG) and President Asif Ali Zardari in his maiden press conference after taking oath as the President had categorically stated that Pakistan would not go on any PRSG. Khurshid said that precisely because Pakistan is not on IMF program, the Fund's findings were unlikely to have any negative impact on the rupee-dollar parity.

In contrast to these views, Nabeel Iqbal, market and research manager of Khanani and Kalia International (KKI), opined that the recommendations of current IMF mission would set the sentiment of the currency markets in Pakistan. IMF observations could change the market sentiment.

If it is ready to issue the 'letter of comfort' with positive findings, it would improve the rupee-dollar parity. In case of any negative findings, it would further have negative impact on the local currency. He said that all current macro economic indicators like current account deficit and trade deficit are linked with the appreciation of dollar against rupee.

During Ramazan, there is some buying pressure on the rupee as demand for foreign currency rises due to many leaving for Umra. Before Eid, home remittances are expected to rise, which would improve the sentiment of the currency markets. These remittances come from both channels, the open market and interbank market, which would improve the situation.

However, if the current economic fundamentals continued to remain negative, it would again result in substantial pressure on the rupee after Eid. However, he said, the international developments in financial markets like fall of world stock markets was not directly linked with the appreciation of dollar against rupee.

Other experts said that the interbank rate of dollar touched Rs 77.60 on Wednesday, and following the interbank rate, the rupee-dollar parity in the kerb market was traded at the highest rate of Rs 77.60. However, the rate of dollar against the rupee came down to Rs 76.20 at closing time. They said that Pakistan's economy has been under tremendous inflationary and deficit pressure, and the stock market has also shown sluggish activity.

The government's reluctance to get any financial assistance from IMF, in spite of the fact that it is in dire need of "substantial external financing" to rebuild fast shrinking foreign currency reserves, is a cause of the depreciating rupee against dollar and further weakening the already deteriorating economic conditions.

During the first quarter of the current fiscal year the rupee lost more than 20 percent against dollar. Trade deficit (TD) in July-August 2008-09 widened to $3.522 billion, as imports shot up to $7.011 billion against total exports of $3.489 billion. On the other hand, the forex reserves of Pakistan in the current fiscal declined by $9.102 billion from a record forex reserve of $16.5 billion in October 2007.

 

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Donors await IMF report on Pakistan ​

Friday, September 19, 2008

ISLAMABAD: The desperately needed dollar inflows for Pakistan depend upon the outcome of the ongoing visit of the IMF mission, which is currently discussing macro-economic health of the country as well as future course of action, it is learnt.

“When the IMF mission will give positive report about its macroeconomic framework and future line of action after September 23, then the multilateral as well bilateral donors will come up to rescue Islamabad’s ailing economy by pouring dollar inflows in a substantial manner, including the much awaited Saudi Oil Facility worth $5 billion,” official sources in the donors agency told The News here on Wednesday.

The IMF and Pakistan have so far agreed to scale down the GDP growth target to 4 to 4.5 per cent from 5.5pc for the current fiscal year, owing to expected bad performance of agriculture sector especially cotton output as well as water shortages, which would negatively impact the next wheat crop.

Inflation will remain on the higher side and both the IMF and Pakistan are discussing CPI inflation hovering around over 20 per cent in the current fiscal year against envisaged target of 11pc.

The IMF has not allowed slippages in achieving the fiscal deficit target of 4.7 per cent of the GDP for the current fiscal year.

There is also no possibility to reduce the envisaged revenue collection target of Rs1250 billion for the ongoing financial year 2008-09.

The IMF mission is arguing with Islamabad’s authorities to revise the tax collection target upward owing to favorable factors such as higher inflationary pressure and depreciation of rupee, which will help the FBR in increasing its revenue collection manifold.

The government may not revise upward the tax target, but they know that the FBR is in a position to achieve its envisaged target of Rs1250 billion by June 30, 2009, which was considered quite ambitious at the start of the current fiscal year. The FBR’s tax collection is more than Rs11 billion in the first two months of the current fiscal against envisaged target.

The prices of every product surged owing to highest CPI of over 25 per cent in the country’s history and it will push up the tax collection of the FBR. On the other side, there is depreciation of rupee by 24 per cent against the dollar, which would help FBR for increasing custom duty collection in the current fiscal year.

When macroeconomic framework will be endorsed by the IMF by giving positive report about Pakistan’s economy then dollar inflows would come into Pakistan in a substantial manner. The expenditure side will also be reduced including development and non development side.

