Pakistan Economy - News & Updates - Archive

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IMF says Pakistan’s economic situation is fragile ​

Thursday, October 09, 2008

ISLAMABAD: Estimating Pakistan’s financing gap at $7 billion in the current fiscal year, the International Monetary Fund (IMF) has said the country’s macroeconomic situation is very fragile and further significant losses in reserves would make it vulnerable to a crisis.

IMF Macroeconomic Assessment Letter about financial health of the country’s economy given to the Asian Development Bank on September 28, which paved the way for the release of $500 million, states that IMF’s staff preliminary projection for 2008-09 based on a continuation of the prevailing monetary policy stance, expected external financing and revised oil prices, saw external current account deficit of $14 billion (7.7 per cent of GDP).

With capital inflows of about $7 billion, the IMF staff estimates external financing gap of $7 billion. “Given the difficulties involved in forecasting capital inflow in an unsettled macroeconomic environment, this financing gap is subject to a high degree of uncertainty,” the fund further states.

The fund staff believes that tax revenues should be increased by at least 3-4 per cent of GDP over the medium term (from 10pc of GDP in 2007-08) by broadening the base of the general sales tax to services, taxing commercial agriculture under the income tax, eliminating other tax exemptions and significantly strengthening tax enforcement. On prospects of real GDP growth for 2008-09, the IMF says that GDP growth is expected to slow further to about 4.5 to 5pc in the current fiscal year while average inflation is projected to increase to 16 to 17pc owing in part to the envisaged pass through higher international prices of energy and food.

The country has set inflation target at 12pc for 2008-09. Recently, the country’s authorities specified their policy plans for the current fiscal year and stressed their commitment to addressing macroeconomic imbalances and putting the economy back on a sustained path.

Moreover, following the recent increases in the discount rate and the adoption of policy of greater exchange rate flexibility, the authorities indicated that the SBP stood ready to take further actions in this direction, as needed. The authorities also committed to meeting the government’s domestic financing needs through market based instruments and ensuring that both borrowing from the SBP is zero on a net basis at the end of each quarter, the IMF noted.

The authorities have taken some measures to by adjusting fuel and electricity prices as well as slowing down the development spending, further measures are required to achieve the target of reducing the fiscal deficit to 4.7pc of the GDP.

On the expenditure side, the IMF says, the authorities need to move ahead with planned increase in electricity tariff and with larger than budgeted reduction in other outlays to offset the impact of potentially higher interest rates on the government’s debt servicing.

This will require removing other subsidies, containing other non-interest current expenditures and carefully prioritizing development spending, said the IMF.

The authorities should also ensure the implementation of targeted social protection mechanism to cushion the impact of lower subsidies on vulnerable groups.

Regarding revenue generation, the IMF says a stronger than envisaged effort is needed to broaden the tax base by eliminating some tax exemptions.

On the monetary side, the IMF mentioned the recent increases in interest rates have been insufficient to stem reserve losses and eliminate the central bank financing of the government.

If the SBP follows guidelines outlined by the IMF, rupee will further depreciate against dollar in coming days, said market analysts. The IMF says looking beyond 2008-09, a further fiscal effort, together with continuation of tight monetary policy and exchange rate flexibility, will be required to notch a sustainable current account position and bring down inflation.

In particular, strong tax and policy administration measures will be necessary to further reduce the fiscal deficit.

 

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Dollar-based saving instrument for expats planned ​

Thursday, October 09, 2008

ISLAMABAD: The government is working on a proposal to introduce a dollar-based national saving scheme instrument for expatriates to attract dollars in the country, a senior government official told The News.

The government will offer expatriates better interest rates compared to interest rates they are getting in USA, UK and Middle East. The expats get only two to two and half percent on their deposits in their respective countries.

The government would give far better interest rates to expatriates that will help end the dollar crisis in the country. When asked if local people will be allowed to participate in the dollar based saving scheme, the official said it would lead to dollarisation in the country so this scheme would be confined only to Non Resident Pakistanis (NRPs).

In addition, for Pakistanis, the government is planning to introduce short term national saving schemes based on three months, six months and twelve months period and the scheme holders will be offered market based interest on higher side.

“We are replacing the old debt stocks by launching new schemes in order to attract more investments during the current fiscal year,” the official said.

Pakistan’s fiscal situation is on the decline owing to debt stocks maturity of Defence Savings Certificates (DSC) with 17 to 18 per cent interest rates, which was obtained by the last PML (N) government in 1997 and 1998 and after ten years these DSC matured in year 2007 and 2008.

The government’s plan for short-term schemes will be initiated next month in order to lure investments, which the National Savings Schemes have given back to investors after maturity of DSC.

To a question the official said that Central Directorate of National Savings has paid back Rs171 billion to investors after maturity of various savings schemes.

The government is also working a proposal to allow disabled persons of the country to benefit from highest ever 15 per cent per month profit on their investment in Behbood Saving Certificates.

