Pakistan Economy - News & Updates - Archive

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MoU for 390MW power project inked ​

Wednesday, November 19, 2008

LAHORE: Punjab Industrial Estates (PIE) and Amwal International Investments of Kuwait on Tuesday signed a Memorandum of Understanding (MoU) for the construction of a 390 MW power project in Sundar Industrial Estate.

Punjab Industrial Estate was represented by its chairman Mohammad Ali Mian while Muthanna Al-Saleh inked the MoU on behalf of Amwal International Investments of Kuwait. CEO of Akkadian Energy Ltd, Ross Connelly, and CEO Punjab Industrial Estates Sabir P Chohan were also present at the occasion, states a press release.

PIE chairman Mohammad Ali Mian, who is also president of Lahore Chamber of Commerce and Industry (LCCI), termed the MoU a major breakthrough, which will help the government overcome electricity shortage that has jolted the very base of the Industrial sector.

The project represents approximately $400 million of Foreign Direct Investment (FDI) in the country. Equity for the project will be provided by Amwal and PIE, and debt financing will be provided by the International Finance Corporation of the World Bank Group and other international financial institutions.

The plant will be built by using state-of-the-art General Electric turbines and will utilize gas and high speed diesel fuels to provide Pakistan with cost effective power. The project complies with all international best practices and will meet or exceed the World Bank guidelines on environment.

It will be located at Sundar Industrial Estates in Punjab, and will provide power to meet the growing needs of the country’s industrial sector. The plant, which is likely to become operational by December 2010, is a private-public partnership between the Government of Punjab, private investors and Akkadian Energy Ltd. The latter was awarded the bid for the project by PIE through an internationally competitive bid process in 2007.

 

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Telecom sector shows steady growth ​

Wednesday, November 19, 2008

ISLAMABAD: The Pakistan economy seems to have passed through a difficult year after so many good years of increasing growth rates close to 7% per annum. The economy registered growth rate of 5.8% this year as against the target of 7.2%.

In relation to the slow economic growth, the telecom indicators both financial and other also exhibited slow growth trends. Teledensity in the country has reached 58.8%, showing a growth rate of 30.6%. The telecom sector contribution to national coffer, which is mainly in the form of taxes and duties, reached Rs111.7 billion this year. The total tax collection from telecom sector was Rs111.7 billion which was almost Rs100 billion last year. This rise is mainly because of GST that increased from Rs36 billion in 2006-07 to Rs44 billion in 2007-08. Similarly, activation tax also showed an increase of about 11% this year. Although the volume of GST collection grew this year, its growth in relation to previous year grew from 18% to 17% during the reported year.

Telecom imports declined marginally and stood at $1.33 billion, whereas in order to discourage the imported handsets, the government imposed duty of Rs500 per mobile handset along with regulatory duty of 50%. The PTA always ensured an investor-friendly environment, and this year the telecom sector had a total of $3.1 billion investments, of which more than $2 billion was made by mobile operators.

As for the Foreign Direct Investment (FDI), the telecom sector was second financial sector as major FDI recipient with a sum of $1.4 billion in 2007-08. Although the telecom revenue growth was 18% this year as against 21% in 2006-07, the revenues of mobile segment declined from 48% in 2006-07 to 37% in the reported year.

On the regulatory front, the PTA continued its efforts towards further growth of the sector while introducing new regulatory schemes and strengthening the present regulatory set-up in the authority. In this way, the PTA maintained the level-playing field for all the operators and a conducive investor-friendly environment prevailed, where much satisfied telecom customers have been enjoying large number of telecom and related services.

Number of important regulatory initiatives were taken during the year. With the new leadership in the authority, major restructuring of the PTA was done in consultation with senior management — an effort to improve the efficiency of the organisation. Similarly, to improve the functioning of the regulator in order to deal with future challenges a think tank has been created in the PTA. This think tank would be focal thinking machinery of the PTA on policies, technical and development aspects and other important issues pertaining to the telecom sector.

In pursuance of its objective of protecting the telecom consumers the PTA has taken a major initiative of setting up Consumer Protection Directorate (CPD). The directorate is mandated towards evolving institutionalised consumer grievances redressal mechanism for the speedy resolution of telecom consumers’ issues and complaints.

The PTA has decided to set up a joint system for monitoring and reconciliation of international telephony traffic along with the LDI operators, and in this regard all the ground work including regulations have been finalised. The PTA is now very focused on proliferation of broadband and related technologies. In this regard, as a first step, the authority chairman has been highlighting ways to facilitate deployment of broadband technologies, optimise timely spectrum availability and harmonisation of regional practices and standards. The PTA also worked in number of areas including verification of mobile and WLL subscribers antecedents, deployment of online verification system and verification of WLL subscribers, in collaboration with law enforcement agencies, MOIT&T and NADRA, to curb illegal businesses in telecom sector.

So far, over 10 million SIMs have been closed down which could not be verified. Similarly, the PTA took number of initiatives for further curbing handset theft and provided online access to get UAN and Toll Free numbers. In addition to Rabta Ghar, the Universal Service Fund has started awarding contracts to service providers in rural areas to improve telecommunication facilities in far-flung areas of the country.

