Pakistan Economy - News & Updates - Archive

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Structural transformation in Pakistan: ADB urges clear corporate, business uplift plan​

FAISALABAD (October 19 2008): Asian Development Bank (ADB) has emphasised the need for establishment of a clear corporate and business development plan to achieve structural transformation in Pakistan. In a report on "Overall Growth and Competitiveness Concerns", ADB experts mentioned that Pakistan's contribution to global trade in high-value commodities is negligible.

The experience of the newly industrialised economies in Asia shows that robust growth needs to be sustained for at least 2-3 decades to have a significant and long-term impact on poverty reduction. With increasing links between more sophisticated markets across the region and the world, the government needs to set some clear targets for itself, and to develop the right policies and institutions.

While there have been many studies and some very good measures have been put in place by the government, it needs to establish a clear corporate and business development plan to achieve structural transformation, they added.

Commenting over the "Incentives for Investments", ADB experts stated that the Pakistan Government has implemented reforms to simplify cross-border trade and reduce tax rates to stimulate investment. Nevertheless, the payment of taxes and duties remains an impediment to doing business in Pakistan.

Businesses need to spend about 2 months a year (560 hours) to comply with tax regulations. Tax administration remains hampered by unduly bureaucratic processes with excessive scope for discretion and rent seeking by individual staff, lack of adequate systems of financial and physical control, weak human resources, and an absence of inspection controls in customs.

Discretionary powers need to be reduced and tax assessment and collection procedures that do not involve contact between taxpayers and tax officials introduced. This calls for better use of information technology and risk-based audit systems to reduce processing time, increase administrative efficiency and transparency, and raise levels of compliance, ADB experts added.

Commenting over the "Labour Legislation", ADB report stated that most surveys of business conditions in Pakistan indicate a major concern with the labour legislation. Businesses in Pakistan need to comply with from 72 to over 100 laws covering such issues as employment, working conditions, payment of wages and industrial relations.

The resulting complex web of legislation and institutions increases compliance costs and decreases both employers' compliance with the laws and the employees' effective protection from employers' abuse. Preventing Money Laundering, ADB report said, safeguarding the financial sector from being used to launder the proceeds of criminal activities is a key priority for the Government.

Under principle 18 of the Basel Core Principles for Effective Banking Supervision (2006) (Basel Core Principles), "supervisors must be satisfied that banks have adequate policies and processes in place, including strict 'know your- customer' rules, that promote high ethical and professional standards in the financial sector and prevent the bank from being used, intentionally or unintentionally, for criminal activities", it was explained.

ADB report said that it aims to develop and implement legal and institutional measures that will meet international standards to combat money laundering and the financing of terrorism, notably the Financial Action Task Force on Money Laundering's (FATF) recommendations on anti-money laundering and combating the financing of terrorism (AML/CFT), usually described as the FATF 40+9 Recommendations.

To this end, Pakistan has embarked on a range of efforts, including becoming a member of the Asia/Pacific Group on Money Laundering, a regional body associated with the FATF tasked with promoting implementation of the FATF 40+9 Recommendations in Asia and the Pacific, and committed to implementing international standards for AML/CFT.

At the national level, Pakistan adopted an Anti-Money Laundering Ordinance in September 2007. The ordinance provides the legal framework for AML activities, including recognising money laundering as a criminal offence and establishing a Financial Monitoring Unit (FMU) in SBP to receive and process reports of suspicious activities.

While the adoption of the ordinance is a significant milestone toward greater transparency, further improvements are needed. First, the Anti-Money Laundering Ordinance provides for a cumbersome supervisory structure consisting of a national executive committee and a general committee. The national executive committee includes relevant ministers, the SECP chairman, the SBP governor, and the director general of the FMU.

The general committee includes principal civil servants from the ministries represented at the national executive committee, the SECP chairman, the SBP governor, and the director general of the FMU. While the general committee is intended to provide assistance to the national executive committee in carrying out its functions under the Anti-Money Laundering Ordinance, it is unclear how this is supposed work in practice.

One national committee to develop policies and strategies for AML/CFT would be a better structure. The Anti-Money Laundering Ordinance also envisages that the director general of the FMU be supervised and controlled by the general committee. This is inconsistent with international standards and best practices, as the FMU should have financial and operational autonomy.

