Pakistan Economy - News & Updates - Archive

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Saturday, June 10, 2006

QUETTA: Exhibiting unprecedented unity, members of the treasury and opposition benches in the Balochistan Assembly on Friday unanimously passed a resolution, seeking royalty for the province in the multi-billion dollar Iran-Pakistan-India (IPI) gas pipeline project.

The house unanimously approved Leader of the Opposition Kachkol Baloch’s adjournment motion as a resolution that the government must provide Balochistan its share of royalty in the proposed 2,600-km IPI gas pipeline project.

Baloch, who initiated the two-hour debate on the IPI project in the session with Speaker Jamal Shah Kakar in chair, said since the proposed $7 billion pipeline would be laid down on the territory of the Balochistan, the province was justified in demanding its due share of royalty. “The people of Balochistan, irrespective of their political and lingual differences, are convinced that the benefits of the project must firstly reach the indigenous people of the province. The successive governments in the past deprived Balochistan of its due share in federal resources. Now it is the time the injustices with the provinces are halted,” he said.

Kachkol demanded the provision of free gas and job opportunities to the youth of the area from where the gas pipeline would pass. “The pipeline will enter Pakistan at Jawani in Mekran while coming from the Iranian Balochistan province. Article 172 of the Constitution agrees to the right of due share to the place from where the project will pass. Getting royalty from the IPI project is the legal, constitutional and ethical right of the Baloch people,” he added.

Regretting that the Balochistan government had not been consulted in negotiations, the opposition leader said it was the responsibility of the provincial government to draw the federal government’s attention towards the province’s rights. He said the current logjam in the province was the outcome of injustices done by Islamabad with the province. “If the people of the province are not provided royalty in the project, not only would the Baloch sense of deprivation, alienation and frustration increase, it would also fan the present cycle of violent movement,” he said.

Balochistan Finance Minister Syed Ehsan Shah supported the motion, saying the government welcomed positive steps taken by the opposition for the rights of the province. Balochistan Chief Minister Jam Mohammad Yousaf also supported the resolution. The assembly agreed that the project was a golden opportunity for the federal government to restore Balochistan’s confidence and redress its economic woes.

 

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KARACHI: The Chairman Policy and Planning Cell of the Ministry of Labour, Manpower and Overseas Pakistanis, Sabur Ghayur, has assured that the new employment policy being introduced in the country will be the outcome of thorough research and consultation with the partners and will meet the need of the country amidst current day challenges.

He was addressing the discussion event on employment generation opportunities and challenges organised by the Workers Employers Bilateral Council of Pakistan with the support of Solidarity Centre.

It may be pointed out that the policy and planning cell among others, has been assigned the task to formulate the National Employment policy.

Sabur estimated the annual flow of unemployed between 12 to 15lakh along with a backlog of 35lakh. He also estimated the underemployment to be about 20%.

Speaking on the occasion, the Chairman of WEBCOP Ehsanullah Khan expressed lot of hopes in the personal capabilities of Sabur Ghayur and the policy and planning cell believed that these deliberations will result in the development of an employment policy which could serve the country’s interest. He, however, expressed dissatisfaction over the working of Employees Old Age Benefit Institution and for not taking WEBCOP in confidence over the newly raised minimum wages.

 

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KARACHI (June 11 2006): The United States cut foreign aid to Pakistan by $350 million from the current fiscal year, a private TV channel reported on Saturday. According to details, the House of Representatives passed the appropriations bill that would reduce foreign aid, citing Pakistan's failure to do enough "to improve democracy and human rights".

The reduction aimed at registering protest against increasing lack of respect for human rights, especially women's rights, and lack of progress toward true democratic governance and rule of law.

The representatives were dismayed at unsatisfactory response from the Pakistani government of accusations cited in the bill and urged it to take remedial measures in this regard.

 

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ISLAMABAD (June 11 2006): Trade deficit widened to a provisional $1.159 billion in May from $807.9 million in April and $641.6 million in May 2005, official data showed on Saturday. The cumulative trade deficit for the July-May period was $10.63 billion against $5.50 billion a year earlier, the data from the Federal Bureau of Statistics showed.

Country's exports during July-May period of current fiscal year 2005-06 were recorded at $14.952 billion showing 16.4 percent increase over exports worth $12.659 billion realised in the same period of the last fiscal year.

According to the provisional trade figures released here on Saturday, the exports during the month of May 2006 totalled at $1.489 billion as against $1.378 billion achieved in the like period of previous fiscal year, showing 6 percent increase.

The exports worth $1.489 billion realised in the month of May are also up by 2.6 percent when compared with the exports worth $1.451 billion achieved in April.

During the first eleven months of current fiscal year (July-May), imports also witnessed 39.4 percent growth to $25.598 billion from $18.368 billion of the same period of last financial year.

The country's imports in May were recorded at $2.646 billion, witnessing an increase of 31.1 percent over imports worth $2.020 billion realised in the corresponding month of the last fiscal year.

Imports worth 2.648 billion realised in the month of May are also up by 17.2 percent when compared with $2.259 billion imports achieved in April this year.

 

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FAISALABAD (June 12 2006): The automobile sector of Pakistan has shown significant growth in the last couple of years, if an average annual growth of 30 percent per annum is maintained, Pakistan's market will cross the milestone of 500,000 units by the year 2010.

