Pakistan Economy - News & Updates - Archive

[Neo]

Fund still insisting on big increase in discount rate​

ISLAMABAD (October 30 2008): Pakistan has reportedly agreed to a front loaded stabilisation programme of $6 billion for a period of 20 months with the International Monetary Fund. This will be in addition to $4 billion the country is expecting to get from other multilateral sources.

According to informed sources, Pakistan would receive up to US dollar three billion as a first tranche after due approval from the Fund's Board of Directors. The talks held in Dubai between the two sides concluded on Wednesday without reaching an agreement on the discount rate. The IMF wants that discount rate is adjusted upward by the State Bank of Pakistan.

Pakistan to get $3 billion as first tranche of $6 billion programme:

The programme will be for a 20- month period: The Fund team was initially asking for a four percent hike in the SBP policy rate. However, later, the seemingly tough conditionality was pruned to 3.5 percent.

With the support of all the relevant data the SBP Governor argued for four hours that it was not advisable to hike the rate so steeply in an environment of world-wide recession, causing a reduction in demand. The hike would raise the average lending rates to 18 to 20 percent range. Not only will the existing industrial units shut down, the feasibility of new investments would be seriously jeopardised, it was argued.

The Fund technical experts' reported stance appears to be in conformity with the standard macroeconomic model which requires a reduction in fiscal deficit and a more tighter monetary stance to reverse the present forex reserve loss. In the cases of Iceland and Hungary, the Fund has hiked the policy rate by three percent to around 18 percent. Iceland had reduced its prime rate by three percent.

The Fund has forced it to raise it by six percent. Hungary had also raised its base rate by three percent to avail help from the Fund. The Stand-By Arrangement (SBA) will commence in November 2008 and end in June 2010. Local economists fear that a rise in SBP discount rate would embellish inflation due to institutionalising of high interest rate.

 

[Neo]

WSJ slams IMF's prescriptions​

NEW YORK (October 30 2008): An influential US newspaper has criticised the prescriptions of the International Monetary Fund (IMF)--cuts in government expenditures, devaluation, and tax increases--for bailing Pakistan out of the financial crisis, saying that the measures would have opposite effect.

"Pakistan needs market-oriented reform along the Chilean and Irish models, not the IMF's austerity prescriptions," The Wall Street Journal said in an editorial, titled 'Does the IMF have no fresh ideas?' "Pakistan's economic wellbeing matters not only for its 165 million citizens but also because it's a key country in the world-wide war on terror," the editorial said.

The Journal said the IMF declined comment on a Pakistan Finance Ministry spokesman's statement last week that the Fund "wants Pakistan to reduce its government expenditures, maintain a 'flexible' exchange rate and 'increase' its tax-to-GDP ratio".

"These are exactly the 'beggar-thy-neighbour' policies that sent Thailand, South Korea and Indonesia reeling in 1997-98," the editorial said. "Cutting subsidies is necessary, but politically impossible right now, with inflation running at 25 percent and daily power cuts. Depreciating the rupee vis-a-vis the dollar might benefit the country's crony capitalists who make money by selling cheap exports, but it would hurt the vast middle class, raising taxes in the middle of the financial crisis--no one is talking about cutting them--would drive away foreign investment."

 

[Neo]

Economy won't suffer after loan: Tarin tells Senate​

ISLAMABAD (October 30 2008): Advisor to Prime Minister on Finance, Shaukat Tarin on Wednesday said that Pakistan would avail the IMF loan facility on its own terms and conditions, negating the notion that our economy would suffer after IMF facility.

Giving a policy statement what he termed 'the government roadmap' in the Senate during a five-hour long question-answer session in which all the Parliamentarians were given opportunity to express their thought over the prevailing economic crisis, Tarin said that trade deficit of over $20 billion was the biggest problem, disturbing the balance of payment.

He said that it is not the government business to borrow from the State Bank and if it is in need of money it must borrow from the open market on existing interest rate. He said that he has directed the Finance Ministry in this regard strictly.

He categorically said that Pakistan requires short-term injection of $5billion, which would not affect our economic fundamentals, as we have to make structural adjustments according to our requirements. Tarin said that personally he was not in favour of IMF programme but as a last resort this would be the last option to save economy from default.

He said that the country immediately needs an inflow of $5billion to sustain its present economic position. Though we need this amount next 15 to 20 days we expect it from Friends of Pakistan or international financial institutions. If Plan A and B does not work according to our expectations, we will seek short-term assistance from the IMF. He informed the Senate that if our plan will be acceptable to the IMF, Pakistan would avail the facility.

He dismissed the impression that the IMF facility would be linked with stringent conditions and the government would have to take anti poor measures as a result of this facility. "We will get out of the IMF facility within two years," he told the House adding that situation of Pakistan economy was entirely different today from 1998 because of galloping trade deficit and over $1.5 billion current account deficit.

Tareen said that all the International Financial Institutions (IFIs) have been asking Pakistan to get endorsed its economic recovery plan from the IMF. He said that there was a difference of opinion between the IMF and Pakistan over 17 percent core inflation and 13 percent interest rate.

"Pakistan needs a cohesive and well conceived plan backed by the nation to address the prevailing economic crisis." Responding to Senators' questions, he said that Iran has offered to give oil on deferred payment, which the government is considering. He said that the problem was that Iran's oil contains heavy crude. He said that none of the country has given financial help to Pakistan but China was evaluating some projects to make investment in Pakistan.