 

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Services trade deficit narrows down by 22 percent​

KARACHI (October 19 2008): The country's services sector trade deficit declined by 22 percent, to 1.2 billion dollars, during the first quarter of current fiscal year, mainly due to rising trend in services export. The State Bank on Saturday said that the services sector trade performance was very encouraging and the services sector deficit had reduced by about 356 million dollars during the July-September period of the current fiscal year.

During the quarter, services sector deficit stood at 1.238 billion dollars as against 1.594 billion dollars of the same period of last fiscal year. Economists said that although the services sector deficit had declined by about 22 percent but it was still at a high level, and should be reduced further in the future to save the forex reserves.

According to the SBP, the services exports presented a significant growth during the first quarter and surged by 67 percent, or 425 million dollars, to 1.053 billion dollars, as compared to 628 million dollars in the corresponding period of last fiscal year. However, this sector's imports continued to grow and increased by 69 percent, to 2.291 billion dollars, in this quarter, over the imports of 2.222 billion dollars of the same period of last fiscal year.

Economists said that increasing trend in exports of services sector was a positive indication, but the rise in imports was a matter of concern. They said that the huge import payments of transportation travel services, insurance, technical fees, royalties and government sector were the major contributor in the high import of services.

Meanwhile, during the month of September services deficit stood at 171 million dollars, with 629 million dollars exports and 800 million dollars imports. The country earned about 267 million dollars on account of transportation services, 57 million dollars from travel, 25 million dollars from communication, 7 million dollars from construction and some 488 million dollars in other government services during the quarter under review.

On the other hand, transportation payments stood at 999 million dollars, travel 425 million dollars, communication 29 million dollars, construction 10 million dollars, insurance 33 million dollars, financial sector 48 million dollars and computer and information technology sector payments at 30 million dollars in the July-September period.

 

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SBP bailout plan: business community shows mixed reaction​

LAHORE (October 19 2008): There was mixed reaction of businessmen and investors of Lahore on the State Bank of Pakistan's Rs 270 billion bailout plan for banks. Pakistan Association of Automotive Parts & Accessories Manufactures Chairman Malik Mohammad Aslam said that Paapam would welcome and support all steps taken by the State Bank to strengthen and stabilise the rupee.

He said that a depreciated rupee is neither in the interest of exporters nor importers of the engineering goods or raw materials. Former President of the Federation of Pakistan Chambers of Commerce and Industry Iftikhar Ali Malik welcomed the bailout plan as a prudent monetary policy but said all segments of society should perform their patriotic role and not buy dollar in panic.

The veteran business leader called upon the patriotic businessmen and rich people to bring their dollars in the market and foil attempts of Pakistan's enemies who are conspiring to destabilise it by weakening the rupee.

Former Vice President of Lahore Chamber of Commerce and Industry, Aftab Vohra opined that Rs 270 billion cash with banks would further surge the demand for dollar and depreciate value of the rupee. He argued that banks will utilise this money to buy dollars from the open market, invest in the speculative stock market or consumer financing.

A leading textile miller Mian Faraz Alam said instead of risky bailout for banks, the government should steer the textile sector out of crisis with a comprehensive relief package. He said the textile sector has the potential to boost the country's exports to $35 billion in a couple of year, remove the trade imbalance and stabilise the rupee.

 

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Capitol Hill paper urges fast-track economic assistance for Pakistan

WASHINGTON, Oct 19 (APP): Highlighting Pakistan’s sustained push against militants along its Afghan border, an influential Capitol Hill newspaper has called for fast-track economic assistance for the country as Islamabad’s envoy in Washington reaffirmed the democratic government’s commitment to simultaneously fight extremism and restructure the economy.

“Congress could play its part by passing legislation sponsored by Sens. Joseph Biden (D-Del.) and Dick Lugar (R-Ind.) to provide $1.5 billion a year in economic aid.

“The next president certainly will put more forces into Afghanistan. But as long as Congress is spending billions on bailouts and stimuli, it ought to be able to come up with a billion for strategic Pakistan Roll Call said in its latest edition.

The Biden-Lugar legislation has been endorsed by both presidential candidates and has won approval of the Senate Foreign Relations Committee but it remains to be voted by the full Senate and the House, where it is still to be introduced. The newspaper claimed Pakistan is seeking $10 billion to $12 billion in guarantees from the international financial institution, the United States, China and Gulf Arabs to tide over its financial difficulties.