According to an official update study report, since 2001-02 the automobile market is growing rapidly by over 40 percent per annum and if an average annual growth of 30 percent per annum is maintained, Pakistan's market will cross the milestone of 500,000 units by the year 2010.

Long-term investment friendly policies of the government and up-gradation of production facilities are considered as pre-requisite by experts for achieving the automobile vision 2010 of 500,000 units, said official sources.

According to official report, Auto Industry is globally considered as the mother of all industries. The automobile industry is the largest segment in world trade. The annual size of the automotive exports has grown over US $600 billion, which accounts for about 10 percent of world exports.

In today's world, changing models, improving fuel efficiency, cutting costs and enhancing user comfort without compromising on quality are the most important challenges of the industry. The auto industry in Pakistan is fast growing and may soon begin to achieve economies of scale. This mechanical revolution has been aided in part to sound macro economic policies pursued during the last seven years.

Furthermore e-pass scheme for electronic goods, unchanged auto policy over the last few years, liberal adjustment of tax regime to lower duties on raw materials and intermediate products have also helped in rapid expansion of the auto sector.

The tremendous rise in automobile demand has resulted in increased production, giving a healthy impetus to the industrial output and generating over 150, 000 direct employment opportunities besides contributing tax revenue to the national exchequer.

Notwithstanding a manifold increase in car production in Pakistan during the last few years, Pakistan still stands relatively low in terms of motorization when compared globally and even to its neighbours. The automakers need to take into account, as the demand is lot greater then the supply. The graph below illustrates the comparison of motorization in Pakistan with some developed and developing countries of the world.

Major automobile companies in Pakistan have set up as joint ventures with foreign multinational companies, thus encouraging the inflows of FDI in Pakistan.

In view of the rising gap in supply and demand and with an outlook to lessen the hardship being faced by the tail-end buyers or users, the government allowed import of new and used cars at a reduced rate of duty.

Recently the government has allowed overseas Pakistanis to gift cars to their kin under gift baggage or transfer of residence scheme as well. Latest figures of the market share of each player in the car-manufacturing segment are given below. Pak Suzuki takes the lead with a share of 49 percent followed by Indus Motor at 25 percent. The rest is being shared by Honda Atlas Cars and Dewan Motors at 21 percent and 5 percent respectively.

Sales performance of different segments is given below. Production of cars in first nine months of 2005-06 increased from 87,104 to 112,478 units. Another 16,885 different types of vehicles were imported during July-Feb, FY06 under transfer of residence, baggage and gift schemes as compared to only 5,177 units in the same period last year, showing an increase of 230 percent. Production of cars in first nine months 112,478 units. Another 16, 885 different types of vehicles were imported residence, baggage and gift schemes as compared to only 5,177 units increase of 230 percent.

Despite ongoing import of cars units from other countries and increase in the production of cars in the country, the demand of cars in market is increasing day by day. The production of cars has registered a staggering increase of 127738 units as compared to last year's figure of 100213 (27.5%).

Production of truck units also increased to 3746 from 1999 (87.4%) in 2005-06 (July-April).

Production of motor cycles increased by 10.4 percent during July-April 2005-06 reaching to an all time high of 426,607. The production and sale of motorcycles is taken as an indirect measure to ascertain the standard of living of the middle class of Pakistan.

The production of motorcycles remained more or less stable during the late nineties but has sky rocketed since 2000-01 and further projections show it to be increasing even at a faster rate. Since production and sale of motor cycles have been taken as being synonymous with the standard of living of the middle class, we can safely say that the outstanding growth and economic stability achieved by the country during the last couple of years has slowly but steadily started trickling down to the masses.

 

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LAHORE (June 12 2006): PM's Adviser on Finance Dr Salman Shah said the current account and the budget deficit could be reduced, but as this would be at the cost of effecting current growth rate in economy, as the government does not want to embark upon such exercise.

He was speaking in a post-budget seminar here on Sunday. He said it was a big achievement that development trend had shown an upward path, despite earthquake and rise in prices of oil here.

Speaking about supply of commodities through Utility Stores, Salman Shah said the chain would be extended to the level of union council in the country. About bank borrowing target for the next fiscal year, he said it would be Rs 140 billion as compared to Rs 66 billion this fiscal year.

Speaking about effectiveness of 'Khushhal Pakistan Program', the adviser averred that its quantum would be doubled in future.

Salman Shah said that in order to curb artificial increase in prices, law pertinent to establishing 'Competition Authority' had been made and would be presented in the parliament shortly.

He said the government is also planning to announce support price of pulses soon, adding that Rs 100 billion subsidy announced in the budget was aimed to support downtrodden people in the country.

About the construction of five mega dams till 2015, he said these projects are necessary for maintaining compatibility of national productivity endeavour at the world level. Referring to a study of World Bank, the adviser said that effective utilisation of water in the sub-continent particularly India and Pakistan could be the most effective source to poverty alleviation.

Speaking about shortage of electricity in Karachi, he said this could only be dealt by increasing production level of energy here.

Speakers, including Dr Shahid Hasan Siddique, Dr A.R. Kamal addressing the seminar criticised the government for the increase in poverty level in the country. They said that despite tall claims of doing wonders, this level had shown a drop.

