Pakistan Economy - News & Updates - Archive

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ECNEC approves up-gradation of Karakoram highway to facilitate Bhasha dam ​

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ISLAMABAD (November 11, 2008): The Executive Committee of the National Economic Council (ECNEC) met here on Tuesday approved the up-gradation of Karakuram Highway to facilitate the Diamir-Bhasha Dam by clearing necessary funds to the tune of Rs.60 billion for acquisition of land and resettlement of affectees.

The ECNEC meeting was held her under the Chairmanship of Advisor to Prime Minister on Finance, Shaukat Tarin to take up remaining agenda items after November 06 meeting, chaired by the Prime Minister.

The Council considered a number of development projects for approval in the field of Energy, Environment, supply of Clean Water, Highways, and Railways.

The development projects considered on Tuesday for the approval are to be completed in all the four provinces, Northern Areas and AJK.

The ECNEC also approved the reconstruction of projects of Rawalakot and Bagh cities which were affected by 2005 earthquake.

The ECNEC also approved rehabilitation and widening of earthquake-affected road, Alpuiri-Besham section of N-90, which connects N-95 and N-235 highways.

The ECNEC discussed replacement of Railway signaling system for the sector Lodhran-Shahdaram, double gauge tracks for Mirpur Khas- Khokarapar, and, double railway track for Lodhran-Khanewal sector.

In the communication sector among others, the ECNEC approved the 106 km road project for acquisition of land and procurement for Hasanabdal, Havallan, Mansehra Express Way.

In the energy sector, ECNEC approved Interconnection of IPP's with national grid to ensure generation of additional 1600 mw of electricity. The project would be executed on self-finance basis.

The Committee also approved Power Distributions Enhancement project to reduce energy/line losses.

In the water sector, the ECNEC approved capacity building and advisory

services project, in principle and advised ministry of Water and Power to

initiate the process, ECNEC also approved establishment of Environment Monitoring

System.

The ECNEC also approved in principal, the communication for effective social service delivery, initially in 18 out of 24 districts of NWFP at a total cost of Rs. 565 million.

 

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2.6 million acres of government land transfer to 520,000 landless farmers suggested ​

KARACHI (November 11 2008): A panel of economists, led by a former finance minister, Dr Hafiz Pasha, has called for transferring 2.6 million acres state owned land to landless, peasants along with creation of an institutional framework, providing access to high quality seeds, fertiliser, water and extension services.

This suggestion has been made in its 'Interim Report on Economic Stabilisation with a Human Face', published recently. Regarding land for landless farmers, the report says that ownership rights, together with access to markets for inputs, may play a vital role in making the small farm sector the leading edge of a faster and more equitable agriculture growth.

It recommends institutional changes to open up the land market together with the provision of credit to tenant farm households for enabling them to purchase land.

On giving state land to the landless the report appreciated and hoped that an initial step of providing productive assets to the rural poor could make a significant contribution to the reduction of rural poverty.

Citing an example, the report said that if 2.6 million acres land is transferred to landless farmers in holdings of 5 acres each, then some 520,000 tenant farmers would become owner-operators, which would mean that out of total number of tenant farmers ie 896,000, some 58 percent would become owner-operators.

"However, it is important to recognise that providing ownership of land to the landless is a necessary but not a sufficient condition for alleviating their poverty, adding it needed to make the transferred land cultivable, to achieve a sustainable increase in their income, productivity and savings are equally important factors in making the scheme successful," the report suggested.

The report further said the remaining 42 percent out of total tenant farmers, could be enabled to buy land through credit and institutional changes in the land market so that existing tenant households could become owner-operators who could play a strategic role in generating a faster and more equitable agriculture growth.

"Out of a total of 896,000 tenant farmers, 376,000 households could be enabled to acquire ownership rights over 5-acre farms through purchase of land that would create the institutional basis of providing both the incentive and the ability to tenant farmers to increase yields per acre," it added.

The report suggested that these objectives could be achieved through adopting four policy actions including a consortium of government, donors and commercial banks a credit fund for providing land to the landless and follow up extension services, amounting to about Rs 332 billion (USD 4.24 billion) could be created.