Mobile cellular segment remained engine of growth of the telecom sector in particular and the economy in general with its social and economic benefits spreading across the country. Pakistan mobile market has remained one of the fastest growing mobile markets among the emerging markets. This year a total of over 25 million subscribers were added to the total subscriber base of 62.9 taking it to a total of 88.0 million at the end of 2007-08.

Today almost 91% of the total population of Pakistan is covered with mobile networks. All operators are expanding their networks and up till 2007-08 almost 9,369 cities/towns/villages have mobile networks by one or all operators. During the reported year, Telenor emerged as fastest growing mobile operator which added almost 7.4 million subscribers to its network in 2007-08. However, Mobilink remained market leader with almost 35% of total market share in terms of subscribers. CMPak performance remained outstanding wherein it added 2.9 million subscribers in first year of its operations.

In 2007-08, revenues of mobile sector grew by 37% and reached Rs182 billion which were Rs133 billion in 2006-07. However, the average revenue per user depicted another year of declining growth trend and today the industry ARPU stands at $3.1.

Mobile segment remained one of the major contributors of national exchequer and contributed almost Rs82 billion in the form of GST/activation/witholding taxes. According to the BMI, an independent telecom analysis company, mobile subscribers in Pakistan would reach 135 million in 2012 with average growth rate of around 20% to 25%. During the reported year the Carrier Services Providers rapidly rolled out their networks across the country and total point of presence grew by 40% amounting to almost 178 in total. The revenues of new LDI operators showed a growth of 42% where the total revenues of the LDI segment reached Rs21.9 billion.

The revenues of incumbent PTCL are continuously declining where as companies like LinkDirect and Wateen are making good profits. Reliance of LDI operators on PTCL for backbone connectivity is reducing everyday, whereas injection of FDI by foreign companies in local LDI operators is enabling these operators to invest more in network expansion. Worldcall received $200 million from Omantel and Buraq Telecom received $220 million from QTel after sharing some of their shares to them. Total investment made by LDI segment in 2007-08 is $390 million. International outgoing traffic grew by 31% where almost 1.2 billion minutes were terminated to their respective networks. International incoming traffic grew by 163%.

The PTA has taken a measure to safeguard interest of new LDI operators making it mandatory for interconnection and lease of media from the PTCL. The fixed line segment of telecom sector after deregulation could not improve much due to availability of alternative services including mobile and WLL. For yet another year, the fixed line teledensity dropped and reached 2.7% during 2007-08, loosing both on urban and rural side.

The PTCL maintained its SMP position and subscriber share remained same, however, the NTC improved its share and now maintains 2.4% of total market. Total fixedline subscribers at the end of 2007-08 stand at 4.4 million. Wireless Local Loop (WLL) showed a positive growth trend but the growth rate was as low as 32% in 2007-08 which was almost 66% in 2006-07. Today total WLL subscribers are 2.23 million with WLL teledensity standing at 1.4%. The total payphones in the country at the end of 2007-08 reached 449,121 showing a growth rate of 16%. There are currently 59% payphones working on WLL technology whereas 27% are fixed and only 14% are mobile PCOs. Broadband proliferation in the country has been very slow during all these years and this segment of telecom sector is still in its infancy stage. Total number of broadband subscribers in Pakistan is approximately 170,000, whereas the segment experienced a growth rate of almost 160% in one year. The costs which are one of the deterrent in broadband growth have been drastically reduced from $55-16 for a 512 kbps unlimited DSL connection.

It is estimated that there will be 5 million broadband subscribers in Pakistan by 2010. The PTA has been working rigorously for liberalisation of telecom sector of the AJK and Northern Areas. In this regard licensing of mobile operators for the AJK and NA was done last year whereas this year licensing of LDI and WLL operators was made. Similarly the CMPak was also awarded license to operate mobile services in the AJK and NA during this year. Today total teledensity in the AJK and NA is almost 33% of which mobile teledensity is leading with 30%. Total mobile subscribers in the AJK and NA reached 1.61 million showing a growth rate of 77%. The SCO, the incumbent operator in the AJK and NA, has total subscriber base of 264,787 of which 126,000 are cellular subscribers. The SCO is still maintaining its monopoly in fixedline which would finish once the newly licensed companies would start their services in the area.

Telecom sector of Pakistan continued to grow positively during 2007-08, however, the pace of growth was not fast. Since the liberalisation has been completed and most of the segments of the sector have competition in some form, therefore it can be said that market is now moving towards maturity. Similarly internal and external factors including political and economic situation of the country also played a major role in current growth trends. With the new government in place and extensive work on regulatory measure taken by the PTA for future would result in improved growth patterns of the sector.

 

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Economists propose cut in expenditure, mobilisation of domestic resources: interim report on economic stabilisation presented ​

ISLAMABAD (November 19 2008): Prime Minister Syed Yousuf Raza Gilani on Tuesday said that the findings of the report on economic stabilisation will help policymakers in formulating indigenous action plan, giving them a clear roadmap for negotiations with the donors. Addressing the panel of economists, headed by Dr Hafiz Pasha, who presented the interim report on economic stabilisation.