They said steps like supply of pulses at Utility Stores would make not much difference to end the plight of people in general, and asked the government to put more tax on rich in the future.

 

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KARAHCI, June 10: The import of second-hand cars, jeeps, sports utility vehicles (SUVs), etc., under various schemes saw a big jump of 225 per cent to 34,723 units during July-May 2005-06 as compared to 10,658 units in the same period last year.

Over 13,000 cars up to 1,000cc landed in Pakistan in the last 11 months under the Transfer of Residence, Gift and Personal Baggage Scheme as compared to around 525 cars in the same period last fiscal year. The import of jeeps (4x4) under various schemes touched 5,543 as compared to 552 units in July-May 2004-05. Around 3,500 vans were imported as against 375 vans in 11 months of the last fiscal year.

Some 3,390 cars (1,300 to 1,500cc) arrived in the country as compared to 55 cars, while in the 1,000-1,300cc category, 1,702 cars arrived as compared to 140 cars, Appraisement Collectorate figures revealed.

The figures show the passion among cash-rich buyers who are even not worried about the availability of costlier parts of these imported cars in the local market.

Auto parts dealers said there was no problem these days in getting parts and accessories of the imported cars but their prices are too high. Shaikh Mohammad Arman Hussain, Sindh circle chairman of the Pakistan Automobile Spare Parts Importers and Dealers Association, claimed that imported parts were now available in the local market, adding that six months back these parts were not available in the market.

“There are a few shops (12 or more) at the M.A. Jinnah Road Parts Market where imported parts are available,” he said, adding that there might be some problem for those vehicles whose volume of imports had been slow. Parts availability of imported cars and other vehicles depend on the volume of imports, he adds.

Against a vehicle population of nine million units by December 2004, the market needs parts worth over Rs80 billion annually, but legal imports stand at Rs10 billion per annum while the rest are smuggled. The local industry covered only five per cent requirement annually, he said.

Due to higher rate of 35 per cent customs duty, importers were bringing only those parts which were in high demand, he added.

Pakistani roads, already loaded with locally-assembled and decades- old used cars, now bear the brunt of imported cars on the back of consumers’ enthusiasm towards costlier cars, thanks to car financing schemes under which over 70 per cent cars are being sold (both locally-assembled and imported used cars).

The government netted Rs8.6 billion in the shape of customs duty during July-May 2005-06 from the import of 34,723 vehicles whose import value comes to Rs15 billion. In the same period last fiscal year, the customs duty collection was recorded at Rs3.7 billion from the import value of Rs5.6 billion of 10,658 vehicles.

However, the Appraisement Collectorate Group-V, after the computerisation of import procedure for used cars, has frustrated an attempt of illegal imports of two used Toyota Corolla, Suzuki van, Mini Pajero, Mazda truck and Toyota Vitz. The Appraisement Intelligence Branch has arrested three persons and started investigations.

A customs source said the Appraisement Collectorate had approached the insurance investigators and Interpol in Dubai, the UK and Japan after reports that stolen cars were finding their way into Pakistan.

The import of automobiles already exceeded the $1 billion mark during July-May 2005-06 and it may cross $1.5 billion by the end of the current fiscal year. Auto imports constitute almost 20 per cent of the machinery import group.

The country’s auto scenario marked the changes from August 2005, triggered by the liberalisation of car imports under various schemes to bridge the demand and supply gap.

 

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TOTAL investment in the country rose to a record 20 per cent of the GDP in the current year from the 18.1 percent last year, breaking a bad log jam of low investment for years.

The investment has been at the 16-17 per cent of the GDP level for too long, beginning with 17.2 per cent in 2000.

The main reason for the low investment has been the low national savings, beginning with poor domestic savings which have been declining since 2001-2002 when they were 18.1 per cent of the GDP.

As a result, the large scale manufacturing has a share of only 12.7 per cent in the GDP now with the small scale industry have a tiny share of 4.3 per cent. And embarrassingly for a poor developing country, the service sector has a share of 52.3 per cent in the GDP. And the share of agriculture in a largely agricultural country has shrunk to 21.6 from 25 per cent within a few years, in spite of the investment made in that sector.

So, the large scale industry recorded a growth of only nine per cent in the current year after a growth of 15.6 last year and 18.1 per cent, the year before, which is too disturbing, and the small scale sector recorded a growth of 9.3 per cent.

The biggest sector of large scale industry is the textiles. After $5 billion investment in recent years and its demands $5 billion more of investment for further expansion, the performance of the large scale industry should not be so unimpressive.

However, a new textile policy is under preparation and what miracles it would produce remains to be seen. Along with that a new cotton vision is being formulated and the two will go in tandem promising great results.

What is remarkable about the record 20 per cent investment is that it has happened in spite of the poor national and domestic savings, which have been falling despite of the high incomes.

The national savings this year is 16.4 per cent of the GDP, while it was 16.5 last year. Since 2000 – 2001, it has been 16.5, 18.6, 20.8, 17.9, 16.5 and 16.4 per cent. And the domestic savings since 2000-2001 has been 17.8, 18.1, 17.6, 15.7, 14.5 and 14.4 per cent.