Secondly, on systemisation of land records, the report suggested to update, systematise and computerise the land revenue records to establish clear ownership rights of existing owners.

To solve the farmers' problems the report suggested formation of small farmer associations at union council and tehsil levels with a view to providing small farmers with the leverage to get equitable access over the markets for seed, fertiliser, tube-well water and pesticides.

The report said farmers' organisations in partnership with extension service organisations of the Ministry of Rural Development could provide high quality support to small farmers for soil testing to enable appropriate fertilisers use, improved on-farm water management, and improved agriculture practices to improve organic profile of the top soil.

 

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Government to get over $11 billion aid, oil on deferred payments ​

ISLAMABAD (November 11 2008): A foreign assistance of over $11 billion as well as oil on deferred payments from different sources is in the pipeline that would help Pakistan overcome economic crisis. Sources told Business Recorder on Monday that this was stated by advisor on finance Shaukat Tarin in a meeting with Prime Minister Syed Yousuf Raza Gilani.

According to the sources, Tarin informed the Prime Minister about the negotiations with the International Monetary Fund, other donor agencies and various states.

During the meeting which remained one-on-one for some time, the Prime Minister was informed that Pakistan was expecting $11.7 billion from different sources including $7-7.5 billion from the IMF and over $1 billion each from the World Bank, the Asian Development Bank, the Islamic Development Bank and $0.8 billion from the UK Department for International Development (DFID).

Saudi Arabia, Kuwait and UAE, which are the important countries of the Friends of Pakistan (FOP) have not committed any cash but agreed to provide oil on deferred payment. Iran has agreed to provide furnace oil on deferred payment, said the sources. The US would provide $200 million wheat as well as announce Bilateral Investment Treaty (BIT) and the establishment of Reconstruction of Opportunities Zones (ROZs) in Fata.

The European Union has agreed to give GSP Plus, which will enable Pakistani products get more access in EU markets. The advisor also apprised the Prime Minister about the action taken against a forex firm. According to the sources, the Prime Minister was informed about the cross border smuggling of the foreign currencies especially the US dollar.

It was learnt that Pakistan needed not to impose any cut on defence budget for qualifying for the IMF assistance. The Prime Minister directed the advisor to explore all the avenues simultaneously.

Meanwhile, an official statement said that discussion also included the plan to present 9-point agenda to the Cabinet for approval. The Prime Minister assured the Advisor of his support and said a special Cabinet meeting will soon be called to discuss the country's future economic plan.

 

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Clampdown on foreign exchange companies: FIA finds transfer of $500 million in 10 months ​

KARACHI (November 11 2008): The Federal Investigation Agency (FIA) has found that some of the accused had transferred at least 500 million dollars abroad from their personal accounts during the last ten months, Business Recorder learnt on Monday.

According to sources, the FIA officials were busy in checking the computerised data and other record of Khanani & Kalia International (KKI) in search for evidence to prove the exchange company guilty of monopolisation and illegal transfer of dollars abroad.

They, however, claimed that while the investigation had entered 5th day, the Agency had not been able to find any solid evidence against the company for illegal transfer of dollars, except some indications that Munaf Kalia, one of the accused, and his colleagues had transferred some 450-500 million dollars during last 10 months from their personal account.

Sources said that FIA had shifted its focus of investigation in this direction and was trying to collect more details in this regard. "The FIR number 23/2008 launched by FIA Crime Circle Lahore has so many week points, and this is the Karachi Circle which has found some evidence against the KKI chief and other directors," they added.

However, they said that under the protection of Economic Reforms Act, 1992 any foreign and local is permitted to transfer and bring any foreign currency without quantity limitation. FIA's Crime Circle Karachi on Monday presented unshackled Munaf Kalia in the court and got three-day physical remand, but later he was shifted to Lahore, where FIA crime circle Lahore would again get remand.