 

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President to launch Rs 34 billion BISP for poor today ​

Thursday, October 09, 2008

ISLAMABAD: President Asif Ali Zardari is scheduled to formally launch today (Thursday) Rs34 billion Benazir Income Support Programme (BISP) initiated by the federal government for the poor and vulnerable segments of the society.

“Under the scheme, a poor family would be given Rs2,000 after every two months and as many as three million people will initially benefit from it,” said Information Minister Sherry Rehman while addressing a press conference here on Wednesday while giving details of the programme.

Flanked by Parliamentary Secretary for Information Azeem Daultana and Coordinator Benazir Income Support Programme Qaiser Bengali, she gave the salient features of the BISP, saying that it is intended to compensate economically vulnerable families for the erosion their purchasing power has suffered. “It is the third largest allocation in the current budget and constitutes 0.3 per cent of GDP and will cover up to 12-14 per cent of the population in low income bracket in the entire country, including Fata,the Northern Areas and Azad Jammu & Kashmir,” she added.

She said for families earning Rs5,000 per month, the Rs1,000 payout will amount to a 20 per cent increase in their current purchasing power. “At current flour prices, the additional Rs1,000 a month will be sufficient to finance 20-25 days of flour needs for a 5-6 member low income family,” she observed.

About disbursement, she said it will be made through Pakistan Post, delivered by postal money order at the recipient’s address, so that they do not have to incur any cost in obtaining the amount.

She further said work is under way to develop a ‘smart card’ system that will ultimately become the medium for disbursement for the programme as well as for other supports the government is contemplating to launch in due course.

She said that unique feature of the programme is that payment will be made only to the female head of the family and women’s empowerment impact is likely to be decisive, particularly in the context of social development.

To a question, she said that special attention has been paid to remote areas such as in Balochistan, Chitral, North and South Waziristan, Kohistan, and Tharparkar. “Apart from being the largest direct cash grant scheme in the country’s history, a distinguishing feature of the programme is that it is free from any element of political partisanship,” she added.

She said that all members of parliament, irrespective of party affiliation, have been provided with equal opportunity to recommend deserving families, based on specified criteria.” About the process of BISP, she said that each parliamentarian is being allocated 8,000 forms which would be distributed by MNAs/senators in their respective constituencies.

She said that filled in forms would be required to be verified by the union councillor as well as the area MNA. She said MNAs/senators will collect completed and signed forms in multiples of 500 and mail them via Post Office to Nadra in pre-addressed envelopes provided by BISP.

The information minister said the Nadra would transcribe and verify the information in 15 days and the final list would be posted on a website being created specifically for this purpose. She said the list would also be displayed at the General Post Offices of all areas across the country to ensure that those not having access to the Internet can also be informed.

Replying to a question, she said an internal monitoring mechanism is also being put in place to verify actual delivery of exact amount to the designated families. There will be five coordinators in all the four provinces as well in Northern Areas/Azad Kashmir for the programme and any complaint regarding irregularities by the post offices can be submitted to the regional Coordinators which will be resolved within 15 days after submission. About eligibility, she said, there is a strict criteria for the funds and only families with monthly income of less than Rs6,000 would be eligible to apply.

She said widowed/divorced women, those without adult male members in the family, those with any physically or mentally retarded person(s) in the family and those with any family member suffering from a chronic disease would also be eligible to apply but criteria for the family income to be less than Rs6,000 will apply in all cases.

The information minister said to ensure transparency care has been taken to obtain maximum objectivity in the programme, adding that this has been done by the separation of programme into management, recipient selection, verification, and disbursement processes.

She said the disbursement mechanism has been designed in a way that there is minimum intermediary involvement or human interaction in the process of transmission of funds from the treasury to the recipient. “Nadra, by way of CNIC has important information on identity cards holders of the country and this includes data on passports and bank accounts etc and CNIC has therefore been made as a compulsory condition for the purpose of applying for the scheme. Those with no CNIC are being provided a free-of-cost service to issue a CNIC,” she said.

Answering another question, she said the forms are protected through security code and they cannot be duplicated or reproduced and only original submissions would be acceptable. She said another important step towards transparency is the availability of the data through website as well as through post offices and added this data would be available for viewing for the general public. Anybody can review the data and point out anomalies, if any, to ensure judicious distribution of the funds,” Sherry said.

The minister said that the government considered every option for form distribution and verification and after months of consultations, it has decided that form distribution through parliamentarians is the best option.

She said involving parliamentarians also ensures judicious distribution of the funds across the country. All areas would receive equal attention through this system. All parties have a fair representation in both the Houses and all parliamentarians would be entitled to receive and distribute the forms. This is the best way to ensure the fair distribution of funds across the country.