The Prime Minister said it is a good omen that the economic stabilisation programme envisages equitable resource distribution efficiently. The government is committed to bring about economic stability by restoring the confidence of international as well as domestic investors, and a new face of stabilisation is absolutely necessary for sustainable economic growth for the benefit of the poor and needy segment of the society, he added.

The Prime Minister was optimistic that economy will be back on track with the passage of time, keeping a strict check on inflation, to pass on the fruits of growth to masses who are under immense pressure due to price hike. Gilani said that the country has the desired capacity to manage utilisation of funds efficiently to be provided by donors and Friends of Pakistan.

He asked the panel of economists to address the structural weaknesses of the economy and prepare a medium-term framework for sustainable growth. "Pakistan being an agrarian economy, needs valuable inputs by economists to further bolster the agriculture sector to contribute to the economic development of the country," he maintained.

Advisor to the Prime Minister on Finance, Shaukat Tarin said the government's 9-point economic plan implementation will be monitored by a policy board co-chaired by the President and the Prime Minister. The policy board will comprise government representatives, members of the Planning Commission and economic experts from different fields and an executive committee will work under the board.

Each committee member will head a group working on various subjects of the economic plan, Tarin elaborated. The plan has been prepared after taking politicians and private sector on board, he said, adding that economic stability will be the top priority of the government.

Social protection, agriculture, industrial competitiveness, human resource development, integrated energy plan, strengthening of capital markets and public private partnership are major areas of the 9-point plan. Shaukat Tarin, Minister for Planning and Development, Makhdoom Shahabuddin, deputy chairman Planning Commission, Salman Farooqi and State Minister for Finance, Hina Rabbani Khar were also present during the briefing.

 

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Pakistan seeks $55 billion investment in various sectors ​

KARACHI (November 19 2008): Pakistan is believed to have requested the Friends of Pakistan for as much as $55billion investment in a host of projects in various sectors. According to Dubai-based Khaleej Times, Pakistan has sought funding for projects worth about $55 billion in sectors such as infrastructure, energy, agriculture and services from the members of Friends of Pakistan Group at a meeting held in Abu Dhabi on Monday.

Quoting a senior Pakistan finance ministry official who, according to the newspaper, requested anonymity, the projects Pakistan has offered for investment include construction of dams, electric power generation plants, roads, highways, agriculture development, privatisation of state-owned industries and investment into social and services sectors.

The official was also quoted as saying that the group would present responses on Pakistan's request from their respective governments in the next meeting to be held in Islamabad in the third week of February. Friends of Pakistan group have agreed to a roadmap or a work plan with a resolve to enabling Pakistan overcome its present financial crisis.

The experts meeting, which was jointly chaired by the UAE and Pakistan, also overwhelmingly offered complete support to Pakistan in providing financial resources, investments, technical assistance and technology to help better its economy. Delegates from Australia, Canada, Britain, US, China, Saudi Arabia, Turkey, European Union, European Commission, UN, Japan, Germany attended the meeting.

 

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Rs 400 billion of PSDP lying with banks: Tarin estimates inflation at 20 percent, GDP growth at four percent​

ISLAMABAD (November 19 2008): Pakistan will miss its inflation target of 12 percent, achieving around 20 percent annualised CPI inflation by fiscal year 2008-09 end and would be fortunate if it attains 4 percent GDP growth against its target of 5.5 percent in this global economic meltdown, said Finance Advisor in an interview with Aaj TV/Business Recorder.

"To remain below 20 percent of average inflation in whole fiscal year, we need to achieve 12 percent by June 2009, which was at 25 percent in October. So, how can we achieve 12 percent annualised target?" remarked Shaukat Train, Advisor to Prime Minister on Finance.

He apprehended that GDP growth target would be missed due to a host of factors. Even if Pakistan touched a bit over 4 percent (GDP growth), that would be an achievement when global growth is down and the country would miss its 5.5 percent target, Tarin said.

He said that in the next two years he would secure $20 billion from various sources. "IMF would give $7.5 billion; other multilateral like WB, ADB, DFID and IDB $5-7 billion; and at least $5-6 billion investment from friendly countries in the next two years, that would help reboot economy and address balance of payments crisis," said the Finance Advisor.

The flow of aid has started again as the country is almost through with IMF now. He also indicated that President Zardari had talked to US Vice-President-elect Joseph Biden, who as Chairman of US Senate Foreign Relations Committee, supported a $1.5 billion bill for Pakistan's aid and hoped that it would be processed as the new government takes office.

He has also talked to USA to give status of duty-free zone to Balochistan and NWFP where four industrial zones are already operating and whose exports can have access to US markets.

He reiterated that tax on agriculture income, stock market and real estate should be levied. In case of agriculture income tax as the sector earns more income and anybody earning over Rs 200,000 a year should pay tax. The country has to achieve 15 percent tax to GDP ratio in next 5-7 years.