The advisor made it clear that there would be tax on real estate and agriculture and over taxation system would be rehashed with the purpose of rationalisation. There would be only two taxes, income and consumption tax while all other taxes would be abolished. A progressive taxation system was the need of hour and tax-to-GDP ration has to be increased from 10.5 percent to 15 percent for sustainable growth.

He said institutionally, there is no planning in the country and whatever planning we had, it was done in a vacuum 'without foundations.' "We need executional framework on national level." Sharing his views on the capital market reforms, he said though our banks are performing well, there is still a question mark that are they meeting people's requirements? However, he stressed that banking system and capital markets need to be people-friendly. The banks must enlarge their operations in the rural areas to cater for the needs of farming community and to streamline their saving.

He said that our agriculture is 22 percent of GDP and just 7 percent of our credit. SME banks customers are huge and need to be focused. He said that Pakistan being an agrarian economy has to concentrate on improving farm output to raise the living standard of more than 60 percent population living in rural areas. This has resulted in increased imports, putting extra burden on reserves. Inflow of foreign currency has dropped and due to lack of control on high energy and food bills, the economy continues to suffer.

Tarin emphasised on controlling inflation and strengthening macroeconomic indicators to ensure sustainable growth. He particularly referred to the performance of current tax machinery and said that the tax-to-GDP ratio will have to be increased from 10.5 percent to 15 percent in next five to seven years. We cannot show seven to eight percent growth with current pace of revenue collection. Everybody has to contribute his share in the taxes to get country out of this economic mess.

He admitted that the Federal Board of Revenue (FBR) has to take enforcement measures to plug loopholes in the existing tax collection system. For this purpose, broadening of tax-base and brining more people into tax net without harassment is of utmost importance.

He mentioned to cut down non-development expenditures like vehicles and petrol and foreign visits, involving the private sector in executing public sector development programme. "If half of the spending come from the private sector and management is shifted to them, it would enhance efficiency." He said the amount saved this way would be spent on poverty alleviation and human development.

Tarin said abject poverty has doubled over the last two years rising up to 28 percent and overall poverty is exceeding 40 percent. Inflation is at 25 percent of which food inflation is now at 30 percent. Fiscal deficit which was 7.4 percent was actually heading towards almost 10 percent. Balance of payment deficit is at 8.4 percent of GDP and is one of the highest for any country.

He said our balance of payment is under pressure and we need assistance from international financial institutions. He said through macroeconomic measures we shall have to strengthen our reserves.

He said our first strategy would be to evolve a safety net for country's poor which was earlier neglected. "As 28 percent are living in abject poverty, we need to double the household getting assistance under Benazir Income Support Programme from existing 3.5 million to 7 million. "We shall have to pick one child from each household for relevant technical training for six to nine months enabling them to earn living and help alleviate poverty," he said.

The third initiative, Tareen said, would be health insurance for every poor family. For this, we shall have to pay Rs 15,000 to 20,000 annually for each family.

"We shall also have to start public works at union council level to provide employment to local people," he said and added, "for all these measures we shall have to cut down allocations of certain areas." He also underlined promotion of 'production led growth.' "It is a pity that an agricultural country like Pakistan is facing food shortage. We shall have to sit down with all stakeholders and prepare a comprehensive plan to move forward."

Tareen said the government is also resolving the issue of under payment to farmers. Wheat price has been put at reasonable level and rice and cotton prices would also be improved to benefit 66 percent people associated with agriculture.

The manufacturing sector, he said is showing negative growth due to power and gas shortages. "This sector is fragmented and needs innovation and consolidation to compete in international market." If we do not have sufficient power, gas and petrol, we cannot get desired results. We shall have to devise an integrated energy plan.

He also stressed the need for public-private partnership to develop communication infrastructure like construction of roads, bridges and other projects. We need to develop policy framework inviting private sector to come in and invest in utilities. He also mentioned to success of this strategy in certain countries and said: "it would reduce burden on the government and also enhance efficiency of various sectors."

In the past, he said no long term planning was made by the government to enhance sectoral performance, totally ignoring the culture of long term debting. "We suffered big losses for minor savings. But, we shall now create a system for long term sustainability and to benefit real economy," he said, "we shall also ask the capital market to contribute to real economy."

For effective implementation, he said, we shall have to put in place effective administrative machinery. Though it is already too late, yet we shall devise institutional framework and put in place a think tank at national level.

 

[Neo]

Economic recovery roadmap​

EDITORIAL (October 30 2008): Prime Minister's Advisor on Finance Shaukat Tarin has said that the roadmap drawn up to revitalise the economy and the measures unveiled by him would go a long way to help the government put the economy back on track. The predominant focus of the government will be on taxing sectors such as real estate, agriculture and stock exchanges that have been provided relief until now.

However, under the roadmap these would be fully brought under the tax net in an initiative aimed at raising the tax-to-GDP ratio from 10.5 percent to 15 percent. He has also said that the private sector will be involved in public sector projects. A very important point Tarin has stressed in his address to traders and businessmen at the FPCCI office in Karachi is that the government needs to rationalise expenditures and stop waste of precious resources.

He has promised that the government will ensure that the interest rates of banks are brought down to below 10 percent in the next two to three years, as this will help establish new industries. Macroeconomic indicators need to be stabilised to curb runaway inflation as well as poverty that has risen to 25 percent from 12 percent.