The domestic savings have been following the same trend since 2001-02 despite the improvement in per capita income which has now reached $847 from $503 in 2001-02. Evidently, much of the apparent prosperity in the country is a result of bank borrowing through consumer credit or the outcome of speculation in the real estate or the stock exchange.

Evidently, the gap between the investment and the national savings has been filled by foreign debt, foreign investment or foreign savings like the home remittances of Pakistanis overseas.

Pakistan has even otherwise the lowest savings rate in the region and among many developing countries and it ought to improve it quick to lend real monetary muscles to its economic growth.

Some of the money which went into investment are the privatisation funds, but the foreign funds are not direct foreign investment as they have only replaced the Pakistani investment. Only the funds invested including the locally raised, for new projects, can be called real investment. So there is some overlapping here which must be separated for statistical purposes.

We need far larger savings to cushion well the investment, otherwise some of the money can be pulled out easily and some of the enterprises left dangling.

Already, we have a few cases of Pakistanis bidding for the privatisation projects and not paying up when the time comes. So, evidently our bidders are not resourceful enough or they are bidding for more than they can afford.

There are many reasons why national and domestic savings are low in Pakistan. High and sustained inflation, far exceeding the official figures erode the savings. The poor return on savings deters the savings.

The small facilities for savings in Pakistan handicap the savers. Dishonest practices in the national savings organisation discourage the savers. So they opt for subscribing to phoney schemes and get cheated in the process. If there can be a massive scandal in the city court post office resulting in loss of crores of rupees, despite the fact the post office received the savings of the lawyers, the kind of cheating in other post offices is easily understandable.

Muslims societies are supposed to be high living and high spending societies. And local cheats promise large rewards and dupe widows and other gullible persons so the government has to make special efforts to protect the savers from spurious schemes. And insure the deposits as well.

Banks usually give low returns on loans, while charging high interest on loans and that discourages the savers. And the stock exchange has proved to be too risky a place for the small investors. Hence they have to rely on mutual funds which carry their own risks.

The government has done well to increase the deposit rates of the national savings organisations and the interest on prize bonds. But it is making no effort to make the banks enhance their deposit rates.

The government is to come up with a cotton vision 2015 next month to raise the output of cotton to 20 billion bales by the year 2015. The target has a span of ten years to achieve. It is also coming up with a new textile policy with value addition as its key objective. Officials say the textile exports alone have the potential to reach $24 billion in an international trade volume of $300 billion.

The poor performance of the large scale industry particularly textiles demand a totally new approach to the industry and make the textile industry realise its full potential along with the revitalisation of the cotton sector.

 

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Editorial...

BUDGET 2006-07 has been announced at a time when Pakistan’s macro-economic picture continues to reflect robust growth in most sectors of the economy.

With an average GDP growth of 7.5 per cent in the last three years, the economy continues to expand at a rapid pace despite catastrophic earthquake, sky-rocketing oil prices and adverse weather conditions slowing down the agriculture production.

Based on the overall performance post 9/11, there are signs that the economy has achieved a fundamental transformation and there are grounds for optimism that the current growth momentum is likely to sustain over the medium to long-term.

Nevertheless, there are down side risks to sustainability of the current growth momentum that need to be addressed. This review contains a brief analysis of the economic successes achieved so far, some key risks and challenges that lie ahead and the fiscal policies announced with the budget to address them.

State of the economy: As per the Economic Survey 2005-06, the economic growth has been 6.6 per cent, which is slightly lower than the targeted seven per cent. However, considering that the economy had grown by a record 8.6 per cent last year, this is quite an impressive performance.

The most important drivers of the current year’s economic growth are extremely vibrant services and manufacturing sectors that have sustained the pace of economic growth despite set back in the agriculture sector. Continuing surge in foreign trade, an exuberant banking sector and enhanced foreign direct investment partly arising from privatization of some major public sector entities, are the key drivers of current year’s growth.

Another key indicator that reflects sustained improvement, is the per capita income, up steeply from around $500 in 2001-02 to $847 in 2005-06. The factors responsible for sharp increase in per capita income include acceleration in real GDP growth, relatively low increase in population compared to the past and stable exchange rate over the past four years.

Reasons for better performance of the economy include: * Record increase in foreign trade reflecting continuing acceleration in demand in domestic as well as the global economies. A massive upsurge in imports is partly owing to drastic increase in oil prices and partly due to continuing rise in investment in plant and machinery as well insatiable demand for consumption goods. * On the external side, the global economy continues its broad–based expansion with growth reaching close to five percent in 2006 with similar expansion projected for the next year – which will be the fifth successive year of growth by more than four per cent. This has helped world trade to expand and at the same time the rapid expansion of global trade has been a key driving force for growth in almost every part of the world. * The growth in the region and more specifically in the countries surrounding Pakistan is beginning to have greater impact on the growth momentum. * Surrounded by fast growing economies such as China (nine per cent growth) in the North East, India (eight per cent growth) in the East, Afghanistan (which is growing at a very fast pace) and Middle Eastern countries in the West that are flushed with liquidity arising from over $300 billion annual oil revenue.