Noting the US administration’s endeavors to help Pakistan, the Roll Call reported “the United States is helping with an IMF plan “ likely to be $5 billion to $10 billion, a State Department official said “ and Secretary of State Condoleezza Rice has tried to form a “Friends of Pakistan” consortium, but so far has gotten only “promises, not pledges or numbers.”

What Pakistan is trying to do, Ambassador Husain Haqqani said, is “fight a war and restructure an economy simultaneously. It’s not easily done.” The newspaper applauded the positive signs in the anti-terrorism campaign launched by Pakistan military under the civilian government. The analytical report noted the State Department and Pentagon officials acknowledge the Pakistani campaign under President Asif Ali Zardari.

“We have a tribal awakening program whereby the tribes are being mobilized to fight al-Qaida and the Taliban,” Pakistan’s ambassador to the United States told executive editor of the publication. Haqqani particularly cited the Pakistani forces’ actions in the tribal area of Bajaur, which borders Kunar province in Afghanistan, a stronghold of al-Qaeda-linked militants.

“And, we have used our air force for the first time, thereby diminishing the need for America to come into the Pakistani side and bomb,” the ambassador stated.

 

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IMF encourages Pakistan to accept funding ​

DUBAI (October 20, 2008): Pakistan should consider seeking an emergency support package from the International Monetary Fund, a senior IMF official said on Monday ahead of talks on Pakistan's restructuring plan.

Mohsin Khan, director of the Middle East and Central Asia department at the IMF, said Pakistan has not made a formal request to the IMF for emergency funds but that options were running out.

"Market borrowing is not an option, not in the current markets," Khan told Reuters in an interview.

Officials from the IMF and Pakistan will meet on Tuesday in Dubai to discuss details of the country's financial restructuring plan, which does not include IMF funding at this stage, Khan said.

Pakistan is rapidly losing foreign currency reserves, and analysts say it needs up to $3-4 billion urgently to stabilise the economy, although the total financing gap for the balance of payments was projected at around $7 billion for the fiscal year ending June 30, 2009.

Khan estimated that Pakistan had unmet funding needs of around $4 billion. "Where that money is going to come from is anybody's guess," he said.

Many wealthy donor nations are embroiled with their own financial crises, leaving few options for Pakistan, he said, other than some of the energy exporting nations in the Gulf and multilateral organisations like the IMF.

"There has been no formal approach to the IMF," Khan said ahead of the meeting. "Would I encourage them to? The answer is yes."

The IMF would be able to provide funding to Pakistan on favourable conditions with around 5-6 percent interest, Khan said, adding the most painful part of restructuring requirements -- the abolition of petrol subsidies -- had already been done.

"Were they to make a formal request, we can move really fast," he said.

 

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To attract foreign investment: CDA to hold property exhibition, road show in Dubai​

ISLAMABAD (October 20 2008): The Capital Development Authority (CDA) is planning to hold property exhibition and road show in Dubai with the objective to attract foreign investment in the real estate sector in Islamabad. These events aim to generate funds for development projects planned by CDA and to bring the scarce foreign exchange into the country.

This was stated by the newly appointed Chairman of CDA, Tariq Mehmood, in an exclusive interview with Business Recorder.

He said that these events in Dubai would take place in March or April next year, and the Privatisation Commission, the Planning Commission and other relevant departments would also be involved in this programme.

"We are facing acute financial crunch, which could mar the ongoing development projects of the Authority", Mehmood said, adding that the projected budget of the CDA for last fiscal year was Rs 25 billion, out of which Rs 20 billion was targeted to be generated through land auction. However, no auction took place during the last one and a half years. He lamented the fact that the major issue of water shortage had been put on backburner because of government focus on developing other infrastructure. This had forced the CDA to ration water in the capital.

"We need 125 million gallons water a day to supply drinking water to the inhabitants of the capital, while availability is just 51 million gallons a day. Thus, we are facing acute shortage of over 60 percent", he said, and added that besides water shortage 30 percent of available water is being wasted through leakage from outdated pipelines.

With the underground water table going down, several tube-wells have become useless, he said, adding that a survey was being conducted to dig the existing tube-wells deeper. He said that issue of water shortage was taken on war footing basis and it is expected that six small dams will be constructed in Islamabad.

Chief of metropolis admitted that most of the water in Islamabad is contaminated due to rusty pipelines and, in many places, water supply lines are mixed with sewerage lines. There is a problem in filtration plants, and a task force was formed to look into the matter thoroughly, he added. "We are looking to construct small dams on the pattern of the study conducted by Japan International Cooperation Agency (Jica) for construction of small dams in 1987", he said, adding that the task force on water was asked to review this study to meet the water shortage.