An important plank of the economic recovery strategy is that if inflation is controlled, the local currency will also remain under control, which in turn will help the government address the macroeconomic problems. Tarin has rightly said that Pakistan should be turned into a production-based and not a consumption-based country.

This will also substantially contribute towards attaining the government's target of securing a cut in fiscal deficit from 7.4 percent at present to 4.3 percent of the GDP within a year. As things stand today, the short-term solution to the grave financial crisis gripping the country today lies in acquiring a financial bailout under the three-option package evolved by Tarin.

And, as we have argued in this space earlier, Pakistan seems to be limping towards Plan C of the package after getting a discouraging response from IFIs and the friendly countries for Plan A and B for the balance of payments support. Viewed at a larger plane, a fundamental cause of the economic problems the country is facing today has been the traditional propensity of our governments to spend more than what they earn.

According to one estimate, our imports, for instance, are valued at $15 billion more than our exports. This has contributed to the piling up of fiscal deficit. Secondly, exemptions granted to agriculture, real estate and stock exchanges have played a major role in depressing the country's tax revenues.

Taxing agriculture income has, in fact, been subject of heated debate over the decades, with the feudal heavyweights arguing that most of the land holdings are too small to be able to generate taxable income. It appears to be a sound argument, though it cannot be denied that agriculture is a major contributor to the national economy, as a leading supplier of raw material to industry as well as a market for industrial products.

However, this argument has been effectively countered by the pro-tax lobby which has based its position on the universal principle that it would be untenable to make a distinction between agricultural and non-agricultural income for purposes of taxation, because all earners of taxable income, whether from agricultural or non-agricultural sources, must pay income tax. Just as non-agricultural income below a certain level is exempted from tax, the same principle should be applied to agricultural income.

Analysts have also justified taxing agricultural income on the ground of horizontal equity; ie individuals in equal economic position should be taxed equally. Further, income tax is imposed on personal income, and not on sectors. Hence there is no justification for tax exemption extended to agriculture sector.

Secondly, the lucrative real estate sector, along with its numerous subsidiaries, has witnessed in recent years an unprecedented growth, with a turnover running into billions of rupees. However, despite the boom the sector has stayed out of the rigorous tax regime, resulting in a huge loss to the exchequer. The real estate sector has a large number of importers, exporters, contractors and suppliers who play an important role in its subsidiaries, but a majority of them reportedly remain non-filers.

We believe that a permanent solution to the country's economic woes lies in generating more resources and then frugally spending them through well-targeted allocations for national projects. Secondly, bringing non-compliant sectors under the tax net is as important as honest collection of taxes from the sectors already under the tax net, for which the entire tax machinery needs to be overhauled.

The implementation of Tarin's advice to the government to plug waste of financial resources, and widen the tax base can go a long way towards putting the country's economy back on track. Thirdly, observance of genuine fiscal discipline in all its diversity can rid the country of all these evils.

There is an urgent need for the government to address the problems of water and power sectors on a priority basis because expansion in agriculture and industrial sectors will not be possible without such initiatives. And lastly, the implementation bureaucracy should be suitably activated to meet the deadlines for projects in all sectors of the economy.

 

[Neo]

Tough decisions to bring economic stability: Tareen​

ISLAMABAD: To address the ailing economy of the country, Pakistan has developed a homegrown economic stabilisation plan based on a set of “tough decisions”, Adviser to Prime Minister on Finance, Shaukat Tareen said.

He was talking to Simon McDonald, Adviser to British Prime Minister on Foreign and Defence Policy. Tareen said that the plan would address issues like fiscal deficit, balance of payments and energy scarcity. “Country’s homegrown economic stabilisation plan is robust enough and is likely to be supported by IMF,” he maintained.

“An integrated energy production plan was also in the offing to develop business, commercial and industrial sector,” he added.

Tareen said Pakistan is currently passing through hard times but the country would soon attain macro-economic stabilisation. The government aims to provide a safety net to the underprivileged sections through Benazir Income Support Programme (BISP).

“BISP is designed to provide a social package comprising health, education and insurance cover to the poor and the vulnerable,” Tareen maintained

He briefed the visiting British advisor on matters relating to Pakistan’s ongoing economic development issues, interaction with world communities on matters of multilateral economic interest and Pakistan’s recent overall policy initiatives for peace and development in the region.

The banking system in Pakistan witnessed unprecedented growth on the back of consumer finance, which, in the short-term, helped to improve the macro-economic indicators. This “consumption led growth” was unsustainable and was bound to put the economy under stress.

Adviser to British Prime Minister briefed Tareen on his evaluation of world economic crisis and its impact on the regional. Both the sides also discussed the existing politico-economic scene in the South Asian Region and Britain’s commitment to improve the overall social conditions focusing world peace.

They also agreed that recent downslide in oil prices will likely ease the existing economic pressures.

 

[Neo]

Higher rates seen as bitter IMF pill for Pakistan​

KARACHI: With Pakistani and International Monetary Fund officials remaining tight-lipped about talks that are expected to lead to IMF help, analysts said on Wednesday that interest rates are likely to be the biggest bone of contention.

The 7-month-old government running Pakistan after more than eight years under former army chief Pervez Musharraf has been loath to go to the IMF but the severity of its balance-of-payments crisis has left little option.