Meanwhile, a joint meeting of Forex Association of Pakistan (FAP) and Exchange Companies Association of Pakistan (ECAP), attended by representatives of "A" and "B" Category exchange companies, criticised the FIA's Lahore Circle for presenting some of the KKI directors handcuffed in Lahore Sessions Court on Sunday. The meeting also decided to meet the high-ups in State Bank of Pakistan (SBP), FIA and others concerned agencies.

A delegation, led by Haroon, Chairman ECAP and Malik Bostan President FAP also met Director FIA Crime Circle Zubair. Zubair assured the delegation that in future FIA would take the exchange companies' association into confidence before taking action against any exchange company would be raided in the presence of SBP officials.

 

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Govt borrows Rs269.5bn from SBP ​

Wednesday, November 12, 2008

ISLAMABAD: The government borrowed Rs269.5 billion from the State Bank of Pakistan (SBP) during less than four months, it is more than ten and a half times compared to borrowing of Rs23.28 billion during the same period of last fiscal.

It is a well-known fact that the government has been borrowing heavily from the banking system due to the burgeoning income-expenditure gap. During the period from July 1 to October 25, it stood at Rs150.27 billion against Rs74.42 billion in the corresponding period of last year.

However, it was depressing that the government depended more on the central bank borrowing instead of commercial banks. This scenario, according to economic pundits, did not support the government’s efforts to tame inflation and pull the poor out of acute poverty. Since last year, the central bank has time and again advised the government to reduce its dependence on bank borrowing, especially the SBP, in order to control inflation and support monetary policy.

According to the bank, the excessive borrowing from the SBP spurs inflationary pressure in the economy due to excessive money circulation.

According to the bank’s latest monetary snapshot, currency in circulation during the period under review increased by 84 per cent to Rs142.52 billion from Rs77.41 billion in the same period of the last fiscal.

Few months back, the central bank also asked the government that the fiscal deficit be contained in years ahead to reduce the risk of crowding out of the private investment. Besides, it should also retire borrowing from the banking system particularly from the SBP.

Economists believe that expansionary government fiscal policy is also considered as a source of diluting effects of the SBP tight monetary policy formulated for capping high inflation. It is feared that running a loose fiscal policy may crowd out private investment in the country. Despite the banks advice, borrowing from the central bank is going up and up. Though public spending help in developing right infrastructure for encouraging private investment, however if increase in government spending is not accompanied by increase in government revenue and proportionate increase in real GDP, it creates public debt and inflation respectively. The higher public spending may put upward pressure on the interest rates and thus discourage private investors to invest.

During July 1 to October 25, 2008, government’s borrowing from the SBP stood at 269.51 billion while retired Rs119.23 billion of scheduled banks. In corresponding period of the last fiscal borrowing from the central bank stood at Rs23.28 billion and of scheduled banks it stood at Rs51.13 billion. Currently, inflation is touching record high which is not only affecting the macro economic indicators but also severely disturbing social life of million of poor Pakistanis. Besides, the loose policy had also crowded-out private investment in the economy. It is also feared that if the government was unable to attract external inflows as a result of low remittances, slowdown of privatization proceeds, the borrowing volume could balloon to unbearable level that could further affect the government’s efforts to rein in the inflationary pressure and bring down poverty level in the country.

It is worth-mentioning that during fiscal year 2007-08, fiscal deficit stood at Rs777 billion or 7.4 per cent of GDP against Rs398.8 billion (4 per cent of GDP) targeted for the fiscal under review.

In order to bring back the budget on a sustainable track, fiscal deficit for 2008-09 is proposed at 4.7 per cent of GDP i.e. Rs582.3 billion.

To fill the fiscal gap, during July-June 2007-08, the government borrowed Rs461.28 billion from banks (scheduled and the central bank), which is about 469 per cent or Rs380.28 billion more than the actual target of Rs81 billion for fiscal year 2007-08, while Rs359.26 billion (or 352 per cent) more than, it borrowed in corresponding period of the last fiscal 2006-07 (Rs102.015 billion).