Some composition of taxes also needs improvement as similar sales tax in Sri Lanka at the rate of 15 percent collects up to 7 percent of GDP while it is only 3 percent in Pakistan. He said that reduction in prices would need some forced action and then in 12-18 months people would feel relief in prices. International fall in prices is now being reflected by even government, as it has announced many cuts.

He said that almost Rs 400 billion of previous approved development projects is still with banks and projects are receiving interest on that sum with lesser progress on the projects. So it is a question of prioritisation of the projects and the government also wants to manage expenditures without State Bank's borrowing, which it would cover from foreign funds largely with some tax receipts.

But tax collection in anyway should remain hassle-free. "I have determination not to borrow from SBP which distorts interest rates, debt market and ultimately inflation," said Tarin. He said that he also expected $2.5 billion from securitisation of remittances, which would also add relief towards balance of payments for the country.

 

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Italy willing to boost Pakistan's economy through investments ​

ISLAMABAD (November 19 2008): Italy will invest in different sectors of Pakistan, including energy, textile, agriculture and marble sectors, to boost its economy. This was stated by Italian Ambassador Vincenzo Prati during a press conference along with the Chairman of the Board of Investment (BoI) Saleem Mandiwala here on Tuesday.

The ambassador said: "We are aware of the fact that the problem of insecurity has become a major issue in Pakistan, but we want to initiate various projects in energy, marble, agriculture and textile sectors in Lahore, Karachi and Islamabad".

The ambassador said that despite the hurdles in Pakistan, there were lots of investment opportunities in various sectors. About the exact amount of foreign direct investment (FDI), the ambassador said that substantial numbers of Italian companies were ready to come along with the modern machineries and equipments in Pakistan.

Pakistan and Italy had already signed a memorandum of understanding (MoU) regarding the co-operation in different sectors. Responding to a question, the ambassador said the law and order situation definitely affected the FDI in Pakistan, but there were several opportunities for enhancing investment, particularly in energy, marble and granite sectors.

Speaking next, the BoI Chairman rejected the report that foreign investors were hesitant to invest in Pakistan due to deteriorated security situation. He noted that still foreign businessmen were visiting Pakistan to seek investment opportunities. Some times FDI increased and in other times, it slowed down, he added. The government would facilitate all those companies that wanted to invest in Pakistan, he said.

He said that foreign investors were still investing in various fields despite facing law and order problems, and added that the government was taking appropriate measures for improving law and order situation. He said that Pakistan had unique position and its long border with Afghanistan was main cause of disturbance along with the international war on terror.

Mandiwala claimed that Pakistan was heaven for every investor and the government offered a number of incentives to foreign investors. To a question, he said there was no target fixed to attract investment. But, the government was taking many corrective measures and providing incentives to strengthen the confidence of local and foreign investors, and expressed the hope that the FDI would enhance in next few months.

He said the local investors were flying out of the country due to the rumours about fragile economic situation. He, however, that economic situation was under control and the local investors should not believe in false statements and forecasts.

Replying to a question, the BoI Chairman said that the former government made investment in certain sectors, mainly in banking and services, and neglected manufacturing sectors. He stressed the need for increased investment in manufacturing sector. "We also support investment in services sector, but the present government's focus was on increasing investment in neglected sector, ie manufacturing," he maintained.

He said the foreign investors had some concerns regarding law and order situation, but it did not mean that they were investing or winding up their business operations in Pakistan. He disclosed that "we are hopeful of getting investment from Saudi Arabia as our negotiations in this regard are in process".

He lamented that war on Pak-Afghan border had also discouraged the foreign investment. The BoI Chairman maintained that Pakistan was offering great business opportunities to the foreign investors. The foreign investors could get 40 percent return on their investment, while in other parts of the world; the return was just five percent. He admitted that the war on terrorism had damaged the image of Pakistan in global level.

 

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US experts for wider economic support to Pakistan ​

WASHINGTON (November 19 2008): Seeing a vital opportunity to forge broad-based US-Pakistan relations following victory of President-elect Barack Obama and emergence of a democratic government in Islamabad, a panel of top American experts on Monday urged wider international economic support for the South Asian country as well as focused efforts to address its regional security concerns including Kashmir.

"The United States needs to make a shift in its approach to Pakistan, recognising both the importance of Pakistan to regional and international security, as well as the limitations of US power," a new report released on Monday by the Center for American Progress said, asking the incoming Barack Obama Administration to work with regional and other major powers to help Pakistan overcome its economic and security challenges.

Entitled "Advancing a New Strategy for Prosperity and Stability in Pakistan and the Region," the report has been drafted after a year-long study by about three dozen experts. It particularly underlines the need to foster long-term relations with Pakistan that benefit its people and address disputes on its borders with India and Afghanistan.

"The new US administration, with Congress and the international community, should strive to help Pakistan weaken al Qaeda, the Taliban, and affiliated militant groups so that they no longer threaten stability in Pakistan, Afghanistan, India, the broader region, the United States or the world and secure borders between Pakistan and its neighbours, with all border disputes including Kashmir and the Durand Line (the disputed boundary between Afghanistan and Pakistan), either resolved or in a credible process for resolution."

