Pakistan Economy - News & Updates - Archive

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Current account deficit up 44 percent ​

KARACHI (December 18 2008): The country's worrying current account deficit has further widened by 44 percent to $6.8 billion during first five months of current fiscal year mainly due to rising trade deficit, huge outflow and slow inflows. The country is facing current account payment difficulties since January 2008, which compelled the government to utilise foreign exchange reserves for current account payments.

As a result, the country's foreign exchange reserves declined to the lowest level of $6.5 billion by mid November 2008 as compared to some $16.35 billion in November 2007. The continuing downward trend in the foreign exchange reserves also forced the government to approach the international financial institutions to build up its reserves and avoid default.

On Pakistan's request, the International Monetary Fund approved some 7.6 billion stand-by loan for Pakistan and the first tranche of $3.1 billion has arrived three weeks ago to make the country's current account payments. The State Bank of Pakistan on Wednesday revealed that the country's current account deficit has widened by some 44.46 percent during the July-November of FY09 as compared to same period of last fiscal year.

The country registered a current account deficit of $6.855 billion during the first five months of current fiscal year against $4.745 billion during the corresponding period of last fiscal year, depicting an increase of $2.71 billion in first five months of current fiscal year.

Economists have shown deep concern over the rising trend of current account deficit saying this would cast further negative impact on the depleting foreign exchange reserves. The country's economy is already facing worrying situation for last one year and need to reduce the current account deficit to improve it, they added.

"With the continuing upward trend in the current account deficit, the government is likely to get new foreign loan to meet the requirement of the increasing foreign payments," they said. The government has taken several steps to control the booming imports by imposing 100 percent cash margin on some imported goods and regulatory duty on the import of luxury items, however still there is no positive result of these steps has been witnessed, economists said.

Statistics also indicate that chief factors responsible for the widening of current account deficit include a widening trade deficit and transfer of income that surged by 37 percent and 20 percent respectively. Services deficit registered negative growth of 28 percent in the July-November of FY09.

The country's overall goods imports stood at $15.233 billion and exports at $8.631 billion, registering a trade deficit of $6.602 billion during the first five months of current fiscal year. Earlier it stood at $4.807 billion in same period of last fiscal year.

Services trade deficit with $1.533 billion exports and $3.594 billion imports stood at $2.061 billion in July-November of FY09, over $2.844 billion in same period of last fiscal year, depicting a decline of 28 percent. Income deficit has also witnessed a slight increase of 20 percent to $2.051 billion from $1.705 billion. As during the first two months, the country's income from abroad stood at $464 million as compared to payments of $2.515 billion.

Overall deficit including trade, services and income stood at $10.714 billion against the current account transfers of $3.922 billion. Statistics show current account deficit, without official transfers, climbed to $6.959 billion during the first five months of FY09 as compared to $4.778 billion during same period of FY08.

 

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Chinese firms keen on participating in privatisation programme ​

ISLAMABAD (December 18 2008): The Chinese companies are keen to participate in the privatisation programme of Pakistan, which will give impetus to the efforts being made by the President Asif Ali Zardari to bring both the countries closer and to further strengthen the existing bonds of friendship.

Luo Zhao Hui, Ambassador of People's Republic of China, to Pakistan expressed these views during a meeting with Syed Naveed Qamar, Federal Minister for Privatisation here on Wednesday, says a press release issued here.

Syed Naveed Qamar briefed the Chinese envoy regarding the privatisation programme, process, various methods and modes and said that instead of selling the Public sector entities through strategic sale Pakistan was actively considering for public-private partnership for the expansion in these entities through bringing in fresh investment, improving the quality and efficiency of services, increasing production, transfer of latest technology and generating job opportunities.

Moreover, the minister said that Pakistan has historical and deep rooted relations with China having strong foundations laid by the founder of Pakistan Peoples Party, Zulfiqar Ali Bhutto and the present PPP led government would further deepen these relations while in the past public sector collaborated with China in Kamra, Saindak, Ghazi Brotha, HMC Taxila, Sports Complex and Gawadar Deep sea Port projects reflected our close friendly bonds.

He further said that there existed vast potential for Chinese companies to invest in various sectors of Pakistan's economy. He stressed upon the investors of both the countries to work together to explore new avenues and opportunities to enhance the existing bilateral trade and investment relations while ensuring the transfer of technology.

The interest being shown by the Chinese companies in the privatisation programme was also an encouraging sign for the development of economic relations between the two friendly countries, which speaks for Pakistan's very liberal and friendly privatisation, investment and trade policies, he added.

Syed Naveed Qamar said that the Chinese people were very close to the hearts of Pakistani people and investment from China was always welcomed. The government of Pakistan was taking all steps to encourage and attract foreign and local investors through an open, fair and transparent privatisation process by providing level playing field to all, he expressed.

Luo Zhao Hui lauded the Pakistan's efforts made towards privatisation of public sector entities and assured to cooperate further in this direction, while currently 20 Chinese companies were actively engaged in ongoing projects, including steel and mines projects whereas 70 companies have already successfully completed their projects.

The Chinese investors are also interested in the banking, finance and power sectors. Both the countries needed to bring closer the business and investors groups to develop public-private partnership in various areas, he said. The Chinese Economic & Commercial Counsellor Zhou Zhencheng and the Secretary Privatisation Mr Ahmed Jawad were also present during the meeting.

 

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Used car imports further tightened ​

ISLAMABAD (December 18 2008): The government has further tightened import of used vehicles under 'transfer of baggage' scheme, by allowing one percent monthly depreciation from the existing 2 percent, sources in Industries Ministry told Business Recorder. The decision was taken by the Economic Co-ordination Committee (ECC) of the Cabinet in its last meeting.

The reduction in depreciation was reportedly not been supported by the Ministries of Finance, and Commerce and the Federal Board of Revenue (FBR) sources added. This decision would double the tax on import of used cars--a policy that is expected to hit the overseas Pakistanis hard. Officials alleged that halving of depreciation had roots in strong political links of local auto manufacturers.

Sources said that Industries Ministry had informed the ECC that the automobile industry had not been able to sustain growth in production of cars and buses, which declined by 6.4 percent from 176,016 in 2006-07 to 164,710 in 2007-08, while during 2007-08 production of buses was only 1221. In a meeting with the representatives of auto assemblers and auto manufacturers following factors were identified for this decline:

i. Increase in prices of components and raw materials due to depreciation of rupee vis-a-vis Japanese yen.

ii. Increase in interest rate for auto financing due to tight monetary policy, thus decreasing the consumer demand for automobiles.

iii. Levy of 5 percent Federal Excise Duty (FED), increase in Sales Tax from 15 percent to 16 percent and imposition of Withholding Tax at the time of first registration of vehicle in the Federal Budget 2008-09. Additional burden in case of Corolla cars is around Rs 90,000 per unit.

iv. Imposition of 35 percent cash margin on Letter of Credit (L/C) for import of raw material end automobile components.

v. Reduction of duty from 15 percent to zero percent on import of CNG buses had affected the local bus assembling industry, already facing under-utilisation of capacity.