More worrisome was that the government borrowing from the SBP increased to alarming Rs633.17 billion during FY2007-08 as against Rs58.57 billion it retired last year. Of scheduled banks, it retired Rs171.89 billion against Rs160.59 billion it borrowed in corresponding period of the last fiscal.

 

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Qadirpur gas field to be sold in 6 months ​

Wednesday, November 12, 2008

ISLAMABAD: The government is determined to go ahead with the planned privatisation of Qadirpur gas field despite the ongoing protest against its sale, and expects attractive offers from foreign investors.

“We will sell the field in the next six months,” a senior official told The News. “Anything less than $1 billion will not be fruitful for Pakistan. The hope is that the offer will definitely be much beyond this.” However, he said that for the moment it was impossible to predict the level of offers that would be made by interested parties. But he said gas fields like Qadirpur were in great demand internationally and expected that American, British, European and Middle Eastern companies would take part in the bidding.

Thirty-seven per cent of the gas field will be sold with transfer of management control while the Oil & Gas Development Company Ltd (OGDCL) will retain 38 per cent. Twenty-five per cent share is already in private hands. At present, OGDCL owns 75pc while Kirthar Pakistan 8.5pc, Pakistan Petroleum Limited 7pc and PKPEL and PKPEL-2 own 4.75pc each. It is Pakistan’s second largest gas field, having gas reserves of about 3.5 trillion cubic feet worth $3 to $5 billion.

The official said that the OGDCL gets 18pc of its revenue from the Qadirpur gas field, adding that if a decision to keep the management control with OGDCL is taken, the present protest movement might die down and suspected it was inspired by the OGDCL.

He said that when Pakistan goes to international financial institutions with a request for funding, they do ask what the government was doing to mobilise money from its own resources and to improve the budgetary scenario. At that stage, the issue of privatisation does crop up and the government can well argue that it was making efforts. Privatisation becomes more necessary when foreign direct investment is not coming in a significant manner.

The official said that the question as to who would own the “unknown deeper formation” (reserves) was being left undecided during the privatisation so that OGDCL’s interests remained secure. Only the known reserves are being sold.

He said that the gas pricing formula was yet to be decided and what prevailed now was an interim arrangement. When this formula is firmed up, the actual evaluation of the field would be available.

The official said that it would be ensured that none of the 650 employees of the gas field are laid off. He said the next buyer would not take all the profit out of Pakistan, but would invest a major part of it in the facility to improve its output.

The OGDCL, he said, has no means to make investment in the field while the new owner would be asked to spend on further exploration as well.

He dispelled the impression that this was not a good time to privatise any state entity given the prevailing security climate in Pakistan, and pointed out that five days after the September 20 Marriott Hotel Islamabad terrorist attack, the Privatisation Commission fetched a more than expected price for the Hazara Phosphate Fertiliser.

The Qadirpur Gas Field located in Sindh is described as a goldmine of Pakistan’s natural reserves. Merrill Lynch is the financial advisor for its privatisation. The field was developed in three phases, increasing its capacity from the initial 235 mmscfd to 500 mmscfd.

The average daily sales during the third quarter of 2006-07 from the field were 495 mmscfd of purified gas, 35 mmscfd raw gas and 103 barrels of condensate.

 

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Remittances rise to $2.34bn ​

Wednesday, November 12, 2008

KARACHI: Remittances sent home by overseas Pakistanis continued to show a rising trend as $2.34 billion was received in the first four months (July-October) of the current fiscal year 2008-09, showing an increase of $264.5 million or 12.71 per cent over the same period of last year.

The amount of $2.34bn includes $0.16 million received through encashment and profit earned on Foreign Exchange Bearer Certificates (FEBCs) and Foreign Currency Bearer Certificates (FCBCs). Monthly average of remittances for the period comes to $586.50m as compared to $520.37m during the same period of the last fiscal year, registering a surge of 12.71 per cent. Inflow of remittances from USA, Saudi Arabia, GCC countries (including Bahrain, Kuwait, Qatar and Oman), UAE, UK and EU countries amounted to $626.93m, $494.80m, $395.47m, $388.09m, $149.77m and $65.15m, respectively as compared to $590.81m, $390.91m, $302.14m, $334.82m, $164.50m and $60.68m, respectively in previous year. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries amounted to $225.62m as against $236.96m in the same period last year. During last month of October, Pakistani workers remitted an amount of $466.13m.