She said this is a step in the direction of strengthening a representative system since parliamentarians are directly responsible for representing their constituencies and added this would also lead to greater public ownership of the programme by way of increased interaction between the parliamentarians and the public.

The minister said the display of information on the website as well as in the post offices would also act as a pressure for politicians to ensure that they do not favour any select group of people as a part of their political consideration.

 

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Joint shipping firm with Iran proposed​

ISLAMABAD, Oct 8: Pakistan and Iran agreed to enhance bilateral economic cooperation in various sectors, including energy, railways, roads and trade, besides exploring the need for establishing a joint shipping company to boost maritime cooperation and mutual trade.

The issues related to enhancing trade were discussed during a meeting between Iranian Ambassador Mashallah Shakiri and Deputy Chairman Planning Commission Salman Farouqui here.

Speaking on the occasion the Iranian ambassador said that his country was ready to export electricity to Pakistan, adding that Iran was already working on Sahara hydel power project on the river Chenab and had raised its capacity from initially proposed 65MW to 130MW through IPP.

He said that the present volume of trade between the two countries showed that the bilateral trade potential was untapped, adding that the volume of trade between Iran and other regional countries is significantly higher than that with Pakistan.

He pointed out that the main problem was lack of physical as well as institutional connectivity between the two countries and proposed to establish Pak-Iran joint shipping company that would enhance connectivity leading to increase in bilateral trade.

He also showed his country’s interest in enhancing cooperation in banking sector by opening up branches of banks in each other’s countries on reciprocal basis.

Deputy Chairman Planning Commission Salman Farouqui told the ambassador that Pakistan was interested in importing electricity from Iran as it was currently facing power shortage. He suggested bilateral negotiations to work out the modalities on pricing and transmission.

He promised to examine the proposal for joint shipping and said that Pakistan National Shipping Corporation would be asked to look into this matter.

Mr Farouqui also underlined the importance of modern railroad link between Quetta and Taftan. For this purpose, he said, funds could be raised together with Iran and by using the forum of ECO or the Islamic Bank.—APP

 

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Default reports termed mere speculations​

LAHORE, Oct 8: Federal finance ministry officials shrug off reports of the country’s possible default on its foreign obligations over the next several months as mere rumours. But they also don’t see dollars flowing into the country any time soon.

“This is all hot air,” a senior finance ministry official, who requested anonymity, said of speculations that Pakistan could default on its foreign repayment obligations when they become due in February if it didn’t receive immediate bilateral and multilateral assistance to shore up its foreign currency reserves.

The speculations about default got credence when the Standard & Poor’s downgraded Pakistan’s sovereign ratings to the junk category on Monday.

“We have enough reserves to cover our expenditures and avoid any immediate possibility of default. “Besides, we are expecting help from our friendly countries. Talks are already underway,” the official, who has worked at important positions in the ministry during the last seven years, told Dawn.

But he did not say how much foreign assistance was the ministry expecting in the short- to medium-term, and when.

Islamabad is already sending a delegation to the United States for talks with the international finance institutions (IFIs) including the World Bank and the International Monetary Fund.

But another finance ministry official warned against attaching “any hopes with the meeting”. “It’s a routine meeting that has been set for this month. It is not going to yield any dollars for Pakistan over the next few weeks,” he said.

In answer to a question, he said the government had already received a tranche of $500 million from the Asian Development Bank (ADB) under a $1.5 billion credit-line negotiated with the bank several months back.

“That is all we are going to receive from the ADB this year unless it decides to extend another credit line,” he said.

The country is facing a difficult balance of payments situation as the foreign currency reserves have depleted to $8.135 billion including $3.45 billion held by the banks from above $16.4 billion a year ago in spite of $500 million provided by the ADB last week.

The foreign capital inflows coming in the shape of loans, grant and investment, which were used by Islamabad to cover its ballooning current account gap, have either dried up or slowed down during the last one year for a variety of reasons.

As a consequence of this, the exchange rate was under immense stress and the rupee hit an all-time low of 78.65/75 to a dollar in the inter-bank market on Tuesday.

Finance Minister Syed Naveed Qamar, however, sounds pretty much optimistic about the future. “We are expecting $1 billion from the ADB and $1.2 billion from the World Bank,” he told Dawn. But he wouldn’t say when.

“Foreign investors, particularly from the cash rich Gulf states, have also shown immense interest in the energy and financial sectors,” he said of the possible impact of global financial turmoil on Pakistan’s efforts to attract foreign investment.

“Money stays in circulation. If it finds a market in turmoil and risky, it moves to safer shores,” he added.

In reply to a question about the prospects of Pakistan issuing sovereign bonds in the international markets after the downgrade of its sovereign rating by the Standard & Poor’s, the minister said it would be difficult to issue government bonds at present.

But, he said, “we are proposing to float other instruments like securitisation of remittances where the government’s capacity to repay doesn’t matter much. On those instruments we will get a better spread.”