* Massive credit expansion, estimated at around Rs345 billion, clearly reflects the continuing appetite of the private sector. The demand can be gauged from the fact that the cumulative credit flow to the private sector in the last three years amounted to Rs931 billion as compared to total of Rs580 billion in the previous ten years.

* The total investment has reached 20 per cent of the GDP, owing to steep rise in private as well as public sector investment. The major factors for increase in investment are steep rise in foreign direct investment that is expected to cross $3 billion mainly on account of privatization of some large public sector entities and rapid expansion in public sector development programme.

Risks and challenges: Despite the superb economic performance of the economy, there are serious impediments and risks to growth momentum in future years. Many analysts assert that there has been overheating of the economy that has resulted in higher rate of inflation, asset price bubble and excessive consumerism. Some of these risks are summarized below:

Rising inflation: A major adverse indicator that has somewhat marred last two years’ performance is the steep rise in the inflation. While the growth may have brought riches to the few, the overwhelmingly large number of people living below the poverty line and lower middle income people have been rendered poorer owing to growing inflation that, even as per the government’s own admission, is estimated to be eight per cent. This rate, when seen in the perspective of previous year’s inflation rate 9.3 per cent, clearly reflects continuing escalation in cost of living compared to most other emerging markets.

More specifically, steep rise in sugar, cement, petroleum and house rents have made it extremely difficult for the common man to make his both ends meet.

Sustainability of agricultural growth: Despite some changes in the contribution profile of various sectors to GDP in the recent years, the agricultural sector continues to lead the way by contributing nearly twenty-two percent of total output (GDP). It also contributes substantially to exports.

Unfortunately, there has not been adequate investment to generate productivity gains from use of technology and modern agricultural practices and our yield remains low and dependent mostly on favourable weather. In the absence of major focus and large investment required, the growth of this sector is likely to remain cyclical.

Foreign direct investment: Although FDI during the year is expected to exceed $3 billion, bulk of it has been generated from sale of large public sector enterprises like PTCL, KESC and Pakistan Steel.

If we exclude privatization proceeds, the FDI would be reduced to around $1 billion, which is one of the lowest when compared to over $400 billion foreign direct investment that has gone to the emerging markets this year. This shows that Pakistan is still to appear on the radar screen of foreign investors.

A major reason for low FDI despite good economic performance remains the image of Pakistan abroad, law and order situation and continuing unrest in Balochistan and NWFP. Unsustainable trade deficit: Unlike most other emerging markets, Pakistan’s growth is largely generated by increase in consumption that has accelerated its imports to $28 billion in 2005-06, and the increase in exports estimated at $17 billion, which is far too low when compared to imports. The resulting trade deficit of $11 billion and the consequential current account deficit of over $5 billion, which have been met partly through FDI, privatization of major public sector entities and remittances, may not be sustainable in the foreseeable future.

Also, as the privatization of major public sector entities nears exhaustion in about a year’s time, not only this source of additional funding will dry-up, there is apparently no alternative major source of foreign currency inflows to meet the potential increase in outflows in the form of dividends / returns to the foreign investors from such entities.

Infrastructure and savings rate: Although there has been a major effort to increase the Public Sector Development Programme to build the infrastructure that is essential to sustain economic growth on a sustained basis, the actual utilization of the planned programmes invariably remains low. There is serious shortfall of energy, as is evident from escalating load shedding, and the investment and time required to add additional energy may be a major impediment to growth over the next few years.

Also, the rate of savings remains low when compared to the required investment. These factors pose significant risks and are likely to significantly hinder sustaining economic growth of around seven per cent over the next 3-4 years.

IT software outsourcing: Compared to the tremendous opportunity in this area, and unlike our neighbouring country India, unfortunately Pakistan has not been able to achieve even a small share of this global market. Last year, India’s software and services exports amounted to massive $46 billion for the fiscal year to March 31, 2005, up by 71 per cent from previous year and it is expected to cross $60 billion in current year.

The expected growth of Indian export of services over the next few years is likely remain above 30 per cent. As against this, Pakistan’s export of software and other services is so small that it is not even disclosed separately in the exports.

 

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The lopsidedness of the fiscal policies is also evident from the fact that the export of goods is virtually exempt from income tax but no such exemption exists for services, other than some IT enabled services. This is the key area that needs greatest attention of the government for sustaining future economic growth and balancing our trade and current accounts.

Budget features and impact: The budget 2006-07 clearly appears to be an election process with an unusually large public sector development programme of Rs415 billion, and consequently, includes a higher fiscal deficit target of Rs373 billion or 4.5 per cent of GDP compared to 4.2 per cent of GDP in the revised estimates for current year.

This is in contrast to the policy of fiscal discipline of the previous years. The proposed bank financing to meet this deficit is pitched at Rs140 billion.

In contrast to the past, this budget has proposed a number of incentives for weaker sections of the society that are likely to help in alleviation of poverty, albeit many of them may turn out to be intentions that are hard to implement. These include: * A number of incentives to agriculture sector, including exemption on duty on tractors and special incentives for livestock and dairy industry. * Rozgar (employment) programme that is planned to be subsidised by the federal government. * Relief to government employees through dearness allowance of 15 per cent, * Minimum wages increased to Rs4000 * Reduction in tax rates for salaried employees and individual tax payers, including increase in basic exemption, applicable on gross salary. * Subsidies to reduce sugar price and expansion in the number of Utility Stores.