Sources said that to arrest the declining trend, the ministry had proposed (i) withdrawal of 5 percent Federal Excise Duty and 5 percent withholding tax at registration stage for the industry; (ii) exemption from 35 percent cash margin on letters of credit on the remaining non-focalised components for the auto manufacturers/assemblers and raw materials for the vendor industry as done for other segments of the industrial sector; (iii) auto financing be made affordable by fixing the average interest rates near 2006-07 level ie 16 percent.

The Industries Ministry had also proposed restrictions on import of used cars by reducing depreciation from 2 percent to 1 percent up to a maximum of 25 percent. It had also been recommended that registration must remain in the name of Pakistani national for 1 year after returning from abroad besides reduction in used vehicle life from 3 years to 2 years.

According to official documents, Federal Board of Revenue, and Ministries of Commerce and Finance did not support the proposals, except grant of exemption from 35 percent cash margin on Letters of Credit. However, it was opined that other recommendations could further be examined and deliberated by the Ministries of Industries and Finance and FBR.

After detailed discussion, the ECC granted exemption from 35 percent cash margin on LCs on the remaining non-localised components for the auto manufacturers/assemblers and raw materials for the vendor industry in line with other segments of the industrial sector, in addition to allowing one percent depreciation from existing 2 percent per month on the import of used cars. Sources said Ministries of Industries and Finance and FBR would also thoroughly examine other recommendations to save the auto industry from total collapse.

 

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GoP finalises plan to offer ownership of agri lands to investors​

ISLAMABAD: The government has finalised plans to offer ownership of agricultural lands to investors for farming to achieve self-sufficiency in agriculture produce, Federal Minister for Investment, Senator Waqar Ahmad Khan told Daily Times.

“We are extremely enthusiastic in providing areas for farming with great incentives,” he added. Under the plan the investors can own the land, cultivate it and export 100 percent of the produce. “In this regard we are specially targeting investors from the UAE and other Gulf countries, as it would help these countries to have their own food resources,” he informed.

“Pakistan needs more than $40 billion of foreign direct investment and our target is to attract $20 billion by the end of 2009, Khan told.

The agriculture sector is still the largest employer of the workforce and around 70 percent of Pakistan’s population lives in rural areas.

Khan said that leasing and transfer of land would be facilitated by the ministry, which is now working in close association with the law ministry to finalise the modalities. “Once an investor shows his interest, we will have draft agreements ready for him,” he assured.

Pakistan is creating a special task force to protect investment and provide security to potential investors in the country. The task force would be comprised of officials from the ministries of interior, defence, investment and finance, he revealed. “We are aware of the security concerns and that is why we are creating a special task force to protect investors and their investment,” added Waqar Ahmad Khan.

“Pakistan is open to investments in any field,” he added.

The priority areas are oil and gas, energy, food, agriculture, information technology and infrastructure. Due to past experiences, the investors are uncertain regarding the continuation of policies. “The present democratic government has proposed legislation to ensure continuation of projects even if there is a change of government, the minister said. The government has launched a multi pronged strategy to attract investors, which includes: 100 percent repatriation of money; five tax exemption for investors and ten years of tax exemption to those investors who set up a commercial zone; customs duty and general sales tax exemptions on certain items.

Pakistan is also looking for investors who are able to enhance our existing infrastructure requirements. Pakistan is the fifth largest milk producer in the world but 70 percent of the milk is auto consumed or wasted and does not reach the market. “We need people to exploit this huge market, which employs around 8 million people in rural areas.” The modernisation of dairy sector can have huge impacts on poverty alleviation, which has risen to an alarming level of 28 percent.

The ministry plans to launch a media campaign to attract investors to Pakistan.

“We will ensure one-window operation and all problems an investor faces will be solved by this ministry,” he said.

Waqar Ahmad Khan concluded with the resolve that “in future no investor will face any problem.”

Agriculture land ownership plan for investors approved ​

MULTAN (December 18 2008): Prime Minister Yousaf Raza Gilani has approved the plan to offer ownership of agricultural lands to investors for farming to achieve self-sufficiency in agriculture produce, Federal Minister for Investment Waqar Ahmad told newsmen.

He said that his ministry has finalised plans to offer ownership of agricultural lands to investors for farming to attract both foreign and local investor in agriculture sector to multiply the existing per acre production. "We are extremely enthusiastic in providing areas for farming with great incentives," he said. Under the plan, the investors can own the land, cultivate it, and export 100 percent of the produce.

"In this regard, we are specially targeting investors from the UAE and other Persian Gulf countries, as it would help these countries to have their own food resources," he added. "Pakistan needs more than $40 billion of foreign direct investment, and our target is to attract $20 billion by the end of 2009," the minister said. Agriculture sector is still the largest employer of the workforce, and around 70 percent of Pakistan's population lives in rural areas.

Waqar said that leasing and transfer of land would be facilitated by the ministry, which is now working in close association with the law ministry to finalise the modalities. "Once an investor shows his interest, we will have draft agreements ready for him," he said.

Pakistan is creating a special task force to protect investment and provide security to potential investors in the country. The task force would comprise officials from the ministries of interior, defence, investment and finance, he revealed. "We are aware of the security concerns and that is why we are creating a special task force to protect investors and their investment," the minister said. "Pakistan is open to investments in any field," he added. The priority areas are oil and gas, energy, food, agriculture, information technology and infrastructure. Due to past experiences, the investors are uncertain regarding the continuation of policies.

"The present democratic government has proposed legislation to ensure continuation of projects even if there is a change of government, he said. The government has launched a multi-pronged strategy to attract investors, which includes: 100 percent repatriation of money; five-year tax exemption for investors and ten-year of tax exemption to those investors who set up a commercial zone; customs duty and general sales tax exemptions on certain items.

Pakistan is also looking for investors who are able to enhance the existing infrastructure requirements. Pakistan is the fifth largest milk producer in the world but 70 percent of the milk is auto consumed or wasted and does not reach the market.

"We need people to exploit this huge market, which employs around 8 million people in rural areas." The modernisation of dairy sector can have huge impacts on poverty alleviation, which has risen to an alarming level of 28 percent. The ministry plans to launch a media campaign to attract investors to Pakistan. "We will ensure one-window operation and all problems an investor faces will be solved by this ministry," he said.