 

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France to help Pakistan combat energy shortage ​

Wednesday, November 12, 2008

LAHORE: Ambassador of France, Daniel Jouanneau, has said that Paris is ready to extend cooperation to Pakistan in overcoming its energy shortage by building wind mills and initiating solar energy projects.

He was speaking at the Lahore Chamber of Commerce and Industry (LCCI) on Tuesday. The French ambassador said that Pakistan could overcome its energy shortage by building wind mills with cooperation of France as it has a lot of windy areas. He said not only France but the whole world is interested in having a stable Pakistan.

He said France would take every possible step to help Pakistan in coping with all challenges it is facing today. “We cannot have more active presence in Asia if we bypass Pakistan because it is a hub between Central Asia and South Asia.”

Daniel, however, stressed the need for image building of Pakistan that had been lost in the eyes of the world community due to multiple reasons.

He said French multinationals had maintained a visible presence in Pakistan in various sectors like pharmaceutical and chemicals, telecommunication equipment; oil marketing, textiles and food processing.

France has also significantly contributed to the building up of defence capability of Pakistan’s Air Force and Navy by supplying Air Defence System and fleets of mirages and transferring technology for building up of sub-marines. This speaks of remarkable relations that exist between the two countries, which form the basis for more cooperation in other fields also.

The LCCI Acting President Mian Muzaffar Ali said France and Pakistan have a long history of close ties in all fields, whether they are political, economic, cultural or defence.

The relations between the two countries have traditionally been excellent and friendly, characterised by a high level of mutual consultations.

 

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Something to cheer about : Remittances rise 13% to $2.346bn in Jul-Oct​

KARACHI: Remittances sent home by overseas Pakistanis during first four months of current fiscal year grew by $264.5 million or 12.71 percent to $2.345 billion compared with $2.081 billion in the same period of last year.

The monthly average remittances for the period (July-October 2008) comes out to $586.50 million as compared with $520.37 million during the same period of last fiscal year. At a time when every other economic indicator is pointing towards a downslide in the economy, remittances is the only source of comfort for the economic managers of the country. The large amounts sent by these Pakistanis have helped the government cover trade deficits for past several years. Without this support, the country could have defaulted on its foreign exchange payments much earlier.

The inflow of remittances from USA, Saudi Arabia, GCC countries (Bahrain, Kuwait, Qatar and Oman), UAE, UK and EU countries amounted to $626.93 million, $494.80 million, $395.47 million, $388.09 million, $149.77 million and $65.15 million, respectively, compared with $590.81 million, $390.91 million, $302.14 million, $334.82 million, $164.50 million and $60.68 million, respectively, during the same period of last year.

Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries amounted to $225.62 million as against $236.96 million in the same period last year.

During October 2008, Pakistani workers sent an amount of $466.13 million. According to breakup, remittances from USA, Saudi Arabia, GCC countries (Bahrain, Kuwait, Qatar and Oman), UAE, UK and EU countries amounted to $127.28 million, $96.78 million, $80.10 million, $75.91 million, $31.20 million and $13.37 million, respectively. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries during October 2008 amounted to $ 41.44 million.

The amount of $2.345 billion sent home by expatriates includes $0.16 million received through encashment and profit earned on Foreign Exchange Bearer Certificates (FEBCs) and Foreign Currency Bearer Certificates (FCBCs).

 

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ECNEC okays Diamer-Bhasha dam project​

ISLAMABAD: Executive Committee of National Economic Council (ECNEC) on Tuesday accorded approval to the Diamer-Bhasha dam worth $12.6 billion.

Federal Minister for Water and Power, Raja Pervez Ashraf during the press briefing on the Diamer-Bhasha dam project said that dam would generate 4500MW electricity. He said that government would open bids for the pre-qualification of the project by November 30 to hire contractors.