An IMF package is usually contractionary and often involves cutting spending, raising taxes, accelerating privatisation, increasing interest rates, and exchange rate flexibility to correct fiscal and external imbalances and control inflation.

Analysts said the most bitter pill for Pakistan to swallow might be having to tighten monetary policy. “At this stage, given the fact that monetary conditions are already tight and there are some banks that are feeling more of a squeeze than others, this sort of standard tightening of interest rates could be a little problematic for the authorities to implement,” said Mushtaq Khan, a London-based economist for CitiBank.

Khan said the government had already taken the difficult measures of eliminating subsidies and allowing the exchange rate to depreciate under payment pressures.

As subsidies have been cut, Pakistan has raised retail fuel prices seven times since February and electricity rates have almost doubled. Inflation is close to 25 percent.

The rupee has fallen nearly 31 percent against the dollar this year, while total foreign reserves have fallen sharply from a high of $16.5 billion in October last year to $7.32 billion on Oct. 18, of which the central bank accounted for $4.04 billion. The central bank’s reserves represent about one-and-a-half months of import cover.

Businesses could buckle: The central bank raised the key discount rate in July by 100 basis points to 13 percent, putting a squeeze on hard-pressed businesses which would hate another rise imposed by the IMF.

“There would be much debate about the unpopular decision of further monetary tightening as there’s already pressure from the business side,” said Asif Qureshi, head of research at Invisor Securities Ltd.

Another interest rate rise could drive some businesses to the wall, said another analyst.

“Already reeling from the rate rises in the past few months, businesses have cut back on expansion,” said Asad Iqbal, managing director at Ismail Iqbal Securities Ltd. “With the IMF looking to contract the economy to stabilise the balance of payments, businesses are likely to buckle due to increased financing costs.” But CitiBank’s Khan said an interest rate rise was needed to put off government borrowing from the central bank.

“A certain increase in interest rates, unfortunately, is required and for a very specific reason, that government borrowing from the banking system has been very high and most of the borrowing comes from the central bank,” said Khan. “This needs to be reversed.” Pakistan’s economic woes began before the global financial crisis set in, but analysts say the crisis has compounded Islamabad’s difficulties by making donors reluctant to step in.

The country needs short-term help to fill a financing gap of between $3.5 billion and $4.5 billion, and $10 billion to $15 billion to cover a current account financing gap and undertake adjustments over the next two years. reuters

 

[Neo]

Exporters eyeing $3 billion rice export on expected bumper crop​

KARACHI: The government has set export target of $3 billion compared to $2.5 billion last year, as bumper rice crop is expected during the current season, Rahim Janoo, newly elected chairman of Rice Exporters Association of Pakistan told Daily Times.

Pakistan so far has exported a total of $1 billion rice out of which the largest share was exported to Kenya, the largest buyer of Pakistani rice in Africa. It is expected that rice worth Rs 200 billion will be exported to Kenya this year.

The exports to Iran are also expected to resume, which were earlier hindered by Indian exports. Recently, Iran has also reduced import duty on the staple food, which is an additional advantage for the local exporters.

Ijaz Ahmed Choudhary, a rice exporter, told Daily Times that the decision of cutting the import duty by Iran would definitely boost Pakistani rice export.

In the international market the prices of Irri-6 plunged by almost 100 percent from $800 per tonne to $400.

An exporter, Muhammad Amin said that the local market would witness the impact of declining prices in the international market. The traders are continuing to fleece the consumers and are not providing any relief to them. “The government should take serious notice of this malign practice,” he demanded. Replying to a question about rice husking, Jano said, “About 7000 rice husking mills need technical staff to increase their productivity and REAP plans to establish training centers for providing skilled labour to the husking mills.”

REAP has planned to set up two training schools for the training of the technical staff who can operate modern machines. “We need a grant of Rs 100 million form the government in this regard,” he demanded. REAP has also set a “vision 2020”, by which the association has set a target of $20 billion rice exports.

Earlier, high commissioner of Pakistan in Kenya, Iftekhar Ahmed Arain held a meeting with REAP managing committee members. Iftekhar said that besides Kenya, Uganda and Tanzania are also interested to import Pakistani rice.

He said that there is substantial demand for rice in the international markets, as Philippines, India and other rice growing countries have banned exports to prevent local food shortages.

The ban on non-basmati rice exports from India will continue to keep local prices firm and put a tight rein stocks in the UAE. “Pakistan can earn much-needed foreign exchange through rice exports,” he added. Replying a question he said that substituting rice for tea is not a viable option and we are not going to take that course. He demanded that a free trade agreement should be negotiated with African countries, as it is a potential market for Pakistani rice.

 

[Neo]

Pakistan financial crisis : IMF advised not to ‘recycle past mistakes’​

WASHINGTON: The International Monetary Fund has been advised not to “recycle past mistakes by preaching its damaging elixir of currency devaluation and tax hikes to Asian nations in financial crisis”.

An editorial in Wall Street Journal noted that as Pakistan’s economy teetered, the IMF was once again on the scene with familiar policy prescriptions, but “this is no time to recycle past mistakes”. The newspaper also noted that like Ukraine and Iceland, Pakistan was in a balance-of-payments crisis. The country imports large quantities of food and fuel, and pays for it in US dollars. As the price of these commodities rose over the last year because of the US Federal Reserve’s easy money policies, Pakistan spent down its foreign exchange reserves. Government officials estimate Pakistan needs $3 billion to $4 billion to cover its foreign-currency debt obligations over the next month alone. Islamabad could ask for as much as $15 billion from donors, the Wall Street Journal speculated.