At the same time, the panel of security, trade and economic relations experts and foreign policy analysts - including Bruce Riedel, who is now an Obama adviser on South Asia - remind that the "US policy must recognise that the military component alone is insufficient to build stability and security in Pakistan."

They stress pursuance of "a diverse approach, including strengthening governance and rule of law, creating economic opportunities, and exploring political negotiations" to curb militancy. "A fundamental strategic shift in US policy on Pakistan should occur away from a narrow focus on military and intelligence co-operation.

Pakistan's problems will not be solved by military means alone. Long-term stability in Pakistan depends not only on curtailing extremism and militancy in Pakistan, but on strengthening Pakistan's economy and democracy and on reducing tensions between Pakistan and its neighbours. US military approaches must be integrated into a wider political strategy for the region.

"The US government should engage with leaders of Pakistan's civilian institutions and civil society in addition to its military establishment. Integrating the full range of US and other countries' powers diplomatic, economic, and political" the United States should quietly and carefully expand US-Pakistan partnerships on a broad set of issues, including intelligence co-operation, economic development, energy, education assistance, and more.

"The Obama administration should embark on a strategic dialogue with Pakistan that sets common goals for the two countries, building on the major non-Nato ally status it has already achieved. These goals should include both tactical counter-terrorism and longer-term counterinsurgency objectives and should specifically engage Pakistan's security concerns."

The authors note since the Pakistani parliamentary elections in February 2008, the US government has begun to make some changes in its policy toward Pakistan. It has shown support for the new civilian government and increased assistance to the Pakistani people through programmes in education, economy, energy, health care, and more. However, these changes are not sufficient to meet the considerable challenges.

Advocating the need to build trust between the two countries under the new US Administration, experts point out that the "current distrust that the government of Pakistan and its people hold toward the Bush administration has undermined a co-operative Pakistan-US relationship." "Furthermore, the strains between the Bush administration and numerous other countries including our European allies have hurt our nation's efforts to cooperate and co-ordinate on Pakistan".

"The Obama administration has the potential to mend the strained US-Pakistan relationship and offers a fresh opportunity to reach out anew to other strategic players in the region and the world to co-ordinate international efforts on Pakistan."

Despite the seemingly overwhelming challenges facing the country, numerous factors offer an opening for a positive shift in the US-Pakistan relationship. "For the first time in almost a decade, the United States and the world have partners in a democratically elected government of Pakistan. The government has greater legitimacy than previous governments because of February 2008 elections, which were a legitimate expression of the will of the Pakistani people."

"US engagement in Pakistan has been inconsistent, transactional, and reactive for decades. The United States has suspended aid, imposed sanctions, and then intermittently renewed contacts, depending on paramount strategic concerns at the time.

The United States must create a long-term plan to partner with Pakistan, understanding its challenges will not be resolved in the short-term. Even if Osama bin Laden were captured tomorrow in Pakistan, challenges to its stability and the regions would remain," the report says urging President-elect Obama to assist Pakistan in confronting its biggest challenges of insecurity, governance, and economic difficulties.

Launching the report experts including Caroline Wadhams, Senior National Security Policy Analyst, Center for American Progress, Jonah Blank, Chief Policy Advisor for South Asia, Central Asia and Archipelagic Southeast Asia, Majority staff of the Senate Foreign Relations Committee, Steve Coll, President & CEO, New America Foundation, Robert L. Grenier, Managing Director and Chairman for Global Security Consulting at Kroll and Lawrence Korb, Senior Fellow, Center for American Progress & Senior Advisor, Center for Defence Information, also agreed on the need for greater trade access for Pakistan, co-operation in the energy field, provision of counter-terrorism equipment like night vision goggles, support by the major powers at Friends of Pakistan forum and backed the Biden-Lugar legislation as way forward to sustained economic partnership.

 

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Economic situation likely to improve shortly: Taseer ​

LAHORE (November 19 2008): The economic situation in the country is likely to improve shortly in the backdrop of expected assistance of $3-4 billion from the "Friends of Pakistan", while the IMF loan and reduction in oil import bill by $500 million, following declining oil prices internationally, would not only help stabilise the Pak rupee, but also support in overcoming the trade deficit.

The Punjab Governor Salman Taseer expressed these views while addressing the inaugural session of the 2nd International Foundry Congress and Exhibition-2008, organised by Pakistan Foundry Association here on Tuesday. "Pakistan has bumper rice crop in this season whose exports can fetch foreign exchange up to $2.5 billion.

Under this situation, the balance of payment would certainly improve to provide significant relief to the national economy", he added. He said that not only the local currencies, but also other currencies substantially declined against the dollar. The Indian rupee declined by 35 percent, Australian dollar by 40 percent and pound sterling was slide down by 30 percent against the greenback, he claimed.

He said the world has been facing severe recession for last few months and because of globalisation, its negative impact would badly hit Pakistan's industry. Our industry should bring innovation and improve its system so that the negative impact could be minimised, he added.