Minister said that ECNEC had also approved comprehensive plan for the displaced families and they would be provided compensation. The project would be completed in the next seven years. Minister further said that project would provide electricity worth $1.5 billion per annum and the agriculture sector would get the benefit of $500 million annually.

Minister said that the project would help benefit the agriculture sector and there would be no power shortages crisis in the country after the completion of the project. He said that during the president’s visit to China, Chinese Companies had taken interest in materialising the Diamer-Bhasha dam project.

Minister further informed that Arab and European countries are also interested in the project and wanted to make a consortium for the completion of the project. He said that Pakistan required $1.5 billion per annum financing for the project.

ECNEC had also decided that both North West Frontier Province (NWFP) and Northern Areas would get the royalty as per their land rights. Minister said that government had chalked out a comprehensive strategy to initiate projects in the power sector. He said that government would enhance the power generation capacity by 2015 and would require $30 billion in this regard. He said that public sector would provide $10 billion whereas private sector would be asked to generate $20 billion. He said that country would need 116,000MW electricity by 2030 as the power growth rate was increasing 7 to 8 percent annually.

He said that government was also looking at the alternative resources that included Thar coal, wind and solar energy and expedited the work on these projects. He said that investors were taking interest in the Thar coal reserves.

While talking to media men, Chairman Water and Power Development Authority (WAPDA) said that acquiring land and resettlement plan of Bhasha dam would need Rs 60 billion and Rs 90 million would be spent to replace the relics to place in the museum. He said that 30,000 relics had been identified at the place of the dam.

 

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Govt seeks $46bn for mega projects from Gulf countries​

ISLAMABAD: The government is likely to seek much-needed foreign exchange worth over $46 billion for infrastructure related mega projects including Diamer Bash dam and others from Gulf States, sources told Daily Times here on Tuesday.

President Asif Ali Zardari and other economic mangers of the country expect to hold meeting in Dubai with leaders of Dubai, Sharjah and other gulf countries on November 17, sources said. Pakistan leader would inform leaders of the oil-rich gulf countries about financial crises of the country. Pakistani leaders would try to plea Pakistani case regarding much required foreign exchange reserves for meeting international obligations of the country.

At the same time, sources said that Pakistan team would seek financial assistance for 31 mega projects, mostly related to the development of infrastructure sector of the country. Total cost of these 31 projects is more than $46 billion. Majority of these projects are related to water, power and other sectors.

The government is particularly seeking financial assistance for the construction of Diamer Bash dam, which is approved by the ECNEC on November 11. The dam would be built on Indus River and after completion it would have an annual 6.4 million acres feet surface water storage capacity, which would supplement irrigation supplies during low flow periods.

The project will also harness renewable source of clean and cheap energy through installed capacity of 4500MW and reduce dependence on thermal power, hence, saving foreign exchange. “The dam would pay back its cost in ten years,” the sources added.

Apart from Diamer Bhasha Dam Project, the sources said Pakistani leaders would also discuss other national importance projects. Some of these are: “New Khanki Barrage Construction Project worth Rs 20 billion”, “GEPCO, Gujranwala secondary transmission lines and grid station improving project worth Rs 5.173 billion”, “Rohri Hydro Power Project worth Rs 794.573 million”, “Kurram Tangi Dam WAPDA Mardan worth Rs 17.205 billion”, “Rehabilitation of Irrigation canals in Punjab Irrigation System worth Rs 6.260 billion”, “Rural road construction project Phase-II (JABIC) Rs 5.114 billion” and several other important projects.

 

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Efforts on to improve economic indicators: Kaira ​

LAHORE (November 12 2008): The government was working to improve the economic indicators of the country by facilitating industry and investment as much as possible within its resources, said Punjab Minister for Finance, Planning and Development.

Talking to a business delegation called on him here on Tuesday, Tanvir Kaira said the government was keenly alive to the vital role of industry in national development, and was taking necessary measures to restore investor confidence, including closer liaison with the business community. He also assured the business community that nobody would be unduly harassed for tax recoveries.