According to the newspaper, Pakistan’s new government could have mitigated this pressure earlier this year had it moved quickly to stabilise the country’s security situation and court foreign investment. Instead, it focused on domestic political battles – such as the reinstatement of judges deposed under former president Pervez Musharraf. Domestic terrorism re-emerged in major cities, investors fled and the local currency fell 25 percent in value, fuelling inflation and making imported fuel and food relatively more expensive. The newspaper said that Islamabad now had ‘few good options’. Its traditional partners – Saudi Arabia, China and the US -- have declined so far to provide additional short-term capital. A ‘Friends of Pakistan’ donor conference is scheduled for next month in Abu Dhabi, but Pakistan’s time is running short, and the IMF – which has not had much to do since governments cleaned up their balance sheets after the Asian financial crisis – is ‘peddling its services’.

The IMF prescription now achieves ends that are contrary to what it was set up to do. A Pakistan Ministry of Finance spokesman confirmed last week that the fund wants Pakistan to reduce its government expenditures, maintain a ‘flexible’ exchange-rate (translation: further depreciation), and ‘increase’ its tax-to-GDP ratio.

The IMF has declined comment. “These are exactly the beggar-thy-neighbour policies that sent Thailand, South Korea and Indonesia reeling in 1997-98. Cutting subsidies is necessary, but politically impossible right now, with inflation running at 25 percent and daily power cuts. Depreciating the rupee vis-à-vis the dollar might benefit the country's crony capitalists who make money by selling cheap exports, but it would hurt the vast middle class that has seen its savings inflated away. Raising taxes in the middle of the financial crisis – no one is talking about cutting them – would drive away foreign investment, which already sees Pakistan as an expensive and dangerous place to operate … Pakistan’s economic well-being matters not only for its 165 million citizens, but also because it’s a key country in the worldwide war on terror. Pakistan needs market-oriented reform along the Chilean and Irish models, not the IMF's austerity prescriptions,” the Wall Street Journal wrote. khalid hasan

 

[Neo]

IMF loan on our own terms, says Tareen​

ISLAMABAD, Oct 29: The government told the Senate on Wednesday it would consider an IMF aid package on Islamabad’s own terms if other sources failed to provide up to $5 billion it needed within the next 15 to 20 days to cope with the present economic crisis.

The prime minister’s adviser on finance Shaukat Tareen said at the start of a debate in the upper house on the country’s prevailing economic situation that other sources being tapped for the immediately needed inflow of funds were the newly created Friends of Pakistan Forum and international financial institutions (FIs).

“We need this amount within next 15 to 20 days and if Friends of Pakistan or other IFIs do not ensure us this amount, we shall have to go to IMF,” he said in his first speech to the Senate in which he also gave outlines of a roadmap to take Pakistan out of its present economic difficulties marked by fears of a default in repayment of foreign debts if a bailout is unavailable.

But he said the roadmap would be discussed in detail with all stake-holders.

The adviser’s speech was followed by a bombardment of questions from both the opposition and treasury benches until late into the night when Mr Tareen told the house the International Monetary Fund had not proposed any new conditionalities for the package although questions about ways to contain the rising inflation were being debated.

Many members from both sides of the house either opposed taking an IMF package or voiced fears about the cost of such a course, particularly a possible adverse impact on the poor sections of society. But some members said there was no other option left because they did not hope Pakistan would get the needed help from other sources such as Friends of Pakistan, which includes several friendly countries including the United States and China as well as the United Nations and the European community.

“If I have my say, I will not have the IMF programme,” Mr Tareen said in his second speech of the Senate sitting while referring to criticism of the Fund vis-à-vis the experience that Pakistan and many other developing countries went through in the past.

But he said the situation had changed now and there would be no harm in opting for the IMF if it accepted Pakistan’s economic plan, which he added would not hit its poverty alleviation programme or agriculture.

“If they (IMF) endorse our plan, and they put the money on the table, I will ask the government to consider it rather than face a default,” he said.

He said Pakistan could not afford a default whatever the pain.

The adviser also informed the house in reply to a question from the leader of house Raza Rabbani that “our leadership is seriously considering” Iran’s offer “in a difficult situation” to supply oil to Pakistan on a deferred payment basis although the Iranian crude was heavy while Pakistan had refining facilities only for light crude.

ROADMAP: Explaining his roadmap, Mr Tareen said Pakistan needed immediate measures for economic stability and said: “We need to stand on our feet. We cannot afford to default. Wherever we can go and whatever we can get, we have to fulfil our financial obligations.”

He called for planning to strengthening macro economic indicators to control inflation and ensure sustainable growth.

To achieve these targets, he said, tax to GDP ratio will have to be increased to 15 per cent from the existing 10.5 per cent in five to seven years.

He also hinted at plans to remove perceived loopholes from the tax system. “We shall not be harassing anyone, but we shall have to collectively frame the rules and bring more areas into tax net through consultation.”

He proposed cutting non-development expenditures such as on vehicles, petrol usage and foreign visits and involving the private sector in executing public sector development programme in what he called public-private partnership.

“If half of the spending comes from the private sector and management is shifted to them, it would enhance efficiency.”