 

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Tax to GDP ratio must be raised ​

EDITORIAL (December 18 2008): During a meeting between the International Monetary Fund Director (IMF) for Middle East, Masood Ahmad, and Prime Minister Yousuf Raza Gilani, the need to raise the tax to Gross Domestic Product (GDP) ratio was, yet again, highlighted. It is unfortunate that Pakistan's tax to GDP ratio remains abysmally inadequate, and is at least 4 percentage points, reflecting around 350 billion rupees, lower than other countries in the region.

Former Central Board of Revenue Member (Fiscal Research and Statistics) Dr Ather Maqsood revealed some disturbing findings of a study undertaken by the Board earlier this year. First, 83 percent of all indirect taxes (including VAT) are sourced to 18 commodities. Fifty-three percent of indirect taxes are generated from five commodities, including petroleum products, automobiles, telecom, machinery, and cigarettes.

POL including LPG, contributes 26.2 percent of total indirect taxes collected. Sugar industry pays 3 percent of the indirect taxes and the contribution of textile sector is one percent in gross terms and minus 1.9 percent in net terms. Secondly, the services sector, inclusive of the retail sector, transport, construction, hotels/restaurants and commission agents, is a major non-compliant sector as its contribution to the GDP does not match its tax contribution.

Thirdly, contribution of banking, insurance and telecommunication is also below potential. And finally Dr Maqsood pointed out that 63 percent of the return filers relating to corporate sector have declared either nil income or business losses. More appalling, he noted, was the fact that nearly 32 percent of those declaring business income did so up to 200,000 rupees only.

These revelations reflect the numerous inadequacies that beset our tax system ranging from under-reporting to evasion, to outright corruption, and to distortions within the system that allow private and government entities to evade taxes. There is thus an acknowledgement by FBR of the main problems that exist in the tax system which should automatically provide recommendations for remedial measures.

And yet this low tax to GDP ratio is not a new phenomenon and therefore Pakistan's lack of past success in this regard must be attributed to pervasive corruption, distortions within the tax system, inadequate documentation and proactive resistance by the 'sacred cows' that undermines any significant increase in tax collection or indeed in some instances, imposition of a tax commensurate to their income.

To assess what the government is committed to, it is relevant to refer to the Letter of Intent (LoI) consisting of agreed policy actions between the government and the IMF which led to the release of the 7.6 billion dollar standby facility in November.

The LoI states that "consistent with the government's objective of substantially increasing tax revenue a number of tax policy and administrative measures are envisaged during the programme period." These include (i) integrated tax administration on a functional basis to be established at the FBR that will embrace both the income and sales tax administration.

This would imply that sales would also determine income tax to be levied and vice versa and reduce exemptions for both taxes. (ii) Audits will be reintroduced from end of 2008 following a planned seminar that is currently underway in Lahore. The fear of an audit is expected to deter under-reporting on sales or income.

(iii) Following the seminar, legislative amendments will be submitted to parliament by end June 2009 and draft legislation to implement full VAT with minimal exemptions is scheduled to be ready for debate by end of next year. And, finally, (iv) excise tax will be raised on tobacco in the context of the 2009/10 budget - the only specific rise in any tax committed to by the government for next year.

There is little doubt that the potential to raise taxes through these measures is significant. However, one would have hoped that the sacred cows would be brought into the tax net at this stage. In addition it is hoped that the audit reintroduction is implemented on the same pattern as that undertaken by the dreaded Internal Revenue Service of the US which has held even the wealthy and the influential accountable for evasion.

 

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High economic growth during previous regime ​

Pakistan followed misguided policies: ADB​

Friday, December 19, 2008

ISLAMABAD: Multilateral creditors, especially the Asian Development Bank (ADB), for the first time in a decade have come down hard on the consumption-led growth model pursued by the Musharraf regime, saying Pakistan’s high-growth episode of 2004ñ2007 was the result of a growth model based on misguided policies.

The ADB pointed out that the government also violated the Fiscal Responsibility and Debt Limitation Act in financial year 2007-08.

An ADB report titled “An Analysis of Pakistan’s Macroeconomic Situation and Prospects” states that during fiscal year ended June 30, 2008, about 70pc of the increase in domestic public debt came from borrowing from the central bank. This increase led to breach of two provisions of the Fiscal Responsibility and Debt Limitation Act.

On flawed growth strategy, the ADB report states that both inflows of capital and workers’ remittances, together with the government pump-priming not matched by an increase in the tax effort (which led to fiscal deficit), led to high growth rates.

“However, these were not accompanied by a concomitant increase in the productive capacity of the economy. High growth prompted an increase in imports (which led to trade deficit) and in consumption,” the report added.

The current account deficit, the report says, resulted from imports increasing faster than exports (where the latter suffers from a structural competitiveness problem), which led to dependence on inflows of overseas remittances, FDI, portfolio investment and loans. Increased government spending, together with an increase in business confidence, crowded in the private sector, with investment running ahead of savings.

This growth model could perhaps have been sustained longer, as long as capital inflows exceeded the current account deficit (leading also to a build-up of foreign exchange reserves). But as the external deficit has continued to increase, the situation has become riskier. This is indeed what we observe in 2008 as inflows of capital have started decelerating.

Moreover, as a model of long-run growth and sustainable development, it poses a number of questions.

It is difficult to ascertain whether the measures contained in the new budget result in the stabilisation of the economy and can deal with the effects of the increase in food and fuel prices, as now the macroeconomic imbalances and the inflation problem reinforce each other.

“Our view is that the government will not be able to achieve its budget deficit target unless it cuts drastically spending on social services (education, health, etc) and development expenditures,” it maintained. However, if this is done, it will have a serious repercussion for Pakistan’s future.

A better strategy would be to negotiate with the multilateral agencies a programme that would allow the country to reduce the deficit at a slower pace until it reaches a more manageable level. During this time, the structure of spending should be analysed, and a realistic programme to increase direct taxation should be devised.

It will be difficult for the government to achieve the target investment-to-GDP ratio of 21.5pc collapse, provided sensible economic policies are put in place right away, and the political bickering stops. While serious measures must be taken, this does not imply that the country has to be subjected to an austerity programme that leads to a recession. Fiscal discipline acts as a deflationary force as it induces excess capacity and unemployment.

The experience of the Asian financial crisis from a decade ago proved that this is not the way to solve the problems afflicting Pakistan. Monetary and fiscal policies affect both short and long run trends in unemployment.

The fundamental reason that explains Pakistan’s growing trade and current account deficits, especially during high-growth years, is its poor export performance.

Pakistan’s performance is clearly sub-standard, with only Afghanistan, Kyrgyz Republic, Mongolia, Sri Lanka, Turkmenistan, and Uzbekistan having lower export growth rates. In 2006 and 2007 Pakistan’s export growth collapsed to below 5pc.