The Governor stressed the need for developing academia-industry linkages for the economic development and asked the association to send its members abroad for training.

The Association Chairman Sikandar Mustafa Khan and General Secretary Asim Qadri also spoke on the occasion and highlighted the aims and objectives of the congress and gave an overview of the foundry sector in the country.

 

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Interim report on economic stabilisation presented to PM : Panel suggests Rs 115 billion cut in expenditure​

ISLAMABAD: A Planning Commission panel of economists on Thursday unveiled a proposed macro-economic stabilisation plan for 2008-10 seeking a Rs 115 billion cut in the country’s expenditures.

Prime Minister Yousuf Raza Gilani was briefed on the interim report at a meeting attended by Finance Adviser Shaukat Tareen, the planning and development minister, the Planning Commission deputy chairman and the state minister for finance.

The proposed plan slashes defence expenditure and subsidies by Rs 30 billion each, debt servicing by Rs 25 billion and other expenditures by Rs 40 billion. The panel said that several proposed steps to mobilise revenue would have their full impact in the medium term, but their implementation would nonetheless secure revenue.

The panel recommended revenue mobilisation of Rs 75 billion through additional taxation proposals – including imposition of a broad-based regulatory duty on non-essential imports (excluding wheat, edible oil, pulses, pharmaceuticals, fertilisers and petroleum products) that do not already carry a duty, at a rate of 4 percent on machinery and 8 percent on other items. In a bid to broaden the base of the tax system, the panel recommended levying a services tax – similar to the type in India – by January 1, 2009, on 12 selected services initially, an excise duty on non-essential consumer goods and durables, a capital gains tax on the transfer of properties by provincial governments, and an agricultural income tax by provinces. The economists also proposed the withdrawal of some income tax exemptions. They have called for bringing the highest slab of income tax at the same level, or close to the corporate tax rate; reducing the revenue threshold of companies for the purpose of corporate taxation; and a reduction in sales tax thresholds.

The panel also proposed increased reliance on non-bank borrowing to finance up to Rs 250 billion of the budget deficit, and said a reduction in borrowing from the central bank would necessitate an increase in the average return on national saving schemes. It further endorsed the recent increase in the interest rate.

 

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Macroeconomic Stabilisation Plan 2008-10: Plan to retard GDP growth in short-term, calls for fiscal prudence​

* Independent Federal Bureau of Statistics proposed​

ISLAMABAD: Macroeconomic Stabilisation Plan 2008-10 would have some negative impacts on economy in the short-term and the plan indicates that Gross Domestic Product (GDP) growth of the country would fall to 4.4 percent in 2008-09 as compared to the target of 5.5 percent. However it projects that GDP growth will increase to 5.1 percent in next fiscal year 2009-10.

Panel of Economists has also suggested institutional reforms stating that a parliamentary resolution be passed renewing its commitment to the Fiscal Responsibility and Debt Limitation Act and enact an amendment limiting the extent of government borrowing from the State Bank of Pakistan.

The plan also calls for an independent Federal Bureau of Statistics (FBS) headed by a professional that directly reports to the parliament and not to the government.

It is projected that balance of payments gap would be reduced to $4.5 billion in 2008-09 from $6.2 billion in 2007-08 and will be largely eliminated in 2009-10. Growth of exports is targeted $23.5 billion by 2009-10 whereas imports are expected to decline to $31.4 billion in 2008-09 from the target of $35.4 billion. The plan forecasts that remittances will continue to show rapid growth while foreign investment is expected to fall in 2008-09 and then rise once again in 2009-10 to $5 billion.

Fiscal deficit is seen falling to 4.5 percent of the GDP in 2008-09, from 7.4 percent in 2007-08 and further to 4.0 percent in 2009-10. No real growth in PSDP 2008-09 will be done (as compared to 2007-08) resulting in a nominal reduction of Rs 63 billion in current PSDP in 2008-09 covering both federal and provinces.

The plan says that unemployment will increase to 6.5 percent in 2008-09 (from 5.3 percent in 2006-07) adding 1 million to the number of unemployed. Poverty incidence will also increase mainly due to high inflation and higher food prices.

Consumer Price inflation (CPI) is estimated at around 22 percent in 2008-09 falling to below 17 percent in 2009-10 and exchange rate is expected to depreciate over 2008-09 and remain stable in 2009-10.

The proposed stabilization and reform programme is based on the following principles:

Mobilisation: It is proposed that no effort would be spared to mobilise domestic resources and cut expenditures to reduce the resource gap to manageable levels.

Protection: The stabilisation programme has to ensure that the vulnerable and the poorest are protected via cost-effective social safety nets.

Prioritisation: Stabilisation and the reform programme built on it have to demonstrate our ability to utilise domestic and external resources efficiently.