 

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Japan to invest $872.316 million for KCR revival ​

KARACHI (November 12 2008): The government of Japan will invest $872.316 million for the revival of Karachi Circular Railway (KCR) to overcome traffic problems in the metropolis. According to sources, Japan External Trade Organisation (Jetro) commissioned by the ministry of economy, trade and industry, government of Japan would provide 100 percent funding for the project under Japanese STEP loan at 0.2 percent mark-up rate for a 40-year payback time, including a 10-year grace period.

They said Jetro, as a first parameter, will dualise KCR's 30-km loop with modern signalling and telecommunication system at a cost of $536.852 million. Further, the sources said at least two dedicated tracks along with the main line from City (Railway) Station to Drig Road Station of 14.5 kms, which would later be linked to the airport with a distance of 6-kms, at a cost of $179.464 million.

They said Karachi Urban Transport Corporation (KUTC) would be the vehicle for the implementation of the project having on its Board-Directors the senior officials of Pakistan Railway, Government of Sindh and City District Government Karachi (CDGK).

Currently, the project was under different assessment studies, such as Environmental Impact Assessment (EIA), Special Assistance for Project Formation (Saprof), led by a group of Jetro and would be completed within two to three months, said the sources adding that PC-1 for the project had also been cleared in principle. They said the government f Pakistan and Jetro were likely to sign a loan agreement by May 2009, within three to four years of which the project would be completed.

 

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Economic issues come under focus during last few months: report ​

KARACHI (November 11 2008): The economy has deep-rooted structural problems, which have come sharply under focus during the last few months as the economic difficulties emerged. This was stated in an interim report of the panel of economists on 'Economic Stabilisation with a Human Face' made available to Business Recorder here on Monday.

"These structural problems need to be tackled if we are to avoid the 'stop-go' cycle of growth linked to the level of foreign assistance," the report said. The panel has accepted the responsibility of preparing a 'home grown package' to achieve stabilisation of the economy and remove the structural imbalances.

The report said that emergence of very large and unsustainable macro-economic imbalances coupled with a high and rising rate of inflation necessitate the resort to a strong stabilisation programme in the short run if the country is to avoid a default eventually on its international obligations and to prevent inflation from acquiring a runaway character, leading to a social breakdown in an already difficult security situation.

Therefore, the stabilisation programme has to be designed in such a manner that the trade-off with respect to growth is essentially of a short-term character and it is possible for the economy to get back to a relatively high growth path in a medium run, it added.

The Panel is also of the view that the package of reforms should be developed independently of the quantum of external assistance that is likely to become available. There is need to avoid any perception that the reform effort will be weaker if more foreign resources are forthcoming. The case for stabilisation can be made powerfully by developing a 'counterfactual' scenario of the economy in which strong policy actions are not taken and we essentially continue for the next few months with 'business as usual.'

There is very prospect of increasing panic in the markets and fast continued erosion of business confidence, some of which we have seen already. The rupee is plummeting while the rate of foreign reserves depletion intensifies. It is conceivable that if no concerted action is taken to stem the slide the rupee it could depreciate much further as the foreign exchange markets attempt to equalise the demand and supply for foreign currency.

This will lead to a severe import compression of over 20 percent and not only create a dislocation in production processes but also lead to shortages and lack of affordability by bulk of the population of essential food and other items. The overall inflation in prices in this scenario could be almost treble the last year's rate of 12 percent.

Private investment could fall by over 25 percent, worsening greatly the prospects for gainful employment of the large number of new entrants to the labour force. Over two million additional workers could be unemployed and as many as ten million people could fall below the poverty line. The consequences are too horrendous to comprehend, leave alone accept. We have no other option but to adopt a strong domestic stabilisation programme if we are to avert a national crisis, especially at a time when there are serious security threats to the country.

Pakistan has faced financial crisis before. Perhaps the best most recent example is the situation after the sanctions imposed upon us following the nuclear blasts of 1998. In the presence of extremely low foreign exchange reserves, Pakistan had to negotiate an IMF stabilisation programme, with a series of tough conditionalities.