 

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42 projects worth Rs 237.7 billion approved by CDWP​

ISLAMABAD (September 19 2008): The Central Development Working Party (CDWP) on Thursday approved 42 new development projects costing Rs 237.7 billion and revised 9 schemes costing Rs 25 billion. The total foreign assistance for the projects has been estimated at Rs 91.2 billion.

The CDWP met here with Deputy Chairman Planning Commission (PC) Salman Faruqui in the chair. This was the first meeting of the CDWP of the current financial year. This was also the first meeting of the body after the PPP came into power in March, 2008. Briefing newsmen spokesman PC Asif Sheikh said that cost of each of the 22 projects is over Rs 500 million. The total cost of the projects is Rs 255.5 billion and they will be placed before Executive Committee of the National Economic Council (Ecnec) for approval.

He said that 46 projects costing Rs 218.4 billion will be financed by the Federal Government. Of 18 projects located in Punjab, 13 projects are under Multan Development Package for which Government of the Punjab will contribute Rs 500 million.

One project located at Punjab titled "Construction of Cherah Dam Project" costing Rs 5.31 billion will be financed by Government of the Punjab. Two hydro power projects located in AJK costing Rs 6.7 billion will be financed on 30:70 cost sharing basis between government of AJK and federal government. The federal government will provide Rs 4.72 billion from PSDP.

Of 51 projects, 9 projects have been revised. Their cost has increased from Rs 14.0 billion to Rs 24.7 billion, he said. Allocation of Rs 5.8 billion exists in the PSDP 2008-09 against the 22 projects.

"Establishment of inland Container terminal Dry port near Sher Shah Railway Station Multan" will be financed through Public Private Partnership. Ministry of railways will give the land free of cost. One project "Deepening & Widening of Port Qasim Navigation Channel" costing Rs 8.1 billion will be financed by the PQA from its own resources.

The CDWP also conceptually cleared the projects titled "Balochistan Local Service Delivery and Government Project", "Rehabilitation of the Medium Wave Radio Broadcasting Network for the enhancement of Education", "Health and Enlightenment in NWFP, FATA and Balochistan in Islamic Republic of Pakistan" and "Establishment of National Road Safety Secretariat/Authority".

The CDWP also approved "Revival of Karachi Circular Railways as Modern Commuter System" costing Rs 52.3 billion. A foreign assistance of Rs 39.2 billion is expected for the project. Asif Sheikh said that federal government would not bear the operational losses after completion of the project in five years.

A total of 32 development projects were approved in the infrastructure sector costing Rs 238 billion that also include foreign exchange component (FEC) of Rs 81.26 billion. He said that "Land Acquisition and Resettlement Plan of Basha Dam" costing Rs 116.7 billion has been approved. According to him 99 per cent area to be affected by the dam is in the Northern Areas (NAs). The plan, which was approved by the CDWP, was framed by NA administration. Total of five projects costing Rs 123.88 billion have been approved in the energy sub sector.

In the water resources, four projects valuing Rs 8.05 billion have been approved. The PAEC plan of establishing two power generation units (C3 and C4) were dropped from the agenda. In social sector, 18 projects costing Rs 24.37 billion were approved in social sector.

The important schemes in the transport and communication are Rehabilitation of Larkana-Naudero-Lakhi Road costing Rs 1.92 billion and Dualization/Rehabilitation of Larkana Moenjodaro valuing Rs 1.93 billion. Of the 18 projects for Punjab, 14 projects costing Rs 4.2 billion would be launched under the Multan Package, said Asif Sheikh. He said that Punjab government will also provide Rs 500 million for the package.

 

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FTSE Group takes Pakistan off its watch list ​

KARACHI (September 19 2008): Global Index compiler FTSE will no longer demote Pakistan from secondary emerging market status to frontier market. This was stated in a communiqué on September 18, 2008. FTSE offers benchmark indexes for pension funds, sovereign wealth funds and other fund managers, classifies into four categories: developed, advanced emerging, secondary emerging and frontier markets.

It may be noted that FTSE as part of its annual country classification review, on September 12, 2006 announced that they have placed Pakistan on its Watch List for possible removal from FTSE Global Equity Index Series(GEIS), which is used by institutional investors world-wide.

KSE management has been in dialogue with FTSE since early this year and also visited FTSE in May 2008 to make a comprehensive case in favour of Pakistan, which successfully convinced the FTSE group to keep Pakistan on their list.