Replying another question about the Friends of Pakistan Group, the minister said the ADB and the World Bank were also interested in joining the forum launched in New York last month to help Pakistan cope with issues relating to terrorism, development, economic collapse, etc.

He acknowledged that Pakistan had not received any firm pledges of economic assistance at the forum from the participating countries. “(The donors/lenders) don’t always carry cheque books with them,” he said and added: “The forum is not an aid to Pakistan consortium; it is much wider than that though economic cooperation is also one of the points on its agenda.”

 

[Neo]

400 foreigners to attend Expo Pakistan​

KARACHI, Oct 8: The Trade Development Authority of Pakistan (TDAP) is expecting arrival of over 400 foreign buyers from 34 countries in the Expo Pakistan 2008 being held on Oct 27 to 30.

The mega event for the first time will witness foreign exhibitors as a number of companies have already confirmed their participation and booked space in the Expo 2008.

This was stated by TDAP director general Javed Anwar Khan at a news briefing here on Wednesday. He categorically denied reports that Expo Pakistan 2008 is being cancelled.

He said that the government is not canceling the mega business event which has the approval and endorsement from the highest level of policy makers.

The local exhibitors have overwhelmingly responded as it gives them the opportunity to display their products under one roof with high turnover of local and foreign visitors, he said.

The DG further disclosed that the TDAP has announced free of cost stalls for participants from remote areas of the country which will encourage business community having meager resources.

He confirmed that around 50 per cent of the exhibition space has been booked.

He said that leading world buyers and trade bodies and chain stores from US, UK, South Africa, Malaysia, Japan, Bangladesh, Germany, France, Argentina, Mexico, Norway, Brazil, Greece, Spain and UAE would participate in Expo Pakistan 2008.

 

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Economy to improve within 3-4 weeks: Tareen​

KARACHI: Newly appointed advisor on finance, Shaukat Tareen on Wednesday said that rumours about the bankruptcy of Pakistan are groundless and the government will not seal bank lockers or freeze the foreign currency accounts.

Shaukat Tareen said that economic situation would improve within three to four weeks and that some foreign inflows were expected which would stabilise rupee.

Talking to journalists at Karachi Airport before leaving for Washington, he said a reform process would be initiated to improve the economic situation of the country. “The economy will show improvement within three to four weeks. Particularly, there will be foreign inflows which will help stabilize the rupee,” he added.

He said the rupee was kept at a certain level artificially for last three to four years and it had been overvalued. “The current value of rupee is more reflective of market conditions,” he said.

About reports of banks’ bankruptcy, he said: “We wouldn’t let banks go bankrupt.”

He said he was leaving for Washington where he would meet IMF officials and talk to them about reforms needed by the Pakistani economy.

He would also talk to officials of friendly countries to seek their support for Pakistan’s economy.

He remarked that the forex reserves had depleted because of high oil import bill. Now that prices of oil are coming down internationally, stability in foreign exchange reserves can be expected, he added.

He alleged that there were some speculators who had stocked the US currency to exploit the situation. Besides, he said, some banks had formed a cartel to take advantage of the fall in rupee’s value.

Commenting on the decision to place floor under the Karachi Stock Exchange’s index, he said that it was ‘wrong’. He informed that an exclusive fund would be established through non-residents to provide support to the share market.

APP adds: Shaukat Tareen said the government would devise a special strategy to alleviate poverty from the country and would increase annual growth rate by promoting agriculture and industry, adding that special measures would be taken to promote our agricultural sector.

“We can afford decline in annual economic growth rate but not increase in national imports,” he added.

“The government is striving to resolve all the issues confronting the local industry and it would welcome the positive suggestions and recommendation from the business community in this regard,” he added.

The Advisor said that Pakistan was not facing that financial crisis like some other countries because our banking system is on sound footing. However, there is lack of confidence and the major issue is the deficiency of the capital, which would be resolved through effective policies being formulated by the government.

He said on his return from the US visit, he would help restore the confidence of the investors to assure them that the economic reforms would continue and no basic change would be made in the economic policies of the country.

He said not only the local, but also the foreign investors would be taken into confidence to establish the fact that the government is business-friendly.

SBP tries to reassure public: The State Bank of Pakistan has categorically denied rumours regarding freezing of foreign currency accounts and sealing of lockers at banks.

Describing the rumors as ‘totally baseless’, State Bank’s spokesman said in a statement on Wednesday that there is no such action under consideration at any level.

The spokesman pointed out that foreign currency accounts are already enjoying protection under Foreign Currency Accounts (Protection) Ordinance 2001. The general public is, therefore, requested not to pay any attention to such rumours and continue their business normally, the spokesman said.

 

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‘Satpara Dam Project’ to be presented on 11th for approval​

* CDWP to approve the project, which costs 130% more than the previously presented one worth Rs 2.090 billion​

ISLAMABAD: The government is likely to present ‘Satpara Dam Project Revised’ for approval with 130 percent higher cost of Rs 4.805 billion against the earlier cost of Rs 2.090 billion, Daily Times learnt on Wednesday.