The key elements of the stabilisation strategy agreed with the IMF in January 2009 included a severely contractionary monetary policy characterised by very high real interest rates and strong curbs on private sector credit; exchange rate policy involving a transition from a dual exchange rate (with the lower rate on essential imports) to a unified, but significantly depreciated rate; continued process of trade liberalisation with declining import tariffs; major public expenditure containment, especially of development expenditure and no significant measures of social protection during the adjustment process due to lack of 'fiscal space.'

The stabilisation programme did succeed in converting the current account deficit into a surplus by 2000-01 and in bringing down the fiscal deficit to sustainable levels. The inflation rate, which was double-digit in 1994-97 fell to low single digit by 1999-2000. But this strategy imposed a high cost in terms of the decline in the rate of growth of the economy, which fell to a low below the average of 3.5 percent in the first four years after the launching of the programme.

The central message from this stabilisation episode is that while the strategy followed under the aegis of an IMF programme was instrumental in removing the macro-economic imbalances it was achieved at too high a cost in terms of the growth foregone and rise in poverty. Clearly, there is need to develop an alternative, perhaps more 'home grown,' strategy, which does not fundamentally impair the medium-run prospects for growth and avoid placing more of the burden of adjustment on the relatively weaker and more vulnerable sections of society, the report said.

The principles underlying a 'home-grown' stabilisation strategy with a human face are preserve the growth momentum by protecting levels of public and private investment to the extent possible and aiming for pro-poor growth, the policy actions and reforms should be designed in such a manner as to insulate the poor to the extent possible from negative impacts and a strong social protection strategy needs to be put in place to reach out to particularly vulnerable groups at this time.

 

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Software piracy costs Pakistan Rs 10 billion annually ​

ISLAMABAD (November 07 2008): Pakistan has taken up seriously the growing menace of piracy that has been hurting the productive sectors and causing a loss of Rs 10 billion revenue every year, said Chairman of Anti-counterfeit and Infringement Forum Aamina Saiyed here on Thursday.

Speaking at a workshop, on "Countering software piracy as a social and economic Issue," organised by Microsoft to create awareness, she said that the menace was not confined to a specific sector and appallingly critical medicines used in intensive care were also either pirated or fake.

She deplored that even some government organisation were also involved in piracy, and said a book on Micro electronic circuit of Oxford University Press was being prescribed by all the engineering universities of Pakistan. The interactive workshop was designed for journalists to raise awareness on the role of media in the fight against software piracy, copyright infringement and to highlight the value of genuine software to consumers, businesses and the national economy.

Famous brands lose seven to 20 percent of sales, coupled with huge impact in terms of tax revenue loss to the government as individuals, "it is our responsibility to shed light on such issues, create awareness and initiate steps that would eliminate the economic differences imposed by counterfeit trade and piracy," she said.

Software Manager of Microsoft, Pakistan, Salman Siddiqui, said that software piracy was a problem of the entire world as it caused losses of over 40 billion dollars annually. He said that in Pakistan, the productive sector was bearing the brunt of massive use of pirated and untaxed software. A mere 10 percent decrease in piracy rate could contribute 163 million dollars to the gross domestic product (GDP) and raise 23 million dollars in additional income to the government.

He said that the increased use of legitimate software would also promote a better environment for foreign companies to invest in Pakistan. At the same time, it would also inspire more of entrepreneurship in the information technology (IT) sectors, thereby resulting in higher software exports, he added. He said that piracy was not just an economic issue, rather it was a social phenomenon as artists, writers, and even local small businesses were impacted by it.

He said Pakistan was lagging beyond in the region in terms of IT competitiveness, and according to a study conducted by Business Software Alliance (BSA), Pakistan's ranked at 62 in current IT competitiveness, which placed it behind other comparable economies like India, Bangladesh and Nepal Citizenship Manager at Microsoft Afzaal Mirza said that his company had initiated various programmes in Pakistan to promote IT education in the deprived segments of the society.