CDA, he said, had plans to bring a pipeline from Ghazi Barotha, at a cost Rs 47 billion, but this project is still to be implemented. Mehmood vowed that he would remove all procedural bottlenecks in this regard and work will be started on the project soon.

Talking of procedural and political bottlenecks of the Ghazi Barotha pipeline, he said that provinces have their share in this project while the capital was totally ignored. "We have 4000 to 5000 families from NWFP residing in Islamabad, 500 to 700 families from Balochistan and over 1500 from Sindh, while all provinces have their houses and fixed quota in federal government jobs and they have to accept the water share of the capital", he said. He said a special committee of senior and influential citizens from all four provinces was formed and merged to form a water task force to resolve the water issue of Ghazi Barotha pipeline.

Talking of his vision for the future, he stated that CDA would construct one 'Cineplex' at Murree Road, for which land has already been procured. A second Cineplex will also be constructed as soon as land is identified for it. He said that two international standard ladies' parks in F-7 and F-10 sectors would be developed besides ladies clubs in G and I sectors. He said that the park constructed for disabled persons had been completed and within a week or two it would be opened after formal inauguration.

About roads infrastructure he said that the Authority would give priority to all the on-going projects and would try to complete them on schedule. This includes expansion of Rawal Lake Park, up-gradation of Saidpur Village, Shakarparin Park, construction of important Avenues, roads, underpasses, overhead bridges, widening of Islamabad Highway, and so on.

He said in the past priority was given to road infrastructure leading from North to South in Islamabad while 9th and 7th Avenues have been constructed which have proved helpful in dealing with increasing traffic pressure. "But my focus would be on establishment of road infrastructure from east to west", he maintained.

He said that 11th and 10 Avenues will be built soon while Kashmir highways will be expanded to 5 lanes from existing 3 lanes. He said that Margalla Avenue will be constructed starting from Nicolson Monument at G T Road to Murree Road which will facilitate people coming from NWFP and Northern Areas. Regarding establishment of new residential and industrial sectors, Tariq said that ten new sectors, including 8 residential, one industrial and one institutional, are in the works.

He said that CDA is acquiring about 4500 acres land in Kurri, Jhaba Teli and Pindori; and the current residents of these areas would be settled in 'Model Villages' in these areas. "We have resolved the decades-long issue of E-11, F-11/4, I-11, I-12", he said. He said that his main focus would remain on beautification of Islamabad to make it a capital of international standard and an attraction for foreigners.

 

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AETP to help achieve, sustain 8 percent annual economic growth​

FAISALABAD (October 20 2008): Accelerating Economic Transformation Programme (AETP) will help Pakistan achieve and sustain average annual economic growth of about 8 percent from 2010 to 2020, through a process of structural transformation of the country's economy.

In a final project report, R. Subramaniam, Sector Director and Team Leader of Central and West Asia Governance and Finance Division (CWGF) of Asian Development Bank said that the AETP will provide the fiscal and implementation support needed to enable the Government to undertake and leverage reforms. The expected outputs of the AETP are: (i) the removal of existing distortions, thereby initiating structural transformation; (ii) strengthening of financial intermediation to support structural transformation; and (iii) development and implementation of a national structural transformation strategy, he added.

Subramaniam said that the AETP is structured as a cluster of four subprogrames over 2008-2011. Subprogram-1 attends to the urgent task of addressing the fiscal implications of the current food and energy crisis and short-term investment climate problems. It will initiate reforms that will be carried forward in the medium term. Subprograms 2-4 will build on these fiscal consolidation reforms and on analytical work and stakeholder consultation.

These subprograms will support the government to implement policies targeted at economic diversification and structural transformation. By addressing costly and inefficient subsidies in the energy and agriculture sectors, the AETP will provide fiscal space for the government so it can finance overall development efforts. By helping to raise confidence in the banking system through a stronger regulatory environment, the AETP will mobilise financial resources and help to develop strong financial institutions that can channel investments to their most productive uses, he added.

In tandem with a new industrial policy to diversify and deepen the industrial and export base, Subramaniam said that these efforts are expected to initiate an economic transformation that will enable Pakistan to sustain high economic growth.