An important feature of this year’s budget and economic survey announcements is, almost unbelievable results of Pakistan Integrated Household Survey (PIHS), as per which, it is claimed that the population living below poverty line has declined from 34 per cent in 2001 to around 24 per cent in 2005. Looking at ground realities, the results of this survey need further corroboration.

Sustaining growth: Several incentives and policies announced in the budget appear to be pro-poor but may not be adequate. Also, like in the past, implementation of policy announcements has been far from satisfactory, and there is no reason to expect a major change, given the same quality and level of administrative machinery.

Furthermore, there seems to be no serious effort for enhancing the competitiveness of the economy that is critical for sustaining the progress made in recent years mainly owing to changed external environment. The tax burden is extremely high and substantial relief required to reduce the cost of doing business has not been given.

The effective income tax rate which approaches 48 per cent (35 per cent income taxes+7 per cent WPPF and WWF+ 5.8 per cent income tax on dividends {(100-35-7)*10 per cent} acts as a strong disincentive to investment in the formal sector.

With the improvement of revenues, it was expected that over all corporate tax rate would be lowered by at least five per cent. Further, the rate of indirect tax in the form of sales tax at 15 per cent, which is a tax on poor and creates inflation, remains very high. It should be reduced to a maximum of 10 per cent.

Currently, the biggest challenge is whether the textiles will be able to compete in an era of quota free regime after the expiry of Multi Fiber Agreement last year. The initial period indicates falling prices as the competition for the textile markets begins to intensify.

While the exports have shown a growing trend mainly through larger volumes, the growth of imports have been much bigger. Unfortunately, Pakistan has not made substantial efforts that were required to enhance its competitiveness in the value- added products, by lowering the cost of production.

Most of the irritants such as high cost inputs like electricity, business disruptions, and law and order remain unresolved. While the government policies, including improvement in governance and policies aimed at achieving macro-economic stability have provided dividends, much more needs to be done to ensure sustainability of economic growth, which should be export-led and not import-based.

Nearly 60 per cent of our exports are cotton based and around 75 per cent are based on five products cotton, leather, rice, synthetic textiles and sports goods. In geographical terms, our exports are concentrated in few markets including USA, Germany, UK, U.A.E, Japan, Hong Kong and Saudi Arabia. Only USA takes around 24 per cent of our exports. Such a situation shows a serious vulnerability of our economy to a catastrophic event such as cotton crop failure.

The diversification of exports thus should be the primary objective of the government and the most viable sectors in which we could compete are the export of services such as IT software and other back office services, business process outsourcing and off shoring. Why can’t Pakistan emulate India? Without such diversification, and specially focused strategy on export of services etc. through enhancing the number of qualified and skilled people in these sectors, it will be extremely difficult, in the long run, to sustain the successes achieved in recent years.

For this purpose, the primary investment in future will need to be in our human resources-on education (including higher education), skill development and health. Looking at the budget and the medium-term macro-economic framework, both the investment as well as focus on human development is significantly less than what is essential to achieve and sustain the targeted growth.

 

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Sunday, June 11, 2006


KARACHI: The first flight of newly inducted 48-seat-plane ATR 42-500 of Pakistan International Airlines (PIA) flied to Gwadar on Saturday and from there it would take off for Muscat.

Tariq Kirmani, chairman and CEO of PIA, saw off the passengers of the inaugural flight at Karachi. The plane will return back through the same route.

PIA has signed an agreement to buy seven new ATR42-500 aircraft from Avions de Transport Regional (ATR).

The first ATR42-500 aircraft delivered to PIA arrived in Pakistan on June 2, whereas delivery of the remaining six aircraft will be completed by May 2007.

ATR is a joint venture between France-based European Aeronautic Defence and Space Company (EADS) and Italy’s Alenia Aeronautica, with each having a 50 percent share in the ATR program.

The ATR 42-500’s are replacing the Fokker Friendship Aircraft, which served PIA for over four decades before it was decided to phase it out of service.

Tariq Kirmani said: “After the induction of seven ATRs, PIA will acquire two additional ATRs having a capacity of 76 seats. Three 777 aircraft will also join the PIA fleet in December 2006 and later on in January and February 2007, respectively.”

Like its predecessor, ATR is also a twin-engine turbo prop, but incorporates latest avionics and is powered by PW127E engines made by Pratt and Whitney, Canada. PIA’s ATR fleet will be configured in two class with 10 economy plus seats and 38 economy class seats. PIA selected ATR42-500 after evaluating all the aircraft types available in similar category and made its choice after taking into consideration passenger comfort and operating economics as well as its performance for flying to/from the hot and high airfields.

The first ATR42-500 aircraft will be based in Karachi and PIA plans to operate it to the Mekran coast, southern Punjab and Gulf (Sharjah and Muscat from Gwadar).

 

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ISLAMABAD (June 13 2006): There is no change in the US foreign policy towards Pakistan because of $150 million cut in aid by Congress since the Foreign Operation Appropriation Bill 2007 is still under consideration of the US Senate, foreign office spokesperson Tasneem Aslam said here on Monday.