Analysis at a highly disaggregated level indicates that key exports shrank. For example, in 2007, Pakistan’s largest single export product (representing over 20pc of total exports), “Linens and other furnishings art (of textile)”, suffered a decline of 7.45pc.

In terms of export to GDP ratio, in 2006, only Afghanistan, Georgia and Nepal had lower export-to-GDP ratios than Pakistan. It is also worth noting that even if Pakistan has a similar export-to-GDP ratio as a country like India, the latter is a much larger economy, and its export-to-GDP ratio has improved considerably over the years, while Pakistan’s has remained stagnant.

What explains Pakistan’s poor export performance? One possible reason is the overvaluation of the exchange rate. Figure 9 in the report shows the real effective exchange rate of selected countries since 2000. The figure shows that Pakistan’s rupee is the weakest among the countries. Therefore, currency overvaluation has to be ruled out as the main reason underlying Pakistan’s weak export performance.

A more plausible reason that explains Pakistan’s weak export performance is the lack of export sophistication. Throughout the years, the country has not been able to upgrade its export structure, heavily concentrated on the low end of textiles and garments.

The elasticity of Pakistan’s exports with respect to the GDP of the industrial countries (ie, by what percentage Pakistan’s exports change when the GDP of the industrial countries increases by one percentage point) since the fourth quarter of 1985.

This variable is a proxy for the non-price competitiveness of Pakistan’s exports (ie, the quality attribute). This elasticity is low, taking an average value of the whole period. Upgrading the export package will take time but measures in the form of a coherent plan must be taken as soon as possible.

While external and domestic sources contributed about the same to the financing of the deficit in fiscal year 2007/08, the government estimates that about 90pc of the deficit will be financed through external sources in fiscal year 2008/09. This will be very difficult and will depend on donors’ disbursements.

 

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Cotton production to touch 12.1m bales ​

Friday, December 19, 2008

ISLAMABAD: About 12.1 million cotton bales are estimated to produce during the current financial year as against the set target of 14 million bales in the country.

The shortfall in the projected yield is stated to be growing trend of growers toward price and oil seeds cultivation for their higher market prices. This was informed in a meeting of the Cotton Crop Assessment Committee on Thursday. The meeting was chaired by the Minster of the State for Food and Agriculture, Rafique Jamali.

Provincial heads of the Agriculture departments and high officials of MINFAL were also presented in the meeting. Officials of the Punjab province informed that according to the second estimate, cotton crop was cultivated on 2.24 million hectare land while, 9.51 million bales have been produced as compared to last year production of 9.06 million bales.

They said that area under cotton crop was reduced by 7.3 per cent as compared to last year while, the crop production was increased by 1.4 per cent during the current year. Average production during current year remains 21.20 mounds per acre as compared to 19.45 mounds per acre during last year, they said.

 

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KSE drops below 8,000 points to hit 39-month low ​

Friday, December 19, 2008

KARACHI: The everyday falling Karachi stocks market saw benchmark KSE 100 share Index falling below 8,000 points threshold on Thursday after staying above this level for 39 months.

With the fresh decline of 3.95 per cent in this session, the market has fallen by over 15 per cent since the end of floor rule on last Monday.

The KSE 100-share Index posted another decline of 320.37 points or 3.95 per cent on the fourth consecutive bear-run session and concluded at 7,785.26 points. The day closing level is the lowest one since Sep 01, 2005.

Market has crashed by over 1,400 points (i.e. 1,401.84 points) in the last four consecutive sessions or has declined by 15.25 per cent since floor removal on Monday, Dec 15.

The slump has deepened by over 50 per cent in the market since 100-Index closed at all time high of 15,676 points on April 18, this year.

The KSE 30-Index shed another 434.12 points or 5.11 per cent and ended at 8,068.88 points this session.

Overseas investors also offloaded holdings worth $1.157 million in this session at local bourses, according to NCPPL.

The day turnover, however, shrank by 12 per cent to 50.766 million shares as compared to 57.820 million shares changed hands a day earlier. Turnover in the future market further was only 1,000 shares against 1,500 shares traded yesterday.

The situation at market remained the same as the last three sessions. Low tier stocks continued to extend their support to keep market functioning, while a few deals were seen in blue chips.

A leading analyst said that the High Court of Sindh (SHC) proceedings on outstanding CFS Contracts, Moody’s negative outlook on Pakistani banks, Pak-India relations and border incursions remained some major concerns for retail & institutional investors.

He added that selling activity continued as liquidity crunch prevailed and bailout funds for capital market was yet to be made functional.

Another analyst said that low tier stocks continued to generate turnover, while constant price erosion in the main board stocks added misery to the gloomy market.

The CFS position holders were the worst affected investors in market, as they continued to search for buyers to offloading their holding in main boards. Buyers remained reluctance in main boards as they foresee further decline in their share prices in the week to come, he added.

Penny stocks continued to generate activities, as they offer an opportunity of free swap with other portfolio investors owing to their

Spillover of CFS can further erode the values. Fundamental facts should dominate investors mind since they suggest the best way for investment or disinvestment.

While making decisions at bourses, investors should keep in their mind the high interest rate, rupee-dollar parity, revised rating of banks and currency by international agencies, next year federal budget, and the outcome of the legal battle on CFS, he suggested.

Minus sign continued to dominate market heavily, as 126 securities out of total 177 actives fell in red against 45 stocks managed to maintain in green territory. The remaining six stocks closed unchanged.

Highest volumes were witnessed in Pakistan Cement at 10.774 million closing at Rs2.03 with a gain of 13 paisa, followed by TRG Pakistan at 9.188 million closing at Rs1.65 with a gain of 35 paisa, Fauji Cement at 4.938 million closing at Rs3.89 with a loss of one paisa, Zeal Pakistan at 4.505 million closing at 65 paisa with a gain of two paisa, and Pak Premier Fund at 3.956 million closing at Rs2.28 with a loss of 78 paisa.

 

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More than half of economy undocumented, tax moot told ​

Friday, December 19, 2008

LAHORE: The government has revealed to international economic experts that more than 50 per cent of the country’s economy is undocumented, which could be used for any kind of criminal activity, besides evading taxes.

“The poor monitoring system of governance is responsible for this scourge,” said the Adviser to Prime Minister on Finance Shaukat Tareen while giving the opening speech at a two-day tax conference convened to acquire expert opinion on how to plug holes and make the taxation system vibrant.

More than 52 per cent Pakistanis are living below the poverty line and their number is increasing due to double-digit food & fuel inflation, the moot was informed.

The conference opened on Wednesday with an agenda to discuss the taxation system problems on the administration, policy and collection sides.

The government expects suitable advise in this respect, and sources revealed to The News that it would be the first conference of its kind in Pakistan.