Mr Tareen said the government strategy would be to evolve a safety net for the poor and doubling the households getting assistance under Benazir Income Support Programme from 3.5 million to seven million.

“We shall have to pick one child from each household for relevant technical training for six to nine months enabling them to earn living and help alleviate poverty,” he said.

Another initiative, he said, would be health insurance for every poor family for which the government would pay Rs15,000 to 20,000 annually for each family.

“We shall also have to start public works at union council level to provide employment to local people. For all these measures we shall have to cut down allocations of certain areas.”

He said the government would also resolve the issue of under-payment to farmers for their crops.The manufacturing sector, he said, was showing a negative growth due to power and gas shortages and needed innovation and consolidation to compete in the international market. “We shall also have to devise an integrated energy plan.”

He also stressed the need for public-private partnership to develop communication infrastructure like roads, bridges and other projects. “We need to develop a policy framework inviting private sector to come in and invest in utilities.”

Talking of the need to develop the capital market, Mr Tareen said although Pakistani banks were healthy, it was “still a question mark” if they were also meeting the needs of the people.

“We shall have to tell our banks to become responsible citizens of Pakistan. They must go to rural areas and care for the needs of people there.” he added.

 

[pkpatriotic]

Pakistan's mounting troubles | Treacherous ground
Oct 30th 2008
From The Economist print edition

An earthquake adds to Pakistan’s woes

ON TOP of a bloody insurgency and a listing economy, Pakistan must now contend with a natural calamity. Before dawn on October 29th, an earthquake of magnitude 6.4 or greater struck the mountainous province of Baluchistan not far from its capital, Quetta. The death toll quickly exceeded 200.

It was the biggest earthquake since one in October 2005 that killed over 70,000 in Pakistan-controlled Kashmir. After that catastrophe, America spent almost $1 billion on relief operations, ferrying supplies to mountain villages by Chinook helicopter. According to one American official, cited by an independent working group on Pakistan policy, the goodwill America earned represents “the most successful strategic confrontation to date in the battle with the terrorists in South Asia.”

Even before the latest earthquake, Pakistan was again hoping its strategic position would persuade the world to rush to its aid. The ground is giving way beneath its economy. A distracted, overstretched government has allowed inflation to soar (see chart), the rupee to plummet and foreign-exchange reserves to seep away. On October 17th the central bank’s stash of hard currency was just over $4 billion, enough to cover just four to five weeks of imports.

Pakistan hoped for an infusion of cash from the “Friends of Pakistan”, an informal circle including China, America and Saudi Arabia. But to its dismay, only the IMF appears ready to offer the sums it needs as quickly as it needs them. The IMF is expected soon to approve a loan of up to $12 billion, probably spread over two years.

Pakistan and the IMF may not be “friends”; but nor are they strangers. Some of the politicians and civil servants now in power were “pretty traumatised” by the IMF programmes they endured during the 1990s, says Mohsin Khan of the fund. In those days, the IMF twisted their arms to make tough fiscal commitments they could not keep. In 2005 the military regime, having proudly turned down the last two instalments of its loan, declared that it had “broken the begging bowl forever”.

Which arms will be twisted this time? Pakistan’s newspapers are full of speculation. One even suggested the IMF would slash the army’s budget by 30%. But that is far beyond the fund’s mandate. “We are economists not defence specialists,” says Mr Khan. The government perhaps has less to fear than it thinks. It has already decided to grasp the most painful macroeconomic nettles on its own. In a plan drafted in September, it resolved to cut the budget deficit to 4.3% of GDP, refrain from borrowing from the central bank and remove fuel and electricity subsidies. If it can do all that, the fund will have little more to add except money. No arms need be twisted.

But the government is struggling to keep its own promises. Bravely, it has raised fuel prices, even as the cost of crude has dropped. The price Pakistanis now pay at the petrol pump is more or less the market rate, Mr Khan says. But the government still had to borrow from the central bank last quarter. More seriously, it this week reversed its decision to raise electricity prices by 31%. Households and firms are loth to pay more for power that now seems to run only every other hour. Some of them burned their bills in the streets instead.

It seems clear, then, that Pakistan will soon enter an IMF rehabilitation programme. But it’s not at all clear it will finish it. What is economically necessary may not yet be politically feasible. If so, later instalments of the IMF loan will be withheld. The danger is that Pakistan may have to endure the greater evil of fuel shortages, currency controls and even default before it accepts the lesser evil of stiffer taxes, higher electricity bills and the IMF.

 

[Neo]

Technical level talks with IMF conclude ​

Pakistan continues to oppose IMF’s insistence on increasing discount rate​

Friday, October 31, 2008

ISLAMABAD: Technical level talks between Pakistan and the IMF concluded on Thursday at Dubai and the “Fund has endorsed major points of economic stabilization program tabled by Islamabad except one or two things,” which included IMF’s insistence for further raising discount rates by 3 to 4 per cent, it is learnt reliably.

“It requires further discussion between the two sides to sort out differences on these one and half point,” official sources privy to talks between Islamabad’s economic managers and the IMF mission led by its Middle Eastern Region head, Mohsin Khan, said after reaching Islamabad on Thursday night.