The power generation and irrigation related project is probably to be approved in the Central Development Working Party (CDWP) scheduled to be held on 11th of this month.

The project would help in reducing prolong load shedding in the country. Other objective of the project is to provide water for agriculture purposes. The government has already allocated Rs 100 million in the Public Sector Development Programme 2008-09.

The project demands implementation on fast track for completion in stipulated time period (January 2003 to December 2006) already lapsed. Original PC-1 of the project was approved by the ECNEC on Septemeber 2, 2002 at cost of Rs 2.090 billion including foreign exchange component (FEC) of Rs 195.786 million. Now the sponsors have submitted a revised PC-I at a capital cost of Rs 4.805 billion. Location of the project is across Satpara Nullah, the downstream end of the Satpara Lake, which is about 6 km south of Skardu Town.

Main objective of the project is to provide sustainable irrigation water supply to an area of 15,536 acres of land in Skardu and to generate 17.36 MW of electricity, an official in the ministry water and power told Daily Times here on Wednesday.

The project would also help integrated water resources’ activities by providing 3.10 million gallons per day drinking water to Skardu Town and nearby villages.

The official informed that the economy of the Skardu area was largely dependent on agriculture. However, the yield per acre was too low due to non-availability of irrigation water. The agriculture land lies about 50 to 150 feet above the level of Indus River making gravity irrigation supply impossible from this source.

Presently, the irrigation water supply around Skardu is derived from perennial stream locally known as Satpara Nullah and some semi continuing streams flowing down the Deosai plain. All these combined factors are the reasons for inadequate water supplies and consequential low crop yields.

There are two hydroelectric power stations of a total installed capacity of 1,200 KW are functioning on Satpara Nullah, still most of the villages surrounding Skardu town and many houses within the town are not yet provided with electric power due to power shortage. The people deprived of electricity use expensive imported kerosene oil for lighting purposes, the official maintained.

Only about half of Skardu town’s population is provided with potable water and the people in villages store water from the watercourses in their underground katcha tanks for winter season and use it for drinking. Due to protected water rights of certain people in the area, during low periods, the supply of potable water is also restricted due to power shortage and additional water cannot be tapped for drinking purposes.

To resolve these problems, the official said construction of a dam on Satpara Nullah was proposed. The stored water would be raised to improve power generation of the existing stations and to generate additional power from the new powerhouses. The water would also be utilised for domestic use and for irrigation of the lands around Skardu Town.

 

[Neo]

Pakistan drops 9 places on global competitiveness index​

GENEVA: Pakistan fell nine places on the Global Competitiveness Index for 2008-2009 from number 92 last year to 101. The rankings are based on a poll conducted by the World Economic Forum (WEF) that asked 12,000 business figures to assess 134 national economies. USA, Switzerland, Denmark and Sweden topped the list in that order. India dropped from number 48 to number 50. Burundi, Zimbabwe and Chad were at the bottom of the list.

The WEF is a non-profit foundation best known for its annual meeting in Davos, Switzerland which brings together top business and political leaders to discuss the most pressing issues facing the world. ap

 

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$7.427 billion needed for import of refined POL products: ECC informed ​

ISLAMABAD (October 09 2008): An official working paper presented to the Economic Co-ordination Committee (ECC) of the Cabinet says Pakistan needs $7.427 billion for import of refined petroleum products for 2008-09, $1.2 billion extra against $6.2 billion of the last fiscal year. This import bill does not include the financial cost that Pakistan paid for import of crude oil, which was over $4 billion for the last fiscal year.

The oil import figures quoted by the government in budgetary documents were over $11 billion. Refined high speed diesel (HSD) consumed more than half of total import bill. Its net import stood at $3.86 billion. Other refined imported petroleum products were furnace oil ($2.1 billion), jet fuel ($119 million) and motor spirit ($106 million).

Sources said the official working paper was presented to ECC in its last meeting to apprise it about the finances that the government would require during the current fiscal year for import of refined petroleum products.

"During 2008-09, total demand of petroleum products is estimated at 21.48 million tonnes. Of it 9.9 million tonnes deficit (against 9 million tonnes of 2007-08) would be met by importing refined petroleum products, valuing $7.427 billion. The remaining 11.58 million tonnes would be met by refining imported and locally produced crude oil," says the working paper.

The official estimates indicate that despite some dip in the oil prices in global market, Pakistan would need more money than the last fiscal year for import of crude oil from different sources. Pakistan is forced to import refined petroleum products, as its domestic refining capacity does not meet its requirement.

Pakistan has five refineries with total refining capacity of 1.3 million tonnes. It indicates a deficit of 0.848 million tonnes for the current fiscal year alone. The working paper adds that Pakistan's petroleum products' consumption in 2007-08, was around 19 million tonnes.