AETP is premised on three key principles. First, Pakistan needs to address certain economic distortions in the short term, specifically by reducing and eventually abolishing inefficient subsidies and targeting them to benefit the poor and vulnerable. Second, Pakistan needs to deepen financial intermediation and increase financial sector stability and soundness. Third, Pakistan needs to diversify its economy and increase the share of industry from the current level of 26 percent of GDP and to increase the share of manufacturing with high value-added. In parallel, it needs to increase agriculture productivity and make its services sector produce greater value.

It is estimated that Pakistan will need more than $1.6 billion to transition from the inefficient subsidy schemes to a targeted cash transfer and food safety net programme in the first year of AETP, and about $3 billion to resolve the accumulated debt in the electricity sector. The AETP will help Pakistan to address the ongoing food and energy crisis in a systematic manner. Subprogram-1 is also one ADB's first responses to its developing countries' needs in the food crisis, first announced by the President at the Asian Development Bank (ADB) Annual Meeting in May 2008 and contained in the Board information paper ADB's Response to the Food Crisis, Subramaniam explained.

He pointed out that the Structural Transformation of an economy of the size and nature of Pakistan's cannot take place quickly or through rigidly prescribed conditions. To achieve the principles, the AETP sets out a 4-5 year design and implementation period, and a cluster structure of four subprograms that will provide flexibility to meet evolving circumstances. It sets out short-and medium-term actions, with changes to come beyond the programme period. The AETP will only tackle the policy issues, with a large number of procedural and process-related changes taking place in parallel to the proposed reform measures.

Subramaniam said that AETP envisages immediate reforms to remove pricing, procurement, or other finance-related distortions (eg, debt) in certain key sub-sectors such as wheat and electricity. Reforms are also needed in the financial sector to boost public and investor confidence. In parallel, Pakistan needs to initiate the process of structural transformation of its economy.

 

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314 small dams to be built in four years​

ISLAMABAD (October 20 2008): Three hundred and fourteen small dams will be constructed over a period of four years in the country under National Programme for Small Dams. The initiative will provide two million acre feet (MAF) of additional water to irrigate additional over four hundred thousand acres of land.

 

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Liquidity injection good, CBMs also needed​

EDITORIAL (October 20 2008): On October 4th 2008, the State Bank of Pakistan reduced the Cash Reserve Ratio (CRR) by one percent and announced a second reduction effective from November 15th to cumulatively provide Rs 62 billion liquidity to the banking system. After providing Rs 31 billion in the first stage, SBP Governor Dr Shamshad Akhtar flew out to Washington D.C. to hold discussions with the International Monetary Fund and the World Bank.

Meanwhile, the banking system came under increased stress as nervousness among bankers themselves caught on with clients and the liquidity gap in the system increased several-fold. As a result, the Governor upon her return, had to inject Rs 120 billion through an additional reduction of two percent in CRR, effective from October 18. Simultaneously Rs 120 billion of bank held government securities were freed from Statutory Liquidity Requirements (SLR), enabling the banks to use them to raise cash for meeting the pressure of withdrawals.

The new SBP move is nothing more than a single dose of a sedative analgesic, when a full course of strong antibiotics is still needed to remove the deadly infection afflicting the financial system. The root cause continues to cause unabated pain.

A solution to the fast growing current account deficit needing inflows of foreign capital cannot be found in printing rupees and injecting them into the financial system. The result of this failed policy is all too apparent. The monetary overhang of Rs 600 billion plus from the outgoing financial year is the source further fuelling imported inflation arising from high oil and food prices. Framing a budget, while using the traditional methodology, has resulted in further borrowing by the government - to the tune of Rs 262 billion - in the first quarter of the current financial year. Keeping the fiscal deficit at 4.70 percent instead of reducing it to below four percent for FY09 is just not tenable. During the July-September period, net foreign assets (forex reserves) have fallen by Rs 185 billion.

The currency-in-circulation has risen by Rs 98 billion. And, bank deposits have dropped by Rs 146 billion. All this has happened at a time when bank advances are seasonally expected to peak in the next two months, mainly for agri items such as cotton, rice and sugarcane. This situation requires at least Rs 300 billion. So the challenge for the SBP is to see that the infusion of liquidity trickles down in letter and spirit to meet the immediate need, as it is an inescapable requirement for exports as well as food import programme.

Borrowing from local banking system for the budget is carried out to meet the residual gap between expenditure and resources. These sources are: revenue; non-tax income receipts such as earning of public sector enterprises and fees, and, foreign funds such as loans and borrowings. Unfortunately, however, it is the virtual drying up of the last source which has resulted in bloating government bank borrowing.