Adnan Afridi MD Karachi Stock Exchange commenting on the decision said, "This reflects our commitment to capital market reform process and we will continue to strive to protect investor interest and help grow towards our ultimate objective of becoming a hub for capital formation in Pakistan", a press release issued by KSE public relations department said.-PR

 

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Pakistan and Argentine to expand cooperation​

RAWALPINDI (September 19 2008): Pakistan and Argentine have reiterated their desire to further boost and expand bilateral co-operation in various fields particularly in the areas of trade, economy and defence. This was discussed at a meeting between Federal Minister for Defence, Chaudary Ahmad Mukhtar and the Ambassador of Argentine to Pakistan, Rodolfo Martin Saravia, who called on him here Thursday, a statement said.

Both sides exchanged views on matters of bilateral importance and underscored the need for maintaining closer co-operation for mutual benefits of the two countries. The Minister briefed the envoy about the potential and capability of the defence industry of Pakistan. The meeting also discussed the possibility of undertaking joint venture in the area of defence collaboration.

The meeting agreed to increase co-operation in the area of training by offering courses to the military personnel of the two countries in each other's training institutions. The anti-terror efforts made by Pakistan also came under discussion at the meeting. The Minister said that the international community needed to acknowledge Pakistan's key role against the war on terror and extend its support so as to stem the tide of terrorism.

He told the envoy that terrorism can only be defeated by addressing its root causes like alleviation of poverty and providing economic opportunities as well as educational/health infrastructures to the people of the areas engulfed by poverty, ignorance and unemployment.

 

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Piaf welcomes World Bank offer to develop Thar Coal reserves​

LAHORE (September 19 2008): Pakistan Industrial and Traders Associations Front (PIAF), while welcoming the World Bank offer to develop Thar Coal reserves, hoped the government will accept this offer as the exploration of coal will help generate cheaper electricity to bridge demand and supply gap of 5000MW.

The PIAF Chairman Irfan Qaiser Sheikh and Vice Chairman Khawaja Shahzeb Akram in a joint statement said that despite the huge coal deposits, the electricity being produced through different means other than hydle and thermal, is very small.

If the World Bank, the existing huge coal reserves are tapped and used for power generation, the electricity situation in the country would substantially increased, they added. Moreover, they said that due to shortage of energy, the industrial activity had already slow down considerably and if alternate resources were not utilised, the industry would be forced to bear additional burden.

The Kalabagh Dam could not be built for want of consensus in all the four provinces thus the government should immediately accept the World Bank offer so that the manufacturing sector could be able to have its due place in the global market. Because of the shortage of energy, the textile sector was the biggest loser and the country's total exports registered a sharp decline.

 

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2.9 percent decline in oil consumption for first two months of fiscal year 2009​

KARACHI (September 19 2008): The oil consumption in the country posted a slight decline of 2.9 per cent as total POL products volume recorded 2.98 million tons in the first two months of FY09 against 3.07 million in the same period in FY08.

According to data released by OCAC local refineries provided 1.56 million tons (52 per cent of total) whereas remaining 48 per cent of the consumption was met through imports (avg. 55 percent were imports for FO and HSD in two months of FY09 against 52 per cent in the same period in FY08).

The Black Oil products (FO and LDO) consumption declined by 6.7 per cent on year-on-year basis with their combined volume standing at 1.24 million tons, which was central to the overall decline in growth during the two months in FY09 (98 per cent contribution to the total fall).

FO and LDO consumption fell by 6 per cent and 39 per cent on year-on-year basis, respectively in the two month of FY09 while their combined volume stood at 1.24 million tons in the two months of FY09 (42 per cent of total volume) against 1.33 million tons (47 per cent of total) in the two months of FY08). On the other hand, White Oil products contributed a meager fall of 0.1 per cent on year-on-year with total volume of 1.74 million tons in the two months of FY09.

FO decline came amid its skyrocketing prices (126 per cent increase on year-on-year basis standing at Rs 61,852 per ton), which aggravated Pepco (using coal as an alternate), Hubco, Kapco and other IPPs' cash positions (high generation cost and low reimbursement), forcing decline in FO consumption despite rising power shortages in the country, Khurram Schehzad senior analyst at Invest Capital Securities said.

He added that LDO decline was due to the rainy season, which rendered less demand for the product in agricultural activities. During the first two months of FY08, Mogas's decline of 10.2 per cent on year-on-year (8 percent of total volume.) can also be attributed to rainy spell in Centre/North of the country, price speculation (formula change which led to lower price for refineries than their raw material Naphtha, which forced refineries to scale down production), resuming smuggling from Iran and realignment of fleet by some OMCs.