Of total consumption, 9 million tonnes deficit were imported in refined form and the rest 10 million tonnes were met through refining of imported and locally produced crude oil.

Pakistan's indigenous crude oil production is slightly over 4 million tonnes annually, which helps Pakistan to make some adjustments in the prices when the rates globally remain high. Historically, high oil prices and subsequently huge surge in import bill in 2007-08, is one of the factors, which pushed Pakistan's economy in red zone. The government is struggling to find some sources to pull the economy out of the red zone.

 

[Neo]

US asked to give MFN status to Pakistan​

MULTAN (October 09 2008): United States should give Pakistan the status of Most Favourite Nation (MFN) to make it economically stable, strong and prosperous, just as it has already given the status to other developing nations like Sri Lanka. President, Multan Chamber of Commerce & Industry (MCCI), Khawaja Muhammad Jalaluddin Roomi, expressed his views during his meeting with US Consulate's Political Economic Officer, Matthew Lowe, held here on Wednesday.

During the meeting he suggested that volume of exports to United States from Pakistan could be enhanced if US lifts its restrictions on Pakistani products in America as Pakistan is one of the allies of war against terrorism. Moreover, he said that terrorism and lawlessness was an international phenomenon and Pakistan is one of the major victims of it.

He said that there was a wide scope of joint ventures and investment in Pakistan in various sectors like electricity, oil & gas exploration, textile, leather industry because their manpower and raw material was available in abundant. He said that Pakistan imports wheat un-milled, Pulp and waste paper, Old clothing's, Petroleum and Petroleum products Soya bean oil, Crude, Pharmaceutical products, Fertiliser NS, Nitro/ phosphates.

Di-Ammonium phosphate (DAP), Organic chemicals, Iron and steel, Power generating machinery/equipment, transport vehicle/equipment, general industrial machinery/equipment/parts, Telecommunication appliances/-equipment, Chemicals material and products Paper, paperboard and articles etc.

While it exports fish and other sea food, rice, vegetables and fruits, chilly powder, guwar gum, liquorices roots, leather and leather manufactures, textile yarn and fabrics, articles of apparel/cloth accessories, Surgical instruments, manufacture of metal, sports goods and others.

Matthew Lowe said that Southern Punjab was a very important area of Pakistan, which produces 80 per cent of total cotton produced and it also contributes significantly in wheat and rice, but this area has been neglected and less industry was set up in this area than required.

He eulogised the handicraft of this zone and suggested its introduction and recognition internationally. Mian Mughis' A Shaikh said that a display centre was being developed in Multan as prime minister had approved this plan. Khawaja Muhammad Yousaf said that elected representatives could play a vital role in reducing the cost of production so that Pakistan could compete in world market.

 

[Neo]

Lowering of Pakistan's credit rating​

EDITORIAL (October 09 2008): The credit rating of a country is a reflection of the state of its economy, particularly its ability to service its foreign debt, at a particular point of time. Given the fact that Pakistan's economy faces many challenges and its foreign exchange reserves are depleting fast, the international rating agency, Standard & Poor's (S&P), cut the country's sovereign rating further and consigned it to junk territory on 6th October.

While doing so, it stated that the worsening external liquidity may imperil Pakistan's ability to meet upcoming debt obligations, amounting to about three billion dollars. More specifically, the foreign currency debt rating was lowered to CCC plus from B, just a few notches above a level that would indicate a default, while local currency debt rating was reduced to B minus from BB minus.

The widely expected announcement came after Pakistan's foreign exchange reserves fell by 690 million dollars to 8.1 billion dollars during the week ended 27th September and the Pak rupee sank to a record low on 6th October. Reserves held by the State Bank came down to only 4.7 billion dollars from 5.4 billion dollars in the previous week, or equivalent to a little over two months of import cover.

S&P feels that the country faces the prospect of default on its debt due to continuously dwindling foreign currency reserves and denting of investors' confidence amid worries that urgently-needed economic reforms may be delayed in a year plagued by political and security concerns.

Pakistan, according to the rating agency, would require a huge amount of external assistance to meet its debt obligations, including 500 million dollars in bonds maturing in February, a sum that is difficult to get from outside sources in time. "The rating on Pakistan could well be lowered further if the foreign exchange reserve cushion continues to shrink and meaningful economic stabilisation measures remain wanting. S&P warned in its statement.

In our view, there can be no argument against the S&P's decision to lower our credit rating. Moody's Investors Services, a rival credit agency, had also downgraded Pakistan's bond rating to negative from stable on 23rd September, 2008, citing similar reasons.

It had also lowered the outlook on B3 foreign currency bank deposit ceiling to negative because of substantial erosion in the country's external liquidity position which was "not likely to be adequately reversed by prospective external assistance or ongoing efforts at macroeconomic stabilisation".