Pakistan’s technical level delegation comprised of Secretary Finance Dr Waqar Masood, Governor SBP Dr Shamshad Akhtar, Joint Secretary Ministry of Finance Mumtaz Malik, Additional Secretary Asif Bajwa and two FBR members, who reached back to the country on Thursday afternoon after holding talks with the IMF mission in Dubai.

“Except one and half point, the IMF has endorsed our economic stabilization program,” official sources close to Islamabad’s delegation revealed to The News here on Thursday night.

The official refused to share details of differences areas where consensus could not be developed during last 8 to 10 days talks held at Dubai.

Regarding the exact size of possible bailout package from the IMF under Standby Arrangement (SBA), the official said that under the existing Special Drawing Rights (SDR) quota, Pakistan could get $1.6 billion. “Pakistan can get multiple of SDR quota to 4 and 8 times which means that Islamabad’s financing size will be hovering around from $6.4 to $12.8 billion,” he explained.

Another official confided that Pakistan may get six time higher than its SDR quota which means that its financing for 21 months SBA will be $9.6 billion, starting from the ongoing quarter (October-Dec) period and there will be remaining 6 tranches after every three months period till end of 2009-2010.

“Pakistan will get upfront loaded SBA arrangement from the IMF, which will enable Islamabad to draw $3 to $4 billion first tranche within November 2008 after approval from the Board of Directors of the IMF,” said the official.

Regarding challenging areas for the economic managers to do under the IMF program, the official said that the IMF is pressing to raise existing discount rates of 13 per cent to 17 to 18 per cent in order to curtail ballooning inflation. “The IMF is trying to raise the discount rate in order to suppress demand side,” said the official and added that Pakistan wanted to review its policy after six months in order to assess whether SBP’s existing rate is helping in achieving the desired results or not.

“We should forget higher GDP growth if discount rate is further increased,” said a concerned official.

Another challenging area, according to the official, will be Islamabad ability to increase tax to GDP ratio by 5 per cent in the next five years which means that the government will have to increase its tax revenues in the range of Rs140 billion to Rs250 billion per annum by expanding the tax base on agriculture, services sector and capital gains tax..

 

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88MW more to be available from November: KESC ​

Friday, October 31, 2008

KARACHI: Under its plan to add 400 megawatts additional power generation by June 2009 to minimise electricity deficit, the Karachi Electric Supply Company (KESC) on Thursday announced the starting of partial operations by its new 220 MW power generation plant at Korangi after whose commissioning 88 MW will be available from the first week of November.

The new Abraaj-led management of the KESC also announced that after a decade when not a single megawatt was added to the generation capacity of the power utility it also received the first shipment of its plan to produce 50 MW of rental power generation for providing a temporary solution to the power supply woes of the Karachiites. It said that initial electricity production from the rental power plant would be available to the KESC from November 28.

Addressing a media briefing here at a local hotel, newly appointed Chief Executive Officer KESC Naveed Ismail said that efforts were already underway to minimise the duration of load shedding during the next summer season but given the situation of widened shortfall of electricity, there would be no quick solution to the problem of load shedding.

The CEO KESC was flanked by senior members of the new KESC management and Abraaj Capital. Replying to queries of newsmen, Ismail said that there would be continuity of load shedding instances in the metropolis but of limited duration during the upcoming winter while he remained evasive to the question as to when the KESC would be able to completely resolve this problem.

Further he said that it is also impossible for the KESC to overcome load shedding by the summer of 2009 but arrangements and steps are being taken to minimise its occurrence.

About the plan of KESC to add additional 400 to 450 MW power generation till the summer of 2009, the CEO said that other than the 220 MW Korangi power plant and 50 MW rental power generation the KESC would install another 200 MW power generation plant on a fast track basis, 50 MW additional power generation would be availed by enhancing the capacity of the existing generation plants, and 50 to 70 MW would be availed from the industry that would be surplus to its needs.

He said that KESC had plans to enhance its indigenous power generation capacity by 1000 MW in the next three years. Ismail also nullified the impression that KESC had been deliberately running its own generation plants below their capacity in order to conserve its capital, saying that in actuality there is no capital available to the new management of the KESC that could be conserved by not using it for fuel purchase.

He said the new power utility management had been exhausting whatever finances were available to it to procure furnace oil and gas to run its generation units especially at Bin Qasim Thermal Power Station.

But, he added that at the end of day there is not enough finance available for the procurement of fuel when KESC has been facing financial deficit to the tune of Rs900 million to Rs1 billion on a monthly basis. He informed newsmen that at present, KESC’s balance sheet reveals total accumulated losses of Rs51 billion.

He said that in a situation when no new power generation plant had been installed by the KESC since 1997, 13 out of 19 of its existing plants have exceeded their intended life cycles. The average life cycle of the existing KESC plants is 27 years, he said.

He said that at present, KESC had been facing 38 to 40 per cent high transmission, distribution, and commercial losses and efforts should be made to minimise them and for this cause, the example of other electricity distribution companies in the country, like those in Lahore and Islamabad, could be followed.

He said the transmission and distribution network of KESC is highly overloaded due to the constantly rising demand of electricity in the city and in such a situation all 15,000 transformers of KESC are overloaded. He said that in such a situation exposing such overburdened electric supply system to frequent load shedding is highly hazardous for the system and causes tripping and breakdowns in electricity installations.

He said that Karachi is a metropolis, which is bigger than 70 countries of the world and extraordinary efforts, teamwork, and resources are required for its power supply.