Slight growth of 1.5 per cent on yearly basis in HSD (43 per cent of total volume) came only on the back of its use in transportation and household power generators due to acute electricity shortage in the two months of FY08. This restricted White Oil products decline to only 0.1 per cent on yearly basis (-4.5 per cent on yearly basis ex. HSD). Other than HSD and MS, White Oil products - HOBC, JP-8, JP-1 and Kero - witnessed volume growth of only 2 per cent on yearly basis to 223,000 tons.

During Jun-08, POL consumption posted a decline of 8.4 per cent on yearly basis mainly because of negative growths in Black Oil of 6.1 per cent (FO 5.3 per cent on yearly basis, 11 per cent on month-on-month and LDO 44 per cent on yearly basis, 26 percent on monthly basis) and White Oil of 10.1 per cent (mainly by HSD 13 per cent, MS 17 per cent and JP-1 11 per cent on yearly basis), while volumes nominally supported by JP-8 and HOBC (a combined 54 per cent on yearly basis, 4 per cent of volume). Sky-high FO price and sharp decline in LDO consumption owing to rising prices, low agricultural activities amid rains and transportation strike in August-08 led to fall in consumption. The Government of Pakistan's steep price pass-ons of Rs 7 to Rs 11 per liter on regulated products coupled with alternates (CNG/LPG) also impacted HSD and Mogas volumes declining by 13 per cent and 17 per cent on yearly basis (27 per cent and 8 per cent on month-on-month basis), respectively in August-08. Kero also witnessed an 11 per cent on yearly basis decline due to price pass-ons.

PSO secured largest slice of 68.2 per cent of the market share in the two months of FY09; however, declining by 186bps on yearly basis due to posting volumetric decline of 5 per cent on year basis (30-month low). Shell stood with 14.3 per cent yearly basis with 105bps improved share due to 5 per cent volumetric growth while APL shared 5.4 per cent of the market with a decline of 36bps yearly basis due to negative volumetric growth of 9 per cent on yearly basis in the two months of FY09.

 

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Plan to sell energy assets to avoid default​

KARACHI (September 18 2008): Amid rising rumours of an imminent financial default, the government recently laid out an ambitious emergency plan to dispose of its multibillion-US-dollar energy assets to raise money. Among the first in line is the sale of rich Qadirpur gas field in Sindh.

With whopping reserves of around 2.9 trillion cubic feet, the gas field is considered worth more than 3 billion dollars in international markets and is also regarded as a vital strategic asset.

On Friday, the Privatisation Commission recommended different options on Qadirpur field privatisation, prepared by financial adviser US-based Merrill Lynch, to the cabinet committee on privatisation for a final decision. A source close to the deliberations said a decision would be taken by September 25th over when to open the bidding.

Among the likely suitors are Austrian OMV and some state-owned corporations from the Persian Gulf, such as Kuwait Petroleum Corporation (KPC), who may finalise their final bids by the end of this month.

Two other national jewels in top slots of planned privatisation include the billion-dollar 880-megawatt Jamshoro Steam Power Plant, and strategic shares in Kot Addu power plant, operated by Kapco, the country's largest independent power producer.

But the planned sales might trigger political tensions in the new ruling coalition, as the two key allies have taken divergent positions on the issue and both have warned Pakistan Peoples Party (PPP) of grave consequences if the decision is taken against their will.

Awami National Party (ANP) from North West Frontier Province supports the sell-off deals but wants their member to parliament to be appointed as the oil minister before the agreements are signed. On the other hand, Muttahida Qaumi Movement, a major partner in both Sindh and federal capital Islamabad, has threatened to mobilise a mass movement against the planned sales of the oil and gas fields. "In this scenario selling energy assets and expediting privatisation effort is one sure ticket to wriggle out from the current financial morass," said Saad bin Ahmed, head of research at Capital One Equities.

 

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Land acquisition, resettlement plan: Rs 116.7 billion Bhasha Dam project PC-1 approved​

ISLAMABAD (September 19 2008): The Central Development Working Party (CDWP) on Thursday approved the Wapda's PC-I, amounting to Rs 116.7 billion of Diamer Basha Dam land acquisition and resettlement plan. Deputy Chairman Planning Commission Salman Farooqui chaired the meeting.

The 272-metre high Diamer-Basha dam will be highest roller compacted concrete (RCC) dam in the world with more than 100-kilometre long reservoirs. Live storage capacity of the reservoir will be 6.4 MAF. The project will generate 4500 MW electricity.