The reasons for the deteriorating outlook on the economy by the two most reputed credit agencies of the world are obvious. Though all the main economic indicators like the twin deficits, price level and exchange rate are worsening, the weakening of country's ability to honour its debt obligations due to rapidly depleting foreign exchange reserves position is the most damaging so far as investors' confidence and the market perception about the Pakistan's solvency are concerned.

Foreigners are neither concerned nor interested in the reasons, yet the fact is that the country is running a current account deficit at a level which is simply unsustainable. Due to an extremely stressful situation in the foreign sector in the recent past, 4.7 billion dollars in net foreign reserves now held by the State Bank mark a 67 percent plunge from a year ago and are hardly sufficient to finance a few weeks of imports.

Unfortunately, Pakistan is fast losing its foreign exchange reserves at a time when the prospects of raising money through asset sales or international bonds have become very difficult in the midst of a global financial crisis. The Asian Development Bank did approve a 500 million dollars loan last week to help Pakistan, but the country clearly needs far more money to cover the projected current account deficit of 14 billion dollars during 2008-09.

According to certain analysts, Pakistan would require loans amounting to about seven billion dollars from different sources, of which 3-4 billion dollars should be upfront to keep it solvent. The present gloomy scenario calls for urgent and bold initiatives to turn the tide and avoid default in payments which could have horrendous consequences for the economy and well-being of the people.

A sound macroeconomic programme needs to be devised and implemented earnestly and without losing more time to rehabilitate and strengthen the economy. This would necessarily involve very harsh measures which would not be easy to undertake in the prevailing political and security environment.

Since such policy measures will take a longer time to yield the desired results, foreign resources would need to be immediately mobilised from multilateral sources and other donors at a high level to fill the gap in the current account and arrest the decline in foreign exchange reserves.

The "Friends of Pakistan" forum and all the IFIs, including the IMF, must be persuaded to come to our rescue at this critical juncture. Needless to say, the existing rating would automatically be upgraded if we are successful in stabilising the economy and improving the balance of payments and reserve position of the country.

 

[Neo]

ADB conditions for $2bn loan accepted ​

Islamabad to withdraw power subsidy, eliminate circular debt, restructure PASSCO, enact new SBP Act by 2010​

Friday, October 10, 2008

ISLAMABAD: Pakistan and the ADB have signed official documents for loan facility of $1.8 to $2 billion over next two years under which Islamabad will have to withdraw power sector subsidy by passing on whole burden to consumers, elimination of circular debt of power sector, raising support and procurement price of wheat to market level and enactment of new SBP Act till June 2010.

The Asian Development Bank (ADB) has recently released a tranche of $500 million to cash-starved Pakistan under the Accelerated Economic Transformation Program. The Finance Minister of Pakistan and the President of ADB signed the agreement. A copy of the 114- page document is exclusively available with The News.

According to official document Pakistan has accepted the ADB’s condition to put in place market based wheat pricing and efficient reserves management by increasing support price to at least 80 per cent of import parity level by June 2009 and support and issue price of wheat be raised to market level till June 2010.

Pakistan and ADB also agreed that wheat reserves be set at three months of national annual average consumption requirements; and pursuant to this, administrative restrictions on domestic movement of wheat eliminated.

It was also agreed between both sides that the operational reserves for wheat should be eliminated and the strategic reserves capped at two months of annual average national consumption requirements as well as restructuring of PASSCO and the provincial food departments and directorates completed till June 2010.

The document states that the PPP government obtained Parliamentary approval to reduce electricity subsidies through: (i) elimination of generalized sales tax subsidies for all domestic consumers and up to 500 units for commercial consumers; (ii) introduction of automatic monthly fuel price adjustments through a surcharge; and (iii) introduction of an additional surcharge to be levied on all consumers to reduce the gap between determined and notified tariffs.

Work on estimating power sector debt overhang and circular debt has been initiated. Pakistan accepted that the circular debt in the power sector should be eliminated and the overall debt liabilities adequately settled while differential between the determined and notified tariff eliminated to reflect the actual cost of supply of power to end consumers (except lifeline households).

The document states that all past electricity subsidy payments worth Rs133 billion for financial year 2008 was fully settled, and Rs88 billion allocated in the FY2009 budget to partially cover the difference between determined and notified tariffs [for FY 2009].

The State Bank of Pakistan (SBP) has launched work on a new Central Bank Law that provides for greater autonomy and accountability of SBP in its monetary and financial policies, effective regulation and supervision of financial institutions under its oversight, and clarity in the role of SBP in financial safety net and lender of last resort functions. Both the ADB and Pakistan agreed that new SBP act enacted and key provision implemented by June 2009.