In her weekly briefing the spokesperson informed about the implementation of the Camp David Agreement 2003, under which president Bush announced $3 billion in economic and military assistance to Pakistan to be provided over a period of five years from 2005 to 2009 in instalment of $600 million a year.

"($)1.5 billion of this amount was meant for Economic Support Fund (ESF) and $1.5 billion was to be provided for Fund Military Support (FMS)," she elaborated.

She said that under this package, the US provided $701 million in financial year 2005; this included $300 million each for ESF and FMS and $101 million assistance for fighting narcotics, education support and other social welfare programmes.

In 2006, the US provided $695 million, including $350 million for ESF and $300 for FMS, she added.

In 2007, US Administration proposed $738 million including $300 million for FMS, $350 million for ESF, $50 million as announced in the Islamabad donors conference besides seeking additional $126 million as part of the $500 million US package for earthquake victims rehabilitation and reconstruction.

She said that during consideration in the House of Representatives, the US administration's request for $23.7 billion for US foreign operations for 2007 has been reduced to $21.3 billion with cuts of 2.4 billion in the Appropriation Bill 2007.

In case of Pakistan, the Congress has made a cut of $150 million, $100 million in MFS and $50 million in the ESF while raising the issues of human rights, women rights, democratic governance and rule of law on which the government has made its position clear on numerous occasions, she added.

She said that on its part, the US Senate is considering the bill and is yet to pronounce itself on what US Administration has requested.

"We have on our part raised the proposed cuts with the US Administration and we understand that the Administration would work to ensure that the original amount proposed by President Bush is restored" she added.

The spokesperson recalled that on previous two occasions, cuts were been made but later on the original proposed amounts were restored.

KASHMIR: THE CORE ISSUE Refuting the former Indian Foreign Minister Sinha's recent assertion that there was no documentary proof that India recognised Jammu and Kashmir as the core issue between Pakistan and India, the spokesperson said that the Simla agreement and the Tashkent agreement clearly talked about and recognised the final settlement of Jammu and Kashmir dispute, and these two documents haven't mentioned any other issue.

She said that any one who has read the history of Pakistan-India relations and followed subsequent events and tensions, cannot escape the conclusion that it is indeed the Jammu and Kashmir dispute that lies at the heart of problems and tensions between our two countries.

"Pakistan considers J&K as the core issue because of its gravity, because of its implications for the political environment, because of its implications for the Pakistan India relations, and most importantly J&K dispute relates to the fundamental rights of the Kashmiris and their sufferings" she emphasised.

She said that Pakistan had already proposed the ideas like self-governance, demilitarisation and joint management and the Kashmiris have welcomed these proposals, therefore, we can proceed further on the basis of these ideas.

About the role of Kashmiri leadership in the peace process, Tasneem Aslam said that our position is that Kashmiris should be part of the process, and they should be able to sit at the negotiation table.

"Since it is not acceptable to India, we are quite comfortable with other means, for instance Kashmiri leaders on both sides of the LOC are interacting with each other, they are interacting with the government of Pakistan and they are interacting with the Indian government", she added.

However, she emphasised that the three parties would have to be on board for any durable resolution of the Kashmir problem.

GAWADAR SEAPORT IS PURELY FOR COMMERCIAL PURPOSES In reply to a question the spokesperson said that Gawadar seaport is being constructed for purely commercial purposes and it would be opened to all international companies.

She said that the 'disinformation' that it would be used by China for military purposes, surfaces from time to time to create misunderstandings.

Gawadar seaport is opened to all Pakistanis who can go and see that it is indeed being developed solely for commerce and trade.

PRESIDENT'S VISIT TO SHINGAI She said that the President's China visit is taking place in connection with SCO, naturally when the President is there he will meet the Chinese leadership as well as leadership of other countries that would be present there in addition to meeting businessmen delegation and addressing think tank.

 

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ISLAMABAD (June 13 2006): Pakistan still awaits Indian response on shipping protocol designed to improve maritime relationships between the two countries and enable them to lift third country's cargo from each others ports. The lukewarm response by New Delhi has further delayed the finalisation of the protocol that was expected to be enforced in March this year.

While both the countries have been engaged for quite some time in confidence building measures and have taken a number of steps to improve their relations, the protocol for improvement in maritime relations has failed to draw Indian government's attention.

The two neighbours had pledged to revise the shipping protocol some four months ago, opening up their ports for lifting third country's cargo. It was believed that the revision of 30-year old agreement would pave the way for both the countries to enter into a bilateral maritime shipping agreement that will ultimately help in softening restrictions and liberalisation of trade through sea route. At the moment, there are various restrictions on lifting of third country's cargo by the flag vessels of both the countries from each others ports.

Interestingly, the Indian maritime authorities during their technical level talks with Pakistani counterparts last December had handed over a draft of maritime shipping agreement for consideration. It is to be mentioned here that now when the Pakistan cabinet has given its consent, the Indian side is mum over the issue and taking too long to finalise all the arrangements.

 

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KARACHI (June 13 2006): Total car production during the first 11 months recorded an increase of 28 percent, while sales depicted an increase of 23 percent, which bode well for local manufacturers, analysts said.