Statistics prepared for submission and for seeking corrective measures relate to almost all spheres of the economy, including the percentage of income taxpayers which were more than 1.8 million but paid only 20 percent of the total taxes deposited in the country.

The government expects proposals for expanding the income tax net at this conference. Two million people out of a population of 170 million have National Tax Number (NTN) but only one-twentieth pay GST, as the documentation system is too poor to monitor imports, production lines and distribution mechanism efficiently.

The conference will propose as to how the tax-to-GDP ratio could be raised from the present 10 percent to 15 per cent, without inviting hostile response from trade and industry, and without further burdening the consumers with indirect taxation.

Indirect taxation is 80 per cent of the total deposits, excluding the withholding taxes.

The submissions would mention the increase in tax revenues from Rs500 billion 10 years ago to Rs1 trillion expected this year (June 30, 2009).

Such proposals are being sought to meet international donors’ demand for relying more on the internal financing to meet the budgetary gap, which stands at Rs1 trillion come June 30 2009. The tax revenues would be Rs1 trillion whereas the total expenditures incurred would be more than Rs2 trillion.

The IMF has also stressed on cutting budgetary gap by increasing the toll-tax on transport and prices of gas, electricity and petroleum products that might make production lines and exports dysfunctional, spur inflation, unemployment and push more people in poverty trap.

The government seeks increasing tax revenue by distributing the burden on all income slabs, businesses and distribution lines in the economy. For this purpose inclusion of retail lines, agriculture-income and services sector in tax net is being proposed. However, there are political and technical snags, which the government expects of the international experts to help remove.

 

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A 60 billion housing scam in the making ​

Friday, December 19, 2008

ISLAMABAD: A Rs 60 billion project under Prime Minister’s Housing Programme is being awarded to a UK based company, known for shoe making, and the extremely hush-hush tactics being used without securing the interest of end consumers, may turn it into one of the biggest government-sponsored housing scams.

What is really strange is the fact that the agreement was signed between the Imperial Houses (Pvt) Limited (IHL) and the Pakistan Housing Authority (PHA) without inviting open bids. The bureaucrats admit that the agreement signed was faulty and concluded in an indecent haste without consultations with all the official stakeholders due to political pressures.

When contacted, both Secretary Housing Samiul Haq Khilji and MD PHA Raja Muhammad Abbas said there were serious shortcomings in the JV agreement, which need to be resolved before the government moves forward. Khilji said the disbursement of funds should be made in accordance with the government rules and regulations.

Asked about the political pressure for awarding the project to the IHL, he said: “As regards pressure, the haste in which it was all done speaks volume for itself.”Abbas also said the PHA, too, was under tremendous pressure to sign the agreement with the understanding that the Law Ministry had taken care of everything.

While Abbas said if foolproof system was not developed, it might lead to yet another major financial scam in the country, Khilji remarked: “It has potential to become a financial scam and create great embarrassment for the government.”

But circles close to the housing minister say these two objecting bureaucrats may soon be fired from their jobs as they were creating hurdles in a planned scheme of things.Housing Minister Rahmatullah Kakar also confirmed that the above two officers were creating hurdles in the implementation of the project and causing unnecessary delays.

The minister said such officers were attempting to sabotage the project as well as the government. The minister said after the Law Ministry’s vetting, there was no need for a fresh examination of the agreement by different experts.

Kakar said he had nothing to do with the IHL and insisted that his foremost concern was the interest of the people and safeguarding the public money. The minister said his secretary and the MD PHA were creating problems from the day one and he was even told by a government official that the secretary Housing and MD PHA had asked him to find hitches in the agreement. The minister also hinted at some controversial allotments of government plots in Islamabad by the duo.

IHL owner Shaukat Saleem, when contacted, also endorsed the minister’s viewpoint thatbureaucratic hurdles were causing unnecessary delays. He refuted the impression that he was a mere shoe maker and insisted that besides being in tiles and textile business, he was also a property developer and had constructed about 200 flats in the UK. Dispelling the impression that he was exerting pressure on the government and the Housing Ministry for early execution of the JV agreement on his terms, he assured that he would not touch the project if he felt that he could not complete it.

The project started off on a fast forward note but later the bureaucracy in the Housing Ministry, instead of implementing the agreement, referred it to the relevant government agencies, including the Infrastructure Project Development Facility (IPDF), which clearly found the agreement faulty and harmful for the government as well as the end consumers.

In view of some serious objections, a draft addendum agreement was prepared but that too was referred to the Ministry of Law without seeking the comments of the concerned agencies, particularly that of the IPDF. The bureaucracy is still reluctant to sign it unless the ECC, the Planning Commission and other concerned stakeholders approve the same. Indications are that the Secretary Housing Samiul Haq Khilji and MD PHA Raja Muhammad Abbas may be removed from their present positions sooner than later as the Minister for Housing Rahmatullah Kakar sees the two creating usual bureaucratic hurdles. Rahmatullah said the agreement once signed would be placed before the cabinet for umbrella approval.

Documentary evidence available with The News reveals that following the government decision to launch PM’s Housing Programme to provide low cost housing in Pakistan, the PHA issued advertisements and issued letter of intents to the interested parties for projects based on private public partnership (PPP) as per the IPDF guidelines.

Over 20 companies showed interest and MoUs were signed with 12-13 companies. The IHL was included amongst these interested parties. An MoU between the IHL and the PHA was signed on 18th September, 2008. Subsequent to the signing of the MoU, the IHL submitted its proposal for low cost housing development in Pakistan on Oct 17, 2008. After this, the Housing Ministry requested the Ministry of Finance for issuance of ‘Sovereign Guarantee’ to the IHL. While the MoF response was awaited, the draft agreement was also forwarded to the Ministry of Law for scrutiny, which after vetting the draft agreement sent it back to the Housing Ministry.

A day later on Oct 31, the Minister for Housing wrote on the file that the agreement be signed with the IHL as vetted by the Ministry of Law despite the fact the MD PHA clearly reflected on the file that not only the Finance Ministry’s response was still awaited but also technical and financial analysis of the JV proposal was under way and the case had already been sent to consultants for necessary action. It was also noted that the land ownership documents (of the IHL) had been forwarded to revenue authorities concerned for verification.

The case file was put up for consideration and decision of the minister, who noted, “Approved. Agreement to be signed as vetted by Law Division and report compliance.” The same day the agreement was signed between the two with an official source insisting that the signing ceremony was held at the residence of the minister but both Rahmatullah Kakar and the IHL owner Shaukat Saleem, a British Pakistani, denied this.

The agreement not only includes the provision of GoP’s sovereign guarantee to the IHL but also includes clause whereby the PHA would pay 15% of the total project cost i.e. Rs 60 billion to IHL in advance. The agreement also envisaged that the land would be provided by the IHL for construction while the PHA would be responsible for marketing and sale of housing units to the government employees and general public.