Payments Systems and Electronic Funds Transfer Act (2007) enacted, Real-Time Gross Settlement (RTGS) system launched and Centralized online system for retail payment systems established. Both sides agreed that RTGS fully rolled out and retail payment systems being implemented. Consumer Protection Department established in SBP and work launched on a Consumer Protection Law and it would be enacted by June 2009. Deposits Protection Scheme would be launched by June 2010.

 

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Late buying allows KSE to gain 2.62 points ​

Friday, October 10, 2008

KARACHI: Equities stayed flat on the Karachi bourse during Thursday session with thin buying in Pak Services in closing moments allowing a positive closing, otherwise it was about to conclude with zero point fluctuation on benchmark KSE 100-share Index.

The KSE 100-share Index recovered 2.62 points or 0.03 per cent and closed at 9,181.35 points. Market opened on a flat note remained intact at pre-opening level during session. The last moment change of 100 shares in Pak Services, however, moved index up.

This scrip generated total 2.62 points on the chief Index. Pak Services closed at Rs485 with a gain of Rs22. Parallel running junior 30-Index remained unbroken at 10,043.41 pre-opening level throughout the session.

Turnover in the ready market jumped up by approximately 43 per cent at 1.792 million as compared to 1.256 million shares a day earlier. Accordingly, the overall market capitalisation enhanced by Rs447 million to stand at Rs2.845 trillion.

Future market turnover, however, again produced zero shares against three thousand shares changed hands yesterday. CFS rate rises to new high level:

Rate on Continuous Funding System (CFS) counter rose to new high level of 62.97 per cent on an average from 54.88 per cent all time high a day earlier. Investment on this counter, however, further declined by another Rs300 million to Rs12.6 billion.

Small investors who use CFS financing for playing at the local bourses, were not trading since long. And those who were still working on this counter also want to exit the market owing to volatility in local and foreign markets, an analyst commented.

The reason for increase in CFS rate was said to be the pulling of funds by financers at the completion of 90-days commitment period, he added.

On the other hand, the foreign portfolio investors remained dormant for the second consecutive day at local bourse and made no transactions throughout the session.

Market analysts said that the State Bank of Pakistan's strategy to ease the pressure on rupee against dollar and major currencies worked, as its temporary reduction in Cash Reserve Requirement (CRR) by two per cent in two phases appreciated rupee against dollar on Thursday, they said.

They maintained that if rupee recovers its lost value even partially in the days to come the equity market would also react positively.

The strengthening of rupee would also lure back foreign investors, they hoped. Among 63 active stocks on board, 43 ended with no change, five closed in negative column and remaining 15 stocks closed on positive note.

Highest volumes were witnessed in Royal Bank at 0.510 million closing pegged at Rs28.67, followed by Meezan Bank at 0.450 million closing pegged at Rs27.20, Southern Electric at 0.282 million closing pegged at Rs3.90, Karachi Electric Supply Corporation at 80 thousand closing pegged at Rs3.80 and Dominion Stock at 70 thousand closing pegged at Rs5.70.

 

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Forex reserves up $186m after ADB loan ​

Friday, October 10, 2008

ISLAMABAD: Pakistan’s precious foreign currency reserves improved by $186 million in one week’s period and went up to $8.321 billion after receiving $500 million tranche from the Asian Development Bank, official data released by the central bank showed on Thursday.

Till the Feb 18 elections when PPP won the general elections, the country’s foreign reserves stood at over $14 billion which nosedived to $8.321 billion on October 4, 2008, registering a decrease of around $6 billion in the last seven months.

The Zardari-led government is making all out efforts to get dollar inflows from all possible avenues including its initiatives of Friends of Pakistan in order to control downslide of macroeconomic indicators, which is posing threat of possible technical default. Except the ADB’s tranche of $500 million, Islamabad has so far remained unable to materialise any other deal for attracting any programme or project loan or grant from bilateral as well as multilateral creditors. The newly appointed Advisor to PM on Finance Shaukat Tareen had hoped on Wednesday before leaving for Washington that Pakistan would be able to get dollar inflows very soon.

The rapidly depleting foreign currency reserves have resulted into putting massive pressure on rupee against the dollar which already touched its lowest level of Rs80 against one dollar. The country’s reserves had gone down to $7.8 billion on September 29, 2008 which jumped up to $8.3 billion after receiving $500 million tranche from the ADB during this week period.

Pakistan’s reserves position is quite vulnerable because the real reserves after keeping in view forward liabilities of over $1.5 billion, stood at around $3 billion, which can meet import bill demand of just one month.

Pakistan’s rapidly depleting foreign currency reserves have put pressure on rupee, which fell by over 24 per cent during the last two and a half month period, said official sources while talking to The News here on Thursday.

According to the central bank, the total liquid foreign reserves held by the country stood at $8,321.6 million on 4th October, 2008. The break-up of the foreign reserves position shows that the foreign reserves held by the State Bank of Pakistan stood at $4.866 billion while net reserves held by commercial banks (other than State Bank) were $3.455 billion.