Rising bank borrowing has diluted the impact of monetary tightening as core inflation continues to swell. However, the catalyst for last week's banking crisis is the capital market. Failure to restore political stability and bring an end to persistent uncertainty have caused flight of capital. The KSE is continuously sliding since April - the month after achieving a record high. This has made investors nervous. There was a mistaken notion that a virtual bourse shutdown through the placement of a floor, while denying a quick exit to investors, could somehow bring a semblance of stability.

This in fact resulted in redemptions on mutual funds, forcing money market open-end funds to withdraw their deposits from the banking system. What was a severe headache of the Securities and Exchange Commission of Pakistan's has now turned into a full-blown infection, which desperately needs strong medicine from the SBP, while the banking system requires a prompt surgical procedure.

SBP needs now to be proactive instead of reactive. It needs to meet treasurers and risk managers of each bank to analyse gap position and review credit lines availability and utilisation. After analysing the susceptibility on liquidity gap, Advance to Deposit Ratio (ADR) - prepare an anesthetic dose - and use its Open Market Operations (OMOs) to redistribute liquidity within the interbank market and manage the rates.

Banks which cannot balance the gap book within next three months, through change in both liability and asset profile should be ordered to undertake a rights issue. The rights issue should be at least one and half times the liquidity drawn from the interbank market. Otherwise, the persistent, liquidity borrowed be converted into equity. The dilution of existing shareholders would help in arranging a sale or merger. It would be difficult, in the current business cycle. However, every effort should be made to protect the depositors. A similar surgery for the non-bank financial sector is needed. Weak institutions must be handed-over to strong commercial banks for nurturing and growth.

The bulk of reduction in CRR and SLR, etc is set to go to the big banks, while the liquidity need of smaller banks and non-bank financial institutions is going to become more critical. The high level of Advance to Deposit Ratio (ADR) has been persistent for six months or more. Now the system average is said to be 75 percent. And, according to Governor Akhtar, since some banks are highly leveraged, they are being ordered to reduce the ADR to 70 percent within the next six months.

What will be the psychology of lenders in an ebbing business cycle? They will probably become more risk averse. Some of them will have the liquidity but they will be hesitant to lend aggressively. Others, who are at 80 or 85 percent ADR, will not lend at all. Without a reduction in circular debt of oil and utility corporates from the banking system, government's continued reliance on the banks would crowd out the private sector which seasonally is in a borrowing phase.

Providing liquidity is not a solution in itself. A mechanism to refinance the mutual fund industry, suspension of subjective provisioning as well as mark-to-market accounting rules may be needed. Bankers have become gun shy and standby and back-up facilities need to be in place. They may not be needed, but confidence-building measures (CBMs) are as essential as liquidity for stabilising the financial system.

 

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US diplomat warns no blank cheque for Pakistan​

ISLAMABAD (AFP) – The top US diplomat for South Asia met Pakistan President Asif Ali Zardari on Monday and warned that international donors would only give carefully targeted aid to the troubled country.

US Assistant Secretary of State Richard Boucher visited Pakistan as its leaders face a growing Islamic militant insurgency and major economic difficulties.

But Boucher warned that no hand-outs would be available from the "Friends of Pakistan" -- a group of nations, including China, the US, Britain and the UAE, which have pledged to help the country to stabilise.

"There is no money on the table," Boucher told reporters in Islamabad. "The goal is to put the money where it belongs. It is not a cash advance."

Pakistan has denied being at risk of defaulting on its foreign loans or suffering a balance of payments crisis.

Shaukat Tareen, the new finance adviser to Prime Minister Yousuf Raza Gilani, repeated at the weekend there was "no danger" of a loan default.

However, he admitted "plan C" was a loan from the International Monetary Fund.

Boucher's visit came after a series of US missile strikes into the country's tribal regions that have strained bilateral relations.

He and Zardari had discussed the "war on terror" and Pakistan's worsening economic problems, a Pakistani government official told AFP on condition of anonymity.

The United States says insurgents striking international troops in Afghanistan are based in Pakistan's border tribal belt, and has stepped up its missile attacks since a new government came to power in Islamabad in March.

Ties between the allies were further tested last month by US special forces in Afghanistan launching a raid into Pakistan that killed several Pakistanis.