The dam will contribute more than 18,000 giga watt-hours of electricity annually. This will also help the government to cope with increasing demand of water. The project will also be an important step in increasing the ratio of low-cost hydel power in the national grid.

Basha is a project of immense importance and will be the biggest project ever executed in any sector in the country. The pre-qualification process of the contractors has already been initiated and is likely to be completed soon. The construction on the project will commence next year following international competitive bidding (ICB).

It is worth mentioning that the development vis-a-vis construction of Dimaer Bhasha Dam project is a reflection of the commitment of President Asif Ali Zardari, Prime Minister Syed Yousuf Raza Gilani and Minister for Water and Power Raja Pervaiz Ashraf for harnessing the water and power resources in view of the current scenario of the country.

 

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Pakistan's vicious financial and economic circle​

ARTICLE (September 19 2008): The fact that inflation is rising almost everywhere suggests some of its causes are global. For now, rising food and energy prices are inflation's prime drivers. Core inflation, a measure that excludes volatile food and energy prices, is not rising as quickly as overall inflation. But commodity-price gains are beginning to work their way through the global economy.

Even if commodity prices stay where they are, global inflation could continue rising for months to come as companies react to previous price rises. High food and energy costs hit developing countries, including Pakistan, where consumers spend a larger share of income on those necessities.

Apparently the tattered economy has been hit hard due to deteriorating socio-political situations, war going on in the northern areas and rising inflation. The Consumer Price Index (CPI), that is the most relevant tool of measuring inflation of consumer goods, registered a drastic hike and increased by 25.33% over August 2007.

This outrageous inflationary behaviour is imposing detrimental high costs on our society and is severely hurting the poor 'common man' class that makes up a majority of our debilitating economy. Higher inflation has resulted in a spurt in interest rates and hit the car and other retail loans market, besides hampering the expansion and launch of projects planned by corporates.

The government is unable to reign in the surge in the inflation rate because the price of several other commodities like sugar and cotton has shot up. Along with the rising inflation, the rupee continues to depreciate against the US dollar. The weakening rupee is pushing up prices of imports, ricocheting 'cost increase' impact right down to the final consumer that is already burdened up with ever increasing utility, fuel and food bills.

The story does not conclude in a dismal end here. Inflation, eroding away the purchasing power of masses and making financing dearer for corporates consequently reduces affordability. Low affordability threshold results in a sliding demand. Dropping demand curve means that companies' revenues get hit and they tend to offset it with cost saving/reduction initiatives and this fuels the nightmare of stock markets.

As Pakistan does not have any developed debt (bond) market, a huge proportion of investments make its way in the stock market. Given that our stock market is not governed by fundamentals but whims, fancies and herd mentality as shown many a time in the past, the hyper inflationary scenario wreaks havoc on investors. Inflation robs investors by raising prices with no corresponding increase in value.

One has to pay more for less and even that less a return, if there is any, needs to be paid back to institutions as margin call and eventually an investor, at the end of the day has to pay off from his own pocket and ultimately he breaks down and defaults. This is what happened with Karachi Stock Exchange (KSE) whereby stocks have lost over 45 per cent since January, including more than 12 per cent in just one week after the resignation of former President Pervez Musharraf.

The Board of KSE froze the floor of KSE 100 index at 9,144 points amid continued recession and unabated downslide at the stock market. Although such an action seems preposterous in an institution that supposedly has to run on the vagaries of free demand and supply notions. Yet in the wake of the current situation of Pakistan this was the best regulators could come up with.

Theory suggests that exchange rate management, coupled with restrictive monetary policy, are the twin objectives in the quest for combating inflation in a hyper inflationary economy. This is exactly what the State Bank of Pakistan (SBP) has been doing. But is it going to work in the case of Pakistan?

There is a serious doubt about it because the government is one of the key borrowers to fund its alarmingly widening budget deficit and finance its import bill of oil on the back of ever weakening rupee.

SBP has raised the discount rate to 13.00% which will make financing dearer for government and eventually will be borne by the public in the form of taxes and surcharges or if the government tries to save the people from this burden, it will resort to printing new money and both these measure will further erode the purchasing power of the public and result in further inflation.

The only solution that appears feasible is that along with the tight stance of SBP measures monitoring the demand side, the government should try to take measures to enhance the supply of the of the products in order to effectively and collectively combat this vicious circle, else it will go on and on and any single sided steps will further fuel its ferocity.