According to the latest available statistics, auto assemblers sold 140,100 cars in July-May FY06 as compared to 113,600 units in the same period last year, representing a 23 percent increase in July-May FY06 as compared in the period last year. Moreover, total car production soared by 27.8 percent from 112,600 units in July-May FY05 to 143,900 units in Jul-May FY06.

On MoM basis, May 2006 was a good month for local car manufacturers, as compared to April 2006, in which 14,900 units were sold and 16,200 units were produced compared to 14,100 and 15,300 units sold and produced in the same period last year, respectively.

Pak Suzuki sold 72,600 units in July-May FY06, which is a 26.4 percent increase compared to 57,500 units sold in the same period last year. The company sold 32,800 units of its Mehran model, which indicates 16.9 percent growth as compared to 28,000 units in July-May FY05. Suzuki Alto's sales, another vehicle that makes up a huge portion of the overall car sales, increased by 47.4 percent from 10,300 units to 15,200 units in 11 months of FY06.

Different variants of Honda City, one of the cars which has shown significant growth, indicated an increase in sales of 48.9 percent from 10,000 units in Jul-May FY05 to 14,900 units in Jul-May FY06. While Honda Atlas's other model, ie Civic's sales also improved by 4.4 percent in July-May FY06, from 11,200 units in July-May FY05 to 11,700 units. On the other hand, Corolla's sales have also improved to 27,600 units from 21,200 units in 11MFY06 from 11MFY05. Santro, one of the popular models of Dewan Farooque Motors, saw its sales improved by 16.1 percent from 5,500 units in 11MFY05 to 6,400 units in 11MFY06.

Abdul Azeem, research analyst at Investcapital Securities, said that the high engine capacities' cars are still on top in terms of market share in 11MFY06. This segment constitutes 43 percent of total car sales as against 42 percent during 11MFY05. Similarly, the 1000cc category's share improved from 26.2 percent to 28.7 percent in total car sales in 11 months of FY06. In contrast, 800cc cars share shrunk 28.2 percent from 31.6 percent in 11MFY06 as compared to same period last year.

Moreover, considering company-wise market share Pak Suzuki, the largest car producer, holds 51.9 percent share of total car sales against 50.6 percent in the same period last year.

Indus Motor has seen a decline in its market share from 25.5 percent to 24.5 percent in 11MFY06 as compared to the same period last year. Honda Atlas's market share stood at the same level of 19 percent in 11MFY06. Dewan Farooque Motor has also lost its market to 4.6 percent from 5.2 percent.

Azeem said that the outlook for auto sales remains robust for FY07 as well. Even though the leasing rates have started to edge up due to rising interest rates, the demand-supply gap has also started narrowing owing to import and capacity expansions, but still car assemblers have posted impressive sales performance in FY06.

"We expect locally assembled car sales to close out FY06 at around 155,00-156,000 cars sold, showing a healthy growth of 22-23 percent", said Azeem.

 

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KARACHI (June 13 2006): Airblue will add another four, two wide body and two narrow body aircraft, to its existing fleet of five aircraft to take its fleet size to nine within the next twelve months.

Shahid Khaqan Abbasi, Chief Executive Officer (CEO), Airblue told Business Recorder here on Monday that the new aircraft would include wide body A330-200 and A340-300 and narrow body A320-200 and A321-200. These aircraft would be acquired on dry lease of five to seven years. Negotiations with leasing companies in the United States, Europe and Singapore are in an advanced stage, he said.

With the induction of these four aircraft the seat factor would improve and passenger comfort enhanced. The entire fleet age would be eight years. The wide body aircraft would be used on the UK sector whereas narrow body would be pressed into service on the domestic and regional routes.

The Airblue CEO said that the airline was also evaluating the feasibility of acquiring a couple of Regional Jet (RJ) aircraft. The operating cost of RJ is low and fits in well in the Airblue plan to bring air travel within the reach of common man and low-income group people, he said.

Abbasi said that Airblue was the fastest growing airline in the private sector and during the last two years of its operations, it has shown lots of grit and determination in serving the people of Pakistan. The airline came into being on June 18, 2004 and would be celebrating its two years of successful operations on June 18, 2006.

He was of the view that the government should facilitate private sector carriers entering the markets, which are presently totally monopolised by national carrier PIA. For instance India and Saudi Arabia operations should be shared by private sector airlines, he said.

He said: "during the last two years of our operations, we have done well and nobody can point his accusing finger towards our capabilities and performance."

There is need for re-negotiating Air Services Agreements (ASAs) with Saudi Arabia and India, he said adding that liberalisation of visa policy between Pakistan and India also required immediate attention. He said, undoubtedly, India is a big market and "we are capable to make our presence felt provided the impediments mentioned above are removed," he said.

In July last year Civil Aviation Authority (CAA) had announced that ASAs talks aimed at expanding the existing bilateral frameworks with countries where private airlines wish to commence operations shall be conducted at fast track. By December 31, 2005, it was calculated that Pakistan side should be able to hold talks with most of the countries. Process for the talks with India, South Africa and Kenya shall be initiated immediately.

In fact this assurance was part of the announcement made on July 27, 2005 regarding grant of additional routes/frequencies to Pakistan private airlines. It is now almost one year but nothing is known so far about the progress made by CAA towards re-negotiating the ASAs. Even where multiple designation is available a formal clearance is required from the government before private airlines start their operations.