Three days after the signing of the agreement, the Finance Ministry wrote to the Housing Ministry on the subject and said that the proposed JV arrangement to be concluded between the PHA and the IHL does not involve issuance of guarantee for foreign currency loan.

Without knowing that the agreement has already been signed, the finance ministry added, “The Finance Division does not issue sovereign guarantee to ensure the successful completion of the project under the joint venture. We understand that these provisions should be covered in the appropriate section of the concern joint venture agreement. Subsequently, the joint venture agreement if required may be got cleared from the competent authority.” Later, the Finance Ministry set up a five-member committee to look into the issue of sovereign guarantee for implementation of the IHL project. However, the said committee has yet to hold its first meeting.

Meanwhile, on Nov 1, a day after the signing of the agreement, the PHA referred the IHL’s proposals to the IPDF, informing the latter that the agreement had already been signed based on PPP model with the IHL. It added that the PHA’s technical wing is in the process of finalisation of technical and financial details through concerned consultants. Through the same letter, the PHA sought from the IPDF its expert opinion on the agreement, clearly mentioning, “The enclosed JV could not be discussed with IPDF team due to acute shortage of time at the time of its signing, which is regarding a housing project under PM’s Housing Programme.”

On Nov 13th, the IPDF wrote back to the PHA and pointed out a number of serious drawbacks in the agreement and rather termed it “a nullity, void and unenforceable for want of equity of PHA”. The IPDF said that as per international best practice, an advertisement soliciting EOI from investors is published in order to evaluate the level of interest of private sector in the project and not to pre-qualify them.

The pre-qualified parties are invited to submit competitive proposals covering technical, financial and legal aspects. After comparing the competing bids with each other and with the feasibility conducted by the institution itself, to select the private party who has submitted best proposal. “We are not aware whether our Procurement Guidelines have been followed,” the IPDF wrote and the Housing Ministry, including the minister confirmed, that no such bidding was done to offer the project to the IHL.

In its opinion about the JV agreement, the IPDF said it had observed certain major defects in the form and content of the agreement, which includes that despite being a JV agreement as an “equity joint venture”, the equity of the IHL and PHA are 0 per cent and 100 per cent, respectively, which makes the agreement a nullity, void and unenforceable for want of equity of PHA.

It added that there was a wide gulf of unequal distribution of responsibilities between the IHL, JV company and the PHA. For instance, the cost incurring responsibilities including inter alia, booking of flats, sale of flats, obtaining key permissions, utilities, tax exemptions, payment to JV Escrow Account etc have also not been duly imposed under a structured mechanism.

While the sources insist that the Law Ministry was also under pressure to vet the agreement without giving it a serious thought, the IPDF confirmed, “The JV Agreement has not been exhaustively drafted. Some basic and fundamental clauses are completely missing in the JV Agreement or defectively embedded, causing the JV Agreement to be substantially lacking in prescribing manifest and unequivocal extent of existence and operation of the rights and liabilities accruing upon the parties.”

It added that some missing clauses include Entirety Clause, Termination Clause, Force Majeure Clause, Disclosure Clause, Warranties Clause, and Exclusion Clause for Implied terms; Escrow Agreement Clause; Monitoring Clause and Delay in Performance.

It also pointed out that the total cost of the IHL land was around Rs 15 crores against which it secures 100% participating interest in the JV Company whereas 15% of the selling prices of 2,840 housing units (the first phase of the project) comes to at least Rs 85 crores against which the PHA enjoys 0% of participating interest. “It is quite surprising as to how this arrangement is acceptable to the PHA.”

It added that the entire revenue stream in the agreement was based upon the upfront investment of the PHA and successive guaranteed commitments by PHA at regular intervals for the subsequent phases of the project. “Committing such huge amounts of money at regular intervals by PHA to a private party without following standard contractual terms and without a proper project structure, may give rise to litigation against the PHA and the GoP if the subsequent huge sums of monies are not made at the scheduled dates.”

The minimum selling price of one unit of this so-called low-cost housing project would be Rs 2 million. The IPDH warned the PHA that the authority would be exposed for increase in costs due to any unforeseen events as the PHA would be under obligation to buy all the housing units at increased costs because of which it would be at a complete disadvantage.

Additionally, according to the JV agreement, the board of director (BoD) of the JV Company would have thee members of the IHL (father and his two sons) and two members of the PHA with the CEO from the IHL, which means that effectively IHL would be controlling the JV Company. The JV Company BoD would even be empowered to amend the JV Agreement, which unjustly empowers IHL to solely operate the JV Company accounts.

Further that the IHL shall sell the completed housing units to PHA no matter if these units are bought by the public or not. The IPDH pointed out many other objections and said that minimum risks were transferred to the IHL while most of the risks were retained by the PHA.

Financing risks, design risk, operation risk, inflation and marker risk all belong to the PHA alone.

The IPDH, however, pointed out that the only positive thing that does not give any legal authority to this agreement is one of its clauses that says that the agreement would be effective from the date when the amount equalling 15% of selling price of housing units is extended by the PHA to the JV Company.

After the highly alarming report of the IPDH, the housing secretary and MD PHA re-negotiated a draft addendum agreement but they remained under pressure to send it to the law ministry for vetting and re-signing. But the bureaucracy noted on the file, “Due to shortage of time, the Addendum as well Memorandum of Articles has not been gone through thoroughly keeping in view a new concept of JV’s and involvement of Company of SECP laws etc., and even this could not be sent back for want of their further input.”

The MD PHA wrote that the members of the authority are of the opinion that inputs from finance, the IPDF and technical consultant can be of vital importance for the execution of the Agreement.

The secretary housing in his detailed comment besides seeking strict adherence to the IPDH’s guidelines said that there must be foolproof arrangement to safeguard the interest of end consumers/allottees. Besides the IPDH, he said, the Finance Ministry and the Planning Commission, who are the stakeholders in the PM’s Housing Programme, must be consulted before moving forward in this project.

“The project cost is more than Rs 60 billion, therefore, its final approval needs to be taken by

the ECC through the Planning Commission and Finance Division.”

 

[Pk_Thunder]

I was about to Update this thread

 

[theonlyone]

More than half of economy undocumented, tax moot told ​

Friday, December 19, 2008

LAHORE: The government has revealed to international economic experts that more than 50 per cent of the country’s economy is undocumented, which could be used for any kind of criminal activity, besides evading taxes.

“The poor monitoring system of governance is responsible for this scourge,” said the Adviser to Prime Minister on Finance Shaukat Tareen while giving the opening speech at a two-day tax conference convened to acquire expert opinion on how to plug holes and make the taxation system vibrant.