The global economic scenario is fast changing and fragile. The interim report takes into account both positive developments in terms of reduction in oil and commodity prices as well as the negatives, as the US economy has slowed down and other industrial economies are in recession, which will adversely affect our export prospects. The plan suggests that we need to be fully prepared to respond to a more volatile global economy. The measures outlined will cut down financing gap in the balance of payments in 2008-09 to close to $4.5 billion compared to $6.2 billion in 2007-08. In addition, an immediate injection of around $4 to $5 billion is required to provide cover of 3 months import.

It is expected that the stabilisation programme will be regarded as "credible" by the international community and will attract the much-needed support.

The reform programme also suggests drawing upon broad-based support to ensure national ownership. Parliamentarians, provincial governments, civil society and the private sector must be taken on board and their counsel be sought in monitoring the implementation of the programme.

An independent panel of experts should be engaged in the consultative process in the design, implementation and monitoring of donor supported projects critical to the medium-term economic recovery. This will ensure transparency, rigour and relevance.

 

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Government urged to defer all new projects in current fiscal year​

ISLAMABAD: Realising the gravity of financial crunch, the Panel of Economists on Tuesday proposed the government to defer all the new developmental projects starting in 2008-09 under the Public Sector Development Programme (PSDP).

The Panel of Economists of the Planning Commission forwarded this proposal to the Prime Minister Yousuf Raza Gilani in a presentation. In the view of the panel, events since the announcement of the Budget 2008-09 have rendered some of the expenditure proposals unrealistic and it needed to be revised.

It was proposed that the PSDP be reduced in a manner that social programmes were safeguarded and that adjustments in allocations in public projects allow growth to bounce back quickly. The guiding principle was a short sharp reduction in growth in the short-term and a quick rebound back to a higher trend growth rate.

The required reduction in the PSDP consistent with the macroeconomic stabilisation programme was Rs 63 billion (equivalent to 10 percent of the federal and provincial government PSDP). The Panel of Economists, however, recommended a larger cut of Rs 100 billion in this year's PSDP allocations. This was to allow for a cushion for social protection measures needed to soften the impact of the harsh (but needed) stabilisation measures on the vulnerable citizens and also to protect carefully selected, cost-effective programmes in least developed provinces and regions.

The panel also recommended a review of actual expenditures and new commitments in the PSDP taken place in March 2009 to determine what amount if any is available from the Rs 37 billion 'cushion' for reallocation to ongoing projects. During presentation to the PM, the Panel of Economists suggested criteria for restructuring the current year's PSDP, according to which priority would be given to projects that had incurred at least 50 percent of total cost. The panel suggested for protection and enhancement the refined and fine-tuned Benazir Income Support Programme (BISP). Under the PSDP, the BISP would not be affected and the deserving persons would be able to get monthly Rs 1,000.

According to the Panel of Economists, priority would be given to the developmental projects for special regions and those that enhance national security. Under this criteria there would be no cut in spending for the development of Balochistan province as already announced by the PM. ijaz kakakhel

 

[Neo]

Pakistan Lowers Growth Outlook to Slowest in 7 Years ​

Nov. 19 (Bloomberg) -- Pakistan, on the verge of a bailout from the International Monetary Fund, expects the economy to grow at the slowest pace in seven years as inflation averages 20 percent and industrial and farm output slows.

The $150 billion economy may grow 4.3 percent this fiscal year to June 30, lower than the earlier predicted 5.5 percent, Waqar Masood, secretary at the finance ministry, said in a phone interview. Inflation will exceed the government's previous target of 12 percent, he said.

Pakistan is counting on a $7.6 billion IMF rescue this month to avoid defaulting on its debts after foreign-exchange reserves shrank 75 percent in a year to $3.5 billion. Growth may slow after central bank Governor Shamshad Akhtar increased the benchmark interest rate to 15 percent from 13 percent as part of IMF loan condition to curb inflation.

The Washington-based IMF may approve Pakistan's first bailout in four years and release funds as early as Nov. 21, Massod said from the capital, Islamabad.

Consumer prices in Pakistan rose an average 24.6 percent in the first four months of this fiscal year, according to data on the Web site of state-owned Federal Bureau of Statistics. The economy expanded an average 6.8 percent in the past five years, according to the government.

``We expect inflation will slow in coming months as global crude and commodity prices have reduced,'' said Masood. The government will formally revise the economic targets later this month or next month, he said.

Lower Than Target

Farmers are likely to produce 12 million bales of cotton this year, less than the target of 14 million, he said. Agriculture accounts for 21 percent of the country's gross domestic product.

Pakistan needs the IMF loan to help it win additional aid from a group of other lenders and donor nations, including the U.S., U.K., China and Saudi Arabia. The group's Nov. 17 meeting in Abu Dhabi adopted a ``work plan'' for financial help to Pakistan, the foreign ministry has said.

``We are trying to hold a ministerial meeting of `Friends of Pakistan' group next month,'' said Masood. ``The prospects of more financial aid and investment from donor countries are good.''

Pakistan left its last IMF program in 2004 with a credit rating from Standard & Poor's of B+, four levels below investment grade. S&P on Nov. 14, one day before the latest IMF loan was announced, cut the nation's rating to CCC, citing a risk of default on external debt payments.