Zardari has vowed zero tolerance against violations of his country's sovereignty amid the attacks, which have stoked anti-US sentiment in Pakistan.

In the latest of Pakistan's own military operations against Islamic militants, at least 12 Taliban were killed when jets and artillery pounded hideouts in a tribal region near the Afghan border, officials said.

The clashes took place in Bajaur, where Pakistani troops and militants linked to Al-Qaeda and Taliban have been engaged in fierce fighting since August.

 

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Pakistan May Need $10 Billion Over 2 Years, IMF Says ​

By Matthew Brown

Oct. 20 (Bloomberg) -- Pakistan may need as much as $10 billion from donors over the next two years to avoid defaulting on its debts, the International Monetary Fund said.

Pakistan calculated ``they needed financing somewhere in the region of $3 billion to $4 billion,'' IMF Regional Director Mohsin Khan said in an interview in Dubai today. ``We thought that it was closer to $5 billion; $5 billion this year and $5 billion next year.''

Pakistan may seek an IMF loan for the first time in four years to prevent the nation defaulting on its debt. Finance adviser Shaukat Tarin said Oct. 19 his country may seek a loan from the International Monetary Fund in a month should other lenders decline a request for as much as $4.5 billion in funds to help overcome an economic crisis.

Foreign-exchange reserves of South Asia's second-largest economy have plunged more than 74 percent to about $4.3 billion, enough to pay for less than two months of imports, in the past year and the country has $3 billion in debt-servicing costs due in the coming year.

Pakistani and IMF officials are meeting in Dubai over the coming days ``to look at the Pakistani program in much finer detail, to say that if Pakistan were to make a formal request, could we support this program or not,'' said Khan.

At the end of the meeting in Dubai, the IMF should have a ``firm idea of how much they need, who else is in the picture, and then it will be worked out what the IMF can do,'' said Khan.

All-time Low

The rupee slumped to an all-time low last week as the current-account deficit widened to a record and inflation jumped to a 30-year high. The local currency had its biggest gain in seven years today on optimism a bailout may help avert a crisis. Pakistan came off its last IMF program in December 2004.

``If I don't feel the comfort level with the multilateral agencies and our bilateral friends in three to four weeks, then I'll have to write to the IMF,'' Tarin said in an Oct. 19 interview.

Standard & Poor's, doubting Pakistan's ability to repay debt, cut the long-term foreign-currency rating on Oct. 6 to seven levels below investment grade, and said it may lower it again. Moody's Investors Service lowered its credit outlook to negative on Sept. 23, citing a risk of ``missed repayments.''

Pakistan has said it has almost removed subsidies on fuel by raising domestic fuel prices six times between April and July in line with global crude costs. Subsidies on electricity are due to be removed by June 2009.

Conditions Attached

``The most difficult measures that the government has had to take have been the elimination of subsidies and the commitment to zero net borrowing from the central bank,'' said Khan today. ``My guess would be that the other conditions that would be attached to any loan would be relatively minor compared to these.''

Pakistan's $750 million in 6 7/8 bonds due in June 2017 were quoted at a price between 40 and 43 cents on the dollar, according to a Bloomberg survey of four dealers. None of them reported trades today. The notes are lower after their initial sale in May last year at par, or 100 cents on the dollar.

Riskiest Borrower

Five-year credit-default swaps on the country's debt were quoted around 2450 basis points in New York on Oct. 17, making Pakistan the riskiest government borrower after Argentina. That means it costs $2.45 million annually to protect $10 million of the country's debt from default for five years. The cost reached a record $3.07 million on Oct. 6.

Pakistan's next interest payment on its dollar-denominated bonds is due in December and the government is scheduled to repay $500 million in February on a 6.75 percent note. Multilateral and bilateral aid may not be timely enough, S&P said on Oct. 6.

The South Asian country's balance of payments deficit widened in the quarter to Sept. 30 to $3.95 billion from $2.27 billion a year earlier, while the current-account deficit reached a record $14 billion in the year ended June 30, according to data provided by the government.

``A default is not on the cards,'' said Khan. ``A balance of payments crisis is much closer. Some people are saying they are already there; others say they are very close to being there.''

 

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Strict measures in place to put economy on track: Tareen​

Tuesday, October 21, 2008

ISLAMABAD: Adviser to the Prime Minister on Finance Shaukat Tareen on Monday said that the government had adopted strict measures to put the national economy on the right track. “An action plan will help bring in $3 to 5 billion in the foreign reserves within 30 to 45 days,” he optimistically told a TV channel.