More than 52 per cent Pakistanis are living below the poverty line and their number is increasing due to double-digit food & fuel inflation, the moot was informed.

The conference opened on Wednesday with an agenda to discuss the taxation system problems on the administration, policy and collection sides.

The government expects suitable advise in this respect, and sources revealed to The News that it would be the first conference of its kind in Pakistan.

Statistics prepared for submission and for seeking corrective measures relate to almost all spheres of the economy, including the percentage of income taxpayers which were more than 1.8 million but paid only 20 percent of the total taxes deposited in the country.

The government expects proposals for expanding the income tax net at this conference. Two million people out of a population of 170 million have National Tax Number (NTN) but only one-twentieth pay GST, as the documentation system is too poor to monitor imports, production lines and distribution mechanism efficiently.

The conference will propose as to how the tax-to-GDP ratio could be raised from the present 10 percent to 15 per cent, without inviting hostile response from trade and industry, and without further burdening the consumers with indirect taxation.

Indirect taxation is 80 per cent of the total deposits, excluding the withholding taxes.

The submissions would mention the increase in tax revenues from Rs500 billion 10 years ago to Rs1 trillion expected this year (June 30, 2009).

Such proposals are being sought to meet international donors’ demand for relying more on the internal financing to meet the budgetary gap, which stands at Rs1 trillion come June 30 2009. The tax revenues would be Rs1 trillion whereas the total expenditures incurred would be more than Rs2 trillion.

The IMF has also stressed on cutting budgetary gap by increasing the toll-tax on transport and prices of gas, electricity and petroleum products that might make production lines and exports dysfunctional, spur inflation, unemployment and push more people in poverty trap.

The government seeks increasing tax revenue by distributing the burden on all income slabs, businesses and distribution lines in the economy. For this purpose inclusion of retail lines, agriculture-income and services sector in tax net is being proposed. However, there are political and technical snags, which the government expects of the international experts to help remove.

what is the poverty rate of pakistan , in the last month i heard numbers from 23 percent to 42percent. now this new no. of 52%.

 

[Pk_Thunder]

High economic growth during previous regime​

Pakistan followed misguided policies: ADB

Friday, December 19, 2008
By Mehtab Haider

ISLAMABAD: Multilateral creditors, especially the Asian Development Bank (ADB), for the first time in a decade have come down hard on the consumption-led growth model pursued by the Musharraf regime, saying Pakistan’s high-growth episode of 2004ñ2007 was the result of a growth model based on misguided policies.

The ADB pointed out that the government also violated the Fiscal Responsibility and Debt Limitation Act in financial year 2007-08.

An ADB report titled “An Analysis of Pakistan’s Macroeconomic Situation and Prospects” states that during fiscal year ended June 30, 2008, about 70pc of the increase in domestic public debt came from borrowing from the central bank. This increase led to breach of two provisions of the Fiscal Responsibility and Debt Limitation Act.

On flawed growth strategy, the ADB report states that both inflows of capital and workers’ remittances, together with the government pump-priming not matched by an increase in the tax effort (which led to fiscal deficit), led to high growth rates.

“However, these were not accompanied by a concomitant increase in the productive capacity of the economy. High growth prompted an increase in imports (which led to trade deficit) and in consumption,” the report added.

The current account deficit, the report says, resulted from imports increasing faster than exports (where the latter suffers from a structural competitiveness problem), which led to dependence on inflows of overseas remittances, FDI, portfolio investment and loans. Increased government spending, together with an increase in business confidence, crowded in the private sector, with investment running ahead of savings.

This growth model could perhaps have been sustained longer, as long as capital inflows exceeded the current account deficit (leading also to a build-up of foreign exchange reserves). But as the external deficit has continued to increase, the situation has become riskier. This is indeed what we observe in 2008 as inflows of capital have started decelerating.

Moreover, as a model of long-run growth and sustainable development, it poses a number of questions.

It is difficult to ascertain whether the measures contained in the new budget result in the stabilisation of the economy and can deal with the effects of the increase in food and fuel prices, as now the macroeconomic imbalances and the inflation problem reinforce each other.

“Our view is that the government will not be able to achieve its budget deficit target unless it cuts drastically spending on social services (education, health, etc) and development expenditures,” it maintained. However, if this is done, it will have a serious repercussion for Pakistan’s future.

A better strategy would be to negotiate with the multilateral agencies a programme that would allow the country to reduce the deficit at a slower pace until it reaches a more manageable level. During this time, the structure of spending should be analysed, and a realistic programme to increase direct taxation should be devised.

It will be difficult for the government to achieve the target investment-to-GDP ratio of 21.5pc collapse, provided sensible economic policies are put in place right away, and the political bickering stops. While serious measures must be taken, this does not imply that the country has to be subjected to an austerity programme that leads to a recession. Fiscal discipline acts as a deflationary force as it induces excess capacity and unemployment.

The experience of the Asian financial crisis from a decade ago proved that this is not the way to solve the problems afflicting Pakistan. Monetary and fiscal policies affect both short and long run trends in unemployment.

The fundamental reason that explains Pakistan’s growing trade and current account deficits, especially during high-growth years, is its poor export performance.

Pakistan’s performance is clearly sub-standard, with only Afghanistan, Kyrgyz Republic, Mongolia, Sri Lanka, Turkmenistan, and Uzbekistan having lower export growth rates. In 2006 and 2007 Pakistan’s export growth collapsed to below 5pc.

Analysis at a highly disaggregated level indicates that key exports shrank. For example, in 2007, Pakistan’s largest single export product (representing over 20pc of total exports), “Linens and other furnishings art (of textile)”, suffered a decline of 7.45pc.

In terms of export to GDP ratio, in 2006, only Afghanistan, Georgia and Nepal had lower export-to-GDP ratios than Pakistan. It is also worth noting that even if Pakistan has a similar export-to-GDP ratio as a country like India, the latter is a much larger economy, and its export-to-GDP ratio has improved considerably over the years, while Pakistan’s has remained stagnant.

What explains Pakistan’s poor export performance? One possible reason is the overvaluation of the exchange rate. Figure 9 in the report shows the real effective exchange rate of selected countries since 2000. The figure shows that Pakistan’s rupee is the weakest among the countries. Therefore, currency overvaluation has to be ruled out as the main reason underlying Pakistan’s weak export performance.

A more plausible reason that explains Pakistan’s weak export performance is the lack of export sophistication. Throughout the years, the country has not been able to upgrade its export structure, heavily concentrated on the low end of textiles and garments.

The elasticity of Pakistan’s exports with respect to the GDP of the industrial countries (ie, by what percentage Pakistan’s exports change when the GDP of the industrial countries increases by one percentage point) since the fourth quarter of 1985.