Moody's Investors Service, which rates Pakistan's debt at B3, said Nov. 17 the rating remains on review for a downgrade as the country needs to show it will secure additional assistance from donors and other lenders.

Pakistani rupee in October plunged to an all-time low and the balance of payments deficit in the first three months of the fiscal year started July 1 widened to $3.95 billion, from $2.27 billion a year earlier. The deficit reached a record $14 billion last year.

 

[fatman17]

Pakistan needs aircargo makeover

Thursday, 20 November 2008

A Pakistan study has estimated that total air cargo in the country will increase from about 330,000 tonnes in 2004-05 to about 866,000 tonnes in 2015-16.

However, it has highlighted problems with the country’s air cargo handling facilities that will hinder growth if not rectified.

They include a lack of ground and aircraft capacity, charging anomalies, the lack of foreign cargo operations, security, lack of cold storage facilities and inefficient business processes.

About 95 per cent of Pakistan’s exports are by sea, but the tiny percentage of air freighted items are estimated to be worth eight per cent of the total value.

Exporters in the study complained there were security problems -- such as a lack of suitable lockers with strong rooms -- at Karachi, Lahore and Peshawar airports for gems, jewellery and other valuables.

They also said carrier Pakistan International (PIA) levied excessive charges to carry these items.

The study, by the Ministry of Commerce, said Pakistan Customs Computerized System (PACCS) should be introduced by Pakistan Customs at all airports and the IT systems of CAA, airlines, air cargo agents and cargo handling agents should be integrated with it to function as a single window.

Among its other recommendations were: Aircraft landing charges and fuel prices charged at Pakistani airports to be common-rated with the lower charges at regional airports; the CAA to establish suitable adjudication mechanisms at each airport for quick resolution of disputes relating to throughput charges and modern scanners adequate for cargo loads to be installed at all airports.

There are 42 civil airports in Pakistan, 10 of them international airports.

 

[Neo]

Pakistan smells *** in ratings downgrade by S&P ​

Thursday, November 20, 2008

ISLAMABAD: The downgrading of Pakistan’s rating by Standard & Poor’s on October 6 by two notches and then on November 14 by one notch seems to be the part of international politics, as it has increased the vulnerability of Pakistan many times.

Owing to this very factor, banks have started showing hesitation in opening of L/Cs of the importers, a senior official in the Finance Ministry.

To substantiate Pakistan economic managers’ view, JP Morgan in its latest comment doubted the downgrading of Pakistan by S&P saying: “S&P decision to downgrade Pakistan to CCC last week, based on the ‘ongoing delay by Pakistan in securing external assistance essential for the immediate stabilization of its balance of payments position,’ was curious.”

Finance ministry official said that the authorities concerned were shocked over the apparently politically dominated decision of S&P to further downgrade Pakistan rating on November 14 as during the period between October 6 and November 14, the government of the day had to set its direction to move IMF to bailout its economy.

The economic mangers smelt the *** in the move to downgrade Pakistan’s economy from CCC+ to CCC as some countries want to ensure that Pakistan must move IMF, the official said.

He said that influential countries having major stakes in the IMF would have access to monitor Pakistan’s expenditures particularly in defence area. It is worth mentioning that USA has time and again raised the issue of unbridled expenditures of Inter Services Intelligence for its activities particularly with regard to combating terrorism.

Pakistan earlier wanted to escape moving the IMF. “ Pakistan would not move IMF at any cost and in case Pakistan decides to move IMF it would be would be done over his dead body,” Advisor to Prime Minister on Finance and Revenue had said at Karachi airport in reply to a media query prior to leaving for World Bank and IMF annual meetings held in Washington DC on October 11-13.

But the Friends of Pakistan including Saudi Arabia, USA, UAE and UK and donor agencies including World Bank, DFID, IDB and ADB asked Islamabad to first move IMF, then they would come up with the soft loan for beleaguered economy. The official said that recent downgrading of Pakistan by S&P is also the part of the campaign to ensure that Pakistan moves IMF.

 

[Neo]

Donors pledge $328m for Neelum-Jhelum power project ​

Thursday, November 20, 2008

LAHORE: The international donors pledged an initial financial assistance amounting to $328 million for construction of 969MW Neelum-Jhelum hydroelectric project.

This announcement was made in a meeting attended by the delegates of Islamic Development Bank, Saudi Fund for Development, Kuwait Fund for Development and Abu Dhabi Fund for Development.

Islamic Development Bank representative Farrukh Muhammad said that the financial assistance is meant for the first three lots of the contract of Neelum-Jhelum hydroelectric project. Terming the project an important one, he assured that more funding would be made available as the project proceeds further.

According to WAPDA spokesman, speaking on the occasion, WAPDA Chairman Shakil Durrani said that Neelum-Jhelum is an environment friendly project with 26 per cent Economic Internal Rate of Returns (EIRR). He said that the project would help increase hydel ratio in the overall power generation by contributing more than 5 billion cheap electricity units annually to the national grid.

The chairman expected that the project would be completed ahead of schedule, as a bonus clause pertaining to early completion of the project has been introduced in the contract.