He said that the problems of fiscal deficit and imbalance in payments would be addressed within 24 months as “you have to stand on your own feet. You have to build your reserves.” The adviser said that the country needed to create “revenue streams” in the long run to mitigate the financial problems and improve the living standard of the common man. Replying to a question about seeking financial assistance from the IMF, Tareen said that if the government contacted the IMF, the assistance would match Pakistan’s own requirements. He said that the government had abolished subsidies and was making efforts to overcome the fiscal deficit. Besides, it will ensure the zero per cent borrowing from the State Bank of Pakistan at the end of every quarter, he added. Primarily, the IMF stresses on the same steps, which the country is already taking, for good governance while issuing financial assistance to any country, he said. If the government seeks assistance from the IMF, it will be cheaper and sufficient to steer the country out of the economic crisis, the adviser observed.

 

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Pakistani team arrives in US to discuss energy cooperation ​

Tuesday, October 21, 2008

WASHINGTON: A top-level Pakistani delegation arrived here on Sunday evening to discuss energy cooperation with the international financial institutions and United States officials as the country strives to overcome power shortages through various projects.

The delegation includes Deputy Chairman Planning Commission Salman Faruqi, Secretary Water and Power Ismail Qureshi, Chairman Wapda Shakil Durrani, Chairman Sindh Coal Authority Syed Asad Ali Shah and Managing Director Private Power and Infrastructure Board Fayyaz Elahi.

The members of the delegation will have several meetings with the World Bank, International Finance Corporation, EXIM Bank and the US Administration officials. They will also be meeting with selected hydro-turbines manufacturers. The officials are expected to discuss a host of hydro, thermal and coal projects and to seek investment for these projects. Pakistan’s energy requirements have been expanding rapidly and the country is now facing power shortages. The visit by Pakistani officials is significant in seeking assistance for enhanced power generation through the use of available sources. According to Pakistan’s Ambassador to the US Husain Haqqani, the government is accelerating its efforts to mobilise the international support and investment for its comprehensive energy programme.

 

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Extremism, poverty biggest challenges, says Qureshi ​

Tuesday, October 21, 2008

ISLAMABAD: Foreign Minister Shah Mehmood Qureshi on Monday said that undoubtedly, extremism, terrorism and poverty were the biggest challenges faced by the country.

He expressed these views while addressing a ceremony at the Islamabad Club and talking to journalists later. He said all the South Asian countries must play a pivotal role to make sure that the challenges faced by Pakistan could be eradicated at the earliest.

He said that Pakistan was fighting the war against terrorism under a comprehensive strategy, urging that the US must understand the ground realities in Pakistan. Qureshi said that terrorism was the biggest threat to humanity and it was destroying peace and human beings were being killed everywhere.

Replying to a question, the minister said that the visit of US Assistant Secretary of State for South and Central Asian Affairs Richard Boucher was a routine one, adding that, a host of issues were discussed with him, especially the war on terror and the border situation.

Qureshi said that they had made it clear to Boucher that no compromise would be made on the integrity and sovereignty of Pakistan.

He said that until and unless peace was restored in South Asia, all the lingering and thorny disputes could not be solved in an amicable manner.

Answering another question, Qureshi termed the Iran-Pakistan-India gas pipeline a significant project, saying that trade relations between the South Asian countries were the need of the hour.

 

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Afridi for initiating 10 KBD-like projects ​

Tuesday, October 21, 2008

LAHORE: Federal Environment Minister Hameed Ullah Jan Afridi has stressed the need for initiating 10 Kalabagh Dam-like projects in Pakistan.

He stated this while talking to reporters after addressing a seminar on ‘Efficient use of energy for sustainable economic growth’ held here on Monday. To a question, Afridi said: “In my view, ten Kalabagh Dam-like projects should be initiated in the country as the water war is fast grasping the world.”

To another question, the minister said that a joint working group was being constituted to ensure early implementation of fresh MoUs on environment reached between Pakistan and China. “This would largely help tackle the grave problem of global warming,” he added.

He said the ministry had formed environment tribunals to address the problems related to pollution, especially the industrial pollution. “This initiative is largely welcomed by various concerned quarters as well as the provincial governments,” he added.To another query, Afridi observed that chieftains must be taken on board on the anti-terror policy. “The tribal elders are the only people, who can give a viable and an amicable solution to this fiasco,” he added.