This variable is a proxy for the non-price competitiveness of Pakistan’s exports (ie, the quality attribute). This elasticity is low, taking an average value of the whole period. Upgrading the export package will take time but measures in the form of a coherent plan must be taken as soon as possible.

While external and domestic sources contributed about the same to the financing of the deficit in fiscal year 2007/08, the government estimates that about 90pc of the deficit will be financed through external sources in fiscal year 2008/09. This will be very difficult and will depend on donors’ disbursements.

 

[Pk_Thunder]

Govt sees further fall in inflation​

Thursday, December 18, 2008
By By Jawwad Rizvi

LAHORE: Adviser to the Prime Minister on Finance Shaukat Tarin on Wednesday said the government had honoured its commitment by creating a market support fund and “now it depends on the stock market how it responds.”

“The government will not take the pressure of big players and has planned to buy major shares,” he said, adding once the government bought shares it would support the stock market which would protect small investors automatically.

The adviser hoped that the mark-up rate would come down at the end of the first quarter of next year as monthly comparison of inflation figures showed a reasonable decline. The government has been expecting a further decline in Consumer Price Index (CPI), Sensitive Price Index (SPI) and Wholesale Price Index (WPI) in the coming months which would be helpful in bringing down the mark-up rate.

“The government has announced a reduction in the mark-up rate but core inflation has crossed the figure of 18 per cent which compelled the government to increase the mark-up rate in order to tame the escalating inflation,” the adviser said while talking to newsmen after the first session of a Conference on Tax Policy Options for Pakistan.

To a question despite the decline in CPI, SPI and WPI the prices of edibles and other items are not decreasing, Tarin termed it failure of the provincial governments.

“The provincial governments should enforce the prices of items and it is their failure so the prices are not coming down”, he said, adding the ministry has constituted secretaries committee and given task to the committee to scale down the prices.

Earlier speaking at the conference, Tarin said the public sector plays a central role in providing key social sector and infrastructure services to meet the needs of a growing economy. However, the most desirable way of meeting the cost of such services is through an equitable system of taxation.

Generally, countries with comparable level of development mobilize taxes that are about 18 per cent of GDP. Pakistan mobilized only 9.6 per cent of GDP in taxes. This is not an acceptable level of tax effort.

He said the country must evolve a simpler tax regime that would ease taxpayers’ problems that find it difficult to meet the requirements of multiple taxes and authorities. He pointed out the desired tax regime in which he asserted there should be only two taxes in the country, namely an income tax and a consumption tax, in value added mode. This would hugely simplify the tax regime besides moving the tax system toward direct taxes. All collections must be based on assessment and use of presumptive taxes or withholding taxes, as full and final settlement should be eliminate, he remarked.

Income is simply income, irrespective of its origin, either in the form of salary, interest, rent or profit. This has to be a very basic premise of reform. Once granted, tax treatment of income must be uniform and non-discriminatory. Except for income of charitable trusts or consumption of foodstuff, there should be no exemptions in the taxation of income and consumption. There should be a single tax identifier number applicable across both taxes.

Speaking on the occasion Chairman Federal Board of Revenue (FBR) Ahmed Waqar said the Pakistan still have a long way to go in increasing Tax-to-GDP ratio which is around 10 per cent and amongst the lowest in the world, to around 15 per cent within the timeframe of the next 5 years and expanding the almost static tax base.

He pointed out the FBR is in the midst of an ongoing Tax Administration Reform Programme (TARP) being sponsored by the World Bank and DFID. The main focus of the TARP has been on promoting voluntary tax compliance through an enhanced level of tax payers facilitation. He said all manual processes, in the meanwhile, have been substituted with fully automated or semi-automated environment.

He mentioned the board was able to cross the one trillion rupees mark in tax collection last year. The FBR has achieved the revised targets of Rs430 billion during the period July to November, 2008. But the present economic slowdown has created a situation where achieving the revenue targets for the year appear to be dauntingly challenging if not formidable.

“We will have to tap new sources and undertake enforcement and audit in an open, fair and transparent manner without creating harassment for achieving the target”, he added.

Hafiz Pasha has suggested the Provincial Taxation of ‘Real’ Capital gains on properties (based on updated valuation tables) should be imposed while withdraw Federal CVT.

He said after a missed opportunity during the last five years of rapid growth, Pakistan has to raise the Tax-to-GDP ratio when the growth process is faltering. The extent to which the Tax-to-GDP ratio can be raised will depend upon political will, improvements in tax administration and laws which enable extension of the tax to hard-to-tax sectors, rational tax policies, incentives for fiscal effort and development of a tax culture.

Secretary Finance Waqar Masood, Director Middle East Department, IMF Masood Ahmad also spoke on this occasion.

 

[Neo]

Foreign investment down by 21 percent in five months ​

KARACHI (December 19 2008): Net foreign investment has declined by 21 percent during the first five months of the current fiscal year mainly due to poor economic and law and order situation, besides uncertainty on the political front.

Economists said that domestic shocks including worst law and order situation, negative economic indication and political uncertainty from the last on year have badly hurt the foreign investment, therefore, despite the establishment of political government it is on the decline. They said that major reason behind this dip is decline in the portfolio inflows, as the foreign investors are reluctant to invest in the equity market due to negative reports regarding country's stock markets.

While, huge outflow of portfolio investment has also been witnessed since March and foreign investors have adopted a wait and see policy till the situation is not cleared, they added. Economists, however, believed that the country's stock markets would again improve in the next two months, as economic situation is improving and political battle has already ended.

State Bank of Pakistan (SBP) on Thursday revealed that net foreign investment comprising foreign direct investment (FDI) and portfolio investment are constantly on decline. The net foreign investment has registered a decline of some $387.01 million during the July-November of current fiscal year 2009.

After the current decline, overall net foreign investment stood at $1.44 billion during the first five months of the fiscal year 2009 as compared to $1.818 billion in the same period of last fiscal year 2008.

The central bank statistics showed that both FDI and Portfolio investments have presented a negative trend during the July-November of current fiscal year. FDI has showed a slight decline of 6.38 percent, while the massive outflow from the country's equity market has posted a significant decline of 254 percent in portfolio investment.

The major decline in portfolio investment has also played a vital role in the overall decline in the net foreign investment. FDI stood at $1.603 billion during the first five months of fiscal year 2009 as compared to $1.712 billion in corresponding period of last fiscal, depicting a decrease of $109 million during July-November of current fiscal year.

Portfolio investment stood at a negative position of $162.85 million during the first five months of current fiscal as compared to an investment of $105.98 million in the same period of last fiscal year. Including privatisation proceeds, total private investment showed a decline of 17.34 percent to $1.457 billion during July-November of current fiscal, which previously stood at $1.762 billion.