He said the new KESC management would lead 17,500 workers of the power utility in an innovate manner, to best utilise and apply their efforts for improved working and services of the utility. He said that there would be no lay-offs or retrenchment among existing contractual employees of the KESC.

To a newsmen’s query, the KESC head said that the new management is very well aware of the complaints of power consumers regarding the extraordinary running of the newly installed electricity meters and a process had already been started to review the problem of the new meters.

He said the Abraaj-led management of KESC had been initially investing an unprecedented amount of 361 million US dollars to improve the working system and services of the utility, to achieve customer satisfaction. He said that in the coming years the investment would increase to one billion dollars.

Also addressing the briefing, CEO Abraaj Pakistan Syed Farrukh Abbas, said that components of complete transparency and public accountability would be observed in the financial and investment affairs of KESC, led by the new management, as had been the established tradition for the working of various companies run by Abraaj in 11 countries of the world.

He said the new investors and management of KESC enjoy complete confidence and trust of major concerned stakeholders of the country, be it in the arenas of politics or the business industry, so that the electricity needs of the metropolis, which is the hub of the trade and financial activities of the country, are ably fulfilled.

 

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$50m worth of deals inked at Expo Pakistan ​

Friday, October 31, 2008

KARACHI: Chief Executive Officer of TDAP, Syed Muhibullah Shah Informed that export contracts worth US$ 50 million have been signed between Pakistani traders and foreign buyers during the four days of the Expo Pakistan while several memorandums of understanding promise another $100 million worth of businesses to enter the country in the following months.

During a press conference on Thursday at the Karachi Expo center, Shah further informed that a US$ 10 million contract had been signed by Korea with local counterparts for ethanol related products. He added that Argentina had also introduced a new surgical instrument for laparoscopy for which they had brought the patent to Pakistan.

“Since our surgical equipments are of the highest quality, the patent to manufacture these surgical instruments have been granted to Sialkot from where the finished goods would be exported back to Argentina” he stated.

Contracts and MoU’s have been signed for the follows products: handicrafts, leather products, tiles, surgical equipments and textile garments amongst others.

Shah expressed that on commercial terms, the event had been extremely successful and in fact demand had exceeded the space available and therefore a new exhibition hall is to be constructed before next years event.

He commented that the 6000sq meters space of the Karachi Expo Center’s six halls was proving to be insufficient for the events that are held there as demand from foreign visitors was increasing with time. He observed that despite warnings from travel advisories, foreign investors and buyers continued to visit Pakistan as there were ample trading opportunities in the country.

 

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Six hydropower projects to be initiated by 2010 ​

Friday, October 31, 2008

LAHORE: In addition to initiating construction work on the 4,500 MW Diamer-Basha Dam Project next year, another half dozen mega hydropower projects including Kohala, Dasu, Bunji, Munda, Palas Valley would be undertaken in 2010-12.

This was stated by WAPDA Chairman Shakil Durrani during a briefing here at WAPDA House today arranged for a delegation of the 89th Management Course of National School of Public Policy, Lahore led by its Rector Lt. Gen. (R) Javed Hassan. These projects would generate about 21,000 MW of electricity on their completion and help improve low-cost hydropower proportion in the national grid.

The delegation was briefed that Pakistan has been blessed with the identified hydropower potential of more than 54,000 MW but only 16 per cent of this potential has so far been taped due to variety of reasons.

After its bifurcation last year, WAPDA is fully focused on water and hydropower development. The work on 969 MW Neelum-Jhelum Hydroelectric Project has already started, while feasibility studies and detailed engineering designs of most of the mega projects in both water and power sectors are currently at the advance stages and likely to be completed by the next year,

The delegation was informed that Pakistan is storing only 11 per cent of the annual water flows of its rivers and, if this capacity is not increased, Pakistan will be a water short country by 2012. The delegation was told that the accumulative gross storage capacity of Tarbela, Mangla and Chashma reservoirs that originally used to be 18.37 million acre feet (MAF), has reduced to 13.24 MAF due to sedimentation, resulting in 28 per cent loss of storage capacity.

PEPCO MD / Member (Power) WAPDA Fazal Ahmed Khan, dilating upon the various short and long term measures, said that PEPCO is striving hard to minimize the gap between consumption and generation of electricity. He appraised the delegation that the Government has made arrangements for induction of more than 9,000 MW to the national grid from January 2009 to December 2012.

 

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Sporting arms export to be raised to $100m by 2011 ​

Friday, October 31, 2008

PESHAWAR: The Pakistan Hunting and Sporting Arms Development Company (PHSADC) would upgrade the most neglected industry, claiming to achieve $100 million export target by the year 2011.

Briefing journalists at the Small and Medium Enterprises Development Authority (SMEDA) office on Thursday, the newly-appointed chairman of the PHSADC and a leading industrialist, Nauman Wazir, said the company was incorporated in 2006 under the Companies Ordinance 1984, working under the Ministry of Industries, Production and Special Initiatives. He, however, lamented that officials in the past failed to promote the arms industry. “During the past two years, the officials did not perform well to boost this sector, but I am committed to unleash the hidden potential, which can earn the country millions of dollars in the coming three years,” Nauman Wazir said.

The newly-appointed chairman of the company said their main objectives were to develop Dara Adamkhel as an organised industrial cluster, establish linkages for export of hunting and sporting arms and develop a high value added market for handmade